SF Invest and Commercial RE

Does your Investment Property Still Measure Up?

James C. Johnson (Legacy Real Estate) — Tue, 10 Mar 2009 14:04:42 -0500

Posted with permission:

Tom Lundstedt Seminars

Tom Lundstedt, CCIM

www.tomlundstedt.com

The purpose of this article is to give a friendly whack upside the head to people who own rental property. You probably made a good investment when you first bought the property. But have you owned it too long?

Depending on how long you've held your property, it might not be a good investment anymore. I didn't say not a good property; I said not a good investment. Read on to find a simple way to determine if your property is still measuring up. You may be in for a surprise!

First, let's quickly review the four financial benefits of owning investment real estate:

CASH FLOW: After you pay all expenses and loan payments, cash flow is the money left over.
PRINCIPAL REDUCTION: The loan is paid down with money collected from tenants.
INCOME TAX SAVINGS: IRS rules allow property owners to take depreciation deductions, which shelter the cash flow and principal reduction. Any leftover depreciation creates a paper loss, which, in many cases, can be used to shelter other income - such as salary from your job.
APPRECIATION: Over time, the property increases in value.

These four benefits are powerful! You earn tax-sheltered cash flow, your tenants buy you the building, you get to tell the IRS you're losing money, and all-the-while, the property goes up in value. What a country!

So why am I challenging you to reconsider whether your property is still a good investment? Simple! Your "return on equity" is probably low - and getting lower by the year!

Let me show you an example. Don't get all tangled up in the numbers. Just concentrate on the big picture and how it applies to you.

Return on Equity Drops from 18 to 7 Percent

Assume you bought a rental house 16 years ago for $70,000. You invested $10,000 and borrowed the rest. Your goal is to retire in another 15 years and use the rental house to provide retirement income. (A great plan!)

So, how good was your investment 16 years ago? Let's total your benefits. Assume the cash flow, principal reduction and tax savings added up to $1,800 that first year. You were earning 18 percent ($1,800 divided by $10,000) on your investment. Not bad. Plus the rental house was appreciating. You're an investment genius!

Fast-forward 16 years to the present. Let's assume the following: Your yearly cash flow has increased to $5,000 and the principal reduction is $2,000; a total of $7,000 - just from the first two benefits! In addition, let's assume the net value of your rental house has appreciated over the years so it's now worth $120,000 and your loan has been paid down to $40,000.

However, because you've owned the property so long, the depreciation deductions (assume they're $3,000) are no longer enough to shelter the $7,000 of cash flow and principal reduction. That leaves $4,000 of unsheltered (taxable) income. Instead of saving tax, you have to pay tax. If you're in a 35-percent bracket, (combined federal and state), you pay $1,400 tax.

So, your benefits from the rental house now look like this: $5,000 cash flow, plus $2,000 principal reduction, minus $1,400 tax paid. A total of $5,600.

This is all summarized on the "Return on Equity Worksheet" below. (The blanks in the right column are for you to use on your own property.)

It's no wonder you consider yourself an investment genius if you measure the $5,600 against your original $10,000 investment: that's a 56 percent return. But that's where most people go wrong!

Your Original Investment Has Nothing to Do with Today's Rate of Return!

Your investment is not the amount you originally invested years ago. You've got way more than $10,000 "tied up" today! Your investment is the amount you could get out of the property if you sold it today. That's called your "net equity."

Over the past 16 years, your property has increased in value and your mortgage has been paid down. The current difference between the property's net value (after selling expenses) and your mortgage balance is $80,000. In other words, if you sold the property today, you could walk away with $80,000.

However, if you keep the property, in effect you're re-investing the $80,000 into the property. Now, how does your investment look?

Not so good. You're earning $5,600 in benefits on an $80,000 investment - that's only 7 percent! What if a REALTOR® called you up and said, "I've got a great real estate investment for you. You'll earn a measly 7 percent." You'd hang up on them! Well, you already own it!

If you wouldn't buy a property like that, why would you continue to own it?

