Real Deal REInvestor Network

WHAT IS IRC SECTION 1031?
Section 1031 of the Internal Revenue Code allows an owner of investment property to exchange property and defer paying federal and state capital gain taxes (15%+ applicable state taxes) if they purchase a like-kind property following the rules and regulations of the Internal Revenue Code. This allows investors to use all of their proceeds from their sale to leverage into more valuable real estate, increase cash flow, diversify into other properties, reduce management or consolidate into one property.

WHAT IS LIKE-KIND PROPERTY?
There is some confusion regarding what type of property qualifies for a §1031 tax deferred exchange. The Internal Revenue Code Section 1031 states that “no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.” Like-Kind property can include, but is not limited to, any of the following, provided it is held for investment:

- Single Family Rental
- Duplex
- Apartment
- Commercial Property
- Raw Land

For example, a single family rental can be exchanged for raw land, or apartments or a commercial building. In addition, properties can be exchanged anywhere within the United States.

DOES AN EXCHANGE NEED TO BE SIMULTANEOUS?
No, contrary to what most owners envision, a §1031 tax deferred exchange is rarely a two-party swap. Most exchanges are delayed exchanges, whereby the Exchanger has 180 days between the sale of the relinquished property and the closing of their replacement property. They must identify the potential replacement property(s) within 45 days from closing on their relinquished property.

WHEN IS A §1031 EXCHANGE APPLICABLE?
It is applicable whenever a property owner intends to SELL any property that is not their primary residence (and falls under the definition of like-kind) and plans to BUY another like-kind property within 180 calendar days following the closing of their relinquished property.

Luis D Roque
www.hisrealestatenetwork.com
by: Scott Saunders

Regardless of whether you are in foreclosure, if selling your home will not net enough to pay off your existing mortgages, you may want to consider selling on a short sale. For many years, there were few reasons to sell on a short sale, apart from earning the real estate agent a commission, but times have changed.

 

Why Agents Recommend Short Sales

You'll hear the myth over and over: "Short sales protect credit." That's only partially true. Your credit will tank if you fall behind on your payments. Experts say agents who repeat that mantra without clarification do so out of ignorance or self interest, take your pick.

There is one exception. If you have no 60-day-plus late pays on your credit report, Fannie Mae may still offer you a loan to buy another home. However, most people who sell on a short sale are in default past 60 days, so this exception does not apply to them.

A short sale could ruin your credit rating. It might not happen right away, but sooner or later, unless the bank has specifically agreed not to report the shortage, the bank may report it as a Score Factor Code 22. That score factor relates to delinquencies, derogatory records and collections.

Real estate agents should not give legal advice to clients facing foreclosure nor assure sellers that their credit rating will not suffer adverse affects. Those who insist on this practice may find themselves facing a process server down the road and be praying that their errors and omissions insurance will cover them.

Here are the main reasons why agents encourage sellers to do a short sale:

 

• Agents get paid by the lender to do a short sale.

   

• Agents don't get paid if the seller loses the home to the bank by going all the way through foreclosure.

   

• Even if the home never sells on a short sale, the agent gets free publicity (and new business) through signage, open houses, marketing and posting listings online.

 

Benefits for Foreclosure

Although going through foreclosure is often painful and embarrassing for sellers, there are benefits:

 

• No mortgage payments to make.

   

• Foreclosure proceedings take months to conclude.

   

• The home is still yours until the foreclosure is final.

   

• No strangers are traipsing through your home.

   

• Banks sometimes give cash for keys after the public sale.

 

Drawbacks to Foreclosure

Few people, apart from the sellers who choose to buy and bail, really want to experience a foreclosure. Memories are made in a home, and losing it can shatter future dreams. Here are other drawbacks to foreclosures:

 

• The right of home ownership is striped away.

   

• Homeowners return to the rental market as a renter.

   

• The bank may post a Notice of Public Sale on your front door.

   

• Your credit takes a nose dive, and a foreclosure will remain on your credit report for 10 years.

   

• Under Fannie Mae guidelines, without extenuating circumstances, you will not be eligible to buy another home for 7 years.

 

Benefits for Short Sale

Of course, you will make your real estate agent happy because agents are happy to take listings. But what about you? What do you get out of a short sale?

 

• Retain some dignity in knowing that you sold your home.

