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Jodi Summers
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| Jodi Summers is director of the investment division at Boardwalk Realty Santa Monica. Contact her at jodis@boardwalkrealty.com, or call (310) 309-4219. Visit her community history Web site at www.santamonicalandmarks.com.
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Articles by this Author
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DAYS ON THE MARKET
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It’s looks like 2006 will be a good year for real estate in California, according to industry experts.
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It’s like Southern California property owners have won the lottery. 2002 saw close to a 20 percent increase in housing prices. 2003 saw the same. In 2004 we saw a 23 percent rise, and 13 percent in 2005.
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Every year, the real estate industry specialists compile lists of the most influential people in real estate — outstanding individuals whose actions have influenced the business of buying and selling properties.
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Last week we covered last year’s real estate industry movers and shakers. This week, we offer you our list of candidates for people to watch in 2006:
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It takes three separate Los Angeles County offices — assessor, auditor-controller, and treasurer and tax collector — to produce and account for your property tax bill and payment.
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Bob calls the Gold Coast in Orange County home, but he’s got a couple of rental houses in North Beach, Venice. Back when Bob bought these single-family homes, the alleys were littered with drug addicts. Now it’s a delightful pocket neighborhood on the Venice/Santa Monica border where some properties have recently broken the $1 million mark. Bob is thinking of selling off his Venice properties but is not sure whether to cash out on his houses or reinvest the money in something with fewer management headaches. As he figures out what to do with his money, he ponders his taxable consequences. Are there ways of avoiding or deferring his tax obligations?
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DAYS ON THE MARKET
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If you are investing your money — in real estate, stock, rare coins or any sort of collectible that you buy as an investment — you should have a healthy understanding of how capital gains tax works. Those in the know say, “Mastery of this convoluted part of the tax code can both soften your losses and sweeten your gains.”
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Bobby was in a quandary. He had been in the automotive business for more than 20 years. Each time he changed locations, he bought a new commercial property and he’d lease out the old location. Now he was looking to lessen his responsibilities. The issue was, when he looked into selling, he realized he’d have to give the government 15 percent capital gains tax and state withholding taxes on the sale, on top of various other tax fees.
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Do you recall several years ago when presidential candidates were talking about an across-the-board flat tax of 15 percent? That would have made life way too easy.
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An Ocean Park senior citizen was startled when a real estate agent brought an unsolicited offer for the corner storefronts he’d owned for decades. Now he was torn. He didn’t really want to sell because he enjoyed the monthly income, but if he sold, it would free him from responsibility. But then there was the issue of capital gains. He talked to his accountant about it. His accountant suggested a 1031 exchange.
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Our historically low interest rates, coupled with the assumption that property is a safer place to park cash than the stock market have made real estate the investment of choice in recent years. Some go for income producing properties, others retirement homes. It doesn’t matter what type of real estate investment property you own — rental houses, commercial buildings, shopping centers, apartments, warehouses or land — they all offer big tax incentives.
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Nationwide, 70 percent of Americans own a home. Statewide, 58 percent of Californians own a home. A report recently released by the California Building Industry Association noted that the state’s home-ownership rate is 49th of the 50 states, with New York coming in last. Thank the bureaucracy for those stats — the study shows that the disparity in home ownership dates back to the increase in builder liability.
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The word on the street is out — the housing boom has waned. California existing-home sales tumbled 15.5 percent in February compared to a year ago, yet the median price of an existing home increased 13.8 percent, reports the California Association of Realtors. Hold the thought of double-digit real estate appreciation rates, because that is what double-digit appreciation is about to become — a dream.
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We recently put a 30,000-square-foot industrial property in Inglewood into escrow — one of the disclosures on this sale was that the driveway, which is shared with a neighbor, is an easement-by-perscription. While the property was listed, it became obvious that the property buying public had a lot of questions and apprehensions about buying a property with an easement — so we thought it was a good time to enlighten everyone about easements.
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Last week’s column on easements has generated several questions. We’ll share some of them this week.
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Last year, a total of $268 billion in investment grade real estate — properties valued at more than $5 million — were sold throughout the country. That is a 44 percent increase over the transaction volume in 2004, according to the National Association of Realtors.
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What do you do if you have a non-traditional credit record and want to be a property owner? Many young adults, minorities, immigrants or members of ethnic groups avoid use of the traditional banking system, but when all is said and done, a lender would be happy to loan to them. Problem is, these buyers are what lenders call “unscoreables,” or they have such thin credit files that their scores are abysmally low.
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Last year was an incredible year for office building purchases. Across the country, $99.7 billion of office properties traded hands — a 34 percent increase over 2004, and more than one-third of the $268 billion in investment grade commercial real estate transactions in 2005. Locally, buyers spent close to $5 billion on office buildings in LA County last year — up from $4.2 billion in 2004, which was 6 percent more than 2003, and double the 2001 figure, according to Cushman & Wakefield Global Real Estate Services. “There have been gobs and gobs of money thrown at commercial real estate,” says Nicolas Buss of PNC Real Estate Finance.