What if you did this instead? Use your $80,000 equity as the down payment on a different property - one that produces 18 percent again? With that down payment you could probably afford a $400,000 rental property. Once you've owned that property for a few years, your equity will have grown again (and your rate of return fallen), so you repeat the process. The goal is to maintain the highest possible rate of return, which will make a huge difference in your future wealth.

You'll maximize your wealth by wisely moving your equity from your current property to another as soon as your rate of return would be greater in the next property.

Just for fun, take out your calculator and figure how much money you'd have in 15 years if you leave the $80,000 invested at 7 percent. Then calculate what $80,000 invested at 18 percent grows to in 15 years. I could give you the answer but you might not believe me - check for yourself...it's gigantic!

Three Ways to Move Your Equity

Here's a key point. If you decide it's time to "move your equity," be sure to explore all your options. There are three common ways to move equity:

SELL: You could sell your current property and buy another. The problem with selling is you have to pay capital gains tax.
REFINANCE: You could refinance your current property and use the loan proceeds to buy another property. The problem with refinancing is you're probably not able to borrow the entire $80,000 equity.
EXCHANGE: The third, and best, way to move your equity is to exchange. Exchanging allows you to move your entire $80,000 net equity to another property without paying tax. It's wealth building's most powerful tool.

So, what does this all mean? Well, if you own rental property, congratulations. Your investment brilliance shines brightly. However, the longer you own that property your glow begins to fade.
The wise thing to do is re-evaluate your property every year. In essence, make the decision to "re-buy" the property. As soon as the rate of return on your equity could be higher in another property, it's time to take action.

Tom Lundstedt, CCIM, is known as the funniest investment and tax guy in America! His programs for residential and investment real estate have entertained and enlightened more than 2,500 audiences from sea to shining sea.

He's a former Major League Baseball whose striking combination of humor and real world examples makes powerful subjects spring to life. Visit Tom on the web today at tomlundstedt.com!

Copyright © Tom Lundstedt Seminars

This article is designed to provide helpful information about the subject matter covered. It is provided with the understanding that neither the publisher nor the speaker are engaged in rendering legal, accounting or other professional services. If legal, accounting or other expert assistance is required, the services of a competent professional should be sought. Care has been taken to provide a clear and accurate presentation of the subject matter; however, the publisher and the speaker do not assume any legal liability or responsibility for any loss or damage alleged to be caused by the information in this program.

Sioux Falls South Dakota Real Estate July 2008 Monthly Reports

James C. Johnson (Legacy Real Estate) — Mon, 18 Aug 2008 15:11:23 -0500

Sioux falls continues to be a stable and strong market compared to many other parts of the country. Foreclosure rates remain relatively low, and we continue to maintian a strong economy including a low unemployment rate. I would like to share with you some mid year statistics according to the REALTOR'S Association of the Sioux Empire (RASE).

New listings have increased 6.8% since the same time last year. But are still down 4.8% year to date from the same point last year.

The average sales price for the month of July has increased 7.1% to $178,272. But down 8.5% over the last year averaging $159,055.

July was a great month for the average time that homes were on the market prior to selling. Averaging 61 days for those that closed this month. This is down 22.2% percent from last year in July. But so far this year the average has stayed around 93 days on the market for homes, which is an increase of 11 days from the average at this time last year. Median sales price remains as $144,000 in almost exaxt proximity to the same time last year.

Current inventory of listings for single family homes is 889 for the area. With closed sales at 301 for the month. Closings down 16.6% from last year.

Mortgage rates have also remained steady just slightly increasing from 6.9% last year to 7% in July for 2008.

Brought to you by:

James C. Johnson

Broker Associate

Legacy Real Estate

I Specialize in Quality Investment Property in Sioux Falls and the surrounding area. If you are looking for investment real estate or commercial office space in the area you can contact me at 605.366.0980, or jjohnson@legacysiouxfalls.com. Also check out our website www.legacysiouxfalls.com, or www.investsiouxfalls.com.

