Profiting From Mismanaged Properties

Real estate investors instinctively pass on deals presented to them simply because the numbers don’t work. This is quite understandable, however, sometimes a little more digging can uncover a simple reason for the property’s lack of cash flow. This issue often comes down to incompetent ownership which results in mismanaged properties.12072009_022.jpg (1280×960)

Mismanaged properties or properties which are “underperforming” can be a virtual goldmine if you know how to identify and capitalize on the true potential another investor simply is not realizing.

Owner incompetence typically comes down to six major issues. In most cases, these issues can be remedied simply with a combination of good management practices, an understanding of fair market value pricing and rents in your neighborhood and of course, injecting a little cash.

The following examples generally pertain to smaller multi-families (2 -20 units) however the principles can be applied to larger multi-families.

Below market value rents

This common faux pas stems from a lack of knowledge of fair market value in the area, resulting in a cash flow issue. If a property is at +/- breakeven cash flow at 100% occupancy, any vacancy results in the property owner having to cover any shortfall.

The solution is clear. Raising the rents even $100.00 per unit (depending on the number of units) can turn an apparent cash flow issue around. This can be a more difficult process, however, based on which province the property is in, and the Landlord/Tenant board guidelines of the particular province.

As the new buyer of a property, you have the option of requesting vacant possession. This allows you to reset the rental amounts at whatever the market will bear. It is not until you have set the rental amount that you are bound by most provincial Landlord & Tenant guidelines as to how much of an annual rental increase you are allowed.

It does need be said that by requesting vacant possession, you must abide by provincial laws which clearly state you must be either move into the property yourself (or a family member) or you are intending to do significant renovations.

Absence of good property management

Lack of this skill is one of the biggest downfalls of any would-be investor. This encompasses everything from improper screening during the tenant interview process to the daily aspects of running the property. Neglecting any of these areas will result in an underperforming property.

Without a rigid system in place to screen the tenants, owners subject themselves to delinquent rents, frequent vacancies, and potentially large repair bills. Lack of initial tenant qualification, the absence of urgency in collecting rents and not having proper eviction procedures in place are common characteristics of a mismanaged property.

Using property management or self – managing is another factor to consider. The novice investor often self-manages to save money, however the lack of efficiency is typically equated with the lack of time the investor has to dedicate to property management and ultimately the property suffers and becomes an underperformer.

Hiring an incapable property management company can also create an underperforming property. Property managers have been known to have poor screening procedures because they only get paid when a unit is tenanted. This is more common than you may expect. The bottom line is low rents and high turnover.

Often property managers also outsource repairs and “pad” the bills as extra income. If the owner was in control of the management, they would know exactly what the repair was, the cost of materials and labour necessary to fix the repair, not to mention the name and number of people in their database to do the repair.

If the property you are looking at is part of a condo corporation or strata, there could also be mismanagement of reserve funds. This is common and results in excessive monthly fees. Being on the condo/strata board and having a hand in how money is being spent can potentially bring down the monthly fees, thus enhancing the bottom line.

Ultimately by leaving the management to someone else or not managing the manager will often lead to underperformance. Negative results stemming from poor property management is also the main reason why many incompetent investors get out of property ownership.

Lack of routine maintenance

Lack of response to tenant requests of routine maintenance is the number one reason for turnover and vacancy. This obviously results in negative cash flow which contributes to underperformance.

This issue is very easy and inexpensive to correct. Hiring a caretaker instead of a property manager who has handyman skills allows payment of an hourly wage instead of an overall percentage rate and “padded” repair costs.

5 Reasons Why Investing in Property in Hull Will Create Wealth

This article aims to educate the reader on the 5 fundamentals of professional property investing specifically focused on the city of Hull in the East Riding of Yorkshire.maxresdefault-1.jpg (1280×720)

The topics covered

Leverage
Return on Investment
Rental Demand
Stress Testing
Exit Strategy
Leverage

When investing in property you can benefit by borrowing from the bank using the power of leverage. Typically, a buy to let mortgage requires you to put a 25% deposit down and the bank will provide the remaining 75% of the purchase price of the property. Where else can you get them to do that? Banks will lend you money to buy property. They are less likely to lend you money to grow your business and they definitely will not lend you money to buy stocks and shares. They understand that property is still a safe secure asset despite what the media says. To show you the power of leverage let’s show you an illustration. You have 100,000 to spend on an investment property. The following scenarios show how you can spend that money

Scenario 1 – Buying 1 property worth 100K with all your cash

Buying 1 house without a mortgage. Put down 100K and buy the property outright. The following year inflation raises the price of that property by 5%. The property is now worth 105K. You now have a property worth 105K and an equity of 5K in that property.

