Norada Real Estate Investments

Archives for May 2010

3 Reasons a Series LLC Should be a Real Estate Investor’s Best Friend

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For those of you wondering, a Series LLC is a regular LLC with a twist – it can have an unlimited number of subsidiaries (called Cells), and each subsidiary is treated as a separate structure where liability is concerned – if you set the structure up and run it properly. So far eight states have Series LLC legislation on the books (Delaware, Illinois, Iowa, Oklahoma, Nevada, Tennessee, Texas and Utah). But even if you don’t live or own property in one of those states, you can still use a Series LLC by qualifying it to do business in the state(s) where you want to operate.

I think this is perhaps the ideal structure for real estate investors (and anyone else) who wants to keep their assets safe without spending all the profit on legal structures.

Here are my 3 favorite reasons to use a Series LLC with real estate:

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3 Things To Do Before Walking Away From Investment Property

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If you or someone you know dumped some “bad” real estate, then there might be a ticking tax bomb coming your way. It’s a Form 1099-C and it means you have a “cancellation of debt”, and cancellation of debt is taxable.

So if the lender forecloses and takes your property from you, or you do a short sale, chances are the current value is less than your loan. That means the lender has to forgive part of the debt or may pursue you for the difference.

If they forgive the debt, you have a cancellation of debt. And if you have a cancellation of debt, you have a taxable event. The amount of debt that is cancelled is taxable income to you. You report it on your Form 1040 just like any other type of ordinary income. In other words, you never got a check, but you have to pay tax on it.

So, let’s go with the foreclosure or short sale scenario and assume that your lender has forgiven the debt. Just as a note though, don’t assume that the lender is forgiving all the debt. In most states, they can pursue you if you’ve refinanced the first loan or for a second mortgage. And depending on your particular state laws, they could wait years to come after you for the amount. Yikes!

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Housing Vacancies Reach New Record

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Housing and rental vacancies have hit unprecedented levels. Included in these record vacancy numbers are a plague of abandoned properties fated for demolition, and millions more homes being withheld from market. Of the more than 19 million empty homes recorded by the US Census, just under 2 million are up for sale, many of them in uninhabitable condition.

Even though the economy remains weak and the housing market, in particular, is still years from recovery, some news suggests that stronger growth can be expected as the year progresses.

A record 19.2 million U.S. homes are vacant, representing the highest number of residential properties that are vacant of all-time, according to the U.S. Census Bureau. The figure represents 14.5% of all the homes in America.

The dismal figure was issued as part of the Census Bureau homeownership quarterly survey for the first quarter of 2010. A total of 19,230,000 homes are vacant, according to the report. The same study shows that 10.6% of all in the nation are vacant, also an all-time record.

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National Economic Outlook

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Even though the economy remains weak and the housing market, in particular, is still years from recovery, some news suggests that stronger growth can be expected as the year progresses.

Technically, the economy already grew sharply in the fourth quarter of 2009, and industrial production rebounded 5 percent since hitting bottom last June, but such technical measures are meaningless unless accompanied by job growth and consumer spending.

The job situation is mixed. Overall, there are 3 percent fewer jobs in the economy than there were last year at this time. But new job losses slowed to just a trickle in the last few months, and there was improvement in such critical areas as retail trade and business help. Manufacturing jobs are down 8 percent in the last year, despite the improvement in industrial production. In government, an increase in jobs at the federal level was more then offset by reductions at the state and local levels. In health care, the only reliable job-creating sector during this recession, growth has slowed to a crawl.

The most encouraging news is that consumer credit continues to fall. The economy cannot recover until consumers have reduced their level of short-term debt, that is, credit card and automobile debt. The recession happened because consumers maxed out their credit and had to stop spending, and recovery won't happen until credit has been reduced to a level where spending can resume. So far, the adjustment has been about 8 percent.

Although the rest of the economy will recover steadily over the next year, the housing market will lag behind because of the large remaining inventory of excess homes. The current level of construction is about half a million new homes per year, down sharply from the 2 million level that prevailed for years. But even at this reduced level, the absorption of the past excess will take several more years.

What to Consider When Hiring a Property Management Company

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If a property owner manages a growing number of , it’s inevitable that the day will come when they ask, “Should I outsource the day-to-day operations of my business to a property management company?”

Deciding when to outsource and which company to hire is one of the most important business decisions a property owner can make. Choose wisely, and an owner will be rewarded with the peace of mind that comes with responsible property management. Choose incorrectly, and an owner will end up working harder after hiring a property management company.

Whether an owner owns one or one hundred properties, it’s important to consider whether or not they’re prepared to hire a property management company. Handing over the management of property is a major decision. Before making that choice, owners will want to make sure they understand the following:

  • The implications of self-owned management;
  • The pros of outsourcing management to a third party;
  • The corresponding cons; and,
  • The alternatives to outsourcing.

Let’s take a look at each consideration in detail.

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Who Can You Trust?

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Our "favorite housing economist" Dr. Bob Shiller thinks the market (especially housing) is already overheated.  "We are in a very unusual circumstance," says Shiller, "because of the massive bailouts, the homebuyer tax credits, the Fed's purchase of mortgage-backed securities – and these things are coming to an end.  I don't trust the trend we have."

"So the question is, are we at risk for even more price increases, and another bubble?  I think we are at risk, but I'm not predicting it," says Shiller.  "I think it's more likely we don't do so well from here," Moneynews reported Shiller telling The Motley Fool.

So is that "a yes, a no, I know, or a maybe?"

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