Sioux Falls South Dakota Real Estate August Report

James C. Johnson (Legacy Real Estate) — Fri, 19 Sep 2008 18:27:13 -0500

Sioux falls continues to be a stable and strong market compared to many other parts of the country. Foreclosure rates remain relatively low, and we continue to maintian a strong economy including a low unemployment rate. I would like to share with you some recent monthly statistics according to the REALTOR'S Association of the Sioux Empire (RASE).

New listings have increased -19.9% since the same time last year. But are only down -8% year to date from the same point last year.

The average sales price for the month of August has decreased 1.4% to $173,453. But down 6.6% over the last year averaging $160,384.

August was a great month for the average time that homes were on the market prior to selling. Averaging 78 days for those that closed this month. This is down 15.3% percent from last year. But so far this year the average has stayed around 95 days on the market for homes, which is an increase of 12 days from the average at this time last year. Median sales price remains as $144,000 in almost exaxt proximity to the same time last year.

No current data on the inventory compared to last year.

Mortgage rates recently dropped and now is a better time than ever to purchase a home or investment property.

Brought to you by:

James C. Johnson

Broker Associate

Legacy Real Estate

Thoughts for the Day

James C. Johnson (Legacy Real Estate) — Wed, 19 Nov 2008 07:18:45 -0600

"A noble idea without action is as pointless as a spear without a tip." Unknown

" The world has the habit of making room for the man whose words and actions show that he knows where he is going."
--- Napoleon Hill

" The reality of life is that your perceptions - right or wrong - influence everything else you do. When you get a proper perspective of your perceptions, you may be surprised how many other things fall into place."
--- Roger Birkman

"A man with ability and the desire to accomplish something can do anything."
--- Donald Kircher

I Believe

James C. Johnson (Legacy Real Estate) — Tue, 18 Nov 2008 18:25:20 -0600

I Believe

I believe-
That we don't have to change friends if we understand that friends change.

I believe-
That no matter how good a friend is, they're going to hurt you every once in a
while and, you must forgive them for that.

I believe-
That true friendship continues to grow, even over the longest distance.
Same goes for true love.

I believe-
That you can do something in an instant that will give you heartache for life.

I believe-
That it's taking me a long time to become the person I want to be.

I believe-
That you should always leave loved ones with loving words. It may be the last time you see them

I believe-
That you can keep going long after you can't.

I believe-
That we are responsible for what we do, no matter how we feel.

I believe-
That either you control your attitude or it controls you.

I believe-
That regardless of how hot and steamy a relationship is at first, the passion fades and there
had better be something else to take its place.

I believe-
That heroes are the people who do what has to be done when it needs to be done,
regardless of the consequences.

I believe-
That money is a lousy way of keeping score.

I believe-
That my best friend and I can do anything or nothing and have the best time!

I believe-
That sometimes the people you expect to kick you when you're down, will be the ones to help you get back up.

I believe-
That sometimes when I'm angry I have the right to be angry, but that doesn't give me the right to be cruel.

I believe-
That just because someone doesn't love you the way you want them to doesn't mean they don't love you with all they have.

I believe-
That maturity has more to do with what types of experiences you've had and what you've
learned from them and less to do with how many birthdays you've celebrated.

I believe-
That it isn't always enough to be forgiven by others.
Sometimes you have to learn to forgive yourself.

I believe-
That no matter how bad your heart is broken the world doesn't stop for your grief.

I believe-
That our background and circumstances may have influenced
who we are, but we are responsible for who we become.

I believe-
That just because two people argue, it doesn't mean they don't love each other, And just
because they don't argue, it doesn't mean they do.

I believe-
That you shouldn't be so eager to find out a secret. It could change your life forever.

I believe-
That two people can look at the exact same thing and see something totally different.

I believe-
That your life can be changed in a matter of hours by people who don't even know you.

I believe-
That even when you think you have no more to give, when a
friend cries out to you - you will find the strength to help.

I believe-
That credentials on the wall do not make you a decent human being.

I believe-
That the people you care about most in life are the essence of life.
Tell them today how much you love them and what they mean to you.

