Rick M. Bean

Not every tool is appropriate for every investor, but my job is to make them aware of what is available to them so they can make  informed decisions.  One of the tools that has been around for years, (but is only now starting to see much application,) is Cost Segmentation.  Most investors use depreciation as part of their tax deferment strategy; cost seg. greatly accelerates the permissible amount of depreciation in the first years of ownership.  The effect is to offset much of the current tax liability from profits of operation.  For some investors it offsets all current profits and provides a hedge for income derived outside of the producing property.

Investors love getting depreciation on appreciating assets!Cost Seg simply lets them get more of what they want...and earlier.  What's not to like!  It works like this:  the concrete in a building has a much longer life than a washing machine...even if it's a Maytag.  It makes sense to permit the apartment owner to use an accelerated depreciation schedule on the washing machine, the drapes, the pool equipment, etc., than the concrete.  For years some accountants have cherry picked a few items that were obvious and used shorter "dep scheds."  Cost Seg is the same process...but on steroids.  The "bright line" ruling on this is that for Cost Seg studies a "Cost Engineer" (not "Cost Accountant") must perform a site inspection to determine what components are subject for accelerated depreciation.  There are tables with thousands of components...each with their individual depreciation schedules.  The accumulated list of items sets the basis for what may be used in which years.

What's the best time to initiate Cost Seg.?The most fruitful time to have the experts perform a cost seg study for a project is at acquisition.  Years later it may still make sense...but its aways best from the first year of ownership.  For this reason I believe that it is the duty of a (good) investment broker to inform his clients about cost seg.  Even more so than a tax accountant.  Some tax accountants see cost seg as a threat to their position rather than an adjunct to their valuable services.  The real litmus test should be: "What's best for the client?"

 What does it cost? Where do I sign up?
Costs vary from project to project based on complexity.  That permits it to be a viable tool on $500,000 acquistions as well as mammoth developments.  For every dollar invested in Cost Seg you will likely get a how return than you do on the investment itself.  Much higher. I talk several times a week with a Director of the largest Cost Segmentation provider in the nation.  One of the services that I offer investors (whether they are my client or not) is a no cost cost seg feasibility study.  I ask for the opportunity to be of service.  Please contact me at: 503.577.1034, or rick@rosecitycre.com.

The future of the residential market is not clear in my crystal ball...but it takes no wizardry to assess the currentsituation:  There's a lot of good people hurting right now.  A few of the folks that are upside down have taken foolish risks, but there are many more that may even have a legacy of success, of winning and good luck...but whose joss just ran out.  Whether they got there for good reasons or bad, the many who are down on their luck are easy prey for charlatans and thieves.   There are real and effective solutions ranging from working out a loan accommodation, to creating a short sale.  In a short sale a homeowner's bank permits the house to go for less than is owed.  This can result in a much, smaller credit rating hit than bankruptcy or just walking away from the home.  But it needs to be handled by a pro.

Enter Donna

Folks that have had a rough go of it deserve to be helped by someone that is not only compassionate, competent, and trustworthy, but by someone who will be their passionate advocate.  My friend Donna exemplifies these traits.  This specialty is well outside of the capabilities of most homeowners...it also exceeds the training and expertise of most real estate agents.  Donna's Accommodation success percentage is 4 times higher than the average.  (Her win/win percentage is 100%.)

Perhaps most telling about her character, Donna was the CEO and teamleader of a branch of the third largest real estate brokerage in the US.  She left that position to be of service to those in need.

Who can you help?

1. Friends, family and acquaintances who need an accommodation workout to save their credit.
2. Someone who needs a short sale expert to evaluate options.
3. Those desiring a rapid turnaround on selling their home.
4. First time homebuyers and investors looking for value priced homes.
   

Be kind to those you care about and forward this information.  If I was in need...I'd want Donna fighting for my family's future.  Wouldn't you?

Take action today:  503.577.1034 or:  rick@rosecitycre.com.

Associated Estates is a self administered, self managed Real Estate Investment Trust that owns 13,192 multifamily units in 52 communities in 9 states.  Their CEO, Jefferey Friedman, was interviewed by Keat Foong, the Executive Editor of Multi Housing News. 

New Renters Will Outstrip the Supply of Apartments

The number of new renters will exceed the supply of apartments by as much as two times, according to the president and CEO of Associated Estates Realty Corp. Jeffrey Friedman.

