Greetings!
Red Line Meetings are your chance to create better Red Line Stations and craft a vision for the retail districts around the stations. Read below for more information.
EDC has a brand new and improved web site, thanks to a generous grant from Harris Bank.
More details below.
Red Line Meetings next two Mondays!!
by Adam Burck
This coming Monday, 4/30, and the following Monday, 5/7, we are holding the final meetings for the community to refine its vision for the Red Line Stations in Edgewater. At the last two meetings in March, 100 people provided input on what they want the Red Line Stations to be like when the Red Line is revamped. Come out and help finalize that vision as well as your vision for the retail districts adjacent to the stations.
EDC has partnered with the UIC's City Design Center and Voorhees Center to create these charrettes, which are a form of community planning meetings. The results of the charrettes will be compiled in a final report that will be provided to State Representative Harry Osterman and our other elected officials to help them secure the funding to renovate the Red Line.
We welcome and encourage all community members to participate in the second round of charrettes. There is no need to have participated in the first charrettes. Refreshments will be served at 6:30 and the charrettes will begin at 7 p.m. See below for the details:
Berwyn & Bryn Mawr Stations:
Monday, April 30th, 7 to 9 pm, St. Andrews Church, 5649 N Sheridan Rd
Thorndale & Granville Stations:
Monday, May 7th, 7 to 9 pm, Loyola University's Simpson Living & Learning Center, 6333 N Winthrop
Sunday, April 29, 2007
Wednesday, April 25, 2007
Illinois Home Sales Rise Again in March; Statewide Median Price at $198,000
Contact: Mary SchaeferDirector of Communications
MSchaefer@iar.org
217/529-2600
Illinois Home Sales Rise Again in March; Statewide Median Price at $198,000
SPRINGFIELD, Ill. — March home sales in Illinois rose for the second consecutive month in 2007 while a mix of factors including weather and consumer confidence add up to a drop in sales compared to the record for March set in 2006. According to the Illinois Association of REALTORS latest report, total home sales (which include single-family and condominiums) were up 36.2 percent in March 2007 to 11,979 homes sold compared to 8,792 homes sold in February 2007. Sales were 20.3 percent below the all-time high for March of 15,024 homes sold in March 2006.
The Illinois median home price in March was $198,000, up 0.1 percent from $197,900 a year earlier. The median is a typical market price where half the homes sold for more, half sold for less.
Year-to-date, home sales were down 14.2 percent to 29,390 compared to 34,235 homes sold January through March in 2006.
“In March we experienced the usual jump into the spring season with sales up well over February but we’re definitely in a market that is still finding its legs. The severe weather in February and March certainly took a toll on housing activity in Illinois,” said Robert Zoretich, president of the Illinois Association of REALTORS. “Tentative buyers and sellers are still trying to read the market and are taking their time in deciding whether to list or buy. This is a time when market conditions including favorable mortgage interest rates and inventory levels bode well for those who are ready to purchase.”
The monthly average commitment rate for a 30-year, fixed-rate mortgage for the North Central region was 6.19 percent in March 2007, down 0.06 points from the 6.25 average rate during the previous month, according to the Federal Home Loan Mortgage Corporation. Last year in March it averaged 6.40 percent.
The statewide average home price in March was $256,185, up 4.0 percent from $246,434 a year earlier.
In the Chicagoland Primary Metropolitan Statistical Area (PMSA), home sales totaled 8,087 in March 2007, down 22.1 percent from 10,387 home sales in the same month last year.
The median home price for the Chicagoland PMSA was $245,000, up 0.4 percent from $244,000 in March 2006. The average home price for Chicagoland was $319,434, up 6.0 percent from $301,324 in March 2005.
“With home sales moderating, we expect to see smaller gains in price appreciation for now,” said Zoretich, broker-owner of Zoretich Realty Group in Chicago. “Spring is when many people begin to look at homes and with the season comes better weather and more activity in the housing market. REALTORS remain optimistic that this year will offer buyers a very good opportunity to begin their dream of homeownership. Buyers should look at housing as an excellent long-term investment.”
Sales and price information is generated from a survey of Multiple Listing Service sales reported by 35 participating Illinois REALTOR local boards and associations. The Chicagoland PMSA, as defined by the U.S. Census Bureau, includes the counties of Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will.
