It's nice to get a piece of a pie, whatever the size. But let's be honest: Would you prefer 3 percent of a $300,000 listing or of an $18 million mansion? The luxury real estate market is where you can Read more...
It's nice to get a piece of a pie, whatever the size. But let's be honest: Would you prefer 3 percent of a $300,000 listing or of an $18 million mansion? The luxury real estate market is where you can earn the big bucks — but breaking into it isn't easy.
Fortunately, one of my former students Jason Peteler recently sat down with me and discussed how he got into this lucrative market. Newer real estate agents can successfully transition into the luxury business by embracing these four points:
Be good at marketing.
Be good with people.
Know your area.
Don't start out alone!
1. Master the Art of Marketing:
Your image is everything in the high-end market. That's why marketing is the key to putting your best foot forward and spreading awareness about your brand.
You need to be where your potential clients are looking. The current trends are overwhelmingly in mobile and social media. If you're not on Facebook and Instagram yet, you need to create accounts today. If your website isn't mobile optimized, get some help to update it ASAP.
Every time you post, you should present yourself in a way your clients want to see you. Do you want to look negative and unmotivated? Of course not! Instead, post about your current successes and create the image of a confident and competent professional.
Get creative and post infographics, pictures and videos. You can even go "live" for a behind-the-scenes tour of a new listing!
2. Remember It's All About People!
Peteler briefly touched on being a "therapist" in his interview, and he's spot on. Imagine the stress buyers experience when buying or selling average-priced homes. Now multiply the commitment and risk by 10, and you have a client who's parting with or purchasing a high-end property.
Great real estate agents can help their clients cope with the stress and pressure involved with one of the biggest financial moves of their life. This interpersonal skill can make or break a transaction, because maintaining a good agent-client relationship keeps the ball rolling.
3. Know Your Area!
Who wants to work with an agent who doesn't know anything about the local area? When high-end clients approach an agent, they're looking for expertise. When you know the area well, you can sell the listing well.
Acquaint yourself with the area by spending time there: Eat at the local restaurants, talk to residents, walk around and soak in the sights and mood of the district. The more you know about the area, the more your clients will trust you.
4. Don't Start Out Alone!
Real estate agents who have successfully broken into the luxury market virtually agree on one point: Don't try to do it alone. You'll need to learn the ropes from agents who have real experience in the high-end market.
This can mean co-listing with another agent, being part of a team or even becoming someone's "apprentice." In fact, Peteler says that you should first follow a template: Copy what you see has worked for someone, and later you can expand upon it and innovate.
5. Get in Touch!
Another indispensable quality a luxury real estate agent needs is a solid education. To find out more about our real estate courses, contact me today. You can call the office at 888-768-5285 and we would be happy to help get you enrolled in California real estate license courses!
|
How to Choose a Real Estate School
I know that many of you who are considering our real estate school are also cross-shopping — as you should. During this decision process, you're going to look at Read more...
How to Choose a Real Estate School
I know that many of you who are considering our real estate school are also cross-shopping — as you should. During this decision process, you're going to look at our program and stack it up against other real estate schools, community colleges and online schools. This makes sense, because smart shoppers do their homework.This is why I want to take a moment to explain why our program might be a good fit for you.
The Numbers Speak for Themselves
First off, you should compare our pass rate for the real estate exam with the current statewide statistics. In a recent month, there were 3,987 people who scheduled to take the real estate exam. Out of those scheduled, 3,494 showed up. Of the 3,494 that took the exam, only 46 percent passed that month.As a potential real estate agent, it’s very important to align yourself with an education program that has a proven system to give you the greatest chance of passing the exam - the first time!
Why Does Our Program Work?
I chalk it up the overall process of our entire program. We're going to provide you with excellent support, flexibility on when and how to take classes, a great faculty and solid course materials.
• Full-time support: Our knowledgeable and friendly staff is available five days a week, Monday to Friday. Our representatives are all professional and highly trained. Compare this with smaller real estate schools that simply don’t have the resources that we do.
• Flexible locations: We have many brick and mortar locations if you want to do the classes with a classroom component. This definitely plays into the convenience factor when you're trying to find a school near your home. Here's the best part about it: You get unlimited access to any of these locations' classrooms for twelve months! So, if you need a place close to your friend's house or dentist's office, we have your back. We also have online classes too if your schedule is more scattered.
• Great online real estate classes: No other online school in California has the amount of video that we do. These aren't amateur videos either, but instead are done with professional lighting and audio and great camerawork to ensure you have the most professional set of real estate materials available.
• High-quality instructors: Our faculty is simple the best out there. All of our instructors are extremely professional and knowledgeable. Some of our teachers have been presidents of large real estate organizations. One was even the VP of the global MLS. Another has done over 700 short sales and foreclosure transactions during his career. These are not isolated cases, each one of our instructors is screened for their teaching ability and personality before we hire them.