Fully Leased Medical Strip Center For Sale

James C. Johnson (Legacy Real Estate) — Tue, 09 Sep 2008 16:51:56 -0500

Investment Property

Property Description:
Fully Leased Medical Strip Center. (Regional Clinic, Regional Drug Store and Optometrist)
10 year leases, with escalators.
Prime location at south gateway to Windom.
Good traffic count 11,700 cars per day.
Owners are Licensed Real Estate Broker in SD.

$2,100,000 7.5% CAP

Great investment especially for 1031 exchange!

James C. Johnson

Broker Associate

Legacy Real Estate

605.366.0980

jjohnson@legacysiouxfalls.com

Pheasant Hunting Lodge and Ranch for SALE!

James C. Johnson (Legacy Real Estate) — Tue, 09 Sep 2008 16:44:57 -0500

Land for Sale! in central South Dakota. I have listed a trophy pheasant hunting lodge, "Gann Valley Ranch" located just north of Kimball, SD.

Features include aproximatly1683 acres of the best pheasant hunting in South Dakota. There are 1200 acres currently in crop production with the balance in trees, rolling hills, native prairie, stock dams, wetlands and food plots. The 3500 sq/ft lodge/house has been recently renovated and will sleep up to twenty people. There is a 60' x 40' metal building, 15 dog kennels with outdoor runs and indoor houses, and an indoor game processing center. All of the farm and guiding equipment (suburbans, pickups, tractors, etc...) will go with the property.

One other aspect I would like you to be aware of, is the current owner does have an existing caretaker that would be interested in staying on for general maintenance plus hunting and guiding. As well as approximately 2000 acres of adjacent land leases in the surrounding area for extra hunting ground.

James C. Johnson

Broker Associate

Legacy Real Estate

605.366.0980

jjohnson@legacysiouxfalls.com

Cost Segregation

James C. Johnson (Legacy Real Estate) — Sun, 20 Jul 2008 14:17:58 -0500

Cost Segregation
HUNDREDS OF THOUSANDS in tax savings you would normally wait years to realize can be realized TODAY! In one sentence, that summarizes what cost segregation does for a property. Cost segregation uses highly complex engineering methods to achieve the simple objective of pulling cash out of your property. This is fully endorsed by the IRS. One needs only to work with your own CPA to ensure it
maximizes your tax benefit

Definition: (per Wikipedia.com)

Under United States tax laws and accounting rules, cost segregation is the process of identifying personal property assets that are grouped with real property assets, and separating out personal assets for tax reporting purposes. A cost segregation study identifies and reclassifies personal property assets to shorten the depreciation time for taxation purposes, which reduces current income tax obligations. Personal property assets include a building's non-structural elements, exterior land improvements and indirect construction costs.

SO any of you out there that own investment property or are looking into investment property for clients need to look into cost segregation and save your clients thousands, which will in turn bring you new business.

If your accountant has not heard of cost segregation - or bifurcation of depreciation - you need to find another accountant!

Top 10 Reasons to Invest in Real Estate over the Stock Market

James C. Johnson (Legacy Real Estate) — Thu, 17 Jul 2008 18:27:35 -0500

Top 10 Reasons - Benefits of Investment Property over Stocks:

•1. Leverage - mortgage allows to by more property for the money

•2. Cash Flow - money left over after expenses and loan payments

•3. Principal Reduction - tenants pay down your mortgage

•4. Income tax savings - due to IRS rules, depreciation allows for income to be tax sheltered

•5. Appreciation - over time the property increases in value

•6. Insurance - you insure your property against catastrophic events

•7. Local - can drive by your property to look in on in whenever you want

•8. 1031 Exchanges - deferring capitol gains when sell to roll into a purchase of something bigger

•9. Can buy investment property with your IRA - still taking advantage of the tax benefits

•10. Add value - simple updates, or an increase in the rent will increase the value of your property

Bad Day

James C. Johnson (Legacy Real Estate) — Mon, 21 Jul 2008 15:25:05 -0500

James Johnson - Fw: Bad day
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http://s35.photobucket.com/albums/d184/gysM715/?action=view&current=camera21.flv

You thought you were having a bad monday - check this out! It will make you feel much better about your current predicament. Definetly brighten your day.