Scenario 2 – Buying 4 properties each worth 100K with a mortgage on each

You put a 25K deposit down on each property and a mortgage for the remaining 75K, spending all your 100K across 4 properties, not just 1 property this time. The following year inflation raises the prices of that property by 5%, the same as scenario 1. Each property is now worth 105K. However, now you have 4 of them so benefit from the 5K equity in each one. So you now have 20K equity instead of the 5K in scenario 1. You have still spent the same amount of money but have benefited from the leverage of money from the Bank.

2-3 bedroom properties in Hull can be bought for between 40-100K. They offer a superb opportunity to leverage your cash

Return on Investment

The return on investment is defined below

Return on investment = Gain of Investment – Cost of Investment / Cost of Investment

In basic terms, how hard is your money working for you? You can choose to invest in a new business venture, shares on the stock market or property. Each wealth creation channel has its own return on investment together with its associated risk. As a professional investor, you have to weigh up your appetite for risk and potential return on your investment. Let’s revisit the 2 leverage scenarios and examine the return on investment

Scenario 1 – Buying 1 property worth 100K with all your cash

Return on investment (ROI) is 5% e.g. 5K/100K

Scenario 2 – Buying 4 properties each worth 100K with a mortgage

Return on investment (ROI) is 20% e.g. 20K/100K Hull is a great place to start your professional property investing career because of the great return on investment. The reason is that property prices in Hull are among some of the cheapest in the UK. So, the cost of your investment is lower. This means not only can your money go further ie. you could buy more properties but each of those properties will go up in price and if you’ve leveraged your investments with mortgages your return on investment will be even greater.

Hull gives a better return on investment than more expensive cities in the UK because property prices are lower

Rental Demand

Of course, an investment property only becomes an asset if you are able to rent it out. If you can’t, that asset very quickly becomes a liability. A quick reminder on the definition of an asset and liability

Asset = Puts money in your pocket

Liability = Takes money out of your pocket

So, to ensure your investment property remains an asset you need to be confident that it is in an area of high rental demand. Hull is a hidden gem of a city. It is the gateway to Europe via ABP Ports and P&O Ferries and therefore has a thriving export/import industry. Siemens is going to locate a large wind turbine manufacturing plant there cementing its status as a center of excellence for Renewable energy technology. It is well connected by the M62 and has a broad manufacturing base. The Deep, the UKs only submarium has established itself as a tourist destination too. The University of Hull continues to grow and has a healthy student population around 25,000. However, due to the relatively low salaries in the region, affordability to buy a house is low. This consequently has led to a high demand for rental property.

The following postcodes in Hull are great rental areas. HU5 is close to the University for students. HU7 and HU9 are great for families.

Financing Deals

If your aim is to own 10, 20 or 30 properties and supply the deposits for each one you would soon run out of your own cash so how do the Professionals do it? Well, the answer is Other Peoples Money (OPM). They buy their properties at the right price. Money in property is made when you buy the property NOT when you sell it. Buying at the right price i.e. below market value or BMV as it’s called enables you to refinance with the mortgage lender at the Open Market Value and pull out most of your deposit cash. This enables you to recycle your pot of cash to purchase another property. However, in this market, the Council of Mortgage Lenders has imposed a 6-month rule that prevents you remortgaging unless the property has been held for at least 6 months. If you can demonstrate added value then you have a better chance of achieving the valuation you desire. On average Property, Prices double every 11 years. This means a 100K property is worth 200K in 11 years time. When you sell this property you pay off the original 100K mortgage and then have approximately 100K profit. This means if you bought 2 properties you can sell one and pay off the mortgage on the other and still have 1 cash flowing property with no mortgage on it. Using this principle it can be scaled up to any number of properties you wish to buy. Getting a mortgage can be difficult in this current economic climate but not impossible. The money hasn’t disappeared. It is just in different places. The trick is to find the people with the cash.

Buy for cash

Some properties in need of refurbishment in Hull can be bought for as little as 20K. This means you need to buy them with cash as mortgage providers generally do not lend below 40K. It also means you can move quickly and not have to involve Mortgage Lenders and Valuers in the purchase. Once you have refurbished the property you can then get a surveyor to value the property with a view to placing a mortgage on it and get most if not all of your cash returned.

Deposit Finance

You can help people with cash earn more than they are getting in the bank by offering them a higher interest rate for borrowing their money to fund a deposit. You can then return their money after refinancing.

How to Rent My Property

One of the most common questions landlords often ask us is “I can’t find tenants – please can you help me rent my property?” or “what do we need to do to rent my property quickly?”.maxresdefault.jpg (1280×720)

Often we are shown the property of landlords who are struggling to find tenants, yet on many occasions, we can tell within minutes of walking through the door, why they have had little interest. Usually, with just a little bit of work, these properties can be made more rentable, without having to commit a large budget.

Some tenant find principles

Most tenants will view five or six properties before choosing one to rent; and will often make up their mind based on a single viewing. After considering the type of tenant you want to attract, you need to help them choose your property over the others.

