Plum Crazy Real Estate and Business

Client is curious about the market around Union Hill. I did a quick check around the area to see what has sold and what's currently on the market. Here are some quick stats:

• Properties sold in last 6 months: 21
• Low sale price: $325,000
• High sale price: $570,000
• Median sale price: $422,000
• Average days on market for sold properties: 81
• Number of properties under contract: 10
• Properties current on market: 12 (includes a couple listed as "Redmond Ridge")
• Average price per square foot for listed properties: $235
• Average price per square foot for sold properties: $206

What kinds of homes are currently available or under contract? Check 'em out:

Note: This is a repost of an entry from my blog at http://tellusre.com/whats-the-union-hill-foxboro-hunters-glen-residential-market-looking-like/

Webster’s defines investing as “laying out money or capital in an enterprise with the expectation of profit”. That broad definition applies, in real estate, to people purchasing rental properties, flipping houses, holding property in hopes of price appreciation, developing condos, and on and on.

The IRS has its own view of real estate investing. Owning rental properties is considered “passive income” and is subject to special rules. Flipping properties is considered ‘work’ and profits are taxed as regular income. Property development and land speculation are a specialty all of their own, with their own tax rules.

That last sentence has an interesting word, “speculation”. The definition is, “an investment that is very risky but could yield great profits”. At Tellus Real Estate Solutions, we don’t recommend taking a risky approach to your real estate investments. If you have a high tolerance for risk, and the knowledge to back it up, we are happy to help you with your speculative real estate transactions. But for new investors, we don’t suggest speculating.

At Tellus Real Estate Solutions, we group flipping, holding for appreciation, and development as speculating, since they are highly risky for novice real estate investors.

First, let’s look at flipping properties. This is definitely an area where someone can make money, and we know people who do quite well in this arena. But, it’s not as easy as it appears on television. Successful flippers are market experts. They have to recognize properties that can be purchased cheaply, repaired, and sold quickly for a profit. This requires market expertise and construction expertise that the average investor does not have, and which it takes years to build. Flipping was popular in the hot real estate market, but most of those flippers were making money as much by luck as by planning. And, when the market died, many flippers lost everything when they could not unload their latest investment on an unsuspecting buyer (the hot potato syndrome, we call it). Or, to use a different grade-school analogy, too many folks got stuck without a seat when the real estate music stopped. To add insult to injury, the IRS has a nasty surprise for you. They consider the income from flipping properties to be regular income, not capital gains. That means if you have a day job and are in a 25% tax bracket, then your income from flipping is taxed at 25% instead of the 15% capital gains rate that investors enjoy.

Next comes holding for appreciation. The problem with holding for appreciation is similar to the problems of flipping. You have to have better than average skills to make money just holding property, and you also have to have deep pockets. I subscribe to the view of some of the better known GRGs (Get Rich Gurus) that an investment should be something that brings you more money in now than you are spending on the investment now. Paying cash or paying loan payments in hope of the value going up over several years does not match that definition of investment.

This might be a good time to talk about the home you live in. Your home is not an investment, except when you consider it as one you are holding for appreciation. It is an expense to own a home. It is often more expensive in the short run to own a home than it is to rent. In the Washington market is pretty easy to rent a home for less than the monthly payments of buying the same place. That doesn’t mean you shouldn’t purchase a home… just don’t view it as an investment. The value of owning your own home is made up of many things beyond the possible appreciation in value… pride of ownership, control over your living environment, stability, and the even positive affect on your credit rating.

Last comes real estate development. It is an area that requires a level of experience and knowledge beyond the typical beginner. Generally, the upfront investment is large (and the payoffs on the back-end larger), and as typical for high payoff endeavors, there is also high risk of losing money. Like flipping, you need to be a market expert, knowledgeable of construction, and additionally you will likely need to be good at working with municipalities on permitting and zoning issues.

What is an Investment in real estate then?

So, what what do we consider to be a real estate investment? Tellus Real Estate considers a real estate investment to be a property that earns an income whether the underlying value of the property goes up or down. We also believe it should be a situation where you can take control. You can invest in Real Estate Investment Trusts, TICs (Tenant In Common investments), and similar investment vehicles… but these are all situations where you have little actual control over the end results. So, as a rule, when we speak about investment real estate at Tellus Real Estate Solutions, we are talking about a rental property that you own and control. It could also mean a property that earns an income from a business or even resources like timber. But those are areas that require more expertise. There are plenty of different kinds of rental properties: single family homes, multifamily homes, commercial properties, and even land. Just keep in mind 3 things when looking at a real estate investment:

• Investing is focused on the long-term.
• Investing is focused on the stream of income.
• Investing is focused on factors you can control.