The Illinois Association of REALTORS is a voluntary trade association whose over 60,000 members are engaged in all facets of the real estate industry. In addition to serving the professional needs of its members, the Illinois Association of REALTORS works to protect the rights of private property owners in the state by recommending and promoting legislation that safeguards and advances the interest of real property ownership.
MSchaefer@iar.org
217/529-2600
Illinois Home Sales Rise Again in March; Statewide Median Price at $198,000
SPRINGFIELD, Ill. — March home sales in Illinois rose for the second consecutive month in 2007 while a mix of factors including weather and consumer confidence add up to a drop in sales compared to the record for March set in 2006. According to the Illinois Association of REALTORS latest report, total home sales (which include single-family and condominiums) were up 36.2 percent in March 2007 to 11,979 homes sold compared to 8,792 homes sold in February 2007. Sales were 20.3 percent below the all-time high for March of 15,024 homes sold in March 2006.
The Illinois median home price in March was $198,000, up 0.1 percent from $197,900 a year earlier. The median is a typical market price where half the homes sold for more, half sold for less.
Year-to-date, home sales were down 14.2 percent to 29,390 compared to 34,235 homes sold January through March in 2006.
“In March we experienced the usual jump into the spring season with sales up well over February but we’re definitely in a market that is still finding its legs. The severe weather in February and March certainly took a toll on housing activity in Illinois,” said Robert Zoretich, president of the Illinois Association of REALTORS. “Tentative buyers and sellers are still trying to read the market and are taking their time in deciding whether to list or buy. This is a time when market conditions including favorable mortgage interest rates and inventory levels bode well for those who are ready to purchase.”
The monthly average commitment rate for a 30-year, fixed-rate mortgage for the North Central region was 6.19 percent in March 2007, down 0.06 points from the 6.25 average rate during the previous month, according to the Federal Home Loan Mortgage Corporation. Last year in March it averaged 6.40 percent.
The statewide average home price in March was $256,185, up 4.0 percent from $246,434 a year earlier.
In the Chicagoland Primary Metropolitan Statistical Area (PMSA), home sales totaled 8,087 in March 2007, down 22.1 percent from 10,387 home sales in the same month last year.
The median home price for the Chicagoland PMSA was $245,000, up 0.4 percent from $244,000 in March 2006. The average home price for Chicagoland was $319,434, up 6.0 percent from $301,324 in March 2005.
“With home sales moderating, we expect to see smaller gains in price appreciation for now,” said Zoretich, broker-owner of Zoretich Realty Group in Chicago. “Spring is when many people begin to look at homes and with the season comes better weather and more activity in the housing market. REALTORS remain optimistic that this year will offer buyers a very good opportunity to begin their dream of homeownership. Buyers should look at housing as an excellent long-term investment.”
Sales and price information is generated from a survey of Multiple Listing Service sales reported by 35 participating Illinois REALTOR local boards and associations. The Chicagoland PMSA, as defined by the U.S. Census Bureau, includes the counties of Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will.
The Illinois Association of REALTORS is a voluntary trade association whose over 60,000 members are engaged in all facets of the real estate industry. In addition to serving the professional needs of its members, the Illinois Association of REALTORS works to protect the rights of private property owners in the state by recommending and promoting legislation that safeguards and advances the interest of real property ownership.
Monday, April 23, 2007
The Gender Gap is still around in buying a home
The gender gap still around in buying a home
Differences show up in dramatic fashion
By Lew Sichelman
United Feature Syndicate
Published April 15, 2007
WASHINGTON -- Single men and women make up about one-third of the nation's 111 million households. Toss in unmarried moms and dads living with children younger than 18, and singles account for almost half.But when it comes to housing, about the only thing the 55 million single households have in common is that they are not married.Face it: Men and women are different. And when housing is concerned, the incongruities rise to the same level as how the two genders use TV remote controls, ask for directions, judge distances and hunt or gather.For example, they operate differently in the buying process.