• The right course material: When you take classes with us, you'll get three tangible college-level textbooks, not just PDFs. You get that "real school" feel by having a solid book in your hands. These textbooks contain hundreds of practice questions to help prepare you for the real estate exam.
• Convenient (and affordable) crash courses: Start out with a bang! Our upper-tier packages also include an intense (and fun) two-day live crash course. This is going to give you the skills and knowledge needed to pass the real estate exam - the first time!
Try It Before You Buy
Naturally, you don't want to commit to something before you have a chance to try it out. That's why I'd like to offer you a free guest pass. With this pass, you can visit any location of ADHI schools at no cost or obligation.To sign up for a physical classroom guest pass, go to the main part of our website, scroll down and then enter your email in the information box. We will immediately send you a guest pass. Come hang out with us! We would be excited to have you in the classroom! If you can't come in person, you're welcome to try out one of our online classes. Sign up for a trial account of our online real estate school. Scroll to the bottom of the page and check it out!
Shop Smart
I highly encourage you to compare our programs side by side with other real estate schools that you might be considering. I'm confident that you'll find that we have much more to offer than the competition.At the end of the day, you need to make the right decision for you. However, I think you'll be very happy if you choose us. Check out ADHI Schools today!
- Kartik
|
Errors can happen on a credit report. What causes these errors? Sometimes it can be something as simple as a father and a son who have the same name and the only difference is a “Sr.” or “Jr.” Read more...
Errors can happen on a credit report. What causes these errors? Sometimes it can be something as simple as a father and a son who have the same name and the only difference is a “Sr.” or “Jr.” What if son paid a few bills late and this incorrectly appears on Dad’s credit report?
Worse than the above scenario is a customer who may have been the victim of identity theft. Perhaps their social security number and date of birth were compromised on a website and sold to criminals. Each year we read of many major corporations who have had their databases compromised. Equifax, eBay and JP Morgan Chase are just a few examples of large corporations that have been targeted by hackers. Where then does a customer turn?
The Federal Trade Commission has several recommendations for those that genuinely believe that false and erroneous information appears on their credit report. The Fair Credit Reporting Act mandates that the credit bureau and creditor have a collective responsibility to correct and update any incorrect information in the customer’s credit report.
The individual with erroneous information on their credit report should send correspondence to the credit bureau that has displayed this erroneous information. This could be either Experian, Transunion, or Equifax or could potentially be all three. Mail correspondence isn’t required, however, as the individual can file their dispute online.
If the customer is sending their dispute via mail, the Federal Trade Commission has a sample dispute letter available on their website and this letter can act as a starting point for anyone seeking to eliminate inaccurate information from their credit profile.
In order to increase the chances of incorrect and incomplete information being deleted from the credit report individuals are encouraged to support the claim with any proof that the data is incorrect. Examples of this proof could be cancelled checks or bank statements showing that the bills were paid on time or the fact that the debt is no longer even valid. In some cases, the customer might have paid off the debt and it is still reporting as open on the credit report. Combining the letter or online dispute with substantiation that the information is inaccurate will increase the chances of having incorrect information deleted from the credit report.
The FTC recommends that this substantiating documentation not just be sent to the credit bureau but also to the creditor with whom the customer is disputing the incorrect information. This may increase the chances of incorrect information being deleted from the credit file. If this doesn’t work the customer is able to leave a note in their credit file next to the “incorrect” trade line stating that the customer disputes the accuracy of this information.
Generally, the credit reporting agency must investigate the disputed items within 30 days of the dispute being filed. However, the law has an exception for the credit agencies wherein they don’t have to investigate a dispute that they deem to be frivolous. in the event that a credit bureau is going to investigate a disputed item, they are required to forward everything received from the customer over to the creditor.
Once the investigation is complete, the bureaus are required to give the customer notification of the outcome of the dispute in writing. They are also required to provide a copy of the credit report to the customer in the event that the dispute resulted in a change to their credit report. Statute also requires that the credit bureau provide one copy of a credit report to everyone for free each and every year. A customer who is disputing information on their credit report that results in a copy of their credit file being sent to them will still be allowed their one free credit report per year. What this means is that a customer who is disputing credit information in their file may end up with multiple credit reports per year at no charge.
Because credit scoring can affect so many aspects of a person’s life, the government has a system in place to ensure that incorrect information on a report can be disputed and ultimately deleted. Hope is not lost in the event of identity theft or an incorrectly reported late payment. There is a dispute process in place and will work if done properly. The Federal Trade Commission’s sample dispute letter can be a great place to start.
As always, if you are considering getting into our great real estate business, you’ll need to go to real estate school first. Need help passing the real estate exam? Check out our test prep site here.
Love,
Kartik
|
Once you complete our classroom real estate courses in California or real estate classes online, you’ll need to put your license with a broker if you want to go to work.
At this early stage in your Read more...
