Archive for December 2011
Book Review – The Little Book That Beats the Market
December 30, 2011 | 
Author 
“The Little Book That Beats The Market” by Joel Greenblatt is easily the investment book of the year. In fact, it’s the best investment book that I’ve read in many years. In 130 pages, which can easily be read in a couple of hours, Greenblatt gives the reader a stunningly simple, crystal clear formula for beating (make that trouncing) the market that anyone — and I mean anyone — can follow.
Joel Greenblatt is a professor of securities analysis at Columbia University as well as the founder and managing partner of Gotham Capital, a hedge fund with average annualized returns of 40% for over twenty years. When it comes to great investors, he’s among the best of the best.
Greenblatt has an entertaining and humorous writing style that makes each page fun to read. And, like most great teachers, he has a knack of explaining sophisticated financial concepts in a common sense, down-to-earth way that a sixth grader could easily understand and enjoy. In fact, the book begins with Greenblatt using Jason, an 11-year old boy with a chewing gum business as an example (he buys gum for 25 cents a pack and sells each stick at school for 25 cents for a $1 a pack profit).
He asks his young son, “Ben, if Jason offered to sell you half of his business, how much would you pay?” As Ben thinks about how much Jason’s business might earn during his years in school, Greenblatt explains that evaluating the value of businesses so he can buy them a bargain price is what he does for a living.
“The Little Book That Beats The Market” is about how to find good businesses to buy at bargain prices. By buying shares of companies for much less than what they’re worth you, the investor, will have a large “margin of safety” that will lead to safe and consistently profitable investments.
So the plan is to buy a percentage interest (shares) of good businesses at bargain prices. That’s how to make a lot of money. How do you find these businesses? Are you going to have to learn how to pour over balance sheets and income statements and do sophisticated financial analysis? Not at all. And that’s the beauty of the Little Book. Greenblatt gives you a simple “Magic Formula” that you can use to find great investment opportunities.
A good business is one that can invest its own money at a high rate of return. In other words, a good business is one that can earn a high return on capital. There is more than one way to determine return on capital. The formula that Greenblatt uses is operating profit as a percentage of net working capital and net fixed assets. The higher the return on capital the better the business.
So now you know how recognize a good business. But how do you know when a good business is being sold at a bargain price so you can make a lot of money? Greenblatt uses earnings yield to determine that. As with return on capital, there are various ways to determine earnings yield. Greenblatt uses operating profit as a percentage of enterprise value (market value of equity plus net interest-bearing debt). The higher the earnings yield the better the bargain.
The only Magic Formula you need to discover good companies selling at bargain prices is to find the ones with the best combination of a high return on capital and a high earnings yield. However, that still requires a certain amount of actual work (yikes!). And it requires a familiarity with terms like “operating profit,” “working capital,” “fixed assets,” “enterprise value” and the like. So Greenblatt has even made that part easy for you. He has a free website (magicformulainvesting.com) that identifies good companies being sold at a big discount.
All you have to do is follow the step-by-step instructions in the book and go to the website to find the best investment opportunities. That’s literally how simple it is.
Following this simple, common sense approach has worked extremely well over the years. Over the past 17 years, owning a portfolio of about 30 stocks that had the best combination of a high return on capital and a high earnings yield would have returned approximately 30.8% per year. As the Little Book says, “Investing at that rate for 17 years, $11,000 would have turned into well over $1 million.”
There are a couple of questions you should be asking yourself at this point:
1. If these are such good businesses, why would someone want to sell their shares to me at a discounted price?
2. Since this guy has put the Magic Formula in a book and even on a free website, everybody will use it. How is it going to continue to work after everybody and his dog is aware of it?
Good questions. In fact, they’re so good that “The Little Book That Beats The Market” answers them very well.
First of all, why would shares of good companies be trading at bargain prices? The short answer to that is nobody knows why market participants behave irrationally at times, but the fact of the matter is they do. The way Greenblatt proves that to his class of very bright business school students is by having them look at stock tables in the paper. Take Abercrombie and Fitch, for example. The stock closed yesterday at $61 a share. But over the past year it has had a low of $43 a share and a high of $74 a share. So there’s a $30 a share difference between the high and low for the year. That’s a big range in a short period of time.