To successfully rent my property it is essential you know your market. The location and type of property you have to rent will in most cases dictate the type of tenant you should try and attract. Whichever category of tenant you are after, it makes commercial sense to attract the best tenants you can. If you want professionals in your property then you need to make your property appeal to the expectations of that type of tenant. If you are after students, LHA or house share; then your property needs to attract tenants who look for something different.

So if “how do I rent my property” is a question on your mind, here are some key pointers to help you rent your property quickly.

Rent My Property – Our Top Tips

1) First impressions: The tenants’ first view of your property is made as they walk up a road or up the drive. How does your property compare with others on the street? How does it look through the windows (often the first things prospective tenants see are the backs of curtains and blinds)? Outside; a tidy garden, clear path, freshly cut lawn, clean walls, and paintwork, have greater tenant appeal.

2) Clear the clutter: If your current tenants are messy, consider waiting until they have left until you show prospective tenants around. New tenants often cannot see past the clutter and therefore struggle to see themselves living there. If previous tenants have gone and left clutter inside or out – get rid of it.

3) Refresh and fix: The decoration and presentation of your property will affect the speed of letting and the rent you will achieve. Pay special attention to the paint on the walls (plain paint is often best); the carpets and the floors. Clean and repaint where necessary; fixing any broken door or drawer handles and taps. You are setting a standard so you should refresh according to how you would like your property to be looked after (and grubby properties attract grubby tenants).

4) Focus on the kitchen: Many tenants look at the kitchen more than any other room in the property. If you are to spend money on any room in the house, make this the one you look at first. If your kitchen looks “tired” then a repaint and new cupboard handles can make a major difference for a minimal cost. Any loose doors need to be fixed or replaced. Appliances do not have to be new but they should be clean – especially ovens and hobs.

5) Do not worry about “white goods”: Your property should supply a cooker as a minimum; other appliances are beneficial but not essential. If there are not any “white goods” in your property then you may be best waiting until tenants view the property before deciding whether to supply them (you have to maintain them if you do). Some tenants already have their own. You can always state to viewers that you will supply if required.

6) The bathroom: The second most important room in the house is the bathroom. A “tired” bathroom will put many tenants off. It does not need to be new but it should be clean and clear of clutter. All units and bath sides should be firmly fixed; taps and showers should work smoothly. Showers are now a modern day necessity so if your property does not have one, consider installing an electric shower over the bath as your property will rent quicker if you have one.

7) Carpets and floors: If your property has old or worn carpets, with heavy patterns or dark colors; consider replacing them with more modern, plain carpets. A good choice of color can brighten up a room and make it feel more spacious. An important room to look at is the living room. If your budget is restricted, this is the room to look at first. With the right choice, you will recover the cost of the extra rent you will likely achieve.

8) Windows and views: You can never let too much light shine into your property. Make sure all windows are clean and any curtains are open when tenants are shown round; and remove any old net curtains. You should supply curtain rails but curtains are not essential as tenants often prefer to provide their own to personalize the property. If your property has good natural light then use it and if at all possible conduct viewings during daylight hours.

9) Lamps and shades: It is possible to improve the appearance of a room with new lights and/or shades. In man

What Constitutes Separate Property in Virginia?

The separately owned property does not automatically become marital upon marriage, even when it is placed into joint names. If one party invested separate funds into a marital asset if they can trace out or prove that investment, they may be entitled to a return of the asset or the amount invested plus appreciation. This is a substantial issue in many cases.8c85989b_original.jpg (1440×960)a

The goal of the tracking process is to link every asset to its primary source, which is either separate property or marital property. Harris v. Harris, 2004 Va. App. LEXIS 138 (2004). See also Mann v Mann, 22 VA. App 459; 470S.E. 2d 605, 1996, holding that the interest passively earned on the husband’s premarital assets are separate.

The Code of Virginia, §20-107.3(A)(1)(iv) defines “separate property” as “that part of any property classified as separate pursuant to subdivision A.3. Code of Virginia, §20-107.3(A)(3)(e) provides that “when marital property and separate property are commingled into newly acquired property resulting in the loss of identity of the contributing properties, the commingled property shall be deemed transmuted to marital property. However, to the extent the contributed property is retraceable by a preponderance of the evidence and was not a gift, the contributed property shall retain its original classification.” (emphasis added). Code of Virginia, §20-107.3(A)(3)(g) provides that section (e) of this section shall apply to jointly owned property. No presumption of the gift shall arise under this section where (ii) newly acquired property is conveyed into joint ownership.

The increase in the value of separate property during the marriage is separate property unless marital property or the personal efforts of either party have contributed to such increases and then only to the extent of the increases in value attributable to such contributions. The personal efforts of either party must be significant and result in substantial appreciation of the separate property if any increase in value attributable thereto is to be considered marital property. See Code of Virginia, §20-107.3(A)(3)(a). All of the increases of the real estate, in this case, are attributable to market fluctuations.

