Tax Breaks vs Tax incentives October 28, 2008

There are four factors to growing rich with investment property – positive cash flow; tax breaks; capital repayment; and — appreciation. Each of these can vary significantly year to year and each has a unique effect on the ultimate return on investment property.

Let’s say you buy a lovely goldcoast brownstone apartment on tree-lined Astor St. You come up with a down-payment (these days upward of 30%+ if you’ll be using it exclusively as a rental). You then get a mortgage (with a little luck), find a renter and start to collect your rent.

So your mortgage payment of PITI (principal, interest, taxes and insurance) is $3000/month. And let’s say you rent the place for $5000/month. With your $2000/month “profit” you earn $22,000/year on your rental property. Kind of. That’s assuming you do all the management, advertising, toilet plunging, etc. by yourself and have no outside costs – but that’s another post altogether. But if you have a lucky year (and your tenant always pays you) you make a tidy profit. In the course of ten years you’ve earned $220,000 and are well on your way to success. But what about taxes?

Fortunately you have depreciation and other tax benefits that also help you grow ‘wealth” when investing in luxury real estate. For example you can take advantage of depreciation (please make depreciation a hotlink to: http://en.wikipedia.org/wiki/Realestateinvestor ). Our generous government let’s you take a sliding rate of depreciation on the value of the property. The IRS publishes guidelines each year – You can take a look at publication 946 – “How to Depreciate” – (hotlink to this please http://www.irs.gov/pub/irs-pdf/p946.pdf ). In some of the early years that you own a property you can deduct up to 3.64% of its value – which can be used against revenue you earned on property.

For example, if the fair market value is $500,000 for your rental property, you can depreciate it in certain years for 3.64%, or $18,200 (personal property depreciates a bit differently). That means $18,200 out of the $22,000 you earned in rent is exempt from taxes – leaving you liable for taxes only on the $3800 difference. You still earned $22,000 but can offset a significant portion of it! That’s how some properties “cash flow negative” while still putting money in the owner’s pocket year after year. I simplify, of course. That’s why the accountants are the ones who make the REAL money!

My favorite “Chicago” thing of the day is the new American Girl Place at Watertower.  I don’t have a girl so the lines forming around the store this weekend perplexed me.  Upon entering, it was a wonderland!  Little boys are given Nintendo DS to occupy their minds while girls frolick like it is a birthday EVERY day!  Consumerism at its best and worst and in this depressing economy, I loved being transported even if for half an hour!

The Summer of our Discontent – and my blessings August 30, 2008

With all apologies to Shakespeare, the summer of ‘08 has been difficult in the real estate market … to say the least.

The reasons are too numerous to count but the highest ranking are:

 

• The mortgage meltdown –(Did all those people really think the $4,000 month mortgage was the wisest thing on their $50,000/yr. salary just beside a mortgage person they had never heard of weeks before said it was….?)
• Fannie and Freddie are no longer our favorite aunt and uncle.  (They really give new meaning to relatives that overstay their welcome!)
• Cranes stand sentry over skylines throughout the country awaiting the call to action but no one seems to have the helm.

In my world however, a bright spot in the Real Estate market:

Lincoln Park 2520

I haven’t been blogging for several months because I have been selected as the new Director of Sales for this prestigious new residential offering in Chicago.  After 14 years as a Realtor, I have been offered similar positions in the past and have usually politely declined.  This time the call was too great.  Why?  The reason is simple: This is a legend in the making.  I can’t  imagine Chicago without this building and want to be a part of it!

Watch for blogs in the next few months keeping my readers appraised of the progress at 2520.  Unitl then, all my residential clients are still my priority.  for 14 years, you have been the heart of my business and many of you are like family.  I am still Charlotte Newberger’s business partner and we are actively (very, very actively) representing individual sellers and buyers.  

Have a great Labor Day weekend… I’ll be in Saugatuck!

In Pictures: See What $1 Million Will Buy You In Real Estate Around The World – Forbes.com May 29, 2008

This is an interesting article.  I would suggest, however, that with the assistance of a seasoned Realtor, better choices would be found in the Chicago area! 