Don’t just listen to us

Here is what others have to say about real estate investing:

• Wikipedia
• Bigger Pockets
• CRE Online

Note: This topic also appears on our site under the Investors Center on our website.

and on the Tellus Real Estate Blog at http://tellusre.com/real-estate-investment-vs-real-estate-speculating/

I spent the day with an investor looking at single-family homes for sale in the Central District. As we were looking at what was for sale, we were also keeping our eyes open for "For Rent" signs, so she could call and check what was available and what other landlords were charging. Amazingly, we didn't see any.

Well, so much for my recommendation to new landlords about how to find rental rates! This made me wonder... why no signs? Does it mean there are no rentals available in the area, or does it mean landlords don't like posting signs for some reason? Perhaps they don't want vandals to know they have an empty unit? Are they afraid the Occupy people will occupy their property? Perhaps they simply have better ways to find tenants.

My experience is that "For Rent" signs are a great way to find potential tenants. But, Craigslist.com has quickly taken over that role, so perhaps there is no need for signs anymore. What do you think? got any ideas?

 

(Reposted from my Tellus Real Estate Solutions Blog - www.tellusre.com/blog)

-- Repostest from my new Wordpress blog at www.tellusre.com/blog original post late last week. Please check it out --

Hey! Our website is now up and running. With a new website comes a new blog (or at least a new home for the blog). The old blog is still alive at http://activerain.com/blogs/jasonhershey and I will continue to post their for a while, just to provide continuity. But activeRain is aimed at agents more than real people, and so its long past due that I move to my own site.

I have to say thanks to Jaime at http://simplyjaime.com/, who has done a great job with design. She’s also been great at putting up with me during the development process. We started out with a vaguely worded vision and Jaime was able to cope with the vagueness in style. Together we came up with what I think is one of the most unique and most user-focussed web-site in the real estate world.

Things are still a bit under construction as I work on fleshing out the content on the site. But, here is a quick overview of some of our visions in the site design. Let us know how we did in executing on that vision:

1. User centric – We want our clients, the users of the site, to feel like the site is designed for them. With that in mind, we’ve divided up the site in to user centers with content specifically aimed at different types of clients: Investors, Commercial sellers, Commercial buyers, Home buyers, Home sellers, Landlords, and Tenants. Each center has content, tools, links, and news that is focussed on those particular clients.

2. Mobile (table and smart-phone) friendly – We want the site to be easily used by clients on the go. The design is aimed at working well not just on your PC or Mac, but also on your iPad, Win 7 Phone, or Android device.

3. DIY or full-service – This is an ongoing effort and is more about content than design. Still, design has a role in making the site about educating the public, our potential clients, or about it being a pure marketing tool for our services. At Tellus Real Estate Solutions we feel that while the traditional real estate model serves an important role for many clients, it isn’t the only model. We want our clients to understand the value we provide and feel we can be a great resource for people and businesses that choose to take a more hands-on approach to selling their home, leasing their commercial space, or purchasing an investment.

Over the next few days, I’ll use the blog to give you a guided tour around the site and the features.

And, here are the slides for our Landlord 101 class, where we cover finding tenants and keeping tenants.  Included in the handouts our sample lease forms and a great handout from our friends at LT Services, a great eviction service company.

Here are the slides from the class.

And, here are the handouts on my SkyDrive

A couple of weeks ago we had another real estate class. This one covered the basics of real estate investing. Among the subjects covered were the various types of real estate investments and their pros and cons. We also covered preparing to enter the investment arena and the basics of real estate investment analysis. We had a great class with lots of discussion and good questions from the students.

Here are the slides from the class.

You can also find copies of the slides on my SkyDrive site

We had a great class on Wednesday. Lots of students with information and experiences to share. Below are the slides from the class, updated with additional information based on class discussion. Be sure to check the HAFA program slide.

Along with slides we have the handouts available from my SkyDrive:

 

Lastly, we had some questions come up about probate, and I found this information available from the Washington State Attorney General's office; http://www.atg.wa.gov/DealingWithDeath/default.aspx. Unfortunately, there is not a lot of detail about real estate specifically.

I recommend checking with a qualified attorney to get situation-specific answers

Here are the updated slides from our Right Way to Buy Foreclosures Class, last week. Thanks everyone who attended!