Tracing involves a two-prong, burden-shifting test. First, a party has to prove he invested separate property into the real estate, which he did. It is undisputed that all of the money used to purchase the real estate was his traceable separate property. Then the burden shifts to the Complainant to prove, by clear and convincing evidence, that the transmutation was a gift. (See Va. Code Ann. § 20-107.3(A)(3)(g)) and Tunis v Turonis, 2003 Va. App. LEXIS 130, (2003)). There is no presumption of a gift that arises from the fact that one party put the real estate in the parties’ joint names. There is no evidence of a gift in this case. (See also Von Raab, 26 Va. App. at 248, 494 S.E.2d at 160 and Utsch v. Utsch, 38 Va. App. 450, 458, 565 S.E.2d 345, 349 (2002) (quoting Theismann, 22 Va. App. at 566, 471 S.E.2d at 813).If the party claiming a separate interest proves traceability and the other party fails to prove transmutation of the property by gift, “the Code states that the contributed separate property ‘shall retain its original classification.'” (emphasis added) Hart v Hart, 27 Va. App. 46, 68, 497 S.E. 2d 496, 506 (1998). (quoting Code § 20-107.3(A)(3)(d), (e)) West v West, 2003 Va. App. LEXIS 512 (2030).

The second issue is the passive appreciation in the value of the jointly titled real estate. Pursuant both to Virginia Code Va. 20-107.3(A), and using the Brandenburg formula, which has never been held erroneous by the Virginia appellate courts, (See Turonis, Supra) All of the passive appreciation on a party’s separate investment in real estate is also separate property. ” This issue was addressed in Kelley v. Kelley, No. 0896-99-2, 2000 Va. App. LEXIS 576 (Ct. of Appeals Aug. 1, 2000) holding that the trial court erred in failing to recognize that passive appreciation on the husband’s separate investment to the real estate was also the husband’s separate property. (emphasis added0. This issue was also addressed in the case of Stark v. Rankins, 2001 Va. App. LEXIS 375 (2001), holding that “in pertinent part, Code § 20-107.3(A)(1) provides that “the increase in value of separate property during the marriage is separate property, unless marital property or the personal efforts of either party have contributed to such increases and then only to the extent of the increases in value attributable to such contributions.” Read as a whole, subsection (A) of the statute contains a “presumption that the increase in the value of the separate property is separate.” (emphasis added) Martin v. Martin, 27 Va. App. 745, 753, 501 S.E.2d 450, 454 (1998). Moreover, we have held that the trial judge has a duty “to determine the extent to which [a spouse’s] separate property interest in the home increased in value during the… marriage.” Id. at 752, 501 S.E.2d at 453. There is a statutory presumption that the increase in the value of the separate property is separate. Id.

By contrast, although the customary care, maintenance, and upkeep of a residential home may preserve the value of the property, it generally does not add value to the home or alter its character. Martin, Supra. The Court held that the Wife’s evidence that at some time during the twelve years of marriage she personally painted, wallpapered, and carpeted parts of the house does not prove a “significant” personal effort.” These activities constitute part of the customary maintenance and upkeep that homeowners typically perform in order to preserve the home’s value; they do not by their nature impart value to the home. (See also Biviano v. Kenny, 2002 Va. App. LEXIS 157 (2002)). The Code of Virginia, Section 20-107.3(A)(3)a) places the burden on the non-owning spouse to prove that “(i) contributions of marital property or personal effort were made and (ii) the separate property increased in value.” Hoffman v. Hoffman, 2004 Va. App. LEXIS 216 2004). In pertinent part, Code § 20-107.3(A)(1) provides that “the increase in value of separate property during the marriage is separate property, unless marital property or the personal efforts of either party have contributed to such increases and then only to the extent of the increases in value attributable to such contributions.” Read as a whole, subsection (A) of the statute contains a “presumption that the increase in the value of the separate property is separate.”

Investment Rental Properties: When It’s Time to Buy or Sell

How does one determine when to sell a rental property investment? If you are going to buy rental properties – having a plan in place for the appropriate time to sell is important.

I have worked with many individuals over the years and showed them how to buy rental property. There are many things that need to be considered when purchasing for investment purposes. There is also – definitely – a time to sell.

How to Buy an Investment Property

– Is the property in a convenient location? Is it near shopping, in a neighborhood with good schools, and is it easily accessible to Interstates and connecting roads?

– Does the potential investment property have a sound foundation? What sort of issues does the home have? If it needs a new roof or the foundation is sunken in and is creating issues within the structure, it might not be a good investment at this time. If the issues are only cosmetic (needs a new bathroom floor, or painting, or carpeting) it may be worthwhile. Inspection reports will reveal the property’s flaws so the buyer and real estate professional can make a good decision.

– Do you have enough of a down payment to purchase the rental property so financing will not be an issue? In the current real estate market, most lenders will see a down payment of 40-50% as a good risk. If you can invest 100% into the property – this is even better.

– Income gained from the property needs to exceed expenses. Identify a creditworthy tenant, a reliable property manager, and a solid lease to make your property investment profitable. Property management fees are tax deductible.

