REAL Exclusive Magazine

Real Estate Investing For All Ages

By Jeff Riddell

In the next few articles, we’ll talk about the approach of different age groups to real estate investing. Let’s start with the 20-35 age group; let’s call them beginning wealth builders or BWBs. Unless they won the lottery or inherited a lot of money, BWBs are usually capital challenged. Most people in this age bracket are finding it difficult enough to make a down payment on a home, let alone enough to make an investment real estate down payment. But for those who have the discipline to swing it, this is the place to start because the power of leverage and compounding will benefit them the most.  Those BWBs who didn’t win the lottery or inherit a lot of money will probably start their real estate investing careers by buying a rental house. John Schaub says in his book Building Wealth One House At A Time that:

Houses are not complicated, and they’re not scary. Their performance is predictable. They produce income when rented, and house rents have a long history of increasing. Likewise, house prices have increased at an average annual rate of roughly 5 percent for about as long as we can measure. Some years houses go up at a much higher rate, and occasionally, they do not go up at all and even drop in price.

Buying rental houses is as basic as it gets in real estate investing and John Schaub’s book tells you how to do it.

Another approach to getting started in investment real estate is to buy a home for your own use (mortgage terms are sometimes better for owner occupied properties anyway) and later convert it to a rental property when you are ready to move up to your next home. If you live in your home for two years and then turn it into a rental, you can still claim the Section 121 exemption when you sell it, but only if you resell within 36 months following the date you moved out and the tenants moved in.

Duplexes are similar to houses; you can start small and the additional advantage is that you might live in one side and rent the other side until you accumulate enough money to make a down payment on your own home. As you can imagine, however, living next door to your tenant has both advantages and disadvantages.

Even mobile homes can be attractive. You can buy smaller ones and target lower income persons as tenants. Weekly rent collections are suggested for these, though.

Stand alone single tenant industrial buildings may also be within their reach. “Industrial” is a wide array of rental properties that are not residential, retail or office; such properties are plentiful in many areas. Some were built by business owners who wanted to own their shops instead of renting but time moves on and such buildings are purchased by investors who turn them into rental properties. Unfortunately, some industrial property owners suffer business reversals that cause them to sell to free up cash—they become tenants once again.

Not very many BWBs have the money to buy office buildings, shopping centers or apartment buildings when they start out. Don’t bite off more than you can chew—especially if real estate investing will be your part time job. John Schaub’s book has a chapter called “Eight Steps to Quitting Your Day Job” but let’s not go too fast; houses are just a great way to start. The point is: Get started early; the longer you are a real estate investor, the better you will be at it. Wealth building takes time. Next article: Middle Age.

Jefferson F. Riddell is a Florida Board Certified Real Estate attorney with thirty-five years of experience assisting people with a variety of residential and commercial real estate matters. U.S. 1031 Exchange Services, Inc is a 1031 exchange qualified intermediary (QI) and a member of the Federation of Exchange Accommodators (FEA). As President of U.S. 1031 Exchange services Jeff has been facilitating 1031 exchanges for more than twenty years. Jeff has been awarded the Certified Exchange Specialist (CES) certification. Jeff may be reached at 941-366-1300 or via email at jeff@us1031.com. www.us1031.com

Understanding HVCC 

By C. J. Coury

As you all know, the Federal government has now implemented the Home Valuation Code of Conduct (a.k.a. Appraisal Independence) and all lenders must adhere to it if they are going to sell the loan to Fannie Mae or Freddie Mac. The rules, regulations and requirements do not apply to FHA or VA loans.

The pressure that appraisers felt to hit a predetermined figure when appraising real estate is what ultimately led to this momentous change for our industry. We now must work our way through some new routines while we develop a clear understanding of what is, and is not, acceptable behavior.

One of the main misconceptions is that you are not allowed to speak with the appraiser – that is simply not true. The only thing that you are prohibited from doing is pressuring them to hit a number or questioning their evaluation. My suggestion is that you help the appraiser to arrive at an accurate market value by providing the most accurate comparable data available to you at the time you are contacted for the inspection. Don’t pass over short sales and foreclosures as they are simply too prevalent in today’s market to be ignored. However, as you know, foreclosed properties, and possibly short sales, are in varying states of disrepair. Make certain that you have done the legwork to provide the appraiser with knowledge that he or she might not be able to easily obtain.

A few months ago I wrote about a $150,000 spread between the sale price of two foreclosed properties in my neighborhood – both of which sold at approximately the same time and were virtually identical in square footage and amenities. The reason for the large discrepancy (almost 30%) was the fact that one had been meticulously maintained while the other was completely ignored – inside and out. What do you think the odds are that the listing agent will take the time to provide a comprehensive report of condition to the appraiser? It is highly likely that a telephone call to them would never even be returned. Your transaction may depend on the appraiser obtaining accurate and detailed information about the comps beyond what the MLS might provide – take it upon yourself to see that this happens.