Here is the Forbes vignette:

 

more about “In Pictures: See What $1 Million Will…“, posted with vodpod

 

 

 

Video on the ups and downs of Real Estate Prices! May 22, 2008

I have had so many comments from people regarding the use of video clips in my blogs.  I love seeing an “added bonus” of the visual element when I peruse blogs.  As I continue the work on my blogs of “new developments in Chicago”, I will take today to begin an intermittent  series wherein I post some of my favorite real estate videos!  I hope you enjoy them, but if you don’t, I promise many more “no video” blogs to come from video.google.com posted with vodpod

New Condo Developments in Chicago – Gold Coast & Streeterville May 21, 2008

For the upper end buyer, Chicago is adding new developments that will suit just about anyone’s taste!  Here is a compilation of the major developments in the Gold Coast and Streeterville areas.

Gold Coast

• 10 East Delaware 10 E. Delaware  121 private residences designed by Lucien LaGrange Price: $390,000-$1,700,000 base
• 50 East Chestnut  50 E. Chestnut 34 full floor residences over 39 stories Prices: $2,476,900 - $3, 325, 900
• 550 St. Clair       550 N. St. Clair 26 stories with 112 condominium homes. PriceL: $400,000 and up.
• Chicago Spire 400 North Lake Shore Drive Much ballyhooed development by Santiago Calatrava.  At 150 stories, upon completion, the Spire will be the tallest residential building in the world 1,200 residences.  Price: $750,000-$40 million!  This one wins my award for best video link!

Chicago Spire Video

• The Elysian 11 East Walton Another new development by renowned architect Lucien LaGrange. 188 hotel condos and 51 private residences.
• The Huron 8 East Huron 28 stories 47 residencews 74 parking spaces Price:$992,000 to $4,858,000 (base price)
• Manadarin Oriental 160 N. Stetson 74 stories, 500 residences. Condo Hotel options
• Palmolive Building 159 E Walton St  Almost sold out but with the Art Deco architecture, this is a building and location to pay special note of!   
• Superior 110 110 W. Superior 26 floors Price: $500,000-$1.7 Million (base)
• The Residences of the Ritz Carlton 664 N. Michigan Avenue 86 units and 40 floors.  My favorite for the downtown market for luxury, ambience and location!
• Trump Tower 401 N. Wabash The one that started all the buzz!  486 condo residences and 339 hotel rooms partially opened.

• Canyon Ranch 64 stories 257 residences with prices starting at $1,000,000 cancelled due to lack of pre sales.  Investors will have their money returned.

Next: Luxury Buildings and new conversions in Lincoln Park!  (followed by blogs with new developments in River North, West Loop, South Loop and Printers Row!)

“I’m not a lead” Lessons from a Relo Pro May 14, 2008

 

Dear Readers,

A few weeks ago, I asked John D’Ambrogio (director of Relocation for Rubloff), to author a “Guest Blog” on my site.  I have great admiration and respect for John and was not prepared for the blog he submitted.  The video he embedded kicked me in the head!  It is BY FAR the best “real estate” video I have seen in years…Enjoy!

Guest Blog by John D’Ambrogio – Relocation Director, Rubloff

As someone who handles “relocation” (actually any company-generated business) and as a colleague of Carol Ann’s, I want to share a great video posted on 1000 watt consulting: 

from www.1000wattblog.com posted with vodpod

 It really sums up what the consumer wants, and what is wrong with the vast majority of agents out there.  You, the consumer, are not a lead, you don’t need to be “dripped” on, you don’t want to see pictures of our dogs, etc.  — You the consumer are a PERSON who wants to be engaged, who wants a million-dollar experience.  You the consumer are willing to pay for our expertise, not our time! Agents like Carol Ann and many of her colleagues do tons of referral business and they know that it is about the customer experience.  At the end of the day, real estate is a COMMODITY, a good real estate agent (or company) is a BRAND.  You want reassurance (and then delivery) that someone is going to be a resource and advocate. 