– For residential property investments, single-family homes, as well as multi-tenant properties such as duplexes and fourplexes, are great ways to build income and wealth. Some investors may want to consider apartment complexes. In this case, a commercial property loan will be necessary to obtain financing.

– Use depreciation on the investment property as a way to receive an annual tax deduction. Check with your accountant, who will apply the depreciation deduction on the building, appliances — even window treatments. The government still allows tax deductions for accelerated depreciation on properties. Savvy real estate investors use this deduction to increase cash flow and net operating profit on a property.

When to Sell a Rental Property

I have a term for properties that need to be sold: alligator properties. These are properties that are eating the investor alive with carrying costs. When an investor looks at the bottom line on an alligator property – there is no profit – just expenses. An alligator property today may have been a good investment ten years ago. But some individuals will continue to hold a property until it depletes all of the profits they may have made in the first 5-7 years.

If a property has sentimental value (it was your first home, or your mother once owned it but now she’s deceased), some investors may tend to want to hold onto it. Having an emotional attachment to an investment property that is supposed to be generating income is not good. Sometimes an individual will hold this type of property even if it is not profitable. It may be time to consider selling this property.

– After a certain number of years, the depreciation tax deduction is used up on a property. Ask your accountant when this depreciation is no longer applicable. When the investment can no longer be depreciated – it’s time to sell that property, and purchase another rental.

– Consider selling the property and applying the 1031 tax code, so no capital gains tax is imposed on the profits. To paraphrase, the code states that an owner can sell one property in exchange for a securitized piece of property or tenant in common piece of property. Roll the profits from one property into a new investment to increase wealth and maintain it.

– On average, in the 12th year of property ownership — it is time to sell an investment. The decision to sell will depend on two factors. 1. Is there enough equity in the property to sell? Or, have you pulled out too much equity in the property? 2. Will the real estate market allow you to sell and obtain a nice profit? Ask a real estate professional for a custom market analysis on the property to see if it’s realistic to obtain a price that nets a nice profit.

– Alligator properties are not profitable for a variety of reasons. I am amazed at the number of investors who are not even aware that their property is losing money. If you have a property that might be losing money, then ask your real estate professional or accountant to perform a cost to income analysis. If it is indeed an alligator property — consider selling.

Investors buy and sell equities all the time. There is a time to purchase and a time to sell a home as well.

Elaine VonCannon is an award winning REALTOR with RE/Max Capital in Williamsburg, Virginia. She specializes in retirement and relocation in the Williamsburg, South Eastern Virginia area and in Virginia Estate properties. To learn more.

Financial Modeling: Investment Property Model

Building financial models is an art. The only way to improve your craft is to build a variety of financial models across a number of industries. Let’s try a model for an investment that is not beyond the reach of most individuals – an investment property.financial-modeling-3.jpg (1600×1271)

Before we jump into building a financial model, we should ask ourselves what drives the business that we are exploring. The answer will have significant implications for how we construct the model.

Who Will Use It?

Who will be using this model and what will they be using it for? A company may have a new product for which they need to calculate an optimal price. Or an investor may want to map out a project to see what kind of investment return he or she can expect.

Depending on these scenarios, the end result of what the model will calculate may be very different. Unless you know exactly what decision the user of your model needs to make, you may find yourself starting over several times until you find an approach that uses the right inputs to find the appropriate outputs.

On to Real Estate

In our scenario, we want to find out what kind of financial return we can expect from an investment property given certain information about the investment. This information would include variables such as the purchase price, rate of appreciation, the price at which we can rent it out, the financing terms available fore the property, etc.

Our return on this investment will be driven by two primary factors: our rental income and the appreciation of the property value. Therefore, we should begin by forecasting rental income and the appreciation of the property in consideration.

Once we have built out that portion of the model, we can use the information we have calculated to figure out how we will finance the purchase of the property and what financial expenses we can expect to incur as a result.

Next, we tackle the property management expenses. We will need to use the property value that we forecasted in order to be able to calculate property taxes, so it is important that we build the model in a certain order.

With these projections in place, we can begin to piece together the income statement and the balance sheet. As we put these in place, we may spot items that we haven’t yet calculated and we may have to go back and add them in the appropriate places.

Finally, we can use these financials to project the cash flow to the investor and calculate our return on investment.

Laying Out the Model

We should also think about how we want to lay it out so we keep our workspace clean. In Excel, one of the best ways to organize financial models is to separate certain sections of the model on different worksheets.

We can give each tab a name that describes the information contained in it. This way, other users of the model can better understand where data is calculated in the model and how it flows.

In our investment property model, let’s use four tabs: property, financing, expenses, and financials. Property, financing and expenses will be the tabs on which we input assumption and make projections for our model. The financials tab will be our results page where we will display the output of our model in a way that’s easily understood.

