Archive for the ‘Investor Tips’ Category

By Michael C. Zari

INTRODUCTION

In Part 1 of this series on GO Zone property leasing and GO Zone property management, we went over some of the basics for getting an tenant into your newly purchased GO Zone property.  Then in Part 2 of this series, we detailed the different options for marketing, getting a tenant, and managing your GO Zone property and also discussed the case where you may have a builder leaseback presented to you (i.e. cash flow from day 1).  In this part of the series, we discuss the steps involved with finding, interviewing and hiring a GO Zone Property Manager.

MITIGATING THE CHICKEN AND EGG SCENARIO

When hiring a full service Property Manager to help lease-up and manage your GO Zone property, you will always face the inevitable chicken and egg situation.  This situation holds true even outside of the GO Zone.  Typically, you will need to sign a property management agreement with the group.  This is typically for a 1-year period.  Once this agreement is in place, then the property manager will start to market your property for you.

Hence the chicken and egg scenario.  How do you know how good they will be at quickly finding you a quality tenant before you sign the agreement with them and become fully committed to them.  Wearing the hat of the property manager now, they are typically not willing to expend efforts marketing your property and finding potential tenants for you unless you have fully committed to using their services. 

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By Michael C. Zari

INTRODUCTION

In Part 1 of this series, we went over some of the basics for getting an tenant into your newly purchased GO Zone property.  In this article, we will go into more details on the options you have for getting that tenant and, more importantly, starting that cash flow as soon as possible.

As you may remember, there is a lot involved with getting to that first rent check.  All the marketing, potential tenant due diligence, and then management of the tenant after they get into the property can be very taxing on an individual.

RENTING FROM LONG DISTANCE

All the previous discussions are further complicated depending on how far you live from the property.  Take it from me, trying to do all the lease-up work and property management yourself from a long distance is an all consuming task; one which I do not recommend to anyone who has other obligations (i.e. a life).  More on this shortly.

PROFESSIONAL PROPERTY MANAGERS

Enter the professional Property Manager.  Typically, a property manager gets paid for both the lease up of a property, and also on the management of the tenant once in the property.  During the lease up, property managers spend very real dollars advertising the property and thus they typically can command a lease up fee.  In many locations (both inside and outside of the GO Zone), this typically equates to a charge of 1/2 of the first month’s rent.

In addition, a management fee is also received by the property manager on a monthly basis and is a percentage of the monthly rent amount.  For long term leases, this averages in the 10-12% range.  Note that the actual management fee can vary widely depending upon the area where the property is located, the type of property, etc.

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By Michael C. Zari

I assume that since you are reading this article, you should already know about the Gulf Opportunity (or “GO”) Zone and the tax benefits associated with purchasing real estate in the area.  With that said, the end of 2010 brought about many splendid holiday wishes to the real estate investment world as you may already know from other news on this site.  Specifically, 2 major things happened:

1. The GO Zone legislation was extended (again); and
2. The GO Zone extension was finally “fixed”!

GO ZONE LEGISLATION UPDATE

On December 17th, 2010, President Obama signed tax cut legislation into law that also extended (and fixed) the GO Zone benefits.

The specifics of the new legislation can be found in the “Tax Relief, Unemployment Insurance Re-authorization, and Job Creation Act”.  For those with the urge to read up on this, you will want to focus on Section 765 of this Act.  There you will see where changes have been made to the dates for the Bonus Depreciation Deduction Applicable to the GO Zone.

THE WAY IT WAS

Prior to this, the last GO Zone extension extended the GO Zone benefits until the end of 2010, but only on the construction/ improvements that were completed prior to end of 2009.

Said another way, the only way to have received GO Zone benefits on purchases in 2010 would be by either purchasing a home whose improvements were completed in 2009, or whose majority of improvements were done by such time.  This was all fine at the beginning of the year, but as the clock ticked towards the end of the year, it was very hard to find properties that still met all the criteria that the IRS imposes on these purchases so that you may benefit from the bonus depreciation.

GO ZONE BENEFITS NOW

With the signing of the new legislation, the time lines of the benefits are now extended to December 31, 2011.  To benefit from  the GO Zone tax benefits, all purchases must be completed prior to the end of this year.  Pretty straight forward.

SO WHAT WAS “FIXED?”

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By Michael C. Zari

For those of you who have been here since the beginning, it seems like it was just the other day when you could do some good and get rewarded for your efforts; a win-win situation for all! I am talking about the GO Zone tax benefits put in place by the Internal Revenue Service after Hurricane Katrina destroyed the Mississippi Gulf Coast.

Many people have moved on to new headlines that occupy their days:

• Trapped miners recently rescued in Chile;
• Election Season is here again;
• The Earthquake in Indonesia;
• The BP oil spill;
• and still others.

However, with the window for the GO Zone benefits quickly coming to an end (I will reiterate below), there is one topic that should be at the forefront of your mind:

• Getting a HUGE and legitimate Tax break from the IRS!

That is right, you may have forgotten but with a the purchase of a qualified GO Zone property, you may get a huge tax benefit from the IRS this year. Specifically, you can see up to 50% bonus depreciation available the year that you purchase. This means (as will show in the below example) a tax benefit of $60,000 for purchasing just one single single-family home this year.

The catch? The offer from the IRS ends soon (see below).

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By Michael C. Zari

With Tax season right around the corner, I am sure that on everyone’s mind is the topic of getting every (legal) tax benefit that they can get.  We thought it was appropriate given the season to overview the GO Zone benefits and update everyone on what they can do to take advantage of this offer from the IRS.

GO ZONE EXTENSION UNTIL 12/31/2010

As you may already know, the IRS extended the benefits of the GO Zone out until the end of this year.  That’s the good news.  There are a few items you need to be well aware of before breaking out your checkbook to purchase properties.

#1:  LOCATION, LOCATION, LOCATION!

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By Michael C. Zari

With the taste of Summer now in the air and with Tax season still fresh on everyone’s mind, I have been receiving a lot of questions from real estate investors who are looking for clarifications on the GO Zone time lines.  “So when exactly do the benefits end?” is the most common question that I have been receiving and more so as we approach mid-year.

GO ZONE EXTENSION

As you may already know, the IRS put an extension in place that extended the benefits of the GO Zone out until 2010.  The catch?  Well first of all, the extension ONLY extended the tax benefits of the GO Zone in certain areas.  In certain locations in Mississippi and Louisiana, you can still claim bonus depreciation benefits through 2010.

In Mississippi, the eligible counties are:

• Harrison County;
• River County;
• Hancock County;
• Stone County; and
• Jackson County.

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By Michael C. Zari

I have been asked recently for some clarifications on the recent changes from Fannie Mae on Reserve Requirements when purchasing Investment Properties. As you may know, Fannie Mae has repeatedly changed its guidelines on this topic. Staying on top of this information is key as a real estate investor.

Per Fannie Mae’s February 6th Announcement:

1.  When the borrower will own one to four financed properties (including the subject property) the reserve requirements are:

• Two months of reserves on the subject property if it is a second home,
• Six months of reserves on the subject property if it is an investment property, and
• Two months of reserves on each other financed second home or investment property.

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