Indian Economy, Real Estate and Property

The continuous growth of retail sector is also playing a key role in the growth of the realty sector in India. With the growth of the retail sector estimated at 25 per cent in the next few years, it is likely to create a demand for real estate measuring more than 200 million sq. ft.  

Numerous shopping malls with an average area of one-million sq. ft. are already in place or on their way in a number of cities in India including Delhi, Mumbai, Kolkata, Bengaluru, Chennai, Hyderabad, Chandigarh, Ludhiana and Ahmedabad etc.  

As the burgeoning middle class in the country are often earning more than what their previous generations did, there is an increasing demand for residential property and real estate as well. Industry reports forecast a huge demand for residential property and realty in the days to come. Even a casual tour of the cities and even smaller towns in the country bear ample testimony to such a development.  

Consumers are now finding acquisition of residential property easier as many leading banks, both in public and private sectors, are offering housing loans with easy repayment terms. All this has been sending realty developers laughing all the way to banks.  

In a major departure from the earlier times, leading realty companies in India such as DLF, Parsvnath, Ansals etc. are adopting corporate style of functioning by entering the stock market. And, many other realty groups are also thinking along the same line. Some of them are also getting involved in PPP, i.e., public private participation models with the government.  

In order to maintain the growth, the central government has allowed the entry of foreign direct investment (FDI) in the real estate sector. There are a number of overseas companies from places like Dubai, Singapore, the Philippines, Malaysia, Britain, US and Israel that have been operating here. Real estate surveys conducted in recent times indicate that a huge amount of investment is likely to be made into the Indian real estate sector in the coming years.

Commercial Real Estate Investment Properties

Over the years, my clients have understandably wanted me to pursue every avenue to sell their property. To do so, they often request that I list their property as an investment in addition to listing it under a particular commercial real estate category. While this may seem like a good idea, in my opinion, unless you really have a property that can be considered an investment property, it is not particularly helpful.

Recently, one client asked to have their office building listed as an investment property. Office properties can be an investment but in my opinion, this property did not qualify. It was about 50% vacant and all of the leases in place were short term leases.

Similarly, I have had clients ask to have land listed as investment property. Certainly, there are people who will buy and hold land for a potential windfall down the road but unless the land has a lease or some sort of on-going income potential, I do not think that it is appropriate to consider it an investment property.

For a true investor, neither of these cases would get you past first glance. For something to be an ideal Investment property, it should have the following -

• Ongoing income streams - Usually this would be rent. In the past, some people have assumed an appreciation of the property over time in their decision process. In my opinion and in light of the tremendous devaluation of real estate over the last few years, that is a mistake. When making an investment decision, the best practice is to consider the actual income streams themselves in valuing the asset.


• Long terms on the income streams - Ideally lease terms remaining should be 10 to 20 years. When buying an income property, a new owner does not want to pay for a property that may be vacant in 1 or 2 years.


• Single tenant users - This is not to say that people will not consider multiple tenant properties however, as you increase the number of tenants, you also increase the number of potential headaches associated with the property.


• Credit Tenants - Whether you have a single tenant or multiple tenants, the leases associated with the property are only as strong as the tenants.


• Triple Net Leases - Ideally, an investor will simply want to collect rent and deposit a check. For them the best leases have the tenant responsible for the property taxes, insurance, utilities and maintenance of the building.


• Full or nearly full occupancy - Some properties are advertised as income properties which have significant vacancy. These properties often advertise a cap rate for the property that assumes the vacant area will be leased at the asking lease rate and the asking price for the property. In my opinion, this is misleading. If a property is not fully leased, quoting a cap rate in this way makes no sense. An investor making an intelligent decision would be best served selecting a property which is fully occupied.

For Investors to compare apples to apples, they need an investment alternative that is basically as simple as any other investment option. With stocks, bonds, or interest bearing accounts, you simply invest the money and do not have to take on property maintenance, leasing and other chores and expenses. Of course, these criteria significantly reduce the number of properties which you might consider and I realize that not every property will have all of these features. But I will also tell you that properties like this do exist and can be found.

There are definitely properties which will sell that do not have all of these features and expectations of these features differ somewhat with the type of property (i.e. retail vs. office). However, if you are marketing the property as an Investment option, the successful seller will try to match these criteria as closely as possible.

Real Estate And Foreclosure - What You Need To Know Before You Opt In

With the downturn in the economy many entrepreneurs are looking at getting into the real estate market especially concerning foreclosures.

Real estate has always been and will always be a smart investment choice. However, before one jumps into the real estate market there are some fundamental legal issues one needs to have a good grasp of.

By owning real estate in your name, you give up control of your assets and you risk losing everything.