Forecasting Revenues

Let’s start with the property tab by renaming the tab “Property” and adding this title in cell A1 of the worksheet. By taking care of some of this formatting issuing on the front end, we’ll have an easier time keeping the model clean.

Next, let’s set up our assumptions box. A few rows below the title, type “Assumptions” and make a vertical list of the following inputs:

Purchase Price
Initial Monthly Rent
Occupancy Rate
Annual Appreciation
Annual Rent Increase
Broker Fee
Investment Period

In the cells to the right of each input label, we’ll set up an input field by adding a realistic placeholder for each value. We will format each of these values to be blue in color. This is a common modeling convention to indicate that these are input values. This formatting will make it easier for us and others to understand how the model flows. Here are some corresponding values to start with:

$250,000.00
$1,550.00
95.00%
3.50%
1.00%
6.00%
4 years

The purchase price will be the price we expect to pay for a particular property. The initial monthly rent will be the price for which we expect to rent out the property. The occupancy rate will measure how well we keep the property rented out (95% occupancy will mean that there will only be about 18 days that the property will go un-rented between tenants each year).

Annual appreciation will determine the rate that the value of our property increases (or decreases) each year. Annual rent increase will determine how much we will increase the rent each year. The broker fee measures what percentage of the sale price of the property we will have to pay a broker when we sell the property.

The investment period is how long we will hold the property for before we sell it. Now that we have a good set of property assumptions down, we can begin to make calculations based on these assumptions.

Mallorca Property Market Report October 2010

Introduction

It is 6 months since I wrote my last Mallorca Property Market Report and it is always a little bit worrying going back to reflect on what one has said and, whether with the benefit of hindsight, an alternative conclusion might have emerged! Back in March the big question was whether we could call the “bottom of the market” and what that might actually mean in practice – one thing is a market that has touched bottom and ready to move up the gears quickly, with real growth just around the corner, while the other is a market where values have bottomed out but the expectations are much less about growth and much more about “stagnation”!

My conclusion at the time was that we may indeed be able to call the bottom of the market if we were to define it in terms of reaching the “bottom of the cycle of underlying residential property values in Mallorca” (please note the very important reference to underlying values, something very different to, for example, asking prices!). More specifically:

March 2010 Market Report Conclusions

1. Underlying values to bottom out at current levels
2. The evolution of asking prices to vary dependent upon whether they have been set realistically / adjusted sufficiently to account for the significant falls in property values.
3. Future growth in values to be non existent in the short term and very limited and restricted to underlying inflation in the medium term ie no real growth in the next couple of years. Modest growth over above general inflation levels in the economy to follow thereafter at levels of 1-3%
4. Special properties with “unique” qualities – front line; very good sea views; restrictive planning conditions – rural fincas; high quality developments etc to perform better / out perform the market in the medium / long term.
5. Land values to hold down prices in the medium term as developers take advantage of cheaper land to sell at these new lower levels for the medium term. Long term shortage of supply, save for those in urban areas and for “mid range” apartments, like Palma, Inca and Manacor, should see values rise

Alongside these conclusions I set out a few “tips” or recommendations for both owners and potential investors of Mallorca residential property:

1. If you are a lifestyle purchaser or investor with an income return bias start to look at the emerging buying opportunities BUT..
2. “BUYER BEWARE” it is all about value and ensuring that you buy at an appropriate level and don’t over pay on unrealistically priced properties.
3. Look at new build where good discounts are available (but beware of off plan unless your deposit(s) are backed with a bank guarantee)
4. Look at properties with “defensive” qualities, as set out in (4) above, for greater short term security
5. Look at land to hold as a long term investment / to build a home. Particularly rural plots, front line or with very good sea views etc

Market Update March 2010 – October 2010

So what has been the reality of the last 6 months? Have my conclusions been largely borne out or has hindsight led us to see that we should have reached alternative conclusions?

Lets start by reviewing the statistics and data that have emerged since the March 2010 report and what the so called specialists have been saying. But before that let’s enjoy the headline that greeted me this week that none other than the Spanish Prime Minister had just called the bottom of the property market in Spain! While I am immediately cynical when it comes to anything said by a politician, particularly when it is a Foreign PM talking to US investors in a desperate attempt to convince them to buy bundles of government bonds at the lowest possible yield, he did seem to be confirming what I said, namely that we are at the bottom and although it is true that I said it 6 months ago, if prices have largely remained unchanged over that period, then it could be said that it was the bottom then as well as now!

The problem for me is that Zapatero then proceeded to get over excited, quoting official statistics that appeared to indicate that in many areas of Spain prices were starting to rise ie we had touched bottom and wey hey we are on an upward trajectory again! So let’s look at the emerging data, starting with ZP’s own Housing Ministry.

