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Real estate bubbles, strategies, and the current market

June 24, 2017

Are we in a bubble market ? Just read from one of my favorite bloggers who boasts: “15 Anibal-Affiliates-RealtyNetWorth-LakeShannon-why-I-sell-lakefront-young-couple-at-sunsetflips currently in progress. 126 flips completed. 15 rentals properties. Follow me to see how I make money in any market cycle.” So here’s the excerpt & my ‘reply’:

  • “…Low-money-down loans have been available for decades, and that is not what caused the housing crash. Really bad loans to people who should not buy houses is what caused the housing crisis. …”
  • reply: I’m presuming this is a ‘cliff notes’ take on the market since we can’t dispense all knowledge in a post. But my quick 2 cents. As a 2nd generation broker/investor/finance degree holder, bad loans where just a part of the problem. We had funds flowing out of other ‘under performing’ investments…e.g: $’s tend to move from CDs to collectables to stocks to real estate, etc. Further, and this makes the topic more of a localized thing, wages must support prices. Las Vegas had speculators running up prices but buyers weren’t all from out of town so prices couldn’t be sustained. Here in NW Detroit suburbs, we are seeing a lot of new industry coming in and hence price strength above what might be healthy in other parts of MI.

The article goes on to say how the market is not at a bubble stage. I think that greatly oversimplifies. So whats the point I’m making? As in Ecclesiastes 3 “To Everything There is a Season.” With-in 30 miles of each other, I have client investments of which 1 area I feel should be liquidated asap as the appreciation has come fast and peaked, the other could be held for a taxpayer that needs deferred income and no cash flow now, but if cash flow is needed move on. In other words:

  • Look at: investor needs (cash, retirement savings, …)
  • Investor tax situation
  • Investor has more time and abilities or more cash to throw at the portfolio mix
  • General economy but also local economic outlook…. very important.

This isn’t like buying a candy bar.



This is not an offer of a guaranteed return. Always do your due diligence before investing.

What kind of ‘Fixer Upper’ ROI is possible when we’re your Portfolio Brokerage Mentor?

March 20, 2017

How much can I make rehabbing homes?Info-graphic-appreciating-wealth-build

There are many different approaches. Are you in a high tax bracket and want appreciation, taxed and withdrawn at a future date (like retirement) and wish to accumulate rentals? Or, are you in a low tax bracket/ want maximum returns now/ hence ‘Flips’ make more sense? Looking at our charts, you’ll see cheaper homes are better suited for rentals, but all properties are usually better suited for ‘flipping’.

‘Flipping’ homes is not for the faint of heart, nor for a novice. The TV shows are for entertainment – turn them off. I’ve never watched even 1 episode and I’ve ‘flipped’ houses since 1981. Yes, I’ll be glad to share my entire portfolio results to date with you.

The vast majority of folks loose money on rehabs, making lots of cash for ‘wholesalers’. So how do I know when to use a professional ‘Portfolio Broker’ Mentor? (that would be us). Perhaps when said mentor has a track record going back to 1980 and will say “NO” more often then “MAYBE” OR “YES”.

Prefer ‘hands off’ approach? We ‘joint venture’ with clients – you bring $’s, I bring expertise, your principle comes out first, we split the balance at closing. (there is a formal agreement letter but that’s the short version).

For every property I recommend, There are about 25 that I tell the investor “NO” and then tell them why. I want this to be educational as well as profitable for you – it helps us both!

Anibals-Realty-Net-Worth_2016_EOY_JV_ROI

If you click thru on the link below this photo, you can compare with last year EOY results. There has been some year over year appreciation.

  • In this market, this will plateau and makes these ripe for selling to reinvest a better part of proceeds.

Anibals-Realty-Net-Worth_2016_EOY_RENTALS_ROI

VIEW IN PDF:  Rental and Flips ROI Calculations – EOY16

Rental and Flips ROI Calculations – EOY15

Active client of ours? Request a copy of the below spreadsheet to compare your investments year to year & within your portfolio. This can assist in planning ‘which to keep’ vs ‘which to cut loose’.

  • Non-clients: ‘Remote in’ installation & setup available, or stop in – you don’t even need to bring your laptop.