Once you complete our classroom real estate courses in California or real estate classes online, you’ll need to put your license with a broker if you want to go to work.
At this early stage in your career, you are probably full of enthusiasm and at the same time have some serious questions and perhaps some lingering fears about whether not you’re making the right career decision.
One of the most important steps you will take as a real estate salesperson is to choose a broker, the place where you will, in effect, hang your hat along with your license, and build your initial reputation in the field. Whether you’re already licensed, or are shopping for a place to take your real estate classes, finding the right environment is all-important to your future. Even though it’s not a lifetime commitment, your choice of initial affiliation will affect not only your earning ability, but also your learning curve, your growth potential as a real estate agent, and your long-term success and fulfillment as a professional.
Brokers also want to ensure that new agents who join their firms will be compatible, hard-working, knowledgeable, committed, enthusiastic, and a good match for the company culture.
How should you evaluate your opportunities? What are the steps to take to assure the best possible fit?
To prepare for your interview, expect to be asked the following questions by a potential employing broker:
1. What drives your decision to become a licensed real estate agent?
Do you have previous sales experience? Is money your primary goal? How do you intend to support yourself until the sales (and closings) start rolling in?
2. Do you have a monetary goal in mind?
If you’ve given even a little thought to this, you will probably answer this question with a specific dollar figure; then you can go on to explain that you intend to grow your earnings over time to reach your ultimate goal. Also, you’d be wise to impress a potential broker with your knowledge of real estate facts and figures. It’s not detrimental to disclose that, in the beginning, you view real estate as a part-time gig, until you can build a reputation and a clientele. This disclosure is important because it will help to understand whether or not the brokerage’s training calendar is going to be a fit.
3. How much time and energy can you devote to the business?
Real estate, unlike a 9-5 job, requires evening and weekend work, coupled with high levels of client accessibility. A broker will want to know that you understand the time commitment, as well as the energy it takes to see a transaction from listing to closing, or from initial contact with prospective buyer to the accepted offer by the seller and the escrow ultimately closing.
Real estate can be an extremely rewarding — and profitable — profession. But it requires knowledge, dedication and commitment. Show a broker those three qualities, and you’ll be on your way to a mutually beneficial association.
If you need help being placed with a broker or are considering the first steps to real estate licensing or passing the real estate exam, call us at 888 768 5285.
Love,
Kartik
|
Earlier this morning the California Association of Realtors sent out a “red alert” regarding Assembly Bill 1381. The frenzy was caused by a last minute change that would exempt some outdoor advertising Read more...
Earlier this morning the California Association of Realtors sent out a “red alert” regarding Assembly Bill 1381. The frenzy was caused by a last minute change that would exempt some outdoor advertising companies from needing a real estate license. This could harm many Realtor’s businesses as this is an area of specialization for some.
If this bill were to pass, two problems are created:
First, while real estate licensees have a fiduciary duty toward their client, it isn’t immediately clear whether or not these outdoor advertising companies would have the same duty to the landowner or advertiser.
Another potential pitfall is this bill could have the effect of reducing a revenue stream for Realtors by allowing those negotiating outdoor advertising space to act in that capacity without a license.
The California Association of Realtors and ADHI Schools, LLC are opposed to this or any legislation that would allow companies or individuals to act in a real estate license capacity without a license.
|
The Section 8 housing voucher program is at the center of recent debates in the California legislature and in the Appellate Division of the Sacramento Superior Court. Section 8 is designed to provide Read more...
The Section 8 housing voucher program is at the center of recent debates in the California legislature and in the Appellate Division of the Sacramento Superior Court. Section 8 is designed to provide housing for very low income families, the elderly, and the disabled: the federal government provides the funding and local housing agencies distribute vouchers that essentially guarantee a portion of the rent to a landlord. The Section 8 recipient pays a portion of the rent and the housing agency sends a check for the remainder. Landlords have long chosen whether or not they would participate in Section 8. Federal law does not require landlords to participate, so states typically follow those guidelines. Now, however, arguments are being made that landlords should not be able to reject applications to rent for the reason that their income is from a Section 8 voucher.
The court case of Sacramento Manor v. Morris was of particular importance in this debate. Court proceedings began when Sacramento Manor ended its participation in the program, eventually evicting any remaining Section 8 tenants. The Sacramento Manor cites difficulties receiving payment on time as a significant reason for their intended exit from the program (an issue they blame on government administration of the Section 8 program, not the tenants). A tenant, Dorothy Morris, was sued for eviction and in her appeal claims elderly tenants and Section 8 tenants should be considered protected classes under the Unruh Civil Rights Act.