Guess which sex wants to make a decision as quickly as possible and which one wants to take more time?According to a small survey taken early this year by Countrywide Home Loans, men run while women saunter. In fact, nearly half the women polled said they did not take enough time when they bought their current residence while almost a quarter of the men surveyed said the process took way too long.Countrywide's findings are based on a telephone poll of just 219 owners, so they are not statistically significant.
But plenty of other evidence shows how differently the genders approach housing and homeownership. And none of it surprises Wanda McPhaden, a partner in BCA Real Estate Investments, a female-centric company in New York City.BCA, which stands for believe, create and achieve, was created to show women how they, too, can create wealth by investing in real estate."Women usually don't think about the benefits of homeownership until they are older," says McPhaden, a 20-year real estate veteran whose new company is working with a female builder in Westport, Conn., and is backed by several women investors. "Men get it because they are taught very early on.
Women aren't."Perhaps that's why male buyers tend to be younger than their female counterparts. The median age of single men who purchased houses between 2000 and midyear 2003 was 37, according to the U.S. Census Bureau. In the same period, the median age of single female buyers was 42.An even deeper look at the numbers shows that men account for the largest share of single buyers younger than 25, while women make up the largest share of single purchasers in the 45-to-64 age group and the older-than-65 set."My theory is that women don't think they can be homeowners until they are older," says McPhaden, who is also starting a small investors club for women with less than $50,000 to put into real estate.A lot of that has to do with money, she believes.
Of course, there are no mortgage products aimed specifically at one sex or the other. Men and women are supposed to be treated equally when it comes to financing. But the investment adviser maintains that men instinctively know how and where to find financing while women have to be taught.Here's another big difference between the sexes: In the same 3 1/2-year period, the census found that 53 percent of the male buyers had never been married versus 35 percent of the female buyers.
Indeed, the largest group of single female buyers, 49 percent, were divorced or separated versus 41 percent of the men. The rest were widowed.Everyone knows by now that women are paid less than men, though they are sometimes doing the very same work as the guy in the next cubicle. But Harvard University's Joint Center for Housing Studies put an exclamation point on that fact in last year's report that found more than an $11,000 disparity on the median incomes of male and female home buyers -- $48,000 for the men, $36,800 for the women.Looking at income a little differently, the Joint Center found that 62 percent of the women purchasers earned less than 80 percent of the median for their areas compared to 49 percent of the men. On the other side of the spectrum, 28 percent of the males earned more than 120 percent of the median versus 17 percent of the women.
Despite it all, single female buyers outnumber the males. Always have, says the National Association of Realtors. But in 2006, NAR's annual survey of buyers and sellers found the gap has widened to its greatest spread ever -- 22 percent of all buyers were single and female, and just 9 percent were unmarried males.According to another piece of research, this one by the Brookings Institution, a Washington think tank, the suburbs now contain the largest portion of non-family households, which includes singles, roommates and elderly people living alone. And just like married folk, singles buy mostly single-family houses.In fact, according to Rachel Drew's analysis of unmarried female home buyers for Harvard's Joint Center, single women bought 3.1 million houses between 2000 and midyear 2003 and men purchased 2.7 million.
That single-family houses are more popular than condominiums among unmarried people runs contrary to popular perception. But singles also bought a lot of condos. Women purchased 554,000 condos in the 3 1/2-year study period, and men purchased almost 380,000.McPhaden, who has taught real estate at Norwalk (Conn.) Community College for 14 years and is active where she lives in Ridgefield in an organization aimed at improving the lives of young inner-city women, understands this phenomenon, too.Men often don't want the aggravation of taking care of a large house or apartment, she says. "They look at their pads as places to entertain women."Women, on the other hand, tend to see their houses as homes, as places to live."They may never get married, but they want a home to live in because they are much more social," McPhaden maintains.
The NAR's annual survey of buyers and sellers confirms what McPhaden senses. While half the unmarried buyers told researchers they bought a house because of the desire to own the roof over their heads, women placed more importance on living near family and friends. Men, on the other hand, placed more weight on living close to work or school.And finally, there's this other difference between the sexes. Women, according to NAR's research, are more likely to compromise on the size and cost of the houses they buy to obtain "other characteristics" that are more important to them.