Yesterday, I got a Realtor Action Center "Call to Action" asking me to send mail to my Senator in support of protecting the Mortgage Interest tax Deduction MID.

The problem is, I support reducing the availability of this Deduction, and possibly removing it altogether over time.

I also support removing a bunch of other tax deductions and loopholes at the same time... especially those that primarily benefit large companies like our friends in the oil industry.

But, I won't be a hypocrite and say cut the deductions that benefit them, and not cut the ones that benefit me.

We face a looming financial crisis greater than our current one, because of the incredible debt level our government (and we citizens) maintain and the deficits we continue to run.

I don't see it as possible we will ever agree on cutting spending enough to fix the problem. I believe we need to cut spending also, but by itself, it won't be enough.

That means tax increases in some form or fashion.

Modifying, limiting, or removing the MID over time, is a good example of how this can be done reasonably.

NAR and the various Mortgage Industry orgs all make similar arguments (http://www.houselogic.com/articles/mortgage-interest-deduction-vital-housing-market/)

Despite news articles like this one (http://www.dailyfinance.com/2011/04/20/eliminate-mortgage-interest-tax-deduction/) almost no one is suggesting that the MID go completely away in the near term. 

Most of the current proposals for modifying the Mortgage Interest Deduction involve:

• Cutting it off for higher incomes and higher mortgage amounts
• Cutting the amount of deduction
• Cutting the deduction for 2nd homes and 2nd mortgages

These sound great!  These deductions won't hurt the 'average' home owner. How many average homeowners have a 2nd home?  How many average homeowners have a $1,000,000 plus mortgage?  And, of those that do, how many of them would really be hurt by not being able to deduct that interest?  Give me a break! 

As an additional benefit, reducing the deduction for mortgage interest would encourage lower debt levels by homeowners. It would encourage people to stop treating their homes like a credit card, which was a major factor in the recent real estate/financial crisis.

The average homeowner doesn't have to get negatively affected by changes to the MID.  I would like to see NAR focus their energies on helping find the best way to make an MID reduction work for everyone instead of a knee-jerk fight against any change in the status quo

Below is a summary of sales for March 2011, from the Commercial Broker's Association (CBA). I note the source because it is likely that not all sales that occurred are included. CBA data is a mixture of sales reported by their member agents and researching of sales that happened outside the system.

I have compared these numbers to similar data available from LoopNet, the national
commercial real estate  listing service. After reviewing the data, I believe the CBA data to be the most accurate and useful for our local market and for tracking prices and trends in the local market.  Occasionally, LoopNet has data that does not appear on CBA, which is the reason that I subscribe to their service. If you would like to have a complete analysis done of comparable sales for your property, please let me know. When performing analysis for a client, I compare and combine data from both sources.

March 2011 Sales

King County-There was a slight increase in the number of sales from February in King County, with 34 total sales. Only 2 property sales were foreclosure trustee sales. Sales were about evenly mixed between the 4 main property types: Industrial, Retail, Office, and Land.

The average price per square foot for each property type was: Industrial-$44/SF, Retail-$171/SF, and Office-$148/SF.  Commercial land sales averaged $121/SF, after removing 2 residential land sales from the mix.  Those two residential land deals would have lowered the average $/SF to just $5.84/SF

You may notice that the price per square foot for Office and Retail properties jumped significantly from February. This partially due to the lower number of foreclosure sales in each category.

Pierce County-Pierce County had a healthy increase in the number of sales. In March, 22 sales closed, more than in January/February combined. Sales were evenly mixed between property types.  One thing to note, though, is that five of the office sales were of Frontier Bank locations throughout the county, by Union bank to the FDIC.  I believe the result of this is an inflation of the average price per square foot for Office space.  Typical sellers should not expect this kind of pricing in Pierce county.

The average price per square foot for each property type was: Industrial-$51/SF, Retail-$65/SF, and Office-$148/SF (again, this number is inflated by the Frontier Bank sales). Commercial land sales averaged $6.45/SF. The sale price for Commercial land is likely lower than typical due to sales transaction between government entities for several properties.

Snohomish County-There were only 4 sales reported by CBA for Snohomish County in March. Snohomish County commercial buyers seem intent on focusing on specific property types each month.  In January, it was Industrial. In February, it was Office.  In March, all the sales were Retail Properties. Also, all the properties were located in the southwest corner of the county, along the I-5 corridor.  Another item to note is that half the deals were with cash buyers.

The average price per square foot for these Retail properties was $143/SF.