In February the California Apartment Association (CAA) filed a court brief arguing that participation in the Section 8 Housing voucher program should remain optional for landlords. The CAA claims “a myriad of valid business and policy reasons why owners should not be forced in to the program and why it should remain voluntary as intended under federal law”. In the brief the CAA also argues that the voluntary nature of the program is designed to incentivize people to join the program and that landlords should not be forced into permanent arrangements. Last week the plaintiff chose to drop the Section 8 protected class argument (for which the CAA claims credit), ending the threat to landlords—for now. Without the legal precedent of a court ruling, another person could bring a similar suit to court with a chance of success.
Meanwhile, State Senator Mark Leno (D, Senate District 11) has authored SB 1053, which ,if passed and signed into law, would classify those receiving Section 8 vouchers as a protected class under the Unruh Civil Rights Act, meaning discriminating based on a potential tenant receiving Section 8 vouchers would become illegal. According to Senator Leno, “All tenants should have a fair opportunity to apply for housing, regardless of whether they receive a housing voucher”, receiving support from housing-specific advocacy groups such as Housing California.
This would also mean that the recent developments in the Sacramento Manor v. Morris court case would become irrelevant as the legislature (and subsequently, the governor) settles the issue itself. California’s legislature has a strong Democratic majority and the state also has a blue governor, so it is quite possible that this Democrat-sponsored bill will in fact become law. The bill is currently placed on Appropriations Suspension file, meaning it is waiting to advance to the floor for voting.
Real estate professionals should keep an eye on these proceedings as they could greatly impact the renter’s market in California. There is also the obvious need to understand any and all protected classes in order to avoid discriminatory behavior in your business practices. We will be sure to update our readers as soon as possible when there is a development.
For questions or clarifications, start a discussion in the comments or write to the author at: cody@adhischools.com
|
On the surface, solar panels appear to be a great selling feature for a home. The prospect of lower utility costs are appealing to everyone and many buyers love the idea of “going green”. Because solar Read more...
On the surface, solar panels appear to be a great selling feature for a home. The prospect of lower utility costs are appealing to everyone and many buyers love the idea of “going green”. Because solar panels are increasingly common in residential real estate, the professional REALTOR should be properly informed as to the impact these panels can have on a transaction. According to the Solar Energy Industries Association the number of homes and businesses with solar panels has exceeded 748,000 in the United States and growth is expected to continue, so this topic will only become more relevant.
Especially if you are taking real estate classes in Los Angeles you’re going to be dealing with houses with solar panels frequently and it’s important to know a few things once you are licensed.
It’s important to note that the installation of solar panels on homes does not automatically equal an increase in value. In some instances solar panels can actually lower property value, even in areas that have high utility costs. The desirability of the panels is often determined by whether the panels are owned or leased. If the homeowner purchased the panels, there is evidence to suggest that the home could gain value (sometimes more than $15,000), because long-term utility bills are predictably lower and solar power is viewed as a property improvement.
However, solar leases are often viewed as less desirable. No-money-down solar lease offers have enticed some homeowners to agree to long term leases—sometimes upwards of 15 years. With the lowered bills and no upfront costs, this seems like a fiscally sound choice—and it very well may be for the original owner.
Yet problems can arise when the homeowner tries to sell their home with the leased panels. Potential buyers find themselves signing up for a solar lease with steep credit qualifications that could act as a deterrent. Although solar companies such as Clean Power Finance claim that 95% of the time the buyer either assumes the lease or the owner pays it off, that still leaves 5% of potential transactions where the looming costs or credit qualification issues break a deal. Many people simply do not want to assume the responsibilities of a deal they did not negotiate and may struggle to qualify for, particularly if they have an agent that views the lease as a poorly negotiated deal.
The result can be that a potential buyer may back out of a contract or demand that the seller pay off the lease before they leave. Homeowners with a time constraint like a job relocation may be forced to pay off a $15,000+ lease so they can close a sale and move on. These problems don’t arise on every property with leased panels, but it can happen to a substantial number of homeowners who initially thought they were improving their property. These owners optimistically invest in their homes, but when they decide to sell they find themselves in a position to lose money on their investment.
This is in no way an attempt to dissuade anyone from buying or leasing solar panels or agreeing to represent a seller in this situation. It is simply something to keep in mind: not every dollar spent is a dollar gained.
|
In what should be exciting news to any Veterans looking to pursue a career in real estate, effective July 1st the initial licensure processing for all honorably discharged Veterans will be expedited.
S.B. Read more...
In what should be exciting news to any Veterans looking to pursue a career in real estate, effective July 1st the initial licensure processing for all honorably discharged Veterans will be expedited.
S.B. 1226 added Section 115.4 to the Business and Professions Code (BPC) and requires that all boards within the jurisdiction of the Department of Consumer Affairs “expedite, and may assist, the initial licensure process” for any applicant that can prove honorable discharge from the U.S. Armed Forces. This includes the licensure process under the California Bureau of Real Estate. The Salesperson Exam/ License Application also provides the details for this expedited process. There is no word yet on how expedited the process will be, but considering the process can currently take several weeks this should be a valuable perk for Veterans.