----------You may write to Lew Sichelman c/o Chicago Tribune, Real Estate, 435 N. Michigan Ave., 4th floor, Chicago IL 60611. Or e-mail him at realestate@tribune.com. Sorry, he cannot make personal replies. Answers will be supplied only through the newspaper. E-mail this story
Copyright © 2007, Chicago Tribune
Differences show up in dramatic fashion
By Lew Sichelman
United Feature Syndicate
Published April 15, 2007
WASHINGTON -- Single men and women make up about one-third of the nation's 111 million households. Toss in unmarried moms and dads living with children younger than 18, and singles account for almost half.But when it comes to housing, about the only thing the 55 million single households have in common is that they are not married.Face it: Men and women are different. And when housing is concerned, the incongruities rise to the same level as how the two genders use TV remote controls, ask for directions, judge distances and hunt or gather.For example, they operate differently in the buying process.
Guess which sex wants to make a decision as quickly as possible and which one wants to take more time?According to a small survey taken early this year by Countrywide Home Loans, men run while women saunter. In fact, nearly half the women polled said they did not take enough time when they bought their current residence while almost a quarter of the men surveyed said the process took way too long.Countrywide's findings are based on a telephone poll of just 219 owners, so they are not statistically significant.
But plenty of other evidence shows how differently the genders approach housing and homeownership. And none of it surprises Wanda McPhaden, a partner in BCA Real Estate Investments, a female-centric company in New York City.BCA, which stands for believe, create and achieve, was created to show women how they, too, can create wealth by investing in real estate."Women usually don't think about the benefits of homeownership until they are older," says McPhaden, a 20-year real estate veteran whose new company is working with a female builder in Westport, Conn., and is backed by several women investors. "Men get it because they are taught very early on.
Women aren't."Perhaps that's why male buyers tend to be younger than their female counterparts. The median age of single men who purchased houses between 2000 and midyear 2003 was 37, according to the U.S. Census Bureau. In the same period, the median age of single female buyers was 42.An even deeper look at the numbers shows that men account for the largest share of single buyers younger than 25, while women make up the largest share of single purchasers in the 45-to-64 age group and the older-than-65 set."My theory is that women don't think they can be homeowners until they are older," says McPhaden, who is also starting a small investors club for women with less than $50,000 to put into real estate.A lot of that has to do with money, she believes.
Of course, there are no mortgage products aimed specifically at one sex or the other. Men and women are supposed to be treated equally when it comes to financing. But the investment adviser maintains that men instinctively know how and where to find financing while women have to be taught.Here's another big difference between the sexes: In the same 3 1/2-year period, the census found that 53 percent of the male buyers had never been married versus 35 percent of the female buyers.
Indeed, the largest group of single female buyers, 49 percent, were divorced or separated versus 41 percent of the men. The rest were widowed.Everyone knows by now that women are paid less than men, though they are sometimes doing the very same work as the guy in the next cubicle. But Harvard University's Joint Center for Housing Studies put an exclamation point on that fact in last year's report that found more than an $11,000 disparity on the median incomes of male and female home buyers -- $48,000 for the men, $36,800 for the women.Looking at income a little differently, the Joint Center found that 62 percent of the women purchasers earned less than 80 percent of the median for their areas compared to 49 percent of the men. On the other side of the spectrum, 28 percent of the males earned more than 120 percent of the median versus 17 percent of the women.
Despite it all, single female buyers outnumber the males. Always have, says the National Association of Realtors. But in 2006, NAR's annual survey of buyers and sellers found the gap has widened to its greatest spread ever -- 22 percent of all buyers were single and female, and just 9 percent were unmarried males.According to another piece of research, this one by the Brookings Institution, a Washington think tank, the suburbs now contain the largest portion of non-family households, which includes singles, roommates and elderly people living alone. And just like married folk, singles buy mostly single-family houses.In fact, according to Rachel Drew's analysis of unmarried female home buyers for Harvard's Joint Center, single women bought 3.1 million houses between 2000 and midyear 2003 and men purchased 2.7 million.