   

• You won't suffer the social stigma of the "F" word: foreclosure.

   

• No mortgage payments to make, unless you choose to make them.

   

• You can meet the new owners.

   

• You will be eligible, under Fannie Mae guidelines, to buy another home in 2 years instead of 5 to 7 years.

   

• If your credit report does not reflect a 60-day+ late pay, under Fannie Mae guidelines, you will be eligible to buy another home immediately.

 

Drawbacks to a Short Sale

You may experience some of the same drawbacks as a foreclosure, but they might seem less intense.

 

• Waiting for the bank to respond to an offer is frustrating.

   

• The bank will want to examine personal records such as tax returns, bank accounts, assets and liabilities, in addition to asking for a hardship letter from you.

   

• Accommodating buyers will mean keeping your home in spotless condition for weeks or months until an offer is received and putting up with traffic through your home.

   

• There is no assurance the bank will accept a short sale offer.

   

• The derogatory credit will remain on your credit report for 7 years.

For many sellers, though, the chance to buy another home in two years is the real motivation to do a short sale. Good credit behavior can supplant bad credit after two years, even though the derogatory will remain.

Luis D Roque
www.realdealcommunity.com
www.hisrealestatenetwork.com
by. Elizabeth Weintraub

If you want to supercharge your in person networking skills, then these twelve questions are the foundational keys and the tools you will need to expand your network rapidly. These pearls of wisdom were taught to me by Larry “The Connector” Benet. Larry teaches people how to turn contacts into relationships. Enjoy, and may your network flourish.

1. What is the most important project you are currently involved, in case I or someone I know can be a resource to you?

This question helps you determine very quickly if you can add value, and adding value is the key to power networking. Be sure to write down the response on the back of their business card.

2. Who is your perfect customer, in case I can refer you business?

Generally, people love to be referred business. Remember to always seek to give and add value. Be someone who can not be “out gived”.

3. How did you get started in ____________?

This question can often unlock the true passion of the person you are speaking with. Be sure to note those passions so that you can look for ways to add value.

4. I meet lots of people, what should I tell people about you?

This question helps understand that person’s perceived image and value. It also helps you to gain clarity of what it is they do.

5. What do you do for fun when you’re not doing ______________?

This is another great question to help you determine the person’s true passion in life. If what they do for fun is something you also enjoy, then you have an excellent opportunity to build a deeper connection.

6. So, do you have any children?

Most parents adore their children and will beam with pride when discussing them. Use care here; however, since this is a highly personal question. If you do find out this information, remember the names and ages so that you can inquire about them later.

7. Where are you from originally?

Another question to determine if there are some commonalities.

8. Where is your favorite place to vacation?

Not only will you learn about cool places to vacation, you will know how to greatly add value if you happen to come across some tickets to that destination.

9. Who is your favorite author?

Sending a key contact a copy of their favorite author’s book is a great relationship building idea. Even better, a introduction to that author will greatly enhance the relationship (check your linkedin to see if you are somehow connected to the author).

10. What’s your number one personal goal for the year?

The answer to this question allows you to add value in a very powerful way.

11. What are your top 3 goals for 2008?

Another question whose answer allows you to very specifically add great value to the relationship.

12. I have a large network that I always strive to add value to, in case I or someone in my network can help you today or in the future would you give us permission to stay in touch?

This is the golden question, do not forget to ask it! You want to be sure you have permission to contact them at a later date.

It will serve you well to memorize these questions and start using them next time you go to a networking event or call up some old contacts and ask a few of these questions. Please share your experiences in the comments section below.


