Archive for the ‘Real Estate’ Category

Depressed Detroit housing market

Friday, March 23rd, 2007

It’s hard to believe that homes are cheaper than cars in Detroit these days but that’s how it is. Clearly you need to be careful when investing in real estate.

Investing in Pittsburgh real estate

Saturday, March 17th, 2007

This article about investing in Pittsburgh real estate shows a situation that seems too good to be true:

One example of how this works is a single-family, three-bedroom, one-bath house in North Braddock that sold for $12,000. The buyer put $7,000 into it and had a $1,000 down payment. The mortgage was $18,000 at 12 percent interest, Wagner said.

“There is a positive cash flow of $300 monthly, based on a $180 monthly mortgage payment, plus insurance and taxes, and a rent of $600 monthly under the federal Section 8 rental subsidy program,” Wagner said.

The mortgage at 12% interest seems strange to me – you could find a credit card with a better rate than that. Otherwise these numbers make sense to me but can they be real?

Why invest in a house if your home is a liability?

Friday, March 16th, 2007

Peter Lynch says to buy a house before investing in stocks because the home is the better investment (plus it’s useful to have a home). Robert Kiyosaki says your house is a liability, not an asset.

David Crook must be on Kiyosaki’s side judging from this article on the financial pitfalls of home ownership. He even argues that in many cases renting makes better financial sense than buying (since a mortgage is basically paying rent).

Peter Lynch might have common sense on his side but Kiyosaki and Crook make convincing arguments.

Investing in Nova Scotia real estate

Wednesday, March 14th, 2007

Here’s an interesting article on Nova Scotia real estate. It almost begins to sound like an ad for White Point Estates but Nova Scotia seems to be a real estate investing opportunity that’s not too exclusive (prices aren’t too high) and that offers good potential returns:

Since the media—including the likes of Consumer Reports, International Living and CNN—have begun to rate Nova Scotia among the world’s best places to vacation, live and retire, property costs have risen as much as 50% annually in some areas of the province. Yet despite the price increases, property here remains a fraction of what one would pay for similar real estate back home. And with enticements like some of the world’s most spectacular scenery, a relatively temperate climate (winters are milder than the northern U.S.), and a low profile, stress-free lifestyle far from the rat race, wars and terrorism, it’s easy to see why life looks so good under the Maple Leaf.

Society Hill Philadelphia real estate said to be a good investment

Friday, March 9th, 2007

Here’s an article on this month’s Philadelphia Magazine. They are trying to predict good areas for investment over the next 5-10 years: “On the up-and-coming list, Society Hill from 8th Street to the Delaware River and Pine Street to Callowhill.”

Are cheaper homes better investments?

Sunday, March 4th, 2007

It’s interesting to me how the cheaper real estate in an area is typically in high demand compared to more expensive real estste. For example at the Jersey shore by Long Beach Island, a small home on a lagoon in Beach haven West was worth about $90,000-$100,000 in 2000. Today it’s more like $350,000. During the same time, a house on the bay, bigger house and better location, went from being worth around $400,000 – $450,000 up to about $800,000.

In this case the lesser home was the much better investment. The location wasn’t as nice and the house was much smaller but there’s always pressure at the entry level it seems. Take this article for example. It says that people are giving up on amenities or increasing their budgets in the $200,000 to $400,000 range in Philadelphia.

However, the multu-million dollar homes (often highly personalized) of professional athletes are not selling. When they say that there are more homes on the market, you wonder if that means there are more pricey homes on the market. Entry level homes in the New York / New Jersey area don’t seem to suffer from flagging demand at all.

And it makes you wonder what will happen to these homes in Philadelphia. Is the view worth millions in this market?