Remember heads up! and Watch out! OOPS!!!

I feel sorry for this guy. This was not ment to offend anyone, just some light humor, and thankful you are not this guy.

Sioux Falls South Dakota Real Estate June 2008 Monthly Reports

James C. Johnson (Legacy Real Estate) — Thu, 24 Jul 2008 11:39:22 -0500

Information Courtesy of RASE (Realtor Association of the Sioux Empire)

June 2008

New listings down 5.1% from a year ago and down 7.2% from 2 years ago

Pending Sales down 7.4% from a year ago and down 8.6% from 2 years ago

Closed sales down 8.9% from last year and 5.1% from 2 years ago

Average days on market 107 up 20.5 days from last year and 48.2 days from 2 years ago

Median Sales Price $135,000

- Down 6.6% from last year but even with the market from 2 years prior

Average Sales Price $157,945

- down 6.2% from last year but up 1.1% from 2 years ago

Sales price compared to origional list price = 96.3%

- down .6% from the last two years

Mortgage Rate Average 6.9%

TREX GLOBAL

James C. Johnson (Legacy Real Estate) — Sat, 19 Jul 2008 16:37:55 -0500

Have you guys heard about this free tax service - I am just looking into it and wondering if anyone has had good or negative feedback on the service and if it brings more business

I am looking for creative ways to prospect and wondring if this is worth my time - I am a believer internet presence and think this sounds like a good idea

any thoughts

10 Rules for eating healthy

James C. Johnson (Legacy Real Estate) — Tue, 15 Jul 2008 18:15:16 -0500

Eating healthy is important. Eating healthy:

1. Ditch the Soda - drink water Take a bottle wherever you go.

2. Eat Eggs for breakfast - cheap - protein - vitamins

3. Protein like Beans and/or Meats. (Lean or Fatty) Fat doesn't make you fat, excess calories do

4. Veggies. make as 1/2 meal - use as snacks

5. Fruits - that sugar fix in the afternoons

6. Multivitamin. Pesticides lower the vitamin levels of your fruits & veggies.

7. Make a Plan. A classic, but worth repeating. Everything starts with a plan.

8. Take Food To Work. Ever counted how much money you throw away buying food at work daily? Start preparing your food for the day on waking up:

Get up earlier
Eat a solid breakfast
Prepare your food for work in the meanwhile

9. Eat Less. This one is obvious. The less you eat, the lower your grocery bill. If you're overweight, get on a diet.

10. Don't Buy Junk Food. Empty Calories - make you fatter and add little to no nutritional value

Books for the Top Producers

James C. Johnson (Legacy Real Estate) — Sun, 13 Jul 2008 13:58:36 -0500

I am fairly new to the business and trying to educate myself with anything and everything so that someday soon I will be a Top Producer.

This is a list of books I have read and was wondering if other had a great book to share.

"Millionaire Real Estate Agent" by Gary Keller

"Think and Grow Rich" by Napoleon Hill

"The Greatest Salesman in the World" by Og Mandino

"Success Principles: How to get from where you are to where you want to be" by Jack Canfield

"The Secret" by Rhonda Byrne

"The Complete Guide to Buying and Selling Apartment Buildings" by Steve Berges

"How to Succeed in Commercial Real Estate" by John L. Bowman

This is just the main core of what I have read to get started and wondering if anyone had other ideas that will really teach me strategies or principles on what great habits to form to reach that next level.

Alphabet Soup

James C. Johnson (Legacy Real Estate) — Mon, 14 Jul 2008 16:23:44 -0500

When seeing some ActiveRain members out there reminds me about a query I have had for years. All the letters for certifications that run, sometimes stream off the back of a name on a business card or letterhead.

Maybe its just jealosy that I don't have the same yet.

But I have always wondered does this matter to the most important people - Customers!

Don't get me wrong - I think they are a great thing. To obtain a certification one has to educate themselves and become an expert in there field which benefits the customer. But does the customer know this??

What are your thoughts out there in AR land?