National Institute of Statistics (INE) According to new figures from the INE, Spanish property prices rose (quarterly) for the first time in 3 years. More specifically these figures claim that average prices at the end of June were 1.6% higher than at the end of March although over 12 months prices are still down but by just 0.9%. For the Balearic Islands / Mallorca the statistics weren’t quite as rosy but still offered “some positive” news for those desperate to call the end of anything called recession / crisis / market crash etc! Here the overall figures put property values unchanged for the last quarter but down 2% for the year. For new build property it appears there is a “rebound” with prices up 1.4% even though for the last 12 months prices remain 2.5% down. Second hand property values were down 1% for the last quarter and 1.6% over 12 months.

Interestingly only Navarra in Northern Spain came out with worse data with a small fall of 0.1% in the last quarter. In other

Should Australians Still Invest Properties in the United States?

For several years now, people have been trying to call me to ask if it is still a good idea to invest in property in the United States? I have been buying properties in the United States for more than 20 years already.Find-the-right-investment-property-with-a-Cohen-Handler-buyers-agent_578_6031873_0_14107055_1000.jpg (1000×831)

Buying a real estate in the United States started in the late 80s when I got myself involved in the loan debacle and savings. This was when the banking system in the southern states was failing and we even had to make transactions of the property buying and selling without any banking system, since there were virtually no banks around.

Now it’s as if there are bank crisis every 20 years in America. Prices significantly dropped, sometimes 95 cents on the dollar, when I was buying properties. We can even buy properties 5 cents on the dollar! There were even home units that we could buy for as low as $600 and a couple of thousand dollars per house

The fact that the Americans are currently going through a major bank crisis, a lot of Australians are apprehensive to take advantage of the US market. Perhaps you don’t have to worry about this issue if you are not going to live in the United States.

In the late 80s, I did spend a lot of time with some Australians who were trying to save what’s left of their capital, the capital that they have invested in the U.S. And after 20 years, I’m doing it again – helping Australians who lost a lot of money, to get out of the United States and will still be able to keep the remaining capital that they have invested.

The American and Australian Culture Differences

Why do you think this happened? Why do some Australians invest in the United States and end up being disappointed? Even if we read about 15% returns – 25% returns. I will examine that fact for you in a little while. But before that, I’d like to go back to analyzing the differences between the way Australians do business from the way the Americans do business. Most of this is outlined in the book, written in the 1970’s called, “American and Australian Cultural Differences”.

In the book that Donald Trump wrote, “The Art of the Deal”, he simply mentioned there is no such thing as a win-win in business. It has always been ‘I win and you lose’. Here’s the first major difference, in Australia, people come first, then the money comes second. While in the United States, it is the other way around, big business and the big bucks come first before the people. This doesn’t mean that Americans are bad and we are good, we simply have a different culture. Also, our governing laws lean that way.

Our Australian culture and mentality are reflected in our legal system, a system that is shared with both legal and equitable law. Once a judge sees a contract that he doesn’t like, he can overturn the contract since under the equitable law, which means fair play law. Unfortunately, this is not how it works in the American playing field. The real deal is always on the piece of paper.

On the lighter side of playing in the US market is, we both can sit down and talk work out a contract. I can even trade a portion of a property in the US for only $7. As long as we both sign a one page General Warranty Deed or Warranty Deed, that property is bought for $7. And it costs that much because that is what cost me to record this at the local courthouse and make the purchase. That is the deal whether we had a creative lease option or an installment contract. Unfortunately, if you get into some bad terms, you have no government body to come in and looks after you. The deal is, the dollar comes first.

So, if ever you are in a country where the real estate has an “I win and you lose” kind of rule, be careful. They do have the different set of rules.

Here are some interesting stories of what actually happened over the years. Perhaps by the end of this article, some people can instill in their heads that the US may not be the best place to invest, unless, you already live there.

US Property Management
A lot of Australians assume that the US Property Management is handled the same way as it is in Australia. Here, when you buy or sell a piece of real estate, it is managed by the real estate agent. In the US, the people who sold the property to you have nothing to do with the management. Here, it is difficult to find someone who shares the same moral code as in Australia. And if ever you find one, it is expensive, and it can drain you financially.

All About Affordable Health Insurance Plans

While consumers search for affordable health insurance, they have priced in their mind as the top priority. A general conception among the consumers is that cheap health plans should not be costly the cheapest health plan available in the market is their target. However, this approach is not good. Sometimes, paying for a cheap health insurance plan but still not getting the required level of coverage results only in wastage of money.

With the implementation of the affordable care act, the reach of affordable health plans is set to increase. Or at least, this is what is believed to be the objective of healthcare reforms. However, lots of consumers are still in confusion about how things would work. In this article, we will discuss some detailed options that consumers can try while looking to buy affordable health plans.

To get a hand on affordable health insurance plans, consumers need to take of certain things. First among them is about knowing the options in the particular state of the residence. There are lots of state and federal government-run programs that could be suitable for consumers. Knowing the options is pretty important. Next would be to understand the terms and conditions of all the programs and check the eligibility criteria for each one of them. Further, consumers should know their rights after the implementation of healthcare reforms, and something within a few days, they may qualify for a particular program or could be allowed to avail a particular health insurance plan. If consumers take care of these steps, there is no reason why consumers can’t land on an affordable health plan that could cater to the medical care needs.