Why is there such a big difference in the high and low of the stock price for a big well known company like Abercrombie and Fitch during a single year? After all, the profitability of the company didn’t change that much.
Again, nobody knows why people behave like they do — willing to sell their shares at a low price one moment but demanding a high price the next. Greenblatt’s short answer to that is “Maybe people go nuts a lot.” And, I guess, that answer is as good as any. But it doesn’t matter what the answer is. The fact that it happens is the reason that you can get really good deals on very profitable businesses.
And, eventually, the market always gets it right. A good business will always ultimately be priced at its true value. Or as the father of value investing, Ben Graham (Warren Buffet’s mentor), famously put it: In the short run, the market is like a voting machine — tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine — assessing the substance of a company.
Why is the Magic Formula going to continue to work after everybody knows about it? That question is answered in the most important chapter in the entire book — Chapter 8. The best thing about the Magic Formula, and the reason that it’s going to keep working even after everybody knows about it, is that it doesn’t always work. In fact, sometimes it doesn’t work at all. There have even been times when the Magic Formula did worse than the overall market for as much as three years in a row. Isn’t that wonderful?
It’s wonderful because most people are not disciplined and patient enough to follow a winning formula that doesn’t work for weeks, months, or even years at a time. Therefore, the Magic Formula will continue to work very well because very few people will have the discipline to stick with it. So there should be no worry about it losing its effectiveness. Most people won’t use it simply because it doesn’t work all the time. And that’s wonderful news for the few who have the discipline and confidence to stick with it.
I’m not going to tell you that “The Little Book That Beats The Market” will make you rich, although I believe it can. I am going to tell you that if you’ll pluck down twenty bucks or so for the Little Book, and if you’ll spend the two hours it takes to read it, you’ll be very glad you did.
(c) Larry Holmes
By: Larry Holmes
Posted in Book Reviews | 
Tags: Bargain Price, Bargain Prices, Buying Shares, Chewing Gum, Columbia University, Common Sense, Down To Earth, Hedge Fund, How To Make A Lot Of Money, Investment Book, Investor, Investors, Joel Greenblatt, Knack, Lead, Margin Of Safety, Profitable Investments, Sixth Grader, Twenty Years, Writing Style | 
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How to Sell Jewelry at Home – Knowing the Market Value of Your Jewelry
Many people have no idea how to sell their jewelry. They either do not bother to find out or had no need to sell until now. But, if you do wish to sell, it is very easy to do so. All you need is to take a little time out and educate yourself about the market. Your knowledge about the market will help you to make more of a profit from your sale.
There are many options in the market. You can visit either a jeweler or a pawnshop. Or else, you can just go online. Online is a good option to sell jewelry at home. If you have any gold coin or any coin made of any precious metal, then you can get a fair value for it. But if you want to sell your coins, you have to first find out the right value.
Visit your local coin dealers. But you might be cheated by them. A jeweler shop is also not a good option. Going online is a better alternative here. A simple search is recommended. It will help you get an idea of the value of your coin. eBay is also not a bad option. You can search the eBay site for information on similar coins. This will give you an idea of what to expect. If you want to sell jewelry at home, going online is the best option.
Another option is to visit coin forums. You can choose a forum online. These forums can also give you an idea of their value. The question and answer pages on these forums are quite helpful. These activities can help you get the right price for your coin. It will give you an advantage when you place it on the market.
By: Travis Thomason
How to Rent Your Own Home From Your Children, and Why You Should!
The estate tax recently lapsed in 2010. Congress didn’t renew it because they were too busy worrying about health care reform. That means that if you die in the year 2010, you won’t owe any estate tax. Yes, you read that right you will not own a single penny in estate tax for 2010.
But you can bet Congress isn’t going to be idle, they have the whole rest of the year to pass a new estate tax law. And with the Democratic Party running Congress at the moment, you can expect that they’re going to try everything they can to charge you as much tax on your estate as they can get away with. They’re very open about it; it’s one of their main goals after health care reform.