Once the appraiser has completed their report it is allowable to send in additional information via the lender and request a reconsideration of their evaluation. However, it is a time consuming and ineffective manner of doing business, not to mention that there is rarely much, if any, adjustment made after the fact. Please make it a part of your routine to gather and provide this invaluable information to the appraiser as early in the process as possible – you will like the results!

C. J. Coury is a Senior Vice President with Bank of America and oversees their residential mortgage division serving Sarasota, Manatee and Charlotte Counties. Prior to joining Bank of America in 1995, C. J. was President of Mortgage Brokers of America in Birmingham, MI for 7 years. He has been an active mortgage finance professional since 1983. C. J. may be reached at (941) 952-2888 or by email at charles.j.coury@bankofamerica.com.

An Overview of the Withholding Requirements for “Foreign Persons”

By Steven R. Greenberg

Effective January 1, 1985, Congress enacted FIRPTA (Foreign Investment in Real Property Tax Act). The purpose of FIRPTA is to minimize the ability of foreigners (individuals and entities) from taking the proceeds from the sale of U.S. property without paying tax on the profits.

Section 1445 of the Internal Revenue Code (“IRC”) requires that the buyer of U.S. real property collect and pay over to the Internal Revenue Service 10% of the purchase price within twenty days after the closing, unless:

1. The seller is a U.S. taxpayer and certifies under oath their social security number, or if an entity, the federal taxpayer identification number; or

2. The purchase price is $300,000.00 or less and the buyer, or a member of the buyer’s family, has definite plans to reside at the property for at least 50% of the time that the property will be used in each of the next two one-year time periods following the closing date and the buyer will sign a Residency Affidavit to that effect; or

3. The seller has applied to the Internal Revenue Service (“IRS”) for a Withholding Certificate because the seller’s tax liability will be less than 10% of the sales price. The Withholding Certificate that is issued determines the amount of the seller’s tax liability to the IRS. If the Withholding Certificate is obtained prior to closing, only the amount as reflected on the Withholding Certificate to be withheld must be paid to the IRS. If the Withholding Certificate is applied for prior to the closing date, but not yet received by the closing date, 10% of the purchase price must be withheld at closing and held in escrow pending the receipt of the Withholding Certificate. Upon receipt of the Withholding Certificate, the escrow agent pays to the IRS the amount of the tax liability and all remaining escrow funds are refunded to the seller.  Of course, the Withholding Certificate procedure only makes sense in the context of a sale when the seller’s tax liability on the profit on the sale is less than 10% of the purchase price.

The FAR9 Contract Comprehensive Addendum “W” should be used when the seller is a “foreign person” as defined in the IRC (generally, a person or entity who is not a U.S. taxpayer). It should be noted that this Addendum “W” requires the buyer and seller to “execute and deliver as directed any instrument, affidavit, or statement reasonably necessary to comply with the FIRPTA requirements, including applying for a TIN (taxpayer identification number) within three days from Effective Date of the Contract and delivering this respective TIN or Social Security Number to the Closing Agent.”

There are several issues that may arise with regard to the FIRPTA withholding requirements. Depending on the amount of the liens encumbering the property and the amount of the closing costs, the seller may not net 10% of the purchase price and may have to bring money to the closing in order to close the transaction. If the seller is unable to come up with the funds necessary to meet the 10% requirement, the closing will not occur. Furthermore, if the seller is a foreign person under the IRC and the buyer initially agrees to sign a Residency Affidavit pursuant to the second exemption above, but later refuses to do so, the seller will have to comply with the obligation for withholding and may not be in a financial position to bring money to closing.

The remittance of the withheld funds to the IRS is considered the filing of a tax return; and that is why the seller is required to obtain a taxpayer identification number from the IRS. Moreover, it may still be necessary for the seller to file a tax return even if no withholding is required.

This article is intended to be a brief overview of FIRPTA. The regulations are extensive and consultation with a tax advisor is appropriate to determine requirements in any particular transaction.

Steven R. Greenberg has practiced Real Estate law in Sarasota since 1986 and is a shareholder in the law firm of Icard, Merrill, Cullis, Timm, Furen & Ginsburg, P.A. He is board certified by the Florida Bar in real property law and frequently lectures on matters involving real estate transactions. Steven may be reached at (941) 365-6216 or by calling Linda Witt, Director of Marketing, directly at (941) 586-4412 or by email at REinfo@icardmerrill.com.

REAL Networking Evening Event On Siesta Key.