Real estate investors are particularly vulnerable for two reasons.

1. real estate ownership is shown in the public records for anyone to find.

2. any judgment against you immediately becomes a lien against all your real estate.

What this means is that any lawsuit against you could potentially result in all your real estate being encumbered by a resulting judgment. A judgment will lien your properties until you either pay it off or win an appeal later. You will not be able to sell or mortgage your property until you pay the judgment in full. The only way to protect your real estate is to separate the ownership of the properties. This is where Land Trust Agreements come in.

To create a land trust, you enter into a land trust agreement with a trustee you choose. You will then deed the property into the trust. In the trust agreement, you will designate a name for the trust. You can use any name you desire. I personally use the street address for the Trust name. For example, a property at 123 Park Street would be named 123 Park Street Land Trust and another property at 456 Elm lane would be 456 Elm Lane Land Trust.

Thus, transferring each property (by recorded deed) into a separately named Land Trust Agreement you have isolated or separated the ownership of each property as you always have only one property in each trust.

If there is a problem with one property, let's say a tenant at 123 Park Street sues the landlord (property owner) the suit would be filed against 123 Park Street Trust as this is the name on his/her lease agreement. If he/she is awarded a judgement it becomes a lien against only the property at 123 Park Street and not against all properties owned by you. Leaving you free to sell or mortgage any or all of these other properties without first having been forced to pay the judgement against 123 Park Street.

Remember, if all your properties are under a single owner you must first pay your judgement before you can sell or mortgage any other property. Even if you are appealing the judgement, you are not allowed under law to sell or mortgage any of the other properties because if you have not separated ownership of your properties the lien initiated against 123 Park Street becomes a lien against all your properties.

A Land Trust Agreement leaves you in control of your properties and makes your real estate ownership your own private business. The land trust Agreement is not recorded only the deed is recorded. Since the property is not titled in your name, only you and the trustee know that you own it. The trust contains a provision explicitly preventing the trustee from disclosing your ownership.

The trustee is of your choosing and can be anyone, a friend, a lawyer, a family member, anyone that you trust. The trustees main responsibility is to hold the title to the property until you direct him to transfer the property. The trust agreement and deed to the trust provide the trustee with the necessary authority to act in whatever manner necessary on behalf of the trust. The trustee is prohibited from acting, however, except upon your specific written instructions. When you want the trustee to take some action, such as deed the property to a new buyer, you simply direct him/her in writing to do so.

The trustee is not personally liable for any action he/she takes on behalf of the trust. You have the right to fire the trustee if you ever desire to do so. The trustee can resign. In either case, or if the trustee dies, you have the right to appoint a new trustee of your choosing.

The land trust also provides for the beneficiary. You are the beneficiary. As the beneficiary, you have the right to direct the trustee how to deal with the title to the property, you have the right to manage and control the property, and you have the right to receive all the income and tax benefits of the property. As the beneficiary, you own the trust which owns the real estate.

Commercial Real Estate Syndication: Property Selection and Purchase, Part 1

Let's assume that you've decided to start assembling groups of investors to buy investment real estate. If you followed my Roadmap of a successful syndication in my previous articles (Part 1 and Part 2), then you know that the first step is to research a neighborhood and pick a property to buy. You'll first want to focus on the type of commercial real estate to purchase for your syndications.

So what is the best kind of investment real estate? In the process of putting together your groups, you'll come to realize that not all types of real estate are "created equal" from an investment perspective. Here is a breakdown of property types and their attractiveness as syndication investments:

LAND: Including Remote (currently unusable), agricultural, and "pre-builder" land.

1. "Remote" land is held for a long period of time with the expectation that growth will increase its value. Unfortunately, it's highly risky and provides no current income for investors. The biggest down side is that investors would have to make periodic contributions of capital to cover expenses for taxes, insurance, and possibly loan payments.

2. Agricultural land is used to create crops for sale. It is essentially unimproved land used in a business and its value is derived from the ongoing operations of that business.

3. "Pre-builder" land is subdivided and sold off to various builders who complete the end product, whether housing or commercial. The land is effectively inventory and its value is created in the subdivision process.

CONSTRUCTION: Including new commercial and sub-division projects, beyond the pre-builder stage.

EXISTING: Operating residential and commercial income producing property.