Now there are many different things you can do to lower your potential tax liability when it comes to estate planning. There are Trusts of a zillion different stripes that you can set up that will tailor to your specific situation. Of course you need an accountant and a lawyer who specializes in estate planning and asset protection to set these things up…
One of the easier ways to plan for your estate in order to minimize taxes is to make sure that you don’t have much by way of physical property that the government can tax when you pass away. No I’m not suggesting that you become poor, just that you plan accordingly.
One way to do this is to sell your house to your children now, and pay them rent each month. This way you get to enjoy living in your house, but you don’t own it. So when you die there’s nothing to tax.
The idea is to pay rent roughly equal to what your children will pay for a mortgage to buy the house from you. For example if your kid buys the house and takes out a loan that he or she has to pay $2,000 a month for, you would pay him $2,000 a month in rent. Where do you get the rent money? From the proceeds of the sale of your house of course. You get the idea…
There are a few things that you have to keep in mind when doing something like this. The IRS will scrutinize these sorts of arrangements very closely so you have to be careful not to get tripped up. Here are a few things to look out for…
Be sure to sell the house for its fair market value. If you sell it too cheaply, the IRS may consider it a gift to your children and apply gift tax.
Next, remember that the mortgage interest that your children pay is deductible to them, however it is taxable to you. That is to say, you can’t really deduct rent payments like you can mortgage payments… and if you’re used to deducting mortgage payments on your tax return, this may take some adjusting and getting used to varying it.
Next, realize that the rent payments that you pay your children each month are taxable income to them. That means that they will have to pay taxes on that rent.
Finally make sure you have documented all of this scrupulously. Make sure you create and sign an actual rental agreement between you and your children, and make sure that you actually pay the rent each month. And be sure to keep records of all the rental payments. The more specific documentation you keep, the more realistic the whole thing looks in the eyes of the IRS.
By: Jason Markum
Posted in Real Estate | Tags: Accountant, Asset Protection, Bet, Congress, Democratic Party, Estate Planning, Estate Tax Law, Estate Taxes, Health Care Reform, Lawyer, Main Goals, Many Different Things, Mortgage, Proceeds, Rent, Stripes, Tax Liability, Trusts, Whole Rest, Zillion | No Comments »
Real Home Base Business – Process Property Tax Appeals!
Real estate property taxes are sky-high and increasing. When you scrutinize the quality of the property assessment, you’ll likely find a huge loophole. When you engage in a property tax appeal for a client you can save your client thousands of dollars and realize thousands of dollars commissions for yourself in contingency fees.
Processing property tax appeals for clients is a recession proof business. No matter what the economic conditions there are always an abundant number of property taxes that are in error.
You get paid when you win a property tax reduction for a client. If you save your client $2,000, you get paid $2,000 generally over 2 or 3 years, however you set the terms. And winning is easy. It’s a win, win situation for everyone.
Government statistics show the state and local government hiring has accelerated in the last 12 months. Meanwhile private firms have slashing staff. Despite the economic slowdown the public-sector jobs gains have actually sped up. Increased property taxes will likely pay the price.
State and local governments are facing a mismanaged budget crisis. Large numbers of new jobs have been created in government. Result: many upset taxpaying homeowners.
With real estate prices falling, it is easy to find homes that sold for less than your potential clients assessed value. The real estate “sold” listings show an abundance of low-priced comparable homes.
The National Taxpayers Union writes that as many as 60% of all homeowners are over-assessed and not in line with their home value. (“How To Fight Property Taxes” 2004 p.1
What you need to do in this business is finding the value of residential real estate by comparing your client?s property with similar sold properties. You’ll look for comparable sales or properties in similar neighborhoods.
It’s a good idea to cooperate with the tax assessor. It makes no difference what the tax assessor finds. What counts is market value. The way to reduce your clients property tax is through comparing recently sold homes.
When you look at the oversupply of lower cost sold home to compare you client?s home to, this business proposition is a slam dunk. When compare to most businesses, the cost of entry is low and the profit expectations are high.
By: George Evers
Posted in Finance | Tags: Abundant Number, Budget Crisis, Client Thousands, Comparable Sales, Contingency Fees, Economic Slowdown, Government Hiring, Government Statistics, Home Base Business, How To Fight Property Taxes, National Taxpayers Union, Private Firms, Property Assessment, Property Tax Appeal, Property Tax Reduction, Public Sector Jobs, Recession Proof, Residential Real Estate, State And Local Government, State And Local Governments | No Comments »
Try once and make the most of it?