Luis D Roque
Hisrealestatenetwork.com

• Assets - Any interest in real or personal property which can, if necessary, be appropriated for the repayment of debt.
• Bad Debt - A debt that is not collectible and is therefore worthless to the creditor. (See also Write-Off.)
• Balance Sheet - A financial statement showing measures of the assets, liabilities and owner's equity or net worth of a business firm or nonprofit organization as of a specific moment in time.
• Business Plan - A document that describes an organization's current status and plans for several years into the future. It generally projects future opportunities and maps the financial, operational and marketing strategies that will enable the organization to achieve its goals.
• Capital - The money and other property of a corporation or other enterprise used in transacting its business.
• Cash Flow Financing - A short-term loan which provides additional cash to cover shortfalls in anticipation of future revenue, such as the payment of receivables.
• Collateral - Assets pledged to secure the repayment of a loan.
• Current Asset - An asset that will normally be turned into cash within a year.
• Current Liability - A liability that will normally be repaid within a year.
• Current Ratio - A measure of liquidity equal to current assets divided by current liabilities. The higher the ratio, the greater the cushion between a company’s current obligations and its ability to meet them.
• Debt - An amount owed for funds borrowed. It may be owed to an organization's own reserves, to private individuals, banks, or other institutions. Generally, the debt is secured by a note (see Promissory Note), bond, mortgage, or other instrument that states repayment and interest provisions. The note, in turn, may be secured by a lien against real or personal property or other assets.
• Default - Failure to discharge a covenanted duty. The term is most often used to describe the occurrence of an event that impedes the rights or remedies of one of the parties to an agreement or legal dispute; for example, the failure to make a monthly loan payment.
• Delinquent - A debt that has become due and payable but remains overdue and unpaid.
• Liabilities - Financial claims against an individual’s or firm's assets; amounts owed to creditors.
• Liquidity - The quality of being readily convertible into cash.
• Principal - The amount of a loan from which interest is calculated.
• Promissory Note - Also known as a note; literally, a promise to pay. A written contract between a borrower and lender which is signed by the borrower and provides evidence of the borrower's indebtedness to the lender.
• Security - A pledge made to secure the performance of a contract or the fulfillment of an obligation, such as the repayment of a loan. Examples of securities include real estate, equipment, stocks or a co-signer.
• Term - The maturity or length of time for final repayment of a loan, bond, sale or other contractual obligation.

Write-Off - Refers to the action of a lender charging the outstanding amount of a defaulted or seriously delinquent and uncollectible loan as a business expense or loss; the bad debt itself. (See also Bad Debt.)

 

Luis D Roque

Hisrealestatenetwork.com

realdealorlando.com

Your own Real Estate is your own best investment..

You probably have heard the concept of making extra principal payments to reduce interest and payoff your mortgage early. The concept may be simple, but it is often overlooked and rarely practiced. A typical promissory note amounts to incredible interest over thirty years. For example, on a thirty year $100,000 loan at 9%, you will pay over $189,000 in interest.

If you have a positive cash flow on your rental properties, consider using it to make extra principle payments. By making extra principle payments, even small ones, you can save significantly on interest. This is because interest is charged on the outstanding balance owed. For example, if you paid an extra $50/month the loan described above, you would save $49,000 in interest and pay off the loan balance six years earlier. If you paid an extra $100 per month, you would save over $75,000 in interest and pay off the balance ten years earlier.

Save Money on Late Fees
If you are in danger of paying your mortgage late, send your payment via overnight mail. The cost of doing so is probably much less than your late payment. For example, a 5% late penalty on a $1,000 payment is $50. Sending the payment via Federal Express will cost you less than $15.

A Few Tips if You are Holding a Mortgage in Default
If you sold a property and took back a mortgage (or you bought an existing mortgage), you have an alternative to the foreclosure procedure . . . sue on the promissory note. Remember that a mortgage is security for a note, and you can always forego the foreclose proceeding and sue the borrower directly for nonpayment on the note. This may be desirable if the property has little equity and the borrower has other assets to attach. Keep in mind, however, that you have to elect one remedy or the other; once you choose to sue on the promissory note, you waive your right to foreclose the property (and vice-versa).

Watch for Bankruptcy
A borrower in default can run into federal court and file for bankruptcy to stop your foreclosure proceeding. Once the federal bankruptcy petition is filed, the state court foreclosure proceeding is subject to an automatic "stay" (which means you must stop all collection efforts). This will delay your foreclosure, but not deprive you of your rights. As a secured creditor you will have first crack at the property over unsecured creditors (credit card debtors, etc.). Simply have your attorney march into federal court and ask the judge to have the stay lifted against you. However, if the debtor files for chapter 13 reorganization, he may be able to ask the court to force you to accept a payout plan. Either way you will get paid, even if it means having to wait.