If we go by the list above, we'll soon realize that as syndicators, we'll want to focus our efforts on only one of the major categories. This would be income producing rental property. There are several reasons for this, some obvious, and others that can get you into a heap of trouble if you don't spend some serious time with your attorney. You'll want to be clear on the benefits both you and your co-investors will derive from your real estate investment efforts, as well. This will help not only in focusing your efforts, but in promoting your properties to prospective investors. Here they are:

- Agricultural land, pre-builder land, and new construction projects derive their value from the efforts of others beyond the investment in the property itself. This creates a "corporate securities risk" for the money investors and puts the syndicator under the jurisdiction of both state and Federal securities laws. Ultimately, it means that you could be severely liable to your investors if things don't go as planned. Do not operate in these types of investments without both significant previous experience and excellent legal help.

- Remote land will most likely require "capital calls" to existing investors to pay real estate taxes, insurance, and debt service as you wait for its value to increase. There is nothing an investor hates more than a call from his managing partner to ask for more money. Even if it's disclosed up front and anticipated, it's not good psychologically.

With existing properties:

1. Investors' capital is contributed without the expectation of future contributions, in most cases.

2. There is minimal involvement of the capital contributors beyond providing the investment funds.

3. The owners can expect to receive spend-able income on a periodic basis.

4. The owners can expect an increase in equity through the amortization of any loan used to assist in the acquisition.

5. There is also a realistic expectation of an increase in value of the asset from both monetary inflation and appreciation.

6. There will also be tax benefits from depreciation of the improvements (not the land) and utilizing a 1031 Exchange reinvestment strategy at the property's sale.

So as we go forward on this topic, we will focus on existing, operating, commercial rental income properties. This greatly reduces the syndicator's exposure to regulatory requirements and provides investors with regular checks, making them very happy to get your phone calls!

Invest in Real Estate and IRA Assets

American taxpayers are allowed by law enactment of the Employee Retirement Income Security Act (ERISA) to invest their Individual Retirement Account (IRA) in real estate through custodial institutions such as financial brokerages and banks. Evidently, the investment synergy of real estate and IRA took time owing to restrictions imposed by these so-called IRA custodians themselves who discouraged investments that do not profit them. Thus, the traditional IRA is limited to stocks, securities and other traditional money market schemes and investments.

It was bad that IRA holders are not well informed about options to self-direct their IRAs and other retirement plans into property investing thus making their retirement savings grow. Recent developments, however, saw an upsurge and leading to the transformation of the industry scenario to real estate and IRA investments. The traditional IRAs are invested into a more "imaginative" but high yielding property investment and its portfolio instrumentalities through self directed account or the so-called "Self Directed IRA". The traditional IRA must be converted to "Self Directed IRA" for the latter to become legally compliant. Also entrusted to custodial institutions but not restricted to them by law but on other existing restrictive legal provisions, industry experts therefore are "bullish" in Self Directed IRA invested in investment property because of its unlimited nature and the IRA holder is not bound by the dictates of their custodial planners or brokers. The law allows IRA holders to decide and control in almost all types of investments to engaged, players used the slogan "imagination is the limit" for real estate and IRA investments. Industry figures itself reveal that property investments are both expansive and offer one of the most, if not, the most lucrative yield from all other investment instruments.

The topmost advantage in real estate and IRA investment is the deferment of capital-gains tax on property sold or in some cases, tax-free profits. These profits from such transactions enjoy compounded interest proceeds. Likewise, the real estate is protected by law against liabilities arising elsewhere including exemptions for a certain amount of equity increases as well as providing estate planning in cases of incapacitation or death. It certainly has disadvantages too among them is inexperience in managing properties which could lead to poor decision rather than lucrative yields. While the property is protected by law, money invested are stocked in it for the long term thus the IRA holder cannot divert some to other investments. The law is very strict on family members of lineal descent who cannot use, rent, purchase the property or financing loans and purchase stocks on said family members. Transactions through IRA covered accounts, must fit the IRS code and are subject to legal complications, misunderstanding or ignorance of the rules which could end up with problems entailing severe penalties.

Real estate and IRA investors still insist that the advantages outweigh the disadvantages mainly by willingness to understand the law and responsibilities in managing properties. While complicated legal provisions present obstacles, this investment consultancies are as accessible as the restrictive custodial brokers. Traditional stocks, bonds and other instruments may be the comfort zones of IRA investors but the risk takers and those with entrepreneurial spirits could earn a "six figure range" yield. These IRA qualified investors are offered a diversity of choices within the industry; they can buy houses, apartments, office buildings, malls, hotels, tax-lien certificates and acres of land.

How Tax Shelter Benefits Real Estate Investment Property Ownership

Tax shelter is one of the returns associated with real estate investment that benefits income property ownership. Thanks to the tax shelter benefits provided by the tax code, a real estate investment can shelter some of its own income from taxation and occasionally shelter income received from other investment sources as well.

In this article, I want to introduce you to two allowable deductions for real estate investment properties that provide tax shelter.