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Noleggio Auto Milano aeroporto Malpensa offer vehicle on rent in all major countries offering special benefits to the customers. If you are planning for the trip or to the business tour must keep in mind to carefully pick the car service on rent I would recommend out of my personal experience that the Noleggio Auto Milano aeroporto Malpensa is the beat and renowned car service, it offer customer with the competitive rates and best service to enjoy the nature, the wildlife and the busiest night restaurants. One can hire the car and can visit any destination of there choice, ca service connect to, any terminals and roads make drive simpler and easier. Once you have hired the car on rent you can start your journey with any destination you like. Noleggio Auto Milano aeroporto Malpensa all the cars of this car on rent service come up with insurance cover. Cars are offered on hourly base, weekly or daily basis. Rent is been paid as per kms drive. First km it charges 120km/per hour and subsequent 110 per/ km.
Posted in Automotive | Tags: Aeroporto Malpensa, Auto Milano, Business Tour, Car Group, Car Rent, Car Service, Cars, Daily Basis, Insurance, Journey, Milano Aeroporto, Models, Nature Wildlife, Necessities, Noleggio Auto, Personal Experience, Rent Service, Restaurants, Suggestion, Task Force | No Comments »
Establishing the Value of a Property
Establishing the value of a property is an integral part of Tax Delinquent Property Investment. Oftentimes this action can be made easy because some counties in the United States have some kind of a ratio they apply to their assessment.
For instance, in Arizona, they have two-thirds ratio of the selling price of a property. If you have a house in this area and the county’s assessed value is $150,000 that is probably worth about $215,000. That is the thumb rule there. In Arkansas, the assessed value is approximately 10 percent of the true market value. If something is assessed at $10,000 at ten percent; it is really worth in the $100,000 ballpark, more or less.
This is very easily found by browsing or surfing around in the county webpage. There you will be able to see if the sale prices are published there. Often, in the assessor’s page you can see not only what the properties are assessed at, but also what it sold for last time it was in the market. Their records are usually updated for the activity of the properties for the last 20 years or so. If the records are older than 20 years then they probably won’t have it on there. But, if it sold in the last 10 years with the price of $20,000 then it is assessed at $13,000. Calculating it will let you know that it is two-thirds of the last price of the property.
The simplest way to know the value of a property is by calling the county. You may ask the assessor if they have such a ratio which they apply based on the market value to come to the assessor’s value. They will tell you. So, ask them for the rule of thumb or the thumb rule. In Tax Delinquent Investment, knowing the value of the properly will give you a general idea of how much you can offer a tax delinquent property owner for their property. The better your understanding of the property value, the better your chances of maximizing your profit potential in your investment.
By: Jack Bosch
Reduce Your California Property Taxes
What is Proposition 8?
In 1978, California voters passed Proposition 8, a constitutional amendment that allows a temporary reduction in assessed value when a property suffers a “decline-in-value.” A decline-in-value occurs when the current market value of your property is less than the assessed value as of January 1.
If you have good reason to believe that the assessed value of your real property is too high, filing an Application for “Decline-In-Value” Reassessment (Prop.
form with the Assessor’s Office, as allowed by Proposition 8, is usually the first step to take. A free application form is available from the Assessor’s Office, and there is no charge for filing. The deadline for filing this form in San Diego County is May 30, 2008.You will be notified by the Assessor’s Office if any change in the assessed value of your property will be made by the Assessor. Any adjustments made to your assessed value will apply to the next tax year. For example, if an application submitted in February 2008 results in a reduced assessed value, the new reduced assessed value will be on the 2008-2009 annual tax bills. The 2008-2009 annual tax bill covers July 1, 2008 through June 30, 2009. When the Assessor’s Office notifies you of their decision regarding your Application for “Decline-In-Value” Reassessment (Prop. 8), and you are not satisfied with the results, you may still file an Application for Changed Assessment with the Assessment Appeals Board during the regular filing period of July 2 through November 30.