We at Adhi Schools would like to thank all Veterans for their service and remind our readers that Veterans receive a 25% discount from our live packages if they choose Adhi for their real estate education. We are proud to say that we have many Veteran students who have completed our programs and we always provide the highest quality real estate education to those who have served our country.
|
In today’s global economy, real estate is far more than a series of local markets whose prices are determined by local buyers—it is an interconnected, international market where the economic conditions Read more...
In today’s global economy, real estate is far more than a series of local markets whose prices are determined by local buyers—it is an interconnected, international market where the economic conditions in one nation can affect real estate values thousands of miles away. Foreign investment in U.S. real estate is now commonplace and has significant impacts on both commercial and residential market conditions.
Hearing this, a number of questions come to mind: Where is the money coming from and how much is there? Why do foreign nationals and companies want to invest in the United States? How does this investment work? What are the impacts on our economy and different real estate markets? What will happen if this investment slows down?
How much foreign investment is currently in U.S. real estate?
The overall percentage of real estate controlled by foreign buyers depends on whether you are talking about the commercial or residential business.
In 2015, foreign buyers accounted for at least 17% of commercial real estate acquisition by dollar amount (NAIOP, Source 1). The National Association of REALTORS® states that international buyers purchased 4% of existing U.S. homes sold April 2014 through March2015, but those sales added up to 8% of the dollar value (NAR, Source 2). This indicates that high dollar homes are often scooped up by foreign buyers.
Foreign investment in commercial real estate in 2015 totaled $94.3 billion. Foreign investment in residential real estate acquisition in 2015 totaled $104 billion--totalling more than $198 billion in foreign real estate acquisition in the U.S. last year (Asia Society, Source 3).
So who is investing all of this money?
Until very recently Canada was the number one source of residential real estate investment in the U.S., but last year China spent much more than our neighbor to the north in this sector with $28.6 billion to Canada’s $11.2 billion. India was third in residential real estate investment, with investors pouring $7.9 billion into acquisitions.
Commercial real estate acquisitions are still dominated by Canadian investors with $24.6 billion spent last year. Singapore was next with $14.6 billion in acquisitions. China and Norway tied at third with $8.5 billion each spent in commercial real estate acquisitions.
There is a common perception that China is dominating investment and buying everything in America, but these figures show that this is not at all the case, especially in the commercial markets. Canada is spending almost three times as much in commercial real estate investment. Singapore outspent China by $6 billion in U.S. commercial real estate acquisitions despite having a GDP 2.7% the size of China’s (World Bank, 4).
This is not to suggest that China’s purchasing power should be considered miniscule (realistically China will outdistance Canada, Singapore, and Norway in real estate investment before long); rather, it is important to recognize just how many foreign investors from around the world view the United States as a premier investment destination.
There are many reasons people want to invest in U.S. real estate.
The most obvious reason for foreign investment in U.S. real estate is financial gain. Real estate investors, wherever they are located, would like to profit and the U.S. has the world’s largest economy with the world’s largest real estate market that is recovering and growing. For example, Norway’s surprisingly enormous amount of money spent on commercial real estate is the action of the state-run Government Pension Fund of Norway--the largest sovereign wealth fund in the world. The fund spent $7.6 billion on property globally last year in what it describes as an attempt to attain “the highest possible return with a moderate risk level” as a “long-term investor” (WSJ, 5). The focus isn’t necessarily on profiting in the near-term on the income the property provides. One such purchase was a 45% stake in the 40-story tower at 11 Times Square in Manhattan in February 2015 for $401.9 million. The fund also purchased a 49.9% stake of the Foundry Square II property in San Francisco for $139.7 million (Norges Bank, 6).
The United States became the preferred investment destination for these funds because of perceived long-term stability and near-guaranteed long-run appreciation in trophy markets like New York City and San Francisco. The famed Waldorf Astoria Hotel in New York sold for $1.95 billion to a Chinese investment group in 2014. That same group bought Strategic Resorts and Hotels, which has luxury hospitality locations across the U.S. in major markets like Silicon Valley and New York, for $6.5 billion this year (NY Times, 7). For an example closer to home for our Southern California readers, think of the Korean Air Wilshire Grand development. Korean Air and its parent company, Hanjin Group, owned the old Wilshire Grand, tore it down, and is in the midst of building what will soon be the tallest building west of the Mississippi to house a new hotel, retail space, and office space at the cost of more than a billion dollars (Curbed, 8). From coast to coast, America’s big markets are attracting billions in real estate investment.
Insecurities and political issues in other markets drive some investors to purchase U.S. real estate as much for stability and security as profit. Many Chinese investors in U.S. real estate were motivated to move money away from a faltering stock market and slowing domestic growth.
According to some experts, others around the world want to protect their assets and get their funds out of their own country. Basically, the U.S. real estate market can act a bit like an offshore bank. From an investor’s perspective, sure the U.S. government taxes your money; but, your investment will never be seized by the state and will likely appreciate over time (US News, 9).