The first of these deductions is for mortgage interest. The IRS allows you to deduct the interest you pay on the mortgage you obtained to acquire the income property. The benefit to real estate investors is that interest is really a cost associated with acquisition of property rather than operating it, and the argument can be made that tenants really pay the mortgage interest for the real estate investor.

The second source of tax shelter is through depreciation deduction, which the tax code now calls cost recovery, but we'll continue to call depreciation for our purposes. In this case, the IRS allows you to assume that the buildings (not the land) are wearing out over time and becoming less valuable, and as such permit you to take a deduction for that presumed decline in the value of your asset.

Okay, now here's what's great about real estate depreciation.

Depreciation is a non-cash tax shelter deduction. In full compliance with the tax code, you get a deduction that is not an operating expense and therefore does not affect your cash flow. Moreover, depreciation can shield some or all of your property's year-to-year income from taxation and in some cases when the depreciation deduction is large enough, it can even exceed the amount needed to shelter the property's own income and provide tax shelter for other investment income as well.

Though you won't find a simple formula for the tax shelter component of a real estate investment, here's the idea.

Income less Operating Expenses = Net Operating Income

Then,

Net Operating Income less Mortgage Interest less Depreciation (Cost Recovery) = Taxable Income

Example: Let's say you own an income-producing property that generates rental income of $48,000 and operating expenses of $19,200, leaving a net operating income of $28,800.

To calculate your taxable income, you would then deduct your mortgage interest and allowable depreciation from the net operating income.

Unless you have an interest-only loan, your mortgage payments are made up of both interest and principal. Only the interest portion is deductible, which we will say is $17,559.

The amount of depreciation depends on several factors: The useful life of the buildings as specified in the tax code, which is currently 27.5 years for residential property and 39 years for nonresidential property, and the percent of the investment real estate allocated to buildings and land. Only buildings can be depreciated, and for our purposes, we'll say that the deductible amount for depreciation is $10,037.

Here's the calculation: $28,800 - 17,559 - 10,037 = $1,204

In other words, you must pay Federal income tax on a taxable income of $1,204.

There are other components to tax shelter. For instance, you can typically depreciate capital additions over the same useful life, starting when they are placed in service. You are allowed to amortize closing costs associated with the acquisition of an investment property over the same useful life. And you can amortize loan points over the number of months of the loan term and write them off.

I kept it simple just to give you the idea of how tax shelter is associated with real estate investment and how it can benefit income property ownership. Hopefully, it helps. Here's to your real estate investing success.

House Flipping - Cost Saving House Flipping Tips - Real Estate and Property Flipping

Tip 1 - Find a good contractor. Sound easy enough, but finding a good contractor can make or break your budget when flipping house. Things that can go wrong if you hire a bad contractor for your property are they over charge you, bad workmanship, and time delay. People ask me what is the best way to find a good contractor to do work on your property and I say word of mouth. I found one of my contractors from a recommendation from a lady from work, and all I had to do was ask. Remember that a bad contractor will drain your time and profit from your house flip, so chose carefully. If you do get a bad contractor and they are not working out the only thing to do is FIRE them and fire them quickly.

Tip 2 - Line up all your contractors or subcontractors. The order that I recommend is first get an inspection of the property to make sure it is not a money pit. If there is foundation issue get it fixed first. If you have to fix your foundation later in the flip you will have to repair sheetrock, trim, tile and so on. Next, send in the electrician so the house does not burn down. Also, sometimes they have to remove sheetrock to run the lines and you don't want to do double work. Then get your contractor in there to do the cosmetics such as paint, trim work, hanging light fixtures, installing sinks and so on. Last thing you want to do if you have carpet is install carpet. The last thing you want to do when flipping a house with wood floors is install baseboards.

Tip 3 - Buy all your materials at the start of the project will save you a hundred trips to Home Depot. Buy your paint, trim, doors, sheetrock, light fixtures, sinks, cabinets, and everything else that you can think of. When I flip a house I give my contractor a 200.00 gift card to Home Depot to buy all the miscellaneous items that I did not think of. This saves me time and money by me not have to go to store every time my contractor needs something, and in the house flipping game time is money.

Tip 4 - Find a good Real Estate agent. You need a real estate agent that is great at negotiating. An agent that looks out for your best interest, and not just trying to make a commission. You need to interview agents and find the right agent for the job. That is willing to go to hundreds of houses when you are looking for those diamonds in the rough properties, and they are willing to do open houses when you're selling your properties. Also, see if you can get them to reduce their commission do to you are going to be the next Donald Trump of real estate and bring them a lot of business. One half or one full percent of a commission can save you thousands.