The Proposition 8 reduction is temporary; it applies only to the year of the application. Each year, as of the lien date (January 1), the Assessor will review the properties with a Prop. 8 assessment to verify whether the conditions that resulted in a decline in value still exist. If the market value of the property increased, the Assessor will adjust the assessed value up to the fair market value. Please keep in mind that the Assessor, in this case, is not limited to a 2% annual increase, but the new assessment will not exceed the original trended base year value.
What is Proposition 13?
In 1978, California voters passed Proposition 13, which substantially reduced property tax rates. As a result, the maximum levy cannot exceed 1% of a property’s assessed value (plus bonded indebtedness and direct assessment taxes). Increases in assessed value are limited to 2% annually. Only four events can cause a reappraisal:
1. A change in ownership;
2. Completed new construction;
3. New construction partially completed on the lien date (January 1); or
4. A decline-in-value (Proposition
Proposition 13 was adopted by California voters in 1978, and changed the definition of taxable value for all real property in the state. Taxable value of real property is defined as the lesser of:
o Factored base year value, or
o Market value on lien date (January 1st), whichever is lower
By: Christian Sturdivant
Posted in Real Estate | Tags: Application Form, Assessment Appeals Board, California Property Taxes, California Taxes, California Voters, Constitutional Amendment, Current Market Value, Decline, Free Application, Good Reason, January 1, July 1, Reassessment, San Diego County, Tax Bills | No Comments »
Appraisal – Subsidized Housing
The purpose of this article is to analyze valuation methodology for several atypical types of apartments. Various circumstances and situations can cause an apartment complex to have above-or below-market rental rates, occupancy rates and operating expenses. This analysis examines the following two situations:
low-income subsidized apartments, which receive above-market rental rates from HUD or another government agency, and
projects that are part of the Low Income Housing Tax Credit (LIHTC) program.
The LIHTC program was established by the U.S. Congress to encourage development of affordable housing in economically disadvantaged areas. Project developers receive a tax credit for following the guidelines established by the program. They typically sell these credits to Fortune 500 corporations for 45 percent to 60 percent of the total project cost, excluding land.
The first step in the valuation process is analyzing market value definitions. The following is the definition from the Texas Property Tax Code, Section 1.04 (7): market value means the price at which a property would transfer for cash or its equivalent under prevailing market conditions if: exposed for sale in the open market with a reasonable time for the seller to find a purchaser, both the seller and the purchaser know of all the uses and purposes to which the property is adapted and for which it is capable of being used and of the enforceable restrictions to its use, and both the seller and the purchaser seek to maximize their gains and neither is in a position to take advantage of the exigencies of the other.
Section (b) of the Texas Property Tax Code further requires: the market value of property shall be determined by the application of generally accepted appraisal techniques, and the same or similar appraisal techniques shall be used in appraising the same or similar kinds of property. However, each property shall be appraised based upon the individual characteristics that affect the property’s market value.
The definition of market value, according to the 10th edition of The Appraisal of Real Estate published in 1992 by the Appraisal Institute, is: market value is the most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.
The term which requires further review in the above definition is “knowledgeably.” Is the purchaser knowledgeable regarding the effort required to comply with subsidized housing program requirements and tenants? Does he consider the effort to be rent for real estate or compensation for services? Does the purchaser of an LIHTC project understand that maximum rents are now established for at least 15 years based on deed restrictions? (LIHTC deed restrictions are now required for 30 years in Texas and most other states.)
Fee simple estate is defined in the third edition of the Dictionary of Real Estate Appraisal published by the Appraisal Institute as: absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power and escheat.
The practice in Texas is to base the assessed value on the value of the fee simple estate as opposed to the leased fee estate. This analysis is based on valuation of the fee simple estate instead of the leased fee estate.
The definition of leased fee estate in the third edition of the Dictionary of Real Estate Appraisal is: an ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the lessee are specified by contract terms contained within the lease.
The primary difference between the fee simple estate and the leased fee estate is that the tenant and landlord are each bound by commitments to pay rent and allow use of the property for a term. The contract rent agreed to between landlord and tenant may or may not be equal to market rent. For example, if a landlord entered into a 30-year lease for rent of $5 per square foot 15 years ago (when market rent was $5 per square foot) and the current market rent is $10 per square foot, the tenant has a substantial advantage. The tenant has a leasehold estate which may or may not have value depending on the term of the lease, the contract rent and market rent.