 Actually, that’s what all service industries are about, changing commodities and products into brands and experiences!  To make a comparison, look at the restaurant experience you (almost always) experience at one of Rich Melman’s “Lettuce Entertain You” restaurants.  Sometimes kitschy, sometimes formal, sometimes over the top, but always professional and engaging.  I was at one of his restaurants a few years ago (they’re all good); it was very late on a Saturday and the place was about empty.  Here’s Mr. Melman sitting at the bar going over receipts.  I’d met him a few times before in business settings, so I went up to him and said “Hi Mr. Mellman, I just wanted to say I had a great meal tonight.”  Now I’m sure he doesn’t remember me, and the $100 on dinner isn’t going to make or break him, but his response wasn’t a quick “thank you” or a dismissive “yeah thanks.”  He perked up, asked me to sit down and tell me everything I ordered and ate and what I liked best!  That made me a fan for life…..

 John D’Ambrogio – jdambrogio@rubloff.com

Relocation Director, Rubloff Residential Properties

 

 

Weekend Getaways May 13, 2008

Okay, Chicago is the greatest city in the U.S.   I really think there is none that can rival Chicago for the symbiosis of culture, beauty, cleanliness, friendliness, cuisine, parksand people.  there comes a time in a city dwellers life however, when you need to have a place to go for space, land and solace.  some of my favorite Michigan and Indiana weekend getaway destinations:

Michigan

Saugatuck – My favorite.  2.5 hours from Chicago’s North Side, this is a great for art galleries, restaurants, city people but at a slower pace.  Enjoy Lake Kalamazoo and Lake Michigan.  Homes on the water are not cheap, but for a laid back but sophisticated feel, this town can’t be beat.

St. Joseph/Benton Harbor – 2.10 minutes from Chicago’s North Side, this quaint little area has come a long way in the past few years in terms of sophistication, dining, small town charm, and culture (home of the Southwest Michigan Symphyony- where I sang in my previous career!).  Homes perched on the precipice of Lake Michigan offer stunning sunset views for a fraction of the price just across the pond!

New Buffalo – Just a short 1 hour 30 minutes from the Chicago Loop, this is one of the “go to” places for busy Chicago families.  A bustling marina, great restaurants and easy commute make this a destination for weekenders year round.  For a home, expect to fall in love with a condo if you want to be on the water, otherwise, expect to pay well over 7 figures for a home with land near the city center.

Indiana

LaPorte - Not what it used to be!  Upper end developments (Hesston Preserve is among the best) offer 2 plus acres of new construction just off popular 1000 North (on the Michigan State Line) for just under $400K and as high as you can dream!  Close to the marina and restaurants of New Buffalo but lower taxes.  Bucolic scenery and surprisingly good restaurants!  Very easy commute but on a hot summer day, breezes from the Illinois/Indiana border can bring an odoriferous mix of scents!

I have Realtor connections in most of these towns, so if you would like a spin to the south and around the lake, let me know.

Next time: Weekend treats North of Chicago!

Charlotte’s viewpoint: Today vs the 80’s! It’s not as bad as you think! May 7, 2008

As my first foray into this new unchartered realm, I will attempt to offer a fresh perspctive on an oft heard refrain: “this is the worst market I have ever seen”.  I must object.  

1976: The real estate market was competitive.  Jimmy Carter was president and rising interest rates lead to a full blown recession in the 80’s.  This is the year I began selling real estate!  My first year in real estate I excelled even though interest rates were averaging 9.00 %.  Buyers still bought and sellers sold.  The sky did not fall! 

In the 4th quarter of 1979 I formed, with 4 other inspiring and maverick spirits, Beliard, Gordon and Partnersin the Old Town neighborhood of Chicago.  At a time in our nation’s history when 5 women were not allowed to sign the lease to the storefront where we opened our flagship office, we prevailed and these 5 feminist pioneers turned Beliard into one of the most successful real estate companies in Chicago!  Again, the year: 1980.  Interest rates: 12.00%. 