Consider a "Deed in Lieu of"
If you are in a mortgage state, a borrower can delay the proceeding for months by simply filing an answer to the complaint, raising any number of defenses, including improper service of the summons. If you are on speaking terms with the borrower, try and work it out. It may be cheaper for you to waive the back payments and even pay him to give you a deed in lieu of foreclose. That is, he gives you the property back and you spare him the embarrassment and credit devastation of a foreclosure (as well as a possible deficiency judgment against him). Time is money when it comes to foreclosure, so use it wisely!


Bill Bronchick..


Luis D Roque
Hisrealestatenetwork.com

Whether you own or rent your office space, property costs are one of the largest business overhead expenses. That's why it's important to comprehend the full ramifications of taking over the title to a property or entering into a lease agreement. Before you sign a lease, work with a commercial real estate broker with a proven track record, and consult with an attorney skilled in real estate law.

You should also familiarize yourself with some common real estate terms:

1. Appraisal: a written report by a state-licensed professional that includes an unbiased analysis of the property's value and the reasoning that led to that opinion. An appraisal report is required for any property sale.
2. Broker: an agent who brings together a buyer and a seller, or a landlord and a tenant, in a real estate transaction. All brokers must be licensed by the state in which they work. Most work on commission, and the landlord or seller usually pays the fee.
3. Build-to-suit: a method of leasing property in which the landlord makes improvements to a space based on the tenant's specifications. The cost of construction is generally factored into the lease terms. Most build-to-suit provisions apply to long-term (10-year) leases.
4. Concessions: benefits or discounts given by the seller or landlord of a property to help close a sale or lease. Common concessions include absorption of moving expenses, space remodeling, or upgrades (also called "build-outs"), and reduced rent for the initial term of the lease.
5. Escalation clause: a clause in a lease that allows the landlord to increase rent in the future. Rent increases dictated under an escalation clause may be charged in various ways, including:

• A fixed increase over a definite period

• A cost-of-living increase tied to a government index, such as the tax rate

• An increase directly related to increases in operating the property

1. HVAC: an acronym for "heating-ventilation-air-conditioning" system. In a commercial building, the landlord generally is responsible for maintaining the HVAC.
2. Lease: an agreement by which the owner of a property (the "lessor") grants the right of possession to a tenant (the "lessee") for a specific period of time (the "term") for a predetermined amount of money (the "rent"). A "leasehold estate" is the space occupied by the tenant. Common types of leases include:

• A straight, or flat, lease, which stipulates that the same periodic payment (usually monthly) be made for the entire term of the lease.

• A percentage lease, which uses a percentage of the net or gross sales to determine the monthly rent. This is most often used in retail properties and with a minimum base rent.

• A net lease, which requires the tenant to pay maintenance, taxes, insurance and so on, along with a fixed rent. This is also called "net-net-net" or "triple net."

1. Lien: a legal claim filed against a property for payment of a debt or obligation. If a property owner fails to pay a creditor, for example, the creditor can place a lien on the property. A lien can halt the sale of a property.
2. Sale-leaseback: a transaction in which an owner sells a property to an investor, who then leases the property back to the original owner under prearranged terms. Sale-leaseback deals offer the original owner freed-up capital and tax breaks and the investor a guaranteed return and appreciation.
3. Sublease: a lease given by a tenant for some or all of a rented property. For example, if a tenant rents 20,000 square feet but only ends up needing 10,000 square feet, they may want to sublet the extra space for some or all of the remaining term of the lease, providing they continue to occupy and pay rent for the property.

• A fixed increase over a definite period

• A cost-of-living increase tied to a government index, such as the tax rate

• An increase directly related to increases in operating the property

11 principles for negotiation

Excerpted from comments by Harvey Mackay

When negotiating it's important to have the most information possible, preferably more than the other side. It helps to know where the other side's negotiating power is weak. Here's some suggestions:

1. Don't get personal.

Many business negotiations are not about befriending the other side. Always be courteous and kind, but you need not develop a relationship outside of the negotiation. If you dislike the other side, you don't have to express that dislike. Don't make the other side choose between self-respect and self-interest in order to deal with you.

2. Control your emotions.

Don't get overheated emotionally. This means expressing anger if the negotiations don't go your way. If you feel you've come out a winner don't show it. No one likes to feel they've lost and maybe you'll have to face them again. It very difficult when you face some who wants to get even.

3. Don't talk out of school.

If you discuss your deals in elevators, you have definitely pushed the "down" button. It's a small world ... and the walls have ears.