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All of the recent real estate economic forecasts agree: Southern California apartment rents and occupancy rates rank among the highest in the country. And continuing regional economic gains should push those levels higher.
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Out of the world’s 691 billionaires, 46 of them made their fortunes in the real estate industry.
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When you are buying and selling real estate, on all standard real estate contracts there is always one page of the transaction where you must initial several times. If you notice, it is on the dispute resolution section that requests that the parties in the transaction mediate and arbitrate any problems as opposed to going to court.
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The healthy economy is creating a strong demand for commercial and industrial space, and institutional investors are returning to the market, according to the latest commercial market update and forecast from the National Association of Realtors (NAR).
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The Wyoming Water Development Commission has found an effective way to budget in rising materials costs for new construction — they asked the state legislature to set up a special inflation fund for its construction projects.
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Did you know that 40 percent of homes sold during the recent real estate boom were bought as investments? Now that the market is shifting, you are seeing a lot of residential and some commercial — particularly retail and development property — sitting on the market. With market trends changing, a lease option or a lease purchase may be a fine way to dispose of excess properties.
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What items are legally included and excluded from the sale of the property? It all relates to the fixtures. A fixture can be defined as, “Anything of value that is permanently attached to or a part of real property.”
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The first Native Americans are believed to have arrived in North America between 20,000 and 30,000 years ago through a land bridge across northeastern Siberia into Alaska. It is said that early Native Americans were in a peaceful harmony with their environment. They perceived time as cyclical and organized their existence around the change of seasons. Many native groups are said to have moved their villages several times a year to follow seasonal food sources. Seasonal moves meant less-permanent architecture and a loose concept of land possession. Total and exclusive land ownership was simply not a Native American concept. Although a group might have the privilege of using a parcel of land for gathering plants or hunting game, seldom did a tribe or individual “own” a parcel of land.
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Two prestigious real estate schools have different predictions for the real estate market. In their second quarter market wrap up, economists for University of Southern California’s Lusk Center for Real Estate noted that unless there are substantial job losses, the real estate market appears on track for a soft landing.
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As we were preparing the second quarter real estate wrap up, we were amazed by some of the news headlines and statistics that have emerged regarding the ebb and flow of the Southern California real estate market.
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It has been a year since the rights of American land owners were forever changed by the Supreme Court eminent domain decision in Kelo vs. city of New London. The highest court in our land ruled that local governments could seize individuals’ homes and businesses against the property owner’s will to make way for shopping malls and other private economic development.
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“I’ve been wanting to buy a shopping center, but every time I start analyzing the numbers, I get a headache,” an investment buyer recently said. “Each property has a different set of numbers and they are not always accurate. How do I know what to buy?”
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If you thought the real estate market has been hot in this millennium just check out what’s down the line. In 300 years, the United States has built more than 300 billion square feet of homes, offices, factories and other structures. A recent study from the Brookings Institution and Virginia Tech urban planning professor Robert Lang shocked pundits when they predicted that the U.S. will build its next 200 billion square fee in the next 25 years.
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This just in: 13 real estate markets have more than a 50 percent chance of experiencing falling home prices within two years. The most recent quarterly report by PMI Mortgage Insurance Co. cites that eight of those areas are in California; three are in Massachusetts; one is in New York and one is in New Jersey. The major real estate markets at the greatest risk of a price decline are San Diego-Carlsbad-San Marcos, Calif.; Nassau-Suffolk, NY.; Boston-Quincy, Mass.; Santa Ana-Anaheim-Irvine, Calif.; and Sacramento-Arden-Arcade-Roseville, Calif.
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Just as you might suspect, middle-income neighborhoods are becoming rare in the nation’s metropolitan areas. And, just as the prices in Palmdale keep rising, a recent report by The Brookings Institution’s Metropolitan Policy Program finds that middle-income quarters also are declining in suburban areas.
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DAYS ON THE MARKET
Those in the know keep saying that it’s an excellent time for apartment building owners.
“Monthly rents have definitely moved up, especially in Los Angeles County, but also in Orange County,” said Delores Conway, director of the Casden Real Estate Economics Forecast for the USC Lusk Center for Real Estate.
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A lot of people entertain the fantasy that it would be great to invest in real estate. For many, the first step is becoming a landlord.
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Last week we discussed the tangibles of building your rental empire. This week, it’s all about the intangibles — tenants and repairs.
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Autumn is upon us and as you might expect, we will soon have our first good rain. As all property owners are fully aware, it’s time to implement the annual preventative maintenance measures to best prepare your property for the rainy season.