That single-family houses are more popular than condominiums among unmarried people runs contrary to popular perception. But singles also bought a lot of condos. Women purchased 554,000 condos in the 3 1/2-year study period, and men purchased almost 380,000.McPhaden, who has taught real estate at Norwalk (Conn.) Community College for 14 years and is active where she lives in Ridgefield in an organization aimed at improving the lives of young inner-city women, understands this phenomenon, too.Men often don't want the aggravation of taking care of a large house or apartment, she says. "They look at their pads as places to entertain women."Women, on the other hand, tend to see their houses as homes, as places to live."They may never get married, but they want a home to live in because they are much more social," McPhaden maintains.
The NAR's annual survey of buyers and sellers confirms what McPhaden senses. While half the unmarried buyers told researchers they bought a house because of the desire to own the roof over their heads, women placed more importance on living near family and friends. Men, on the other hand, placed more weight on living close to work or school.And finally, there's this other difference between the sexes. Women, according to NAR's research, are more likely to compromise on the size and cost of the houses they buy to obtain "other characteristics" that are more important to them.
----------You may write to Lew Sichelman c/o Chicago Tribune, Real Estate, 435 N. Michigan Ave., 4th floor, Chicago IL 60611. Or e-mail him at realestate@tribune.com. Sorry, he cannot make personal replies. Answers will be supplied only through the newspaper. E-mail this story
Copyright © 2007, Chicago Tribune
Second Set of Red Line Planning Sessions
On March 5th and 12th, the Edgewater Development Corporation, with the assistance of the UIC City Design Center and State Representative Harry Osterman, hosted the first round of the Edgewater Red Line Corridor Revitalization Charrettes. Both Charrettes were incredibly successful with a high level of community attendance and participation.
The charrettes took the form of casino games, with three different themes. The first game quantified participants' desires for potential red line station improvements. Players were allotted a certain amount of money and had to negotiate with one another and the "dealer" to create a vision for the stations. The second game focused on the urban design of the corridors surrounding the red line stations. Players worked together to build their ideal physical design for the area, including green roofs, parking structures, and new buildings. The third game allowed players to work together to create a preferred mix of retail options such as coffee shops, bookstores, hardware stores, etc.
At the second round of charrettes, the community will review and refine the findings from the first charrettes. This will result in a final report that EDC and our elected officials will use to advocate for the renovation of the stations and to guide our retail attraction and development review efforts.
We welcome and encourage all community members to participate in the second round of charrettes. There is no need to have participated in the first charrettes.
Berwyn & Bryn Mawr Stations:
Monday, April 30th, 7 to 9 pm, St. Andrews Church, 5649 N Sheridan Rd
Thorndale & Granville Stations:
Monday, May 7th, 7 to 9 pm, Loyola University's Simpson Living & Learning Center, 6333 N Winthrop
The charrettes took the form of casino games, with three different themes. The first game quantified participants' desires for potential red line station improvements. Players were allotted a certain amount of money and had to negotiate with one another and the "dealer" to create a vision for the stations. The second game focused on the urban design of the corridors surrounding the red line stations. Players worked together to build their ideal physical design for the area, including green roofs, parking structures, and new buildings. The third game allowed players to work together to create a preferred mix of retail options such as coffee shops, bookstores, hardware stores, etc.
At the second round of charrettes, the community will review and refine the findings from the first charrettes. This will result in a final report that EDC and our elected officials will use to advocate for the renovation of the stations and to guide our retail attraction and development review efforts.
We welcome and encourage all community members to participate in the second round of charrettes. There is no need to have participated in the first charrettes.
Berwyn & Bryn Mawr Stations:
Monday, April 30th, 7 to 9 pm, St. Andrews Church, 5649 N Sheridan Rd
Thorndale & Granville Stations:
Monday, May 7th, 7 to 9 pm, Loyola University's Simpson Living & Learning Center, 6333 N Winthrop
Saturday, April 7, 2007
The Four Key Criteria for Evaluating an Investment Property
The Four Key Criteria for Evaluating an Investment Property
by Thomas Hall GRI ABR QSC, Broker Associate
So often when I speak to potential clients seeking investment property, I ask them to explain to me their process for evaluating income-producing property. A significant majority of these investors tell me they look solely at the capitalization rate of the property – the percentage of net income over the purchase price of a potential investment.
Cap rate is definitely a strong metric in measuring the value of an investment candidate, but it should not be the sole metric for measuring the strength of an investment. Evaluating an income producing investment property should not be one-dimensional.