September 10, 2009 – 6:00PM-8:00PM – 4141 Higel Avenue, Siesta Key Read More

REAL Networking Event
Legends Bay – LPGA Paula Creamer’s Home

August 28, 2009 – 11:30AM-1:00PM – 5510 Inspiration Terrace, 34210 (5 minutes from SRQ airport) Read More

Solymar
Private Paradise On Siesta Key, Gulf Of Mexico

Live on the Beach…

By Tracy Eisnaugle

Photography by SRQ360

Experience the exclusive and luxurious lifestyle of Solymar on Siesta Key. Solymar is a quaint yet distinguished community tucked away on the north end of the treasured Siesta Key, a boutique community with only nine estates located on the mesmerizing Gulf of Mexico. Read More

Design Lines – Buying Art

By Pamela Hughes

In a column a few months ago, I wrote about the art of framing. Now, after spending a few weeks searching the art markets for clients, it seems appropriate to write about the selection and purchasing of art.

The phrase, “Beauty is in the eye of the beholder,” is never as true as it is with art. Even educated and totally knowledgeable art critics can have different views on a particular piece of art.

Sometimes art is selected because the viewer sees it as pleasant, calming, beautiful, technically well-produced, shocking, avant-garde, valuable, or as a good investment for resale. All of this art can be “good”, if it is simply selected due to personal preference or intent.

Generally, the person who is new to art will select a piece that is pleasant or beautiful. They may not know the techniques used or even care; they just like the art for its decorative value. This is wonderful – art should be a part of everyone’s life whether one is an art expert or not.

Some collectors like avant-garde art which can often be outrageous, sometimes arousing, or simply something new. Some of this avant-garde art is not understood by either the novice or the professional. But it is a new expression and often offers us a new way of looking at something mundane or “everyday”. New expression is good. Often it leads to greater and more accomplished expression.

This point is easy to illustrate especially with the contemporary art of the sixties and seventies. Lots of canvases were painted, some just all white or of another color, and lots of stripes (The Washington Color School) or splatters of paint (a la Jackson Pollock and Clifford Still). It is easy to say, “I could have done that,” and lots of us could have. But, the artists did it first, and by doing it first, got credit for starting the trend, helping us see things in a new way.

Then there is intellectual art, which can easily fall into the avant-garde category. Intellectual art is a thoughtful and deep manifestation by the artist which some people can comprehend and others cannot. Often, it is understood by studying or knowing the artist, so one can appreciate the elements of the art and what the artist is trying to convey.

In the upper echelons of art, technique becomes more important. Old Masters are celebrated because of breakthroughs in technique or style for their era. For instance, Vermeer used light in a new way, Renoir was a leading painter in the development of the Impressionist style, and Picasso is known for his founding role in the Cubist movement.

There is endless advice on why and how to buy art. Some people believe that art gains value when it changes hands, so there is the investment angle. Others say to buy art that challenges you, buy what makes you feel good or buy from artists you admire or know.

My advice is: buy the best art you can afford for whatever your strategy or for whatever your reasoning happens to be.

Buying art, and having art, enhances your daily life, supports the community of artists and art dealers, and opens up your world. And artists are fun and interesting people!

The next time there is an art opening on Palm Avenue or Fifth Street, take advantage of this wonderful social, intellectual, and eye-opening experience. Go and enjoy!

Visit studios, open the lines of communication with artists and dealers, and get involved.  It is great fun, stimulating and who knows! Maybe you’ll come home with the next Picasso or Renoir!

Pamela Hughes, the founder and owner of Hughes Design Associates, is well known nationally and internationally. Hughes Design Associates is one of the premier interior design firms known throughout North America for specializing in prestigious custom interiors. In Sarasota, Pamela has completed many exceptional projects including The Ritz-Carlton, The Members’ Beach Club, The Tower Residences, and Plaza at Five Points. Her portfolio also includes some of the most luxurious and distinctive residences in Sarasota. Pamela’s work has been published in the best interior design magazines such as Architectural Digest and Veranda, as well as numerous other publications. Also, Home and Garden Television (HGTV) featured her in the program, “Public Places, Private Spaces”, showcasing her work on the Four Seasons Hotel, Philadelphia, and a luxurious private home in Chicago. In addition to their work in Sarasota, Pamela and her firm design projects throughout the US, Canada, the Bahamas and the Caribbean.  Pamela may be reached at 941.922.4767 or visit www.hughesdes.com.

What To Expect From A Great Architect

By Clifford Scholz

I feel that open and straight forward communication is the most important part of the total design process.