I have sold through 32 years of up markets and down turns.  I have sold when interest rates were 19.00% and when rates were 5.00%.  This market is not the end of the world.  Chicken Little is not running down the street screaming “the sky is falling”!  Financial institutions are checking credit and requiring a larger down payment it is true.  The fact remains that home ownership is still one of the best investments one can make.  It is the only commodity in which you gain direct benefits from investing from day one: a roof over your head.  Consult a veteran of the real estate industry and you will benefit from experience a novice cannot know.  The veteran Realtor will advise that this market is challenging but not insurmountable.  In fact; this is a buyer market!  Take advantage of it!

My favorite Chicago “thing” of the day is: Wrigley Field!  A true Chicago landmark known world wide that will outlast any name change.  May the ivy covered outfield wall serve as a beacon for generations visiting the “Friendly Confines”.

Until next week,

Charlotte

April market in review May 6, 2008

Rubloff has an affiliation with Wells Fargo.  The Rubloff Wells Fargo brokers dedicated to the Rubloff clientele are superior and have just shared with me the recent April Market In Review  publication for information on the April real estate market. I find the information contained in this newsletter well written, succinct,and very informative. I hope you enjoy reading it as well!

The following issues are discussed:

• Mixed News About Housing – Time to Buy Or Not?
• Helping Consumers While Balancing Investor Interests
• Averting Foreclosures And Protecting Communities

My favorite Chicago “thing” of the day is geared for our younger crowd.  The Kraft Family Series of the Chicago Symphony Orchestra is a marvel.  My little one is mesmerized and the learning experience is invaluable.  Subscriptions for next year are now available!  (It is great for the parents too!  I have a Master of Music performance degree from Indiana University … and I am mesmerized as well!)

 

Co-operative Apartments … In Chicago? May 6, 2008

When we think of Co-operative apartments, we think of New York’s upper east side.  Posh, elegant, spacious, well staffed, well screened dwellers choosing those whom they feel will fork over the hefty price tag and the still more hefty monthy maintenance fee.  Well, co-ops are not exclusive to Manhattan!  A kinder and gentler sister version is alive and thriving in Chicago – AND like their NYC relatives, they are also posh, elegant and usually very spacious!

What is a co-op?  Simply put, a way of holding title in which the “owner” is a member of a corporation that holds the real property (real estate) interest.  Owners are therefore referred to as “shareholders”.

Chicago co-ops usually feature relatively low price tag. The sticker shock can come in the monthly fees. Before you go running away however, ask what is included in the monthly fee amount. Usually the big ticket item in the assessment is the inclusion of property taxes. Always ask your Realtor if property taxes are included in the monthly fee reflected on the listing sheet. Since it is a corporation, there is 1 tax bill. Each shareholder has a deductable amount for tax time.

Other items included in the monthly fee may be heat, door staff, parking, and even electricity (purchased in a bundle by the corporation and then each shareholder is charged according to usage)

Generally be prepared for a higher downpayment. Many Lakeview and South shore Co-operatives allow financing of shares but will require at least a 20% – 25% downpayment. Many Gold Coast co-operatives do not allow financing and in addition, you must have a large amount in liquid assets to be voted into the corporation.

For financing, ask a Realtor that specializes in Co-ops to recommend a lender to you. Many brokers and banks do not lend for this type of ownership.

Lastly, be prepared for a through screening of your assets. Since it is a corporation, the shareholders do not want to have to assume responsibiltiy of another shareholders shares should he or she become unable to meet the fees associated. A simple credit report will not suffice.  The most common reporting company used in Chicago is Thomas Reports.  Be prepared for a through check of your credit, a full character report which includes personal profile, verification of residency and occupation along with income and assets such as real estate, investments, bank accounts, etc.  You will also need business references from people such as attorneys, accountants, bankers, or stock-brokers, educational background, and professional and social affiliations.  Last but not least, a criminal background check may be performed.  Your Realtor can help you with this process. 
 

Co-operative apartments are the quiet gems in Chicago real estate for many purchasers. Provided you are aware of the legal description of a co-op and are prepared to be a shareholder, purchasing in a co-op is a great choice.

Some co-ops to consider:

Gold Coast – 229 E. Lake Shore Drive

Lakeview – 442 W. Wellington

Near North – 3750 N. Lake Shore Drive