This is not an offer of a guaranteed return. Always do your due diligence before investing.

Passing Your Home to Your Children.

February 24, 2017

When/ How/ If: I Should Deed My House to the Kids

There can be some benefits, but also drawbacks to both the gift giver and recipient(s).anibal-affiliates-realtynetworth_deeding-property-to-children-2-woman-with-tablet-relaxing-b

Some will:

  1. Add the child’s name onto the existing deed.
  2. Make an outright gifting over
  3. Deed over but reserve a life estate
  4. Will the property, i.e: a “transfer on death”.

#1, Possibly Tax Disaster.

  • Set up an office visit. There are good reasons, but often more bad reasons to use this strategy.

#2, Outright Gift.

  • Irrevocable, the parent loses control and legal right to stay in home. Perhaps the parents will rent back.
  • Ends the parent’s right to claim any preferences on property tax bills, e.g.: the homestead exemption, being blind or over 65, hardship/ low income exemptions.
  • This can dramatically increase property taxes.
  • If real estate transferred to a child is worth more than what was paid to purchase and improve it, then the child pays capital gain tax on the sale of the property. (The $250k/ $500k MFJ primary residence exemption is not applicable unless you own and live in the property).
  • Children’s (ex)spouse and creditors may have the ability to seize the property.
  • vs. Will at death.
    • If a parent’s Last Will and Testament leaves real estate to a child, parent can change their mind w/ a new will.
  • Additional Parent Considerations.
    • To remove the asset for Medicaid qualification, remember that a transfer of your real estate can make the parent ineligible for benefits for nursing home expenses, depending on when you enter the home. The length of time ineligible depends on the value of the real estate, whether it was transferred outright or retained as a life estate. Generally, its a five years look back.

A transfer of real estate is a “gift” and will no doubt require filing Tax Form 709 with the IRS.

#3, Gift with Retained Life Estate.

  • During life, the parent has the right to live in the property, and at death the life estate ends. Property transfer effectively at that time.
  • Some want to avoid probate after death, and possibly to avoid any court administration of their estate.
  • If the recipient child dies first, the child’s share in the real estate could pass to the deceased child’s spouse, rather than to the grandchildren.
    • vs a parent’s Last Will and Testament may provide that an inheritance would go to grandchildren if a child died before the parent.
  • The parent still loses a significant degree of control. If the parent sells the property, the proceeds belong to the parent and the child (remaindermen), split according to the percentage of ownership determined by IRS life-expectancy tables.
    • Capital gain tax would be owed by the child on his or her gains.
  • If the parent retains a life estate and the property is not sold before the parent dies, then under current law there would be no capital gain at the time of death because its cost basis is “stepped up” to the property’s market value on the date of death. This is a good thing for the recipient !
  • For Medicaid, the parent is deemed to own the entire interest in the real estate for five years after a deed execution retaining a life estate. They will also be the owner of the life estate interest thereafter, the value of which is calculated at the time of application for Medicaid.
  • RE: inheritance tax, the date-of-death value is taxable to the child – not lovely. But, the child gets a step-up in cost basis (easier if inherited at death in my opinion).

#4, Will the property.

  • Call the lawyer. Ok, now, plan for the child to do back flips on how much taxes you just saved him/her/them.

Bottom line.anibal-affiliates-realtynetworth_deeding-property-to-children-b

  • The when/ how to transfer should involve your accountant, lawyer, insurance agent, banker/lender at a minimum.

As I’ve told clients for decades: “You’re not dealing with a candy bar.”


Tax Strategies for Real Estate

February 6, 2017

If you expect real estate should involve ROI, then there’s some basics to the outline.

  1. Acquisitions – some we have control, others not – e.g.: inheritance.
  2. Holding – short/ long/ entity/ self held/ purchase for child/ etc
  3. Approach: add value/ flip/ wholesale/ rent/ vacation/ family lease to/ residence with business inside

Most properties will be held for cash income OR appreciation. If you can get both, then neither will probably be optimal.