Critical to evaluating any investment property’s fit in your overall investment strategy, it is important to understanding the four key criteria used to better understand the big picture. Solely relying on one financial metric does not provide an accurate picture of the viability of a particular investment property. Think of the four criteria as legs on a chair – the fewer the legs, the less stable the chair. By not evaluating one or more of the four criteria, you may not be making the most informed decision.
Ideally, the savvy investor evaluates all of the key criteria that make income producing investments attractive and evaluates the big picture – they determine how all of the above fit into their investment strategy.
When evaluating an income producing property, be sure to review the following criteria:
1. Cash flow
2. Principle Reduction
3. Tax Advantages
4. Appreciation
Cash Flow
Simply put cash flow measures the inflow of cash generated by an income producing property, i.e. rents less the outflow of cash, i.e. expenses generated by a property over a period of time. Ideally, cash flow is measured before taxes and depreciation.
Prior to identifying an investment property, it is important to understand what are your financial objectives. To some investors, cash is king – therefore their primary objective is to purchase property that provides a positive cash flow.
While positive cash flow sounds attractive, some investors may be looking to shield income, therefore, a positive cash flow may not be their primary objective – their search may be to seek income producing property with a cash neutral or even slightly negative cash flow for the attractive tax advantages.
Principal Reduction
One of the best advantages of holding income-producing property is that your tenant(s) are paying down a portion of the principal balance of your mortgage over time. In some cases, however, if your potential property has strong prospects of significant appreciation, it may make sense to explore financing with an interest only product – allowing the prospects of appreciation to offset the principal reduction paid by your tenants.
Tax Advantages
Depreciation is a non-cash expense, however, it has a significant impact on an income producing property’s cash flow. Because all assets lose value over time due to wear and tear and general obsolescence, depreciation accounts for the loss of value by lowering a property’s net income, hence lowering an investor’s tax liability as well.
As a current or future owner of investment and income producing investment property, here is some food for thought.
When you begin the process of completing your Schedule E, are you and/or your accountant depreciating just the value of your building, or do you bifurcate the value of the land, land improvements and personal property in your building(s)? If you are simply depreciating the value of your building, you may be losing enormous tax advantages.
IRS tax laws allow owners of residential income producing investment properties to depreciate the value of your building, land improvements (i.e. value of curbs, sidewalks, parking lots etc.) as well as the value of the personal property in the building (i.e. carpet, window treatments, lighting fixtures, appliances etc.). The cost recovery for personal property percentage in year one alone is 20% and can be depreciated over 5 years. The cost recovery percentage for land improvement is 5% in year one and can be depreciated over 15 years. You may even be able to file an amended tax return and perhaps get money back. Your potential refund can be reinvested in additional real estate. Consult a financial professional or call me, I can point you in the right direction.
Some addition thoughts as we close out the year: Do you and/or your accountant calculate the return on your equity in the property(s) you own on a year-to-year basis? If not, you may want to calculate your return in order to best understand whether or not your investment is providing the best return possible. As you begin to lose the tax advantages over time, your money may be better used in purchasing additional investment properties with better returns. You may not even need to sell your current investment. Perhaps borrowing against your equity may be a better solution. Either way, it’s important to understand how your money is working for you.
In order to best demonstrate the attractive tax advantages of income producing property, please see the following example:
Depreciation Illustration:
You purchase a building for $600,000 of which the land value is $100,000.
Your net income for the year is $24,800.
For purposes of a simplified illustration, the cost of debt service is not included in the calculations.
Building: Recovery Period for Residential Property = 27.5 years
Recovery Percentage for Residential Property for Year 1 = 3.48%
Land Improvements: Recovery Period for Land Improvements = 15 years
Recovery Percentage for Land Improvements for Year 1 = 5.00%
Personal Property: Recovery Period for Personal Property = 5 years
Recovery Percentage for Personal Property for Year 1 = 20.00%
Without bifurcation:
Purchase Price: $600,000
Building Value: $500,000
Land Value: $100,000
Total Depreciation = $500,000 x 0.0348 = $17,400
Net Income: $24,800
Depreciation: $17,400
Cash flow before tax = $24,700 - $17,400 = $7,400
by Thomas Hall GRI ABR QSC, Broker Associate
So often when I speak to potential clients seeking investment property, I ask them to explain to me their process for evaluating income-producing property. A significant majority of these investors tell me they look solely at the capitalization rate of the property – the percentage of net income over the purchase price of a potential investment.