4. Leave something on the table for the other guy.

Peace treaties are made between enemies, not friends: It usually takes a war to get them to the bargaining table. Deals are made between parties who seek mutual advantage, not unilateral victory. Both sides have to win something, or you don't have a deal, you have a homicide. One way or another, your counterpart will see to it that crime doesn't pay.

5. Your first offer should never be your final offer.

Don't create a situation in which your opponent can't justify his value to his principal by accepting your offer. Give the person on the other side of the table a chance to knock you down a little. Remember the previous point: He or she needs to win something, too.

6. Don't negotiate with yourself.

Once you've made an offer, if the other party doesn't accept it, don't make another offer. Wait for a counteroffer. Don't lower your own demands without getting them to lower theirs.

7. Don't be afraid to take a risk.

Sometimes it's risky not to take a risk. The trial lawyer who says he or she never lost a case settles too easily. Don't let yourself be bluffed by artificial deadlines or "final offers." And don't run bluffs, either. If you are called and you don't follow through, your credibility is shot.

8. Don't be afraid to go to an expert when you're over your head.

You don't know everything. Trying to pretend to your opponent, your client or yourself that you are knowledgeable in some area or have some vital information when you don't harms your position. It makes you appear weak and foolish.

9. Don't attribute more strength to the other side than it possesses.

Remember, in any negotiation, both sides are under pressure to perform. They have bosses, deadlines, pressures, fears and objectives, the same as you do.

10. Sometimes you can get what you want by calling it by another name.

Let's say your opposite number does not "renegotiate" contracts. OK, what if we call it a contract "extension"? They say no to severance pay? OK, it's a "consulting contract." A potential employer does not want to ire you on a permanent basis? OK, it's an "internship."

11. Take your time.

Don't let the other side force a deal. The more time you give yourself, the more information you can gather about their true needs.

The Many Faces of Unemployment
by Nilus Mattive

Dear Subscriber,

Last Friday we got word that the employment picture in the U.S. improved substantially over the month of November. According to the Labor Department, the nation shed 11,000 jobs, a mere fraction of the 130,000 economists were expecting.

The news came as a shock to many. In fact, president Obama reportedly corrected his chief economic adviser when she first told him the news, saying "You mean a one hundred and eleven thousand job loss?"

And make no mistake — I'm as happy and as surprised as everyone else to hear the better-than-expected news.

But in my mind, there are deeper issues at hand when it comes to the employment picture here in the United States ...

Let's Start with the Very Way Washington
Measures Employment in the First Place ...

Along with the 11,000-new-jobs-lost number, we also learned that the nation's unemployment rate dipped to 10 percent from last month's result of 10.2 percent.

That's another encouraging sign, though it still represents a situation as bad as we've seen in decades.

If you stop looking for a job, you're not considered unemployed in the official data.

What's more disconcerting to me is the fact that this official measure of unemployment is dubious in the first place.

Consider some of the people that it does not include:

Anyone who is "discouraged" — i.e. they have basically given up on looking for work

Anyone who has taken a part-time job even if they were formerly a full-time employee (known as "marginally attached")

And the legions of folks who are now "underemployed," meaning they are working jobs that pay far less than before — engineers driving cabs, for example ...

Thus, we should be asking two important questions:

First, what is the nation's real unemployment rate?

Interestingly enough, the Bureau of Labor Statistics also keeps what it calls "alternative measures of labor underutilization."

No, you won't hear this touted in a government press release, but it's buried here on the BLS website.

The U-6 number, which includes marginally attached workers, workers with part-time jobs because of economic reasons, and other categories shows the current jobless rate is 17.2 percent.

And realize that there's really no way to include people who have taken major paycuts or other under-the-radar losses.

Second, will those underemployed folks ever find jobs comparable to what they once had?

My personal answer is "some will, but other broad categories will not."

Consider all the Johnny-come-lately realtors, mortgage brokers, and contractors who were riding the housing bubble for all its worth.

And consider other workers — like factory hands who were benefiting from over-the-top overtime payouts and other unsustainable trends.