There are of course more reasons to invest in U.S. real estate. Some families have a child attending school in the United States and want to buy a house here. The U.S. can also act as a tax haven (depending on the nationality of the foreign investor), especially considering taxes will not be paid until the property is sold or earns income.
So how does this foreign investment work?
Unlike some other countries, the United States has almost no barriers to to foreign ownership of real estate. Investors are generally taxed on their property’s income or sale just like domestic investors (although some treaties with particular nations can ease this burden). However, recent revision of the Foreign Investment in Real Property Tax Act (FIRPTA) has actually removed some of this tax barrier. FIRPTA guarantees that foreign investors are taxed on their sale of U.S. real estate. The new reforms (which went into effect December 18th, 2015) add more exemptions for foreign pension funds, increases the ownership threshold on the amount of publicly traded real estate investment trust (REIT) stock that foreigners can own before being subject to FIRPTA taxation upon sale of said stock from 5% to 10%, and reforms the rules to determine if REIT is domestically controlled. A strong majority of foreign investors interviewed by the Association of Foreign Investors in Real Estate have said that this reform will lead them to invest more heavily in U.S. real estate (Skadden, 10).
Aside from taxation, unless the foreign buyer is subject to U.S. sanctions (for reasons such as being a war criminal in another nation; it is incredibly uncommon for the U.S. to place sanctions on an individual), there are no restrictions preventing U.S. citizens and organizations doing business with foreign nationals.
As for the actual funding, many international buyers come with cash (including 71% of Chinese buyers 2013-2015). But there are financing options available for these investments. Chinese banks alone have issued $8.5 billion in loans for commercial acquisitions. These same banks make residential loans as well, which are of obvious need for Chinese investors, since they invest more money in residential than commercial real estate acquisitions (Asia Society, 1). However, the Asia Society describes these loans as “limited, but growing”. Those needing lending for residential mortgages are thus more likely to connect with a domestic lending institution for their loan needs. This process is mentioned below.
Foreign buyers can also purchase a first property with cash, then take out a home-equity loan to make funds available for other purchases. With funds in U.S. bank accounts investors can begin to obtain credit and establish a credit history that will enable further investment.
There are also domestic lenders that have targeted foreign real estate investment. Some of these operate nationwide while others only grant these types of loans for specific states. There is a great deal of variance in products offered as well: minimum and maximum loans, LTV, credit reports (or lack thereof), property types, etc.
East West Bank is one of the best examples. Specializing in Chinese commercial investment, East West Bank grants loans (typically between $3 million and $30 million) to investors that might otherwise not be able to attain financing. This bank has chosen to be selective, rejecting some applicants, while employing a strong connection to Chinese culture to remain competitive and a noted voice in this type of investment (Commercial Observer, 11). As of 2013 East-West had an average LTV of 55% across their commercial real estate loan portfolio (we could not find a more recent stat on their LTV rates), making them a fairly conservative lender (East West Bank, 12). Note that this is not a set policy where all investors receive the same terms. East West is selective and adapts to their situation.
BofI Federal Bank is another major player that offers portfolio loans to foreign national borrowers (minimum $300,000, maximum $10 million) at up to 50% LTV. Borrowers have to come in with a large amount of cash, but credit scores are also not required for evaluation.
A&D Mortgage lends to foreign investors, but operates only in south Florida. They will lend up to 70% LTV on up to a $15 million loan on single family, condo, and condo-hotel property types (Scotsman Guide, 13).
The takeaway is that foreign ownership of real estate is a big business and lenders are carving out niches to capitalize on the opportunity. Some are willing to assume more risk than others with higher LTV ratios or proof of credit in their underwriting standards, but overall there are opportunities for foreign buyers to obtain the financing they need.
There are potential hurdles to investment in the form of capital controls in foreign nations. China, for example, typically only allows one of its citizens to take $50,000 out of the country in a given year (Bloomberg, 14). Exceptions for investment and pooling of money allow the substantial investment in real estate we see, but these types of regulations do inhibit some investment
So what are the affects of this foreign investment on U.S. real estate markets?
This external boost to domestic real estate markets can contribute to increasing prices in some cities, which makes sense. Healthy, competitive markets can create price inflation. Buyers may not appreciate the costs of these strong markets, but sellers obviously benefit.
This effect is more noticeable in some cities than others. Very expensive cities like San Francisco and New York see a substantial percentage of real estate transactions involving foreign investors. Chinese investors, for example, spent $9.56 billion on commercial acquisitions in New York City alone between 2010 and 2015 (Asia Society, 1). And while Chinese purchases still make up a small proportion of sales in the overall U.S., Chinese buyers do buy 1 in 14 homes sold for $1 million or more and Chinese buyers pay on average $831,000 for their homes in the U.S. as of last fall (more than three times as much as the median home price in the U.S., $239,700)(NY Times, 15; NAR, 16). It follows that these buyers are concentrating themselves in metropolitan areas like New York, Los Angeles, San Francisco, Seattle, Chicago, Los Angeles, and Miami (The Guardian, 17).