Cap rate is definitely a strong metric in measuring the value of an investment candidate, but it should not be the sole metric for measuring the strength of an investment. Evaluating an income producing investment property should not be one-dimensional.
Critical to evaluating any investment property’s fit in your overall investment strategy, it is important to understanding the four key criteria used to better understand the big picture. Solely relying on one financial metric does not provide an accurate picture of the viability of a particular investment property. Think of the four criteria as legs on a chair – the fewer the legs, the less stable the chair. By not evaluating one or more of the four criteria, you may not be making the most informed decision.
Ideally, the savvy investor evaluates all of the key criteria that make income producing investments attractive and evaluates the big picture – they determine how all of the above fit into their investment strategy.
When evaluating an income producing property, be sure to review the following criteria:
1. Cash flow
2. Principle Reduction
3. Tax Advantages
4. Appreciation
Cash Flow
Simply put cash flow measures the inflow of cash generated by an income producing property, i.e. rents less the outflow of cash, i.e. expenses generated by a property over a period of time. Ideally, cash flow is measured before taxes and depreciation.
Prior to identifying an investment property, it is important to understand what are your financial objectives. To some investors, cash is king – therefore their primary objective is to purchase property that provides a positive cash flow.
While positive cash flow sounds attractive, some investors may be looking to shield income, therefore, a positive cash flow may not be their primary objective – their search may be to seek income producing property with a cash neutral or even slightly negative cash flow for the attractive tax advantages.
Principal Reduction
One of the best advantages of holding income-producing property is that your tenant(s) are paying down a portion of the principal balance of your mortgage over time. In some cases, however, if your potential property has strong prospects of significant appreciation, it may make sense to explore financing with an interest only product – allowing the prospects of appreciation to offset the principal reduction paid by your tenants.
Tax Advantages
Depreciation is a non-cash expense, however, it has a significant impact on an income producing property’s cash flow. Because all assets lose value over time due to wear and tear and general obsolescence, depreciation accounts for the loss of value by lowering a property’s net income, hence lowering an investor’s tax liability as well.
As a current or future owner of investment and income producing investment property, here is some food for thought.
When you begin the process of completing your Schedule E, are you and/or your accountant depreciating just the value of your building, or do you bifurcate the value of the land, land improvements and personal property in your building(s)? If you are simply depreciating the value of your building, you may be losing enormous tax advantages.
IRS tax laws allow owners of residential income producing investment properties to depreciate the value of your building, land improvements (i.e. value of curbs, sidewalks, parking lots etc.) as well as the value of the personal property in the building (i.e. carpet, window treatments, lighting fixtures, appliances etc.). The cost recovery for personal property percentage in year one alone is 20% and can be depreciated over 5 years. The cost recovery percentage for land improvement is 5% in year one and can be depreciated over 15 years. You may even be able to file an amended tax return and perhaps get money back. Your potential refund can be reinvested in additional real estate. Consult a financial professional or call me, I can point you in the right direction.
Some addition thoughts as we close out the year: Do you and/or your accountant calculate the return on your equity in the property(s) you own on a year-to-year basis? If not, you may want to calculate your return in order to best understand whether or not your investment is providing the best return possible. As you begin to lose the tax advantages over time, your money may be better used in purchasing additional investment properties with better returns. You may not even need to sell your current investment. Perhaps borrowing against your equity may be a better solution. Either way, it’s important to understand how your money is working for you.
In order to best demonstrate the attractive tax advantages of income producing property, please see the following example:
Depreciation Illustration:
You purchase a building for $600,000 of which the land value is $100,000.
Your net income for the year is $24,800.
For purposes of a simplified illustration, the cost of debt service is not included in the calculations.