In an interview with MHN, Friedman argued that demographic patterns in this and next decade dictate that there will be strong demand for apartments that will outstrip supply. 

Friedman explained that the homeownership rate is about 65 percent currently, and that the total number of households in the US is about 120 million. "If 35 percent of the population rents, we are talking about 40 million households that are renters," he said.

According to the census bureau, there will be 15 million new households over the next 10 years, translating to about 1.5 million new households per year. If only 30 percent of these households rent, says Friedman, this will mean there will be 450,000 new rental households per year in the next 10 years. 

However, apartment starts have been hovering at around only 200,000 units from the supply standpoint. "We know there is no overbuilding," says Friedman. If this pattern holds, "In fact, there will be half as many new apartments built as new renters coming into the market," he says.

The difficulty for the apartment sector in the mid-2000s was the number of renters going into homeownership, says Friedman. "There is a tremendous number of young people coming into the market. If there is a high number of new households and the propensity to rent is high, what keeps them from renting is homeownership."

Friedman argues that the level of homebuying will not likely return to the levels seen in the past few years. "In 2004 to 2006 was the worst time for us when everyone can obtain a home loan, because our customers can go out and buy a home. We will not see thing getting to that level again." 

The "spoiler" now for the apartment industry, says Friedman, is unemployment. In 1980 to 1981, when unemployment reached 10.8 percent, occupancy was about 92.5 percent in the 49 largest rental markets, he says.

Friedman says with current unemployment levels, the industry is likely to be able to maintain an occupancy level of 92 to 95 percent, "but we won't be able to raise rents as much," he says.

Household formation, rather than job growth and wage increase, is the main driver of the apartment business.

For this reason, Friedman suggests, demand for apartments should not be as affected by the economic downturn than if job growth were the major engine of demand for apartments.

Contact Rick M. Bean today if you would more information about the uptick in multifamily investing:  Rick@rosecitycre.com or 503.577.1034.

It's great to see the market trending upward again...well, at least for now.  Though I am not prescient, I am lucky...so I pulled all of my 401-k funds out days before the plunge.  A few months later and I would have seen over a third...and possibly half of my savings gone.  Many of my dear friends were not so lucky.  One is un-retiring.  I know that many people rely on the stock market in general (and mutual funds specifically) to make long term gains.  For my sensibilities...I'd rather own real estate than stock in a company that owns real estate.

It used to be that the stock market was the only game in town for 401-k's, IRA's, and Roth Plans.
Now, with the Direct Checkbook Controlled IRA you can move in and out of investments with ease, including my favorite: real estate.   This is huge.  It permits investors to play a far more direct and active role in their financial destiny.  You need to use specialists to set up the account and to recieve some background on the requirements, rights and risks.   When you're playing pennies and nickles poker and the jackpot hits $5, it's OK to play fast and loose.  When its your retirement at stake, lower your risks and always go with the pros. 

Enter IRA Advantage
IRA Advantage, is the new sister company of the highly regarded 1031 Exchange Accomodator, Equity Advantage.  IRA-A  sets up accounts that help investors reach their goals through direct checkbook control investment IRA's.  Investments are made through an LLC.  I'll describe the process in greater depth in a post next week.  If you can't wait...call IRA Advantage at now:  503.619.0223, and say the folks at Rose City Commercial Real Estate sent you!

Let Rick Bean and Rose City Commercial Real Estate be your advantage.  Contact us at 503.577.1034 or rick@rosecitycre.com.

Hats off to Marcus & Millichap...who are both my friends and competitors!    Linwood C Thompson, Hessam Nadji and William Hughes (all M&M segment Directors) laid out their long term vision of US economic, capital, and apartment markets yesterday.  It was highly informative...and the take-away for me was very clear.  The age of everyone trying to own their home has peaked.  While many may be able to afford the new lower SFR prices...many will also opt not to.  US Census Bureau stats show that the home-ownership percentage appears to have peaked at 70%, and the long term trend is downward. 

Multifamily Shortage Looming
Combine more people choosing to rent  with the precipitous decline in multifamily construction starts (normally 350K units/yr. but only 200K  units last year) and you've got a significant rental housing shortage in the near future.  Clearly the economy will have an impact on near term profits.  But multifamily investors tend to take a 4 to 6 year outlook on their investments rather than a "flipping to make a buck in 45 days" mentality. I personally suggest buying before prices start going up...but everyone is responsible for developing their own strategy.  Contact Rick M. Bean at www.rosecitycre.com, or call: 503.577.1034