Commercial real estate tax when same building has a rental office and personal business office

Thursday, March 1st, 2007

A recent question:

My father has owned a commercial building in NJ for years. He is trying to retire now and plans on selling it. The building holds two separate offices. He has always worked out of one for himself and has always rented the other, earning (and paying taxes on) rental income. Upon the sale, is their a formula that Uncle Sam uses to figure out how the sale should be seen (sale as a rental property vs. sale as a place of business)? He is also thinking about using the rental sale proceeds for a 1031 Exchange and buying a retirement home near the Jersey shore that they would eventually retire to. In theory, he would rent it out for a few years and then move into it as their primary residence, when they sell the house they live in now. Is such a scenario a viable way to avoid capital gains taxes? If so, is if there is a minimum amount of years that the shore house must be held as a rental property before making it their primary residence, to avoid paying capital gains tax on it? Thanks in advance.

And some answers that came from an internet message board – don’t make any decisions until you verify this information:

I’ll answer the first question: use the same formula you used to allocated the basis for depreciation purposes between the business and the rental.

To answer your second question: I believe he should avoid capital gains tax. One may exchange a business property for rental property (in your case) and meet the requirements of IRC section 1031.

These rules generally provide that no gain or loss is recognized when business or investment property is exchanged solely for other business or investment property of like kind.

What is like-kind? Without going into it too much, real property exchanged for real property shall be considered like-kind provided that both properties are either business or investment properties. There are also some timing requirements that you must be met.

But if you plan to seriously enter into this transaction, please consult a professional.

For the shore house to be considered a primary residence you have to live there for two years.

And some more questions from someone who is trying to answer:

How was the property reported for tax return purposes – i.e., you mention that is is ONE building but TWO different offices (one rental real estate and one for your father’s business)? Was the rental real estate reported on one Schedule C of your father’s Form 1040 and was the office used for your father’s regular business reported on a separate Schedule C ? Or was your father’s business separately incorporated as C or an S corporation, or setup as an LLC ? Just curious because the way the two separate businesses have been reported may affect the way you want to handle the proceeds from a potential like kind exchange. I assume that when your father sells the building he will sell the whole building, thereby creating proceeds allocable to both the rental real estate business and his “regular” business. In other words, the building is not anything like a duplex where title can legally be sold to one unit (rental real estate part) and the other unit doesn’t have to be sold (father’s regular business).

Philadelphia real estate down in 2006 – what next?

Monday, February 19th, 2007

Here’s a follow up to yesterday’s Philadelphia real estate blog entry. This article says that in Center City Philadelphia, more homes went on the market and prices dropped.

This article explains why some people are very optimistic. We have an expanding Pennsylvania Convention Center, expansion plans by the University of Pennsylvania and Drexel Universities, and the construction of “the skyline-altering Comcast Tower”.

Is Philadelphia the right place to invest in real estate?

Friday, February 16th, 2007

According to this National Geographic Traveler article, and one I can’t link to because I read it on an airplane, Philadelphia is rebounding. If they are right, real estate prices will increase. There are many reasons, but this is probably the most compelling:

The renaissance of Philadelphia restaurants goes hand in hand with the revitalization of its neighborhoods, John Mariani tells me later. “Restaurants throw light on streets,” says the Esquire food critic and co-author of the Italian-American Cookbook. “Sometimes a single restaurant can revitalize a whole section.” Enterprising restaurateurs like Susanna Foo and her Walnut Street eatery, Georges Perrier and his Le Bec-Fin and, of course, Stephen Starr, are bringing the City Center—and Philly cuisine—back to eminence. “It’s back, big time,” Mariani says.

People walking on the sidewalk make neighborhoods safe. And fun. That means people want to live there, driving up real estate prices.

Should you buy a house before investing in the stock market?

Sunday, November 12th, 2006

In the Peter Lynch book I’m reading, Lynch writes that houses are normally more rewarding than stocks. Especially primary residences with all the associated tax breaks. However we also routinely recommend that people put money in stock-based IRAs and things as early as possible – well before the person can afford a home. Personally I disagree with Lynch here. You might as well invest in stocks as you build up capital to buy a house. Sure it carries more risk than putting money in the bank each month, but there’s a good chance you’ll be in a better position to buy a home thanks to investing early and often in life.