Regardless, upfront considerations must include:mackinac-bridege-under-constructions-allovermichigan-b

  1. What you need from the property: income now or later (cash flow vs appreciation)
    • I look at these like ‘a job’ or
    • ‘retirement investment’
  2. I will invest more:
    • cash or
    • time & talent

So there will be many vehicles and considerations. SD IRAs, set up LLC, Corporation, etc. One of my favorite realizations is that PROFIT is usually made on the way into an investment in THE BUY. Further when you SELL, what can you/will you do with the funds ? Make sure you have another opportunity lined up if you liquidate a great rental. Make sense ?

‘Later’ is not the preferred time to plan.


Local large city property taxes are often far over assessed. v2017.01.24

January 24, 2017

I’m updating this article.anibals-realtynetworth-realt-estate-brokerage-consulting-relocation-management-property-tax-protests-the-power-to-tax-is-the-power-to-destroy

Below is the original posted 3 yrs ago. This has long been a problem. Why? While I can appreciated ‘work load’ as a reason, it eventually becomes and excuse if its not dealt with on the assessor/ local /state government end. Assessors by-pass state law &/or take advantage of their position to frustrate property owners into being unfairly over taxed. Via interviewing property owners and walking thru the process for clients, I witness first hand the ugly side of the process. I’ll not speculate to far on the gov’t employees side of this – you can figure it out for yourself – but what is the results of over taxation and undue burdens associated with ‘tax protests’ ?

Instability. Show me one neighborhood that prospers from having homeowners uprooted. Getting these properties properly and fairly assessed brings a long term increase in the value of an area. At that point, values and assessments can rightly follow. Why is this so a hard message for the local assessor and his boards of review to understand ?


Recent links:anibals-realtynetworth-realt-estate-brokerage-consulting-relocation-management-property-tax-protests



Original article from 2004 –

According the Detroit News, there is a large inequity from property to property. This is true in most large cities in MI. Further, the local board of review personnel often doesn’t know how to or refuses to assist you, the taxpayer they work for, in the process. The article leaves out important details of interpretation. Don’t assume the house you buy will change property taxes for the better – DO assume they will change with ownership change. We can chat further.

=========

Detroit— Detroit is over-assessing homes by an average of 65 percent, leading to higher tax bills, according to a Detroit News analysis of more than 4,000 appeal decisions over the past three years by a state board.

From The Detroit News: http://www.detroitnews.com/article/20131219/METRO01/312190036#ixzz2tDwyKtD3

Lead water in the pipes – since 1986

January 13, 2017

So much talk of lead in the drinking water in Flint MI these days. Well, I’ve owned 2 homes Great-plumbing-ideas-lead-in-water-flint-miin Flint. I have the same wisdom for those folks as anyone who buys a home built pre-1986.

I recall when I built a home, coincidentally in 1986, that I had to switch from a lead solder to a tin solder. It doesn’t flow the same. But, the point is, per “The Safe Drinking Water Act Amendments of 1986”, homes built before `86 tend to have lead joints so it makes sense to drink & cook with filtered or bottled water. I do.

The law prohibited use of lead solders, pipes, and flux in drinking water systems. Plumbing solder lead content was set at 0.20% maximum. ( previously 50/50 mix w/ tin). It also included wording to require states to enforce the provision.


Rental house ROI & Remodeling budgets

January 11, 2017

Jumping into investment real estate this year ? Good info with a quick easy read, my basic Landlord real estate investor couple on the beachcriteria for useful information:

Here’s a huge oversimplification of the article links shown below:

ROI – your rent should be at least 1% of the purchase & set-up cost of your rental. e.g: You paid $85k to buy and rehab, it better rent for $850. Further, expect around 50% of the rent to be expenses (less if you have a mortgage).

My add to the thoughts: Annually evaluate your properties against each other AND against what else you could swap the lesser performing houses for. i.e: You can sell it for $200k/ it rents for $1250/mo., find another that will rent for the same that 1.costs less OR 2.costs the same but will rent for far more.

Renovations – Think practicality and ROI. Don’t go cheap for cheap sake and don’t over pay because its so snazzy. This is a business, not a glossy magazine.

My add to the thoughts: MANY. We’d need to sit down for this as each person, area, and property has different types of strengths and weaknesses. These need to be evaluated up-front BEFORE buying. I still believe that ‘the profit is made at the time of purchase’.



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