The “process”, as we evolve through our work begins with the site itself.  A good architect will strive to understand the site attributes and the site will be visually reviewed for the following considerations:
• Geography
• Topography
• Climate
• Sun Angles/Orientation
• Surrounding Properties
• Access Points
• Views/Wind Orientation
• Environmental Considerations
• New and/or Remodeling Potentials

The site is then reviewed for these additional zoning and building regulations:
• Existing and/or Proposed Zoning
• Lot Coverage Considerations
• Building Height Minimum and Maximum Heights
• 3 Dimensional Zoning
• Building Setbacks
• Environmental and/or State Permits

In conjunction with the above, and also of the utmost importance is to understand the client’s desires, goals and dreams. Through meeting(s) with the Owner, an initial program is discussed which will enumerate the clients wishes for the project. This will include size, function, style, components, budgets and time frame. This serves as the basis for the preliminary design.

The next step in the process is to provide a preliminary design which includes a proposed site plan, floor plan(s) and exterior renderings. This is the visual interpretation and solution to the client’s goals, desires and dreams. With review and discussion, the preliminary design can be manipulated until all involved are comfortable with the design.

If a contractor has been selected, the design will be reviewed in order to provide the client with a preliminary cost estimate for construction. Interior designers and landscape architects should also become involved to gain their input. This preliminary process then continues with input from all parties until an accepted preliminary design is achieved.

At this time, with all approvals, we start the construction documents. The construction drawings are the drawings and specifications that the contractor will use to provide a final cost and to apply for and obtain a building permit. These drawings include architectural, structural, mechanical and electrical design drawings. If a state permit is required, we would submit for these permits and act as the Owner’s agent with The Florida Department of Environmental Protection (FDEP).

With a permit and a final cost available, we now assist in reviewing the bid and setting up a contract with the contractor. We always suggest that this contract be reviewed by your legal counsel. The contractor is now able to start construction, and during the construction phase, we continue to work with the Owner, interior designers, landscape architects and anyone else involved in order to coordinate the shop drawings and review the work in place to ensure it is installed per our design. This process continues until the project is complete and we generate our final punch list.

The time frame for this process is about 5-6 months for the preliminary design and construction documents. The construction phase is dependent on the size and complexity of the home/building. Each project will have its individual characteristics but the process itself remains consistent. There is a lot that goes into every project we accomplish and through experience and expertise we make the process fun and seamless. We pride ourselves on this and look forward to assisting our client’s in achieving that end result, which will be a beautiful creation specifically suited to our client’s needs and which will exceed their goals, desires, and dreams.

As founder and President of CMSA, Cliff has over 35 years of experience in architecture and construction. His sense of design and clear-cut goals has created a reputation for quality and excellence for his firm. As lead architect, he is responsible for the design of projects consisting of custom residential developments, office structures, commercial renovations, golf clubs and high-rise condominium buildings. He takes a proactive role in every project as the client contact, and directs his team of highly skilled professionals to keep every endeavor in balance.  Cliff received his Bachelor of Science in Architecture from Lawrence Institute of Technology in Southfield, Michigan, and a Bachelor of Architecture from the University of Miami in Coral Gables, Florida. Cliff is also a Licensed General Contractor in the State of Florida and certified as a LEED AP. Cliff may be reached at 941-923-2400 or via email at cscholz@cmsa1.com.

Finally Some Relief For Tenants On Their Foreclosed Rental Property

By Steven R. Greenberg

On May 20, 2009, President Obama signed into law the “Helping Families Save Their Homes Act of 2009″ (the “Act”), which includes the “Protecting Tenants at Foreclosure Act.”  The Act provides new protections for “bonafide” tenants of residential property being foreclosed by a lender holding a federally-related mortgage loan. The Act is intended to provide protection for tenants of properties of which a lender has foreclosed who find themselves evicted overnight from their homes at the completion of that foreclosure, often losing advanced rental payments and security deposits in the process.

Generally, the Act provides that tenants of residential property being foreclosed must be given a minimum of ninety days notice before they are required to vacate. The purchaser in foreclosure must provide any bonafide tenant a written “Notice to Vacate” that cannot be for less than ninety days after the date the Notice to Vacate is provided to the tenant. If the “bonafide” lease exists prior to the foreclosure action, the tenant may continue to occupy the property until the lease is terminated, unless the new purchaser will occupy the property as a primary residence in which case the ninety day notice provision will apply. If the tenant is occupying the property either without a lease or under a lease that is terminable at will, the new purchaser must provide the ninety day notice described above. The exception to the above provisions is that, if the purchaser in foreclosure sells the leased property during the term of the lease he “inherited,” he can terminate the lease and cause the tenant to vacate so long as the tenant is given a ninety day notice to vacate.