Heck, this excerpt from a recent Wall Street Journal story on the underemployed proves my point:

"Mr. Crane had been earning more than $100,000 a year operating heavy machinery at Delco, a former unit of General Motors ... but when he lost his job he was thrust into a netherworld of part-time gigs: working the registers at Taco Bell, organizing orders at McDonald's, whatever he could find."

Now, don't get me wrong. I feel bad for Mr. Crane. But am I the only one who finds six-figure salaries on factory floors a little shocking? I know someone who runs an entire hospital and makes the same amount!

Sure, when factories were running full-tilt, even folks at chicken processing plants were raking in $70,000 a year or more. But those days are long gone.

Look, I'm not trying to sound callous. I'm just saying that facts are facts. Magical thinking won't change them.

Yet plenty of people have now become so used to the really good times — or are so far in debt — that they aren't willing or able to accept even merely good times

Consider this tidbit from another Wall Street Journal story published last month:

"Paul Joegriner hasn't worked since March 2008, when he was laid off from his $200,000-a-year job as chief executive officer of a small bank. But you wouldn't know it by appearances.

"His wife, Marzena, shuttles their two young children to private school every morning. The family recently vacationed in Virginia Beach, Va., and likes to dine on Porterhouse steaks. Since losing his job, Mr. Joegriner, 44 years old, has had several offers. He's turned each down in hopes of landing a position comparable to what he held before."

Now, if we were talking about job offers with pay cuts of 50 percent, I could sympathize. But Mr. Joegriner reportedly said no to one offer that paid $140,000 a year in a lower-cost area!

And this is not an isolated story. In my personal life, I know of someone who stubbornly refused to take a comparable job because it was a mere one hour from his current town.The fact that people like this continue to collect unemployment — and even have their benefits extended — while millions of others are genuinely struggling and going uncounted demonstrates just how jarbled this country's jobs situation is right now.

More importantly, all of these issues raise serious questions about the sustainability and rate of our economic recovery, especially with so much of GDP tied to consumer spending and so many consumers still struggling with credit hangovers from the days of excess.

So I don't care what the latest job number says ... I will continue to suggest that investors keep their core portfolios invested in more conservative companies, in more defensive industries, and in assets that produce strong income streams.

The recession seems to be abating, but many structural problems remain. And some of them are in our collective psyche.

Yes, we should remain hopeful. We should continue to try and make hay while the sun shines in the markets, too. But we should also remember that even an official unemployment rate of 10 percent is hardly something to celebrate.

Best wishes,

Nilus

---

For more information and archived issues, visit http://www.moneyandmarkets.com


Luis D Roque

The Escrow West vs. Title East

California and Nevada are part of a group of Western “escrow states” which includes Arizona, Texas, New Mexico, Wyoming, and Montana. Escrow states are so- called because their laws permit brokers and escrow-title companies to prepare legal contracts, title documents, hold moneys, and close real estate deals. New York and its sister Eastern states are called “title states” because they allow only lawyers to prepare title documents, hold deposit money, and close deals.

Escrow states developed their system of real estate transfers because in the early days of western expansion, the settlers who moved into what would one day become Montana, Arizona, and the rest were more concerned with day-to-day survival than with legal wrangling. The shortage of lawyers on the frontier led lay-people in the West to draft their own documents and negotiate their own deals—well into the 1930s in some places—while in the East, legal talent had been on the scene before the Revolutionary War. By necessity, the brokers who brought parties together and did the necessary paper work became ad hoc lawyers. Popular acceptance led to political clout, and today brokers in escrow states are calling the shots in residential sales transactions.
In both East and West, brokers prepare the buy/sell agreement called a “Real Estate Purchase Agreement and Earnest Money Receipt.” Each brokerage company crafts its own six to 12-page purchase agreement. Nevada purchase agreements, which are representative of other escrow states, are wordy and drawn-out—they’re designed to protect commissions and shield brokerages from liability as much as to outline the actual buy/sell-terms. Language such as “advice and opinions are for marketing and sales negotiations only” is commonplace. Despite this disclaimer, brokerages uniformly carry malpractice insurance.
Earnest Money vs. Contractual Deposits

In the West, an “earnest money” down payment—sometimes called a “good faith deposit”—of a few thousand dollars or less firms up the transaction. A title company holds the money in escrow while the broker usually takes the property off the market until title closing or “closing of escrow.”

 

visit our website at www.hisrealestatenetwork.com

Luis Roque