GREENSPAN SAYS HOUSING BOOM IS OVER

USA Today reported that former Federal Reserve Chairman, Alan Greenspan, predicted that the "housing boom" is over.  He said however, that there is no strong evidence that "...home prices will collapse."   He inferred that in the "frothy" markets it was too early to predict price declines.  The new chairman,  Ben Bernanke, additionally confirmed: "...it seems pretty clear now that the US housing market is cooling."  Finally, the government is also confirming what we have been reporting for more than 5 months now.  The housing market has in fact slowed down and it will continue to slow down over the next 12 months.  As a real estate attorney and Qualified Intermediary, I am actively involved with the real estate industry, so I hope I am wrong.  But it really scares me when even Alan Greenspan agrees with me.

THE INTERVIEW PROCESS

Our company, Bayview Financial Exchange Services, LLC has been in the continual hiring process.  We started with 2 employees just 27 months ago and now have around 75 employees.   We are currently in the process of hiring approximately 10 additional employees.  It feels like all I have been doing over the past 18 months is hiring new employees.   

As part of the interviewing process, I have learned that the most successful interviewees have truly prepared for the interview.  Here are some of my observations about some of our most successful interviews:  The interviewee has:  researched our company and has found out that we are a leader in the industry.  They have "Googled" my name and my co-vice president.  One of the interviewees even congratulated me on my recent appointment to the Board of Directors of the Federation of Exchange Accommodators (FEA)--I had only been appointed to the Board a couple of days earlier.  Even though our company has a business casual dress code, the interviewees have presented themselves well, by dressing in a corporate style dress code.  They usually arrive early for the interview and are prepared for what they believe are going to be tricky questions--trust me on this one--I don't ask tricky questions, but I do want to know how they think they can fulfill the requirements of the job.  I am always looking for "good" people--note I said "good" people, not just good employees.  Well that's it for our interview process--hopefully some good tips from an interviewer--hope it helps.

Three Optimization Strategies For Your 1031 Exchange

I frequently get asked how many properties one can sell, or for that matter replace (purchase), when doing a Section 1031 tax deferred exchange.  You are going to love this answer--the investor can sell (relinquish) ANY number of properties and then purchase (replace) a smaller number of properties.  Many investors take this path because it generally leads to the reduction of management headaches.  Alternatively, that same investor can diversify their holdings by selling one or more properties and purchase numerous properties.  I have seen many investors purchase a number of properties as their replacement because they wish to spread their risk over a lot properties.   Another neat idea for the investor is to spread their risk over several different states or geographic regions by utilizing §1031.  This can be accomplished by replacing (purchasing) properties in different geographic areas, thus avoiding holding all of their properties in areas that have substantially appreciated and where prices have reached their peak.

BUZZWORDS

Do you have knowledge acquisition delayering  issues?  Don't go blamestorming on me.  What'd you say?   There seems to be a lot of new buzzwords.  According to an article that appeared in Business Monday, "...a new crop of buzzwords usually sprouts every three to five years, or about the same length of time many top executives have to prove themselves.  Some can be useful in swiftly communicating and spreading new business concepts.  Others are less useful, even devious."  Therefore, carefully select your language.  The definition of delayering is the firing of managers or better said, downsizing.  Ah, so what is knowledge acquisition? It's the hiring of  individuals with  the best kinds of knowledge that will help a company stay competitive.  That's what Bayview Financial Exchange Services, LLC is in the process of doing--we are presently in the knowledge acquisition mode.

Getting Hit Up at a Party

When was the last time you went to a party and hit up your friend the Doctor, asking him about something you thought was wrong with you?  I get “hit up” all the time.  As a lawyer, people are always asking for “free advice.”   Last week, at a party, someone knowing that I handle thousands of 1031 tax deferred exchanges each year, asked, no let me change that, stated, that Section 1031 was a loophole in the Tax Code.  So let me get this off my chest, once and for all.  Section 1031 of the Internal Revenue Code has been a part of the Code since the inception of the Code during the 1920’s.  It is a valid tax deferral strategy, which stimulates investment and is NOT a gimmick or loophole in the Tax Code.  Enough said.

Bowling Alley Misconception

One of our exchanger’s is selling (exchanging) a bowling alley for an interest in a shopping center.  The taxpayer (Exchanger) was very upset because he was told by a “professional” that he had to conclude a simultaneous transaction in order to have a valid Section 1031 tax deferred exchange. So let me correct one of the many misconceptions about 1031 exchanges.  A one-for-one simultaneous exchange need not take place.  In a standard forward delayed exchange (the most common type of exchange), property is sold (Relinquished Property) and Replacement Property is purchased (Replacement Property) within 180 days following the sale of the Relinquished Property.  I’ll write about some other misconceptions in the next couple of days.

If I am Selling an Investment Condominium Must my Replacement Property be an Investment Condominium?

Ah, another misconception in the 1031 industry.  How many times have you heard that the property purchased must be the same exact type as the property sold to meet the “like kind” requirements?  Well that is just plain WRONG!!!!  Any real property is “like kind” to other real property under Section 1031 guidelines.  This means that a shopping center can be “like kind” for raw land, and an office building can be “like kind” for an investment residence.

INTEREST ONLY LOANS -- ARE THEY FOR REAL?

Prior to my position as First Vice President at Bayview Financial Exchange Services, LLC, I practiced real estate law.  As a real estate attorney, I was always concerned about what was happening in the real estate mortgage market, along with the types of loans, their availability and costs associated thereto.   We have seen over the past 4 to 5  years, a large percentage of consumers obtaining variable interest rate loans, especially on residential properties.   A variable interest rate loan generally allows the borrower to obtain a larger amount of financing,  because it usually has a lower interest rate at its initiation.  But, it also has the potential of increasing interest rates in the future. 

Unfortunately, that future is now. Interest rates have escalated, with projections of continuing escalation.  This will result in higher costs to the consumer  and the consumer being able to purchase "less property."  Is there another elixir for the consumer?  Ah--creative minds create creative solutions.  Creative is an important word--Did I not just use it 3 times in a 5 word sentence?  The mortgage industry has designed a creative answer--the "Fixed Rate Interest Only Loan."  This loan allows the consumer to lock in an interest rate for the life of the loan, while reducing their monthly payment,  because all they pay is interest and no principal payments, for typically the first 10 or 15 years.   According to UBS AG, these loans now account for around 8% of all new residential loans being issued.  The benefits are that the borrower locks in a single rate for the life of the loan, and at least for the first 10 to 15 years the payments are relatively low.  However, after that initial 10 or 15 year period, the monthly payments jump up because the borrower now has to repay the balance of the loan over the remaining time period.