A bonafide lease or tenancy is one where:

1. The mortgagor or the child, spouse or parent of the mortgagor is not the tenant;
2. The lease or tenancy was the result of an arms-length transaction; and
3. The lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property or the unit’s rent is reduced or subsidized due to a federal, state or local subsidiary.

It is imperative that REALTORS® notify the closing agent handling a closing on the first sale of a bank owned property that was acquired in a foreclosure action (an “REO”) that there are tenants in the property so that the rights of the existing tenant can be addressed. REALTORS® should also advise their buyer of an REO property as to the notice requirements for terminating existing leases so the buyer will be aware that they may be purchasing a property subject to the rights of an existing tenant.

Steven R. Greenberg has practiced Real Estate law in Sarasota since 1986 and is a shareholder in the law firm of Icard, Merrill, Cullis, Timm, Furen & Ginsburg, P.A. He is board certified by the Florida Bar in real property law and frequently lectures on matters involving real estate transactions. Steven may be reached at (941) 365-6216 or by calling Linda Witt, Director of Marketing, directly at (941) 586-4412 or by email at REinfo@icardmerrill.com.

Under Promise And Over Deliver

By C. J. Coury

I am sure that you have all heard the phrase “Under Promise and Over Deliver” and that you do your best to live by it. However, some times we don’t recognize the opportunity to follow this sage advice when it presents itself. The current market is presenting us all with one of those opportunities right now – Setting Proper Expectations.

I recently received several requests from REAL Magazine contributors and readers to once again stress the importance of reducing preventable stressful situations by setting the right expectations at the beginning of a transaction. With the proliferation of fully documented loan underwriting we have all seen the process turn time grow rapidly. In today’s market it is commonplace to experience close dates well in excess of what we were seeing just 6 months ago.

Based on my conversations with most of the major lenders in Southwest Florida the proper expectations for closings are as follows:

 Conventional Purchase Loans = 30 days
 Government Purchase Loans = 45 days
 Refinance Loans = 60 days

Attempting to short cut these average turn times will generally result in undue stress and a poor customer experience. I often liken it to trying to take cuts in the security line at the airport. Virtually everyone in line is in a hurry to get through to the gate and would not be agreeable to letting someone cut in ahead of them simply because they didn’t plan well enough to arrive on time. Due to this phenomena the days of “rush” processing are simply gone for the foreseeable future as almost every file now falls into this category. The only way to speed an application up is to put it in front of other anxious and time constrained borrowers.

To avoid turning what should be an excitement filled process into a frustrating and stressful endeavor for your buyers, set the right expectations up front. Make certain that your offer to purchase allows for enough time to meet today’s turn-times. Doing this will protect your buyers from the unpleasantness of contract extensions, lost rate locks, lost moving company reservations, wasted days off, missed move out dates and a myriad of other issues. These relationship eroding eventualities can be avoided by simply doing your best to set the right expectations at the onset of the transaction.

When you under promise and over deliver you will be much more apt to secure life-long relationships with your customers and reduce the stress in your life.

C. J. Coury is a Senior Vice President with Bank of America and oversees their residential mortgage division serving Sarasota, Manatee and Charlotte Counties. Prior to joining Bank of America in 1995, C. J. was President of Mortgage Brokers of America in Birmingham, MI for 7 years. He has been an active mortgage finance professional since 1983. C. J. may be reached at (941) 952-2888 or by email at charles.j.coury@bankofamerica.com.

What’s So Bad About Short Sale Flips?

By Anne L. Weintraub, Esquire

Anne Weintraub P.A.

                                          
REALTORS®, buyers and sellers are being approached by vendors on a daily basis to participate in short sale flips.  Short sale flips occur when a third-party individual or business negotiates with the seller’s lender to take a short payoff. The lender relies on the vendor’s package from the seller which includes an offer from a buyer-who may actually exist or not-when it grants the short sale approval.  The buyer allegedly closes on the property, the lender gets paid off, and then the buyer sells the property to another buyer for more money. The lender never knows the end buyer exists and sometimes, the first transaction is funded with the end buyer’s money.

It sounds so good-everyone gets paid and life goes on, right?  Wrong.  Why would any lender agree to accept less money in settlement of a debt when they know they could have received a higher payoff from the end buyer? When a lender issues an approval for a short sale, it usually includes language that prevents this very scenario. The approval letter restricts the buyer from selling the property again to another buyer and the seller and participating REALTORS® also have to sign an affidavit that they are not aware of any outside agreements regarding the sale of the property.  In the event the lender reviews the public records and/or learns about the flip, they have the right to seek damages for fraud and misrepresentation from the parties involved in the flip. The lender also can notify federal and state investigation agencies about the flip-if the parties had knowledge or should have had knowledge about the flip, they can be subjected to civil and criminal penalties, including the loss of a real estate license and money damages.