Building: Recovery Period for Residential Property = 27.5 years
Recovery Percentage for Residential Property for Year 1 = 3.48%
Land Improvements: Recovery Period for Land Improvements = 15 years
Recovery Percentage for Land Improvements for Year 1 = 5.00%
Personal Property: Recovery Period for Personal Property = 5 years
Recovery Percentage for Personal Property for Year 1 = 20.00%
Without bifurcation:
Purchase Price: $600,000
Building Value: $500,000
Land Value: $100,000
Total Depreciation = $500,000 x 0.0348 = $17,400
Net Income: $24,800
Depreciation: $17,400
Cash flow before tax = $24,700 - $17,400 = $7,400
With bifurcation:
Purchase Price: $600,000
Building Value: $400,000
Land Value: $100,000
Land Improvement: $50,000
Personal Property: $50,000
Total Depreciation:
= ($400,000 x 0.0348) $13,920 + ($50,000 x .05)$2,500 +($50,000 x 0.2)$10,000 = $26,420
Net Income: $24,800
Depreciation: $26,420
Cash flow before tax = $24,800 - $26,400 = -$1,620
Friday, April 6, 2007
Tax Tips for Income Producing Properties
As April 17, 2007 fast approaches, time is running out on preparing and filing your taxes for the 2006 tax year. As an owner of investment and income producing investment property, I wanted to follow up with you to provide some food for thought.
As you begin the process of completing your Schedule E, are you and/or your accountant depreciating just the value of your building, or do you bifurcate the value of the land, land improvements and personal property in your building(s)? If you are simply depreciating the value of your building, you may be losing enormous tax advantages.
IRS tax laws allow owners of residential income producing investment properties to depreciate the value of your building, land improvements (i.e. value of curbs, sidewalks, parking lots etc.) as well as the value of the personal property in the building (i.e. carpet, window treatments, lighting fixtures, appliances etc.). The cost recovery for personal property percentage in year one alone is 20% and can be depreciated over 5 years. The cost recovery percentage for land improvement is 5% in year one and can be depreciated over 15 years. You may even be able to file an amended tax return and perhaps get money back. Your potential refund can be reinvested in additional real estate. Consult a financial professional or call me, I can point you in the right direction.
Some addition thoughts as we close out the year: Do you and/or your accountant calculate the return on your equity in the property(s) you own on a year-to-year basis? If not, you may want to calculate your return in order to best understand whether or not your investment is providing the best return possible. As you begin to lose the tax advantages over time, your money may be better used in purchasing additional investment properties with better returns. You may not even need to sell your current investment. Perhaps borrowing against your equity may be a better solution. Either way, it’s important to understand how your money is working for you.
I want to reiterate to you my interest in developing a working relationship with you. Please contact me if you are interested in discussing the possibility of selling your property or purchasing additional property. To reach me directly, call 773 791-2154 or thall@rubloff.com.
As you begin the process of completing your Schedule E, are you and/or your accountant depreciating just the value of your building, or do you bifurcate the value of the land, land improvements and personal property in your building(s)? If you are simply depreciating the value of your building, you may be losing enormous tax advantages.
IRS tax laws allow owners of residential income producing investment properties to depreciate the value of your building, land improvements (i.e. value of curbs, sidewalks, parking lots etc.) as well as the value of the personal property in the building (i.e. carpet, window treatments, lighting fixtures, appliances etc.). The cost recovery for personal property percentage in year one alone is 20% and can be depreciated over 5 years. The cost recovery percentage for land improvement is 5% in year one and can be depreciated over 15 years. You may even be able to file an amended tax return and perhaps get money back. Your potential refund can be reinvested in additional real estate. Consult a financial professional or call me, I can point you in the right direction.
Some addition thoughts as we close out the year: Do you and/or your accountant calculate the return on your equity in the property(s) you own on a year-to-year basis? If not, you may want to calculate your return in order to best understand whether or not your investment is providing the best return possible. As you begin to lose the tax advantages over time, your money may be better used in purchasing additional investment properties with better returns. You may not even need to sell your current investment. Perhaps borrowing against your equity may be a better solution. Either way, it’s important to understand how your money is working for you.
I want to reiterate to you my interest in developing a working relationship with you. Please contact me if you are interested in discussing the possibility of selling your property or purchasing additional property. To reach me directly, call 773 791-2154 or thall@rubloff.com.
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