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Let’s discuss some options related to affordable health insurance plans state-wise:

State-run affordable health insurance programs in California

While considering California, there are three affordable health insurance plans that are run by the state government. Consumers can surely get benefitted by these if they are eligible for the benefits.

• Major Risk Medical Insurance Program (MRMIP)

This program is a very handy one offering limited health benefits to California residents. If consumers are unable to purchase health plans due to a preexisting medical condition, they can see if they qualify for this program and get benefits.

• Healthy Families Program

Healthy Families Program offers Californians with low-cost health, dental, and vision coverage. This is mainly geared to children whose parents earn too much to qualify for public assistance. This program is administered by MRMIP.

• Access for Infants and Mothers Program (AIM)

Access for Infants and Mothers Program provides prenatal and preventive care for pregnant women having low income in California. It is administered by a five-person board that has established a comprehensive benefits package that includes both inpatient and outpatient care for program enrollees.

Some facts about affordable health insurance in Florida

Getting Insurance To Pay For Preventive Health Under The ACA

The Affordable Care Act (ACA) mandates that health insurance companies pay for preventive health visits. However, that term is somewhat deceptive, as consumers may feel they can visit the doctor for just a general checkup, talk about anything, and the visit will be paid 100% with no copay. In fact, some, and perhaps most, health insurance companies only cover the A and B recommendations of the U.S. Preventive Services Task Force.

These recommendations cover such topics as providing counseling on smoking cessation, alcohol abuse, obesity, and tests for blood pressure, cholesterol, and diabetes (for at risk patients), and some cancer screening physical exams. BUT if a patient mentions casually that he or she is feeling generally fatigued, the doctor could write down a diagnosis related to that fatigue and effectively transform the “wellness visit” into a “sick visit.” The same is true if the patient mentions occasional sleeplessness, upset stomach, stress, headaches, or any other medical condition. In order to get the “free preventive health” visit paid for 100%, the visit needs to be confined to a very narrow group of topics that most people will find vert constrained.

Similarly, the ACA calls for insurance companies to pay for preventive colonoscopy screenings for colon cancer. However, once again there is a catch. If the doctor finds any kind of problem during the colonoscopy and writes down a diagnosis code other than “routine preventive health screening,” the insurance company may not, and probably will not, pay for the colonoscopy directly. Instead, the costs would be applied to the annual deductible, which means most patients would get stuck paying for the cost of the screening.

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This latter possibility frustrates the intention of the ACA. The law was written to encourage everyone – those at risk as well as those facing no known risk – to get checked. But if people go into the procedure expecting insurance to pay the cost, and then a week later receive a surprise letter indicating they are responsible for the $2,000 – $2,500 cost, it will give people a strong financial disincentive to getting tested.

As an attorney, I wonder how the law could get twisted around to this extent. The purpose of a colonoscopy is determined at the moment an appointment is made, not ex-post facto during or after the colonoscopy. If the patient has no symptoms and is simply getting a colonoscopy to screen for colon cancer because the patient has reached age 45 or 50 or 55, then that purpose or intent cannot be negated by subsequent findings of any condition. What if the doctor finds a minor noncancerous infection and notes that on the claim form? Will that diagnosis void the 100% payment for preventive service? If so, it gives patients a strong incentive to tell their GI doctors that they are only to note on the claim form “yes or no” in response to colon cancer and nothing else. Normally, we would want to encourage doctors to share all information with patients, and the patients would want that as well. But securing payment for preventive services requires the doctor code up the entire procedure as routine preventive screening.

The question is how do consumers inform the government of the need for a special coding or otherwise provide guidance on preventive screening based on intent at the time of service, not on subsequent findings? I could write my local congressman, but he is a newly elected conservative Republican who opposes health care and everything else proposed by Obama. If I wrote him on the need for clarification of preventive health visits, he would interpret that as a letter advising him to vote against health care reform at every opportunity. I doubt my two conservative Republican senators would be any different. They have stand pat reply letters on health care reform that they send to all constituents who write in regarding health care matters.

To my knowledge, there is no way to make effective suggestions to the Obama administration. Perhaps the only solution is to publicize the problem in articles and raise these issues in discussion forums

There is a clear and absolute need for government to get involved in the health care sector. You seem to forget how upset people were with the non-government, pure private sector-based health care system that left 49 million Americans uninsured. When those facts are mentioned to people abroad, they think of America as having a Third World type health care system. Few Japanese, Canadians, or Europeans would trade their existing health care coverage for what they perceive as the gross inequities in the US Health Care System.

The Affordable Care Act, I agree, completely fails to address the fundamental cost driver of health care. For example, it perpetuates and even exacerbates the tendency of consumers to purchase health services without any regard to price. Efficiency in private markets requires cost-conscious consumers; we don’t have that in health care.