A consequence of this foreign demand is that housing becomes less affordable for domestic buyers. According to the California Association of REALTORS®, as of the the fourth quarter of 2015, only 30% of households in California could afford to purchase the median priced home (39% the median priced condo or townhouse), compared to the 58% U.S. average (CAR, 18). While foreign buyers are obviously far from the only factor creating such a competitive housing market, they do play a role.
This influence is actually most visible in the highest end of real estate. Although housing affordability issues impact lower and middle income individuals the most, the immediate impact of a drop in funding for foreign investment is most visible in expensive markets like Silicon Valley. Despite still having some of the lowest average days on market (DOM) stats in the country, a recent slowdown in investment from China is visible. With China’s faltering stock market and new controls on capital leaving the country coinciding with a 20% decrease in venture capital investments in Silicon Valley in the first quarter of 2016 from Q1 2015, the high end market slowed significantly (WSJ, 19). In April 2016 the average DOM was 16 days, compared to 11 in 2015 and 10 in 2014. The average DOM rose to 30 days in May (Bloomberg, 20). While still a fast market, that is an enormous proportional increase in DOM.
While this is a small market where a handful of lingering properties can impact the statistics, the example is there: high end markets have become more dependent on foreign investment than other markets. Other high end markets could be susceptible to similar problems.
Another impact is on cap rates in commercial real estate. The steep competition that foreign investment is contributing to has “kept cap rates suppressed” between five and six percent on average as foreign investors continue to perceive retail assets as “long-term stability” investments. (Globest, 21) As demand for investment real estate increases and prices keep getting pushed up, cap rates will continue to decrease.
Cap rates are staying low because expensive buildings--even with expensive leases and high operating income--are not seeing rents increase quickly enough to raise cap rates. Part of this is investors buying buildings that already have tenants with set leases. Until the lease is up the investor cannot negotiate higher rent to increase cap rates.
Demand is another significant factor. Investors are willing to pay a high price for a property with long-term appreciation in mind. This means paying higher prices than one would pay if they were solely using income to evaluate the investment. Consider the example of the Government Pension Fund of Norway from earlier. Their focus is so much on income - it was purchased at a 2.9% cap rate. But that return provides some short-term benefit while the overall value of the property provides the long-term investment incentive.
While some of these effects seem negative, consider a few benefits. Foreign investment helped the housing market recover after the crash as valuable dollars continued to flow into the market. It may not have been a comfort to those losing their homes, but it was beneficial to the economy. And foreign investment also generates tax revenue. While this may not be a benefit that many people think of, a strong real estate market does provide valuable tax revenues (with benefits such as funding public schools).
So what happens if the foreign investment dries up?
If foreign investment in real estate has become a significant factor in the strength of the market, it follows that there should be concern about the longevity of this investment.
First, there is little reason to fear foreign investment ceasing. Even with China’s increased internal controls on capital leaving the country, there is enormous demand for American real estate. This demand is created in a number of ways (mostly explained above). As long as the U.S. is a major economic player on the global stage (which is inevitable for the foreseeable future), there will be demand. Abundant coastline and large metropolitan cities that create high prices for domestic buyers also draw foreign buyers.
If there are fluctuations in this foreign demand they should act just as a fluctuation in domestic demand. Days on market could increase and thus draw down prices, but as foreign investment is still far from a majority of investment, this effect should not be as strong as when domestic demand falters. In some cities there could be less effect as domestic buyers find they can afford homes when competition is slightly decreased.
Take Away
At the end of the day there will always be people concerned about foreign outsiders buying their cities or driving up prices for the local population. Calls for higher taxes on foreign investment and other restrictions will never cease. But it is our position that barriers to the influx of foreign dollars into real estate markets other is not a sound decision. Without foreign investment the last recession and housing market crash would have dragged on longer, harming the same people that investment controls would allegedly protect. Strong real estate markets do create affordability issues in some cases, but also the potential for job creation with new construction and the subsequent affected industries and buying power of employed workers. And while some may not approve of this influence, it is a difficult position to tell property owners that they should receive lower selling prices when they sell their property because international buyers are not investing in the market.
The U.S. real estate market is not completely dependent upon foreign investment, but it is significantly influenced by it (in some local markets much more than others). It is unlikely that this will change in an increasingly globalized economy.
