GO Zone Update and Tax Incentives Explained
March 9, 2010
With Tax season right around the corner, I am sure that on everyone’s mind is the topic of getting every (legal) tax benefit that they can get. We thought it was appropriate given the season to overview the GO Zone benefits and update everyone on what they can do to take advantage of this offer from the IRS.
GO ZONE EXTENSION UNTIL 12/31/2010
As you may already know, the IRS extended the benefits of the GO Zone out until the end of this year. That’s the good news. There are a few items you need to be well aware of before breaking out your checkbook to purchase properties.
#1: LOCATION, LOCATION, LOCATION!
When the GO Zone extension took place, the IRS ONLY extended benefits in certain areas of the original GO Zone. This includes certain areas of Mississippi and Louisiana, but NOT Alabama (AL GO Zone benefits ended back in 2008). Mississippi Counties where you can still purchase GO Zone properties and receive benefits are Harrison, River, Hancock, Stone, and Jackson Counties.
So, as an example, if a newly built single family home in Gulfport Mississippi was purchased in December 2009 and was put into rental service in February 2010, it would qualify with the extension since Gulfport is in Harrison County, MS.
#2: IT’S ALL ABOUT TIMING
There is one more very important items that you need to be aware of with the GO Zone extension that has to do with the way the IRS Code is written. The short story* is that according to the IRS, you will only get Bonus Depreciation benefits on the portion of the home that was completed ON OR BEFORE December 31st, 2009.
* If you want the “long version” of the story that digs into the depths of the IRS code, drink some coffee, click “here“, and then scroll down towards the bottom of the article.
Confused yet? Let’s look at a real example. Supposed you had a new home built and completed in 2009 in Gulfport, MS.
Purchase Price: $119,000
Land: $20,000
Total Construction: $99,000
Bonus Depreciation: $49,500
Since the construction was completed before the IRS deadline, then the bonus appreciation available to you is $49,500.
Let’s consider another example. Suppose that someone was offering the following Duplex in Ocean Springs, MS (Ocean Springs is in Jackson County). However, the unit was not started until after January 1st, 2010.
Purchase Price: $198,000
Land: $20,000
Total Construction: $178,000
Bonus Depreciation: $0
Note there was no portion of the construction completed before the IRS deadline, there is absolutely no GO Zone benefits for this Duplex purchase.
AM I TOO LATE?
Good new is that there are still some quality GO Zone Single Family properties out there. The bad news is that given the IRS deadlines imposed in the extension, finding not only qualified properties, but also properties that make sense are becoming harder and harder to find. So to answer the above question, NO - you are not too late. There are still some prime quality properties out there for you to take advantage of (i.e. reduction of your tax liabilities through GO Zone benefits). You just need to know what to look for and where to look.
WHERE DO I LOOK?
We are constantly on the look out for quality homes that make purchasing sense in the GO Zone. If you are interested in receiving details once they come in, simply click here to e-mail me.
Go Zone Real Estate: Let Uncle Sam Pay Your Bill
March 28, 2009
Since I have been immersed in the Katrina Go Zone for the last two years, it amazes me that many real estate investors and tax professionals have no idea what the Go Zone is or how it can help them reduce taxes to zero for this year, and potentially 5 years to come.
But I realize that even though I have been living & breathing this for the last several years, in reality this is an obscure piece of tax code that most people, and most tax professionals know nothing about…. That is unfortunate.
For purposes of this blog post, let me give you a short primer of the Go Zone legislation and then point you to a great resource if you want to learn more:
- Tax code enacted in 2005 to help Hurricane Katrina impacted areas;
- Allows investors to deduct up to 50% of the purchase of SOME real estate the first year on their taxes;
- This is called “Bonus Depreciation” and can result in tax savings of 10s, 100s, or even millions of dollars;
- Not a new concept….. The Government used this same trick after 9-11: called the Liberty Zone;
- This best applies to three classes of people:
- Real Estate Professionals;
- People with adjusted gross incomes less than $150,000
- High income W-2 earners but with spouses not working.
- Typically property must be new and put into rental service;
- Currently limited to a few counties in Mississippi and a few parishes in Louisiana;
- You need to own your structure before the END OF 2009 based on current legislation
If you want to learn more about this, go to this resource:
Fannie Mae Increases Lending Caps
March 28, 2009
To help support the needed financial recovery, Fannie Mae has announced that they are changing their recent investor cap on the total number of mortgages under the same borrower. In the later part of 2008, Fannie Mae reduced the total number of mortgages that an investor can have from 10 down to 4! This resulted in investors scrambling for higher-rate in-house programs and even higher rate private funds for investing.
Now with the issuance of Announcement 09-02 by Fannie Mae, the cap has been temporarily lifted back up to 10 properties. While still sorting to the details, for properties #5 to 10, it looks like 75% LTV with a minimum of 720 credit score and above. The requirements apply to any investment property or second home loan being delivered to Fannie Mae, regardless of whether Fannie Mae is the investor on the borrower’s other mortgages.
