November 2007

Hello Again,

May you enjoy this November issue of my newsletter. Enclosed, as usual, you'll find interesting tidbits on the Real Estate market, the season and what's happening around town. I hope you all enjoyed a safe Halloween. This is my favorite time of year in Austin. I really appreciate the cold fronts from the North.

November is a time of thanks, so remember to think of loved ones and give thanks to those who support you and return the favor for years to come. In such a busy society, don't forget to reward yourself either. Take the time to slow down and let go of the stress resulting from the daily grind. Take some personal time to read a good book, have a great run (or walk), prepare a rewarding meal, hug your pet, enjoy a great bottle of wine, and most of all be kind to your fellow citizens.

I'd like to thank everyone for their encouraging feedback on the October newsletter. And remember, I am never too busy for your questions, concerns or referrals.

Sincerely,

Michael A Quinones

1031 Tax Exchange Quiz

Here’s a fun little true/false quiz from REALTOR® magazine online and Bayview Financial Exchange Services

1. In order for properties to qualify for a ‘like-kind’ exchange, they must be the same category of real estate, such as commercial or residential.
2. To defer capital gains taxes, the replacement property you choose must be of equal or greater value than the property you sold.
3. You have 30 days from the closing date of your property’s sale to identify a replacement property.
4. You have 45 days from the closing date of your property’s sale to purchase a replacement property.
5. A purchase of 50% undivided interest as a tenant-in-common in real estate would qualify for a 1031 tax exchange.
6. A duplex used for your personal residence would NOT qualify as a like-kind exchange.
7. There are three rules that limit the number of properties that may be identified for a 1031 deferred tax exchange.
8. The Simultaneous Exchange is the most common type of 1031 exchange.
9. The term ‘boot’ usually refers to any cash proceeds not spent on the purchase of a replacement property during an exchange.
10. You may use your personal real estate attorney to facilitate the transaction if your attorney is a ‘Qualified Intermediary.’

Shoot me an email for the quiz answers

This Thanksgiving...

Count your blessings instead of your crosses; Count your gains instead of your losses. Count your joys instead of your woes; Count your friends instead of your foes. Count your smiles instead of your tears; Count your courage instead of your fears. Count your full years instead of your lean; Count your kind deeds instead of your mean. Count your health instead of your wealth; Count on a higher power instead of yourself.

Author unknown

Area 6 GRM 1996-2007

As a Real Estate Consultant, part of my job is market analysis to identify trends in Austin Real Estate. Since the dot-com and stock market crash of ‘01, I’ve noticed a shift in focus from investment in the Stock Market to Real Estate. Duplexes and four-plexes are popular investment mediums for cash-flow and in this article I’ve decided to determine the GRM (Gross Rent Multiplier) for duplexes and fourplexes in Area 6 since 1996. Since area 6 is a popular investment destination for Californians, I will also determine the percent of duplexes and four-plexes purchased by them via the tax records to identify possible trends. The purpose of this study is to gain a historical perspective of GRM and to map GRM on a continuum as a tool for investment analysis and forecasting.

GRM is the simple formula of dividing the sales price of a property by the monthly gross income of rental units. The formula doesn’t consider operating expenses or vacancy rate. In general a property will break even with a 100 for GRM when operating expenses and vacancy rates are considered. In order for a property to cash-flow GRM should be 80 or less. For example, an $85,000 property would break even with $850 rental income per month and have a GRM of 100. If rents were $1050/month then it would cash-flow $200/month with a GRM of 80. Operating expenses and vacancy rate are unique to property, so the GRM gives the investor a quick formula to determine if a more thorough analysis of the property’s investment potential is warranted.

In the graph its clear GRM has been on the rise since the late 1990’s. There was a small drop in GRM for duplexes and four-plexes in 2001 as expected. For duplexes, GRM has been above 100 since 2000 and is 168 currently. In four-plexes, GRM has dropped this year from 123 to 112. The peak of California purchases occurred in 2006 at 35% with GRM’s of 142 and 123 for duplexes and fourplexes, respectively. There were no CA purchases in ‘97,’98,’01 and ‘02.

In my opinion, there’s a relationship between the California purchases and area 6 GRM. With California’s rapid appreciation early this decade, many new investors used their equity for a down-payment to make duplexes and four-plexes cash-flow in area 6. Those that did not were willing to take a monthly loss in exchange for appreciation. According to Hugh Parrish, an Austin Broker since 1981, historically the value of a duplex or four-plex was determined by its rents...not appreciation. With the California market declining, it will be interesting to see how Austin’s area 6 multi-family market responds. According to Hugh, our Austin market is usually about 2 years behind the east and west coast markets.

Area 2N under the Microscope

Area 2N single family residences (SFR’s) have experienced an increase in popularity in the past few years much like those of area 10. The attraction, in my opinion, seems to be towards the homes on larger lots with mature trees. The proximity to Austin also helps to attract buyers towards the area. Statistically speaking, the supply of single family homes dropped forty-five percent from January 2005 to July 2005. An even larger reduction in supply occurred from December 2005 to July 2006 when supply dropped 50 percent from 3.6 months to 1.6 months of supply. Since July of 2006, supply has remained stable hovering around 2 months. Median price has gradually increased from 109K to 141K. The largest median price increase of 120K to 126K occurred from March 2006 to April 2006.