Sources
1) http://www.naiop.org/en/Magazine/2016/Spring-2016/Finance/Cross-border-Investment-in-US-Commercial--Real-Estate.aspx
2) http://www.realtor.org/sites/default/files/reports/2015/2015-profile-of-international-home-buying-activity-2015-06-18.pdf
3) http://asiasociety.org/files/uploads/66files/Asia%20Society%20Breaking%20Ground%20Complete%20Final.pdf
4) http://databank.worldbank.org/data/download/GDP.pdf
5) http://www.wsj.com/articles/norway-fund-bulks-up-on-real-estate-1424795145
6) https://www.nbim.no/en/transparency/news-list/2014/fund-makes-new-investment-in-san-francisco/
7) http://www.nytimes.com/2016/03/14/business/dealbook/chinese-owner-of-waldorf-astoria-bets-big-on-more-us-hotels.html
8) http://la.curbed.com/2015/7/13/9941028/wilshire-grand-construction
9) http://realestate.usnews.com/real-estate/articles/how-international-issues-affect-foreign-investment-in-us-real-estate/
10) https://www.skadden.com/insights/firpta-reform-impacts-investment-opportunities-us-real-estate
11) https://commercialobserver.com/2014/10/east-west-bank-poised-profit-chinese-investors-us-real-estate/
13) http://www.scotsmanguide.com/Residential/Directories/Niches.aspx?id=1502
14) http://www.bloomberg.com/news/articles/2014-07-14/secret-path-revealed-for-chinese-billions-overseas
15) http://www.nytimes.com/2015/11/29/business/international/chinese-cash-floods-us-real-estate-market.html?_r=0
16) https://ycharts.com/indicators/us_existing_home_median_sales_price
17) https://www.theguardian.com/business/2016/may/16/chinese-pour-110bn-into-us-real-estate-says-study
18) http://www.car.org/marketdata/data/haitraditional/
19) http://www.wsj.com/articles/china-boosts-efforts-to-keep-money-at-home-1441120882
20) http://www.bloomberg.com/news/articles/2016-05-17/silicon-valley-mansions-linger-on-market-in-real-estate-slowdown
21) http://www.globest.com/sites/geofferymetz/2016/05/23/retail-at-a-glance-whats-driving-foreign-investment/?slreturn=20160502123659
|
Homelessness is a serious problem. Despite efforts to curb it—from government housing programs to charitable organizations and shelters—it persists. A recent federal House bill (with bipartisan cosponsorship) Read more...
Homelessness is a serious problem. Despite efforts to curb it—from government housing programs to charitable organizations and shelters—it persists. A recent federal House bill (with bipartisan cosponsorship) has been written that aims to help homeless and formerly homeless students and student veterans attain housing.
H.R. 5290 would amend the Internal Revenue Code to “qualify low-income building units that provide housing for homeless students and veterans who are full-time students for the low-income housing tax credit.” The full-time student must have been a homeless child or youth during any portion of the seven years prior to occupation of the housing unit in order to be eligible. Veterans are eligible if they have been homeless at any point in the previous five years and are full-time students.
So what is the low income housing tax credit (LIHTC) and how would this bill impact affordable housing? The LIHTC frees up funding for the development costs of low-income housing. Investors receive a dollar-for-dollar tax credit that directly lowers owed income tax. These investors propose a project to the state housing finance agency. A certain percentage of units in the development are committed to being both rent restricted and occupied by individuals under a certain income threshold compared to the median gross income in the area.
This commitment includes a number of years (typically 30) that the rent restrictions and availability will exist, meaning that landlords cannot take advantage of a tax credit, then remove rent restrictions. The specific scenarios are outlined here. These projects can be new construction or acquisition and/or rehabilitation of existing housing developments. Once the state housing finance agency approves the project, the credits are claimed over a ten year period.
To summarize: a landlord-investor set aside a certain number of units that have lowered rent to be made available to renters with low income. H.R. 5290 would automatically qualify students that were homeless children or youths within the last seven years and veterans that have been homeless within the last five years as eligible tenants for the rent-restricted units.
If H.R. 5290 is passed and signed into law there would be more incentive for landlords and developers to subsidize housing for formerly homeless veterans and youths while they are in college. This makes it easier for those who have escaped homelessness to stay out—a very real problem, especially in more expensive areas of the country. It is difficult to succeed in higher education while earning enough money to support oneself. It also provides a pathway out for those currently homeless. If they can become a full-time student, they can gain access to cheaper housing.
Will it pass? No way to tell yet, but bipartisan cosponsorship is always a good sign. In an increasingly divided legislature and an election year, cooperation is not something we hear about too often. Because this bill has Democratic and Republican support it may have a better chance of being passed. But the Senate is not currently in session, so any movement by the House will not be matched in the Senate until at least September. We will be certain to keep our readers updated as this legislation progresses or falters.
For questions about the legislation, programs described, or other real estate topics feel free to reach out to the author at cody@adhischools.com. If you feel strongly one way or another about this proposed legislation, we encourage you to contact your elected representatives. Anyone looking to obtain their real estate license needs to keep an eye on these important legislative updates.
|