You can read more details on this by clicking on the below link: http://www.gozoneonline.com/FannieMae0902.pdf
Remember that most banks, even with this rule, may still limit the total number of mortgages that you have with their institution. However with this said, it greatly opens the doors back up for investors in the GO Zone trying to take advantage of the benefits before the end of this year.
Given this temporary reprieve from Fannie Mae, the timing of the remaining GO Zone benefits, and based on previous Fannie Mae changes over the past 9 months, I suggest that any serious investor who has been wanting to invest in the GO Zone do so now before the cap rules change back and while you can still find high-quality and affordable opportunities.
291,000 Foreclosures in Feb. Creates Window Of Opportunity
March 25, 2009
Realty Trac has reported that there where another 291 thousand foreclosures reported in February alone. And this is despite the government actions to date.
While this is not great news for homeowners, it does present some interesting opportunities for investors.
NBC put together a well written piece that is worth visiting.
SYNOPSIS
The growing inventory of distressed homes on the market may be sending shock waves through the economy, but it’s also giving investors a wider window of opportunity.
Despite federal initiatives to stem the rising tide of foreclosures, some 291,000 foreclosure filings were reported in February, the third highest monthly total since RealtyTrac began following the data in 2005. Such filings include default notices, auction sale notices and bank repossessions.
Over the last three years, more than 4 million U.S. homes have been sent into foreclosure.
Whether you’re an investor looking to purchase a rental property, or a homeowner who’s ready to retire and move someplace more affordable, the price of foreclosed properties right now is right,” says Debra March, executive director of the Lied Institute for Real Estate Studies at the University of Nevada Las Vegas, the nation’s leading state for foreclosures.
Foreclosure Auctions? Are You Really Getting A Good Deal?
March 24, 2009
Have you heard about all the foreclosure auctions that are ongoing these days?
These are auctions that are conducted in the final stages of a foreclosure, with the bank hoping to liquidate the property and recover its losses. Generally this is referred to as “selling on the court house steps”. Like any auction, you get a lot of people together, some sophisticated some not, get everybody excited with a good auctioneer, and let the bidding begin.
As these first began in a few areas of the country, you could get some AWESOME deals. Of course as the news spread and the crowds crew, the banks saw a great opportunity to really get top dollar for their foreclosures.
What this means to you, the real estate investor, is that you really have to know your value BEFORE you go to the auction. It is to be determined if the auctions will remain a viable strategy for foreclosure investors.
Here is an example article of what is going on
Buyer’s Flocking To Cheap Foreclosures At Auction
March 23, 2009
In Glendale & Phoenix, buyers have been grabbing up some incredible deals by attending foreclosure actions. As reported:
“A Glendale home that sold less than two years ago for $259,000 sold again three months ago for $113,000. A Phoenix home that fetched $190,000 two years ago just went for $45,900. A Queen Creek home sold for nearly $275,000 when it was built in 2005. Last month’s price: $78,000.”
While this makes for great journalism, one thing that we encourage our club members to remember is
WHO CARES WHAT IT SOLD FOR TWO YEARS AGO.
That is totally irrelevant information at this stage and the only thing that counts is current market information.
Before entering into any such transaction, make sure you know the critical pieces of information:
- Price relative to current market value;
- Cost to repair;
- All issues related to title; &
- Rental amounts (even if you don’t plan to rent);
- Your plan for exit
In these crazy days of real estate, make sure you don’t get caught up in the excitement but instead, know your plan and stick to it.
Bank REOs: What Is Realistic Discounts?
February 22, 2009
Right now, people are really starting to recognize that there are tremendous discounts available to them by buying distressed properties (foreclosure or bank REO).
Talking with investors from around the country, however, we find that there is a ton of misinformation that is out on the web, especially as it relates to discounts.
Let’s step back for a second to see what kind of discounts you can expect. Of course, this greatly depends on the property and the area.
Discount Rel
ative To What?
We hear many brokers stating “this property is 50% off the peak price”. Our response is who cares? The only thing that counts is the discount to market value TODAY. When you hear us quote discounts, then we will be referring to the discount relative to the true market value in this environment.
New Properties
One type of property that we like is new bank owned foreclosures. In this case, then a builder or developer was over extended and the bank had to take the property back. As a general rule of thumb, these properties are EXTREMELY marketable if priced correctly. Regardless of market conditions, local home buyers will come out in force to buy properties that are a legitimate 80% of market value today. Now realize that today’s prices are very, very low. By buying at this kind of discount, then as soon as you get some sort of market rebound (yes, it will rebound at some point), then you can truly be in a great equity situation.