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Last week, we spoke about preventative maintenance for the rainy season ... so continuing along that line of thinking, we thought we’d go one step further and talk about overall preventative maintenance for investment properties.
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The numbers just keep growing. At last check, California home sales were down almost a third from a year ago, with numbers falling for the 10th straight month. But, as curiosity would have it, the median existing-home price rose 1.6 percent in L.A. County to $576,360. Those in the know say price levels are reaching a plateau.
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The year 2006 will stand as a record year for institutional investment in office and industrial real estate. The National Association of Realtors’ third quarter Commercial Real Estate Outlook confirms that large institutions (life insurance companies, pension funds, etc.) — known to be the extremely cautious and risk-adverse with commercial real estate investments — are making a record level of investments in the office and industrial real estate this year. Through the third quarter, institutional investors had purchased a record $12 billion worth of office acquisitions.
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The demand for industrial warehouse and distribution space has brought the national industrial vacancy rate down to a five-year low of 9.7 percent — and a local vacancy rate of about 5 percent. The average vacancy rate in the nation’s 30 leading distribution markets at mid-year was down .8 percent to a solid 8 percent from the mid-year 2005 rate of 8.8 percent, according to the most recent Commercial Real Estate Outlook from the National Association of Realtors Commercial Alliance.
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California is full of what can be termed as “superstar cities” — places where a certain percentage of Americans would like to live, no matter the price.
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As financial guru Suze Orman asserts, “You have to have a relationship with your money.”
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If you’re a home owner, at some point you’ve probably thought about remodeling or selling. According to Money magazine, since 1994, the cost of buying a home has increased approximately 3.7 percent per year nationally. The cost of remodeling has increased about 2.8 percent annually.
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Oh, the things architects and builders used to get away with. When Abbott Kinney and Charles Looff set about building pleasure piers along the Southern California coast, do you think there were city authorities telling them how to do it? No, they were entrepreneurs with an idea. Can you imagine if a building like the Looff Hippodrome went before the planning commission now? It would take months of architectural modification before the planning commission and architectural review boards would approve such a structure.
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One small step for California, one giant leap for South Africa. Earlier this month, as Gov. Arnold Schwarzenegger signed a bill allowing gay couples to file joint state tax returns, South Africa became the first African nation to give legal recognition to same-sex partnerships.
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DAYS ON THE MARKET
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A deed is the document that transfers ownership of real estate. It contains the names of the old and new owners and a legal description of the property, and is signed by the person transferring the property. Several different types of deeds can be used to convey real estate.
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Lots of people are looking for properties with short-term profit potential. They have this dream of finding a mildly run down property (”cosmetic fixer,” as it’s often called), rehabbing the kitchen and bath, putting in new floors, painting and, voila — a $100,000 profit!
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When last we met, you read about identifying fixer properties with the greatest profit potential, and we noted how, using Internal Revenue Code 121, you can fix and flip your primary residence every 24 months, without limit, as per your accountant’s advice. This week, we’d like to enlighten you to ways to pay for these properties with the least out of pocket expense.
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DAYS ON THE MARKET
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As the housing market boomed, so has availability of so-called “exotic” or “nontraditional” mortgage loan products. New research suggests that middle and moderate-income borrowers with less-than-stellar credit scores are carrying the brunt of these riskier loans. Most of the non-traditional mortgages have been written in strong real estate markets — like Southern California — where continued home price appreciation is anticipated. Nontraditional mortgage products typically offer initial lower monthly payments than traditional fixed-rate loans to ensure that the initial monthly payments are affordable. Of course these borrowers are aware of the fact that most of these products have payment structures which reset the loan terms rest, usually two to five years down the line. Researchers fear that this new and enlarged payment could adversely affect some homeowners, making their homes potentially unaffordable.
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Time for some national housing statistics. At the end of the third quarter of 2006, the median home price in the U.S. was $231,000, according to the National Association of Realtors. Money magazine reported that Newport Beach had the highest median home price, at $1.36 million, followed by Greenwich, Conn., at $1.13 million, and Santa Barbara, at $979,500.
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The experts are predicting good prospects in commercial real estate in 2007 ... and even better news locally. Stan Ross, chairman of the board of the University of Southern California’s Lusk Center for Real Estate cites New York and Los Angeles among the “leading metropolitan markets” where properties will continue to command top dollar.
The Lusk Center also suggests that, in addition to investing in traditional office, retail, industrial and hotel assets, speculators will examine alternative investments, including urban infill, adaptive reuse and multifamily retail developments near inner city transit centers.
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Economists generally agree that although the national housing market may not have reached bottom just yet, the residential real estate downturn will be slight, with a recovery beginning in the second half.
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No one’s arguing that the heady years of double-digit property appreciation have come to an end, but just how far prices may drop seems to be somewhat less certain.
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