So, what can you do to protect yourself and your customers? Be wary of third party vendors who contact you out of the blue and tell you they have run the scenario by an attorney who found nothing wrong with the flip.  Call the attorney they reference and find out if such statements are true.  When an offer is presented and it contains language requiring the end buyer not to contact the seller’s lender and includes language that the parties must use a certain title company- beware. If the vendor tells you the lender is aware of all of the buyers and is “fine with it”, ask to see proof. Finally, listen to your gut instinct and if you think something smells of trouble, it usually is trouble.

There are plenty of opportunities to make good money in this market by following the rules and laws we are required to abide. Buyers, sellers, and REALTORS® must be aware of mortgage fraud and its many faces.  If you are a REALTOR® and encounter a situation that is uncomfortable or just wrong, discuss it with your broker.  The only time a short sale could be legal is when the seller’s lender and buyer’s lender are aware and approve the flip and each time the property closes, it funds on its own.  This situation would rarely occur because the seller’s lender would not agree to accept less money when more money is available.  Also, most lenders require that title to the property is seasoned, i.e. the seller had title to the property for a certain period of time before they sell it to another buyer. No money can be used from the end buyer to fund the first purchase and sale.  If you are asked to participate in a short sale flip, think before you act.

NEXT ARTICLE – PREVIOUS ARTICLE

Anne L. Weintraub is the driving force behind Anne Weintraub, P.A. practicing in Residential Real Estate Closing, Issuance of Title Insurance & Title Services, Refinancing, Contracts & Deeds and Short Sales & Alternatives. Her practice covers Sarasota, Bradenton, Lakewood Ranch, University Parkway, Casey Key, Siesta Key, Bird Key, Longboat Key, Lido Key and Downtown Sarasota.

Anne Weintraub, P.A. is located at 1800 Second Avenue, Suite 882, in Sarasota. You may reach Anne via email at aweintraub@anneweintraub.com or via phone at (941) 685-4300.

Go Global – When Is A Dollar Not A Dollar?

By Pat Tan

Currency Considerations When Buying And Selling International Real Estate.

The decision to buy or sell a piece of property in another country is not one to be taken lightly. There are many aspects of an international transaction that will differ significantly from country to country. Obviously, investors need to understand the local laws and business practices of the market in which they plan to be active, and to identify trusted partners in that country to assist them with the transaction. In addition, it is vitally important to consider the impact of foreign exchange rates on any international transaction. Many Americans who have invested in countries where real estate is priced in U.S. Dollars, such as Mexico, Costa Rica and Panama have not had to worry about this aspect of their investment, but what happens when they look further afield?

Failure to pay attention to foreign exchange issues in a timely manner can have significant financial consequences. In today’s volatile world economy, a significant swing in the value of a currency one way or another can make a huge difference in the viability or profitability of any real estate acquisition or disposal.

Consider the British investor who purchased property here when Sterling was trading at $2.00 to the British Pound. That same investor now sells the property at $1.60 to £1.00. Let’s assume they purchased a property for $400,000 at a cost in their home currency of £200,000 and they sell it later at the same price, realizing £250,000 from the sale. A “profit” of 25% on their original investment, even though property prices did not appreciate.

As a REALTOR® helping overseas buyers purchase property here, I often see the consequences when those buyers fail to plan for their currency needs. If that same British investor started shopping for real estate when his currency was trading at $2.00 and was looking at $400,000 properties but failed to buy a property at that time, and bought when the rate was $1.60, his buying power would be only $320,000 – reduction of 20%.

So what can be done to mitigate this kind of situation? How can those wishing to make an international investment in real estate maximize their investment potential? Investors obviously need to understand and stay informed about the foreign exchange markets, but how easily can that be achieved?

Investors should look to establish a relationship with a specialist commercial foreign exchange provider. One who provides tailored services to individual as well as corporate customers. There are a growing number of such companies both here and overseas, and they are making significant inroads into the foreign exchange business that may otherwise have been conducted by a local bank. The investor should establish this relationship sooner rather than later. Currency exchange should be considered early and planned for well ahead of the actual need for the funds.

The biggest benefit of working with a commercial foreign exchange company is that they typically will give consumers much more favorable exchange rates than a bank. They are dealing in the currency markets in real time, better able to manage exposure and risk, and can operate on a much smaller spread (the difference between currency buy and sell rates) than traditional financial institutions.
 