Older Existing Properties
This is where the real discounts are to be had…. the market is not as large as for newer homes to banks really do have no outlet for these properties. In this case, single buyers can expect to purchase these homes at 60-70% (30-40% discount) of today’s prices if they do a fair amount of searching.
However, by purchasing in conjunction with a much larger buying group (like BankREOSpecialists.com), you can easily get properties at 40-50% of current market price (our typical properties of this type are priced at 45% of current market value or less)!
Is Now The Good Ole Days Of Real Estate Investing?
February 16, 2009
Are The Good Ole Days Here Again?
I was thinking the other day, boy, do I miss the good ole days…… You know, like back in 2005 during the heyday of the real estate bubble.
At that time, it was actually very simple to buy & sell houses and put a six figure income in your pocket. I personally was doing this and will even share my “secret, can not fail, so easy to do it my dog makes money” GURU System. And I won’t even charge you.
Here were my steps from back then:
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Step 1: |
Be located in a hot area; |
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Step 2: |
Convince a good local realtor that you are in position to close houses fast, all you need is deals that are “below market”. In my area, these are referred to as “back pocket” listings and they were not on MLS yet; |
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Step 3: |
If the property was in good shape but maybe needed a LITTLE cosmetic work, then buy it and get permission to market and do alterations before close of escrow; |
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Step 4: |
As soon as people moved out, order a “mow & go” which was a quick yard clean up, maybe do some touch up paint, etc. but keep expenses below $1,000; |
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Step 5: |
Have the same realtor from Step 2 start “spreading the word” that they have a hot new listing coming on the market; and |
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Step 6: |
Sell & close in about 45 days. With a small market discount, a little clean-up, good remarketing, and 45-60 days of appreciation, this was a little goldmine. |
While there were fancier methods to avoid some of the expense and risk, this approach was easy and could be implemented by the realtor, my wife, and about 2 hours total of my time per home.
Net Profit Per Home? About $15,000 to $20,000.
Boy I miss the good ole days…..
One interesting note here is that while this was QUIETLY going on, most other investors were whining about they couldn’t find a good deal anywhere.
Are The Good Ole Days Here Again?
It does not take a rocket scientist to know that we are in a very unique time in real estate history, although depending upon your age and experience, you have also probably witnessed some other “interesting times” like in the RTC debacle.
Like during every other real estate market, I am hearing reports of some individual investors “slamming it” and a bunch of people saying, it’s impossible to get anything done (some things never change). The people that are really making hay during this market (no, not the ones trying to sell you guru courses) all have systems in place that are working in their market.
The ones that are saying its impossible are saying
- Banks are being uncooperative;
- Takes 4-5 months to get a short sale approved;
- Everybody is upside down with no equity;
- As soon as somebody shows up on a pre-foreclosure list, they are hammered by every realtor and would-be investor in town;
- Etc, etc.
Even with these issues, there are a few people that are putting 6 figures in their pocket annually and some of them are doing it monthly…..
For them, THESE are truly the good ole days.
This Approach Is A BUSINESS, Not A Hobby
I have to laugh every time I hear a “Guru” advertise their latest product or coaching course as “work only a few hours and make XXX/Month”.
In actuality, they are right about that but only AFTER you have the business set up and IF YOU set it up correctly. Let’s return to my example of the good ole days. If you look, I was averaging $7,500 to $10,000 per hour of MY TIME.
With that statement and the proof I could provided, I could have gone out and sold courses, coaching classes, workshops, etc. But here is what I know (and the Guru’s know it too), that to get to that stage usually takes a heck of a lot of work.
Nothing wrong with that but to generate active investment income like this, you will need to be IN THE BUSINESS of real estate.
Usually what this means that you take somebody else’s concept, you adapt it to your market (lots of trial and error), you then assemble an external team around you, and then you are in a position where hopefully this is highly profitable.
Right now, I see a few people that seem to have a “good system/business” for making great money in this market. Each has there own little twist, and many of them have learned it from a guru. However, they have then worked hard to adapt it to their market and style.
I can assure you that there is very big money to be made in this market given all the turmoil that we are in. However, you need to decide “are you looking for just a couple of investments” or “are you looking for an active business”.
If you are looking for a way to make active income and are willing to put in the effort to establish a good business, then there are great opportunities out there right now. If you do not want to take on this much activity, then you may want to consider looking at what we call Assisted Active or Passive investing. These topics will be covered in detail in our next two e-mails/articles.
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Who Is "REALLY" Making $ In Today's Real Estate Market?
Our 29,689 Members Tend To Agree...
It's Usually Not The GURUs
Have you ever noticed that every "Guru" real estate pitch sounds the same........
They once were poor, but now are rich working only 5 hours per week, and you can be rich too if you just buy their "can't fail system".
Or have you noticed that every property promote has a can't miss proposition, if you just buy TONIGHT.
At the NoBullRE club, we are huge believers in real estate investing...... but we also know that every approach has two sides: Nothing is perfect.
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