But the better exchange rate is just the beginning. There are many other services and benefits that should be considered:

• Easy access to market experts who can advise on the future outlook for a particular currency and assist with timing a transaction and forward planning.
• The ability to fix an exchange rate today that will be valid in the future, protecting the investor from adverse currency movements, and locking them into favorable rates.
• Faster and reliable payment methods, ensuring that funds are transferred as quickly and securely as possible.
• Transferring funds to the destination country in their native currency may eliminate the need to pay commission or receiving bank charges.
• A facility to make regular payments, such as a monthly mortgage – and to lock in the exchange rate for up to two years of payments, protecting the investor against adverse movements in the currency.
• Expert knowledge of the foreign exchange regulations of the sending or receiving countries – daily or monthly limits on transfers for instance.

Timing the movement of funds between one country and another is obviously important as far as managing the exchange rate is concerned. There are other regulatory issues that may also influence timing, and have an impact in international real estate transactions.

Here in U.S.A. for instance, funds needed to complete a real estate purchase are subject to scrutiny under anti-money laundering laws and the Patriot Act. Foreign buyers may be asked to provide information on the source of funds, and to prove they have been in a U.S. bank account for a period of time before they can be used in a real estate closing.

For foreign sellers of U.S. real estate, Uncle Sam’s Foreign Investment in Real Property Tax Act requires that 10% of the sale price of the property be withheld at closing, until the seller’s tax affairs for that year have been settled. These funds may be tied up for some time, and preventing the seller from re-investing, or taking advantage of a favorable exchange rate if they are repatriating the proceeds of the sale.

Patricia Tan was born in England, and moved to Sarasota in 1997. Her career afforded her the opportunity to live and work in many countries around the world, including Australia, Hong Kong, Singapore, Malaysia, Indonesia, Germany, France, Belgium, Netherlands and the United Kingdom. She spent five years as a Director of an American real estate franchise in England in 1990s.  Patricia has served as Chairperson of Sarasota Association of REALTORS®’ International Council, and serves on Florida Association of REALTORS®’ International Operations Committee. She currently works as International Sales Director for Prudential Palms Realty.  Patricia may be reached at 941-487-5107 or patriciatan@prudentialpalmsrealty.com.

Entity Ownership Of Real Estate

By Jeff Riddell

Last article we talked about how individuals can own real estate. Now let’s turn our attention to ownership in an entity. Let’s look at a few.

We’ll start with corporations. You probably know that corporations—other than some federal corporations like banks—are formed under state law. Although corporations are great for businesses, corporate ownership of real estate is generally not favored regardless of whether the corporation has elected to be taxed as an “S Corporation” or a “C Corporation.” Double taxation—both corporate and shareholder level—can be one problem (at least in a C Corporation), but worse yet, C Corporations do not enjoy preferential long term capital gains tax rates. To add insult to injury, when there are multiple shareholders in a real estate corporation, they cannot go their separate ways when the property is sold; some cashing out and paying their capital gains tax while others complete 1031 exchanges. Nevertheless, corporations do create the liability shield that people want from entity ownership of real estate.

How about a partnership?  There are general partnerships and limited partnerships. In general partnerships, usually everyone has equal status, power and liability. By contrast, in limited partnerships, there are one or more general partners and one or more limited partners; and the general partners and limited partners have different status, power and liability—the general partners run the show and the limited partners are along for the ride.

Whether the entity is a general partnership or limited partnership, partnership taxation principles apply. Both partnership and limited partnership have often been the entities of choice for investment real estate owned by more than one person, but all partners in a general partnership—and general partners in a limited partnership—have unlimited personal liability, so exercise caution if you are considering participation in a real estate venture as a partner other than as a limited partner.

The better mousetrap came in the form of limited liability companies. Starting in the 1980s, states began passing legislation authorizing this new legal entity which is usually referred to as an LLC. Although the owners of corporations are referred to as shareholders and the owners of partnerships are referred to as partners (both limited and general partners in the case of limited partnerships), LLC owners are called members. The LLC concept was an offshoot of partnerships—but with limited liability for the partners—so states initially required more than one member. As LLCs evolved, states changed their laws to allow single member LLCs and IRS decided to allow an LLC to elect how to be treated for tax purposes; the choice came in the form of the “check the box” regulations. Tax treatment of LLCs can run the gamut from disregarded entity (for single member LLCs), partnership status (for multiple member LLCs) and even corporate status (C Corp or S Corp). No matter what tax status an LLC chooses, the LLC provides the liability shield most investors want.

There are a few other entities such as Massachusetts business trust, Illinois land trust and Delaware statutory trust that are sometimes chosen to hold title to real estate. Although these bear the names of the states where the type of trust originated, most other states now allow them—or have similar versions of them. Where such trusts are used for real estate ownership, title is held by a trustee for the benefit of the trust’s beneficiaries.

Jefferson F. Riddell is a Florida Board Certified Real Estate attorney with thirty-five years of experience assisting people with a variety of residential and commercial real estate matters. U.S. 1031 Exchange Services, Inc is a 1031 exchange qualified intermediary (QI) and a member of the Federation of Exchange Accommodators (FEA). As President of U.S. 1031 Exchange services Jeff has been facilitating 1031 exchanges for more than twenty years. Jeff has been awarded the Certified Exchange Specialist (CES) certification. Jeff may be reached at 941-366-1300 or via email at jeff@us1031.com. www.us1031.com.

“Recessionista” In The Kitchen – Part II

By Tracy Eisnaugle

Last month’s column was Part I of “Recessionista” In The Kitchen, we embraced our inner lunch lady and learned how to pinch a penny by multi-purposing our proteins. Being that I love to cook and enjoy the creative process almost as much as I enjoy eating and saving a buck, it was difficult to fit all of the kitchen related Recessionista tips into one column. So this month we finish off the kitchen with a few cooking, prepping, shopping, and dividing techniques.

Living in Florida is a wonderful experience, but our hot and humid climate along with our close living quarters creates some distinctive dilemmas. We don’t have basements to store items or to support buying in bulk, then to make matters worse we have tiny garages that are too hot for deep freezers or at least efficient freezers. Our local markets don’t have nor can they afford to have great deals and if you live in our area you already know that we are lucky to find one or two useable coupons a week. Therefore we have to think outside the box and work with what we can.

Being a Recessionista is not only about saving money, it is also about saving time, as we find ourselves working three times as hard for half the compensation saving a few hours and a couple dollars is priceless. Everyone who knows me knows that I love my crock-pot and it is the gift that I give to everyone who gets married, because I swear it saved my marriage during those sixty-hour work weeks. Using a crock-pot makes even the cheapest cuts of meat tender and tasty. Once you get used to using your crock-pot and figure out the liquid to solid ratio you would be amazed at what you can create. There are no limits, the best banana bread I have ever made was in my crock-pot, meatloaf never dries out, and chicken with rice has never been so nice.

Another technique for saving both time and money is pre-making your weeks breakfast or lunch items on your prep/shop day. Let’s face it breakfast can be a pain, being half asleep and having to figure out what you’re hungry for, cooking it, then cleaning up the mess is not the best way to start off your day. So I create our entire week’s worth of breakfasts on Sunday, which conveniently is also the perfect solution for cleaning out the refrigerator. All of the leftover vegetables, eggs, cheese and bread come together to become a tasty layered breakfast casserole that is cooked on Sunday and a simple daily reheat away for a thoughtless yet healthy morning. To break up the sack lunch sandwich and chips routine try making a refrigerator cleanout pasta salad to spice things up. Reducing your food waste and recycling what is in your refrigerator can create simple meal solutions that are always changing with nothing wasted and less time in the kitchen.

With more people packing their lunch, us included, it is easy to get tempted by those pre-packaged “convenient sized” items, or snack size chips, raisins etc., when you compare the cost to the quantity these are a super expensive. Purchase the large size and divide them up yourself, it only takes two minutes, but saves half the cost. You can purchase the large size plus a hundred baggies for less than the cost of the “convenient” packs, with the advantage of being able to control your portion size, which is not the same for a thirty-something man and a school aged child.

Let’s talk about generic food choices, even with coupons or the popular buy one get on free deals the generic is always cheaper. I started buying the generics about two years ago and I will never go back, there is no brand loyalty in a recession and I truly cannot tell the difference. Some of the generic products actually taste better and come in larger sized containers.

Just a little time in the morning throwing some ingredients into a crock-pot, precooking the week’s breakfasts and lunch treats, going generic and making your own snack packs can save valuable money, time and energy. For questions or comments on the Recessionista techniques or to share some of your own techniques please feel free to contact me at TLEisnaugle@msn.com. Play with your food, go generic and get creative, saving money and saving time is the key our future, a wise women once said “if you spend less than you make, you will always be rich.”

Tracy L. Eisnaugle has practiced interior design in Sarasota since 1997 and is currently self employed providing design consultation services in the area. She is a graduate from Florida State University with a Bachelor of Science in Interior Design and continues her education by attending annual conferences. Her past experience includes, Design Center Manager for Lee Wetherington Homes, high-end residential design and model merchandising. Tracy may be reached at 941.232.3358 or by e-mail at tleisnaugle@msn.com.

Alan Atchley and Atchley International Realty

The World is Waiting

By Lalaena Gonzalez-Figueroa

Photography by Chad Spencer

A passion for real estate, a background in business marketing and accounting, and marked success in new home sales have proven the ideal foundation upon which Alan Atchley and his father, Jack Atchley, have built Atchley International Realty, a rising star among Sarasota’s real estate firms.  Read More