The Dictionary of Real Estate Appraisal defines leasehold estate as the interest held by the lessee (the tenant or renter) through a lease conveying the rights of use and occupancy for a stated term under certain conditions.
Conversely, if the tenant agreed to a rental rate of $15 per square foot in a strong market 10 years ago, and is committed to pay that rent for another 10 years, there is a substantial advantage to the landlord, and the tenant has a leasehold estate with a negative value. Practice in Texas is to establish the assessed value based on the fee simple estate instead of the leased fee estate. Therefore, the relevant criteria for determining market value includes market rent, market expenses, market occupancy and market derived capitalization rates. If a taxpayer made a poor business decision 10 years ago and has substantially below-market rent, it is inequitable for the taxing entities to reduce their ad valorem tax due to the bad business decision of the property owner. Conversely, if a property owner made a fortuitous or wise business decision and entered into an above-market lease, it is not appropriate to collect an above-average level of ad valorem tax from him because of his luck or prudence.
Market rent is defined by the third edition of the Dictionary of Real Estate Appraisal as: the rental income that a property would most probably command in the open market; indicated by current rents paid and asked for comparable space as of the date of appraisal.
Market rent is the compensation paid for the use of the real estate. It should not include compensation paid for factors other than the use of the real estate such as additional services which are not typically provided.
The next step in this process is to analyze valuation of properties which participate in subsidized programs which receive above-market rental rates. The final section will address valuation of projects in the LIHTC program.
Valuation of Subsidized Housing
This analysis will consider both the income and the sales comparison approaches to value. The cost approach is not utilized since it would provide similar results after calculating external obsolescence due to differences in rental rates.
Income Approach:
Apartment owners who participate in subsidized housing programs may or may not receive above-market rental rates. For many years, HUD offered above-market rental rates as an inducement to property owners to participate in the program. There are two reasons for HUD paying an above-market rental rate:
to compensate for the inconvenience of dealing with a bureaucratic government program which mandates detailed inspections not typically required in the private market; and
to compensate for working with residents who tend to be at the lowest socioeconomic level in our society.
It has not been unusual for HUD to pay contract rent of $0.70 to $0.80 per square foot per month for subsidized housing projects, even though the market rent for competing projects might only be $0.45 to $ 0.50 per square foot per month. The rent and sales comparables used in this analysis are located in a neighborhood characterized by income levels in the bottom quartile of the Houston area, minimal new construction of residential or commercial buildings for 25 years and heterogeneous levels of quality and appeal. Some sections, such as Riverside, have experienced gentrification, but other areas are marked by poorly maintained properties. Both the market rent projects and the subsidized rent projects are located in the area south of downtown Houston, bound by 288 to the west, Interstate-45 to the east, and Almeda-Genoa to the south. Consider the following tables which list rental rates for projects which do not participate in a subsidy program (market rent projects) and projects which do participate in a subsidized rent program:
Sources at the Houston HUD office indicate that expiring contracts for subsidized properties are being reviewed – if the owner so desires – for only one year. After that term, it is uncertain which course the plan will take. Indications that are subsidized programs are changing from the current contract rent method to a resident voucher program. The voucher method would involve issuing certificates to individuals who may then use the voucher at any participating property. The voucher amount would be based on individual’s income. In addition to the plan to phase out above-market subsidized rents, another reason not to use contract rent when valuing subsidized housing is it is inconsistent with national public policy to penalize apartment operators participating in this program since the difference between market rent and contract rent is compensation for participating in the program and working with the low-income residents. It would also be inconsistent with practice in Texas to use contract rent instead of market rent when performing the income approach to value.
The three reasons contract rent should not be used in valuation are: it may include compensation for participation in the program and may not be equal to market rent, current plans are to eliminate the program and, it is inconsistent with national public policy Another factor to consider when performing the income approach is the market occupancy. Since tenants at the subsidized housing projects do not pay their rent or pay very minimal rent, the occupancy tends to be at above-market level. Consider the following tables which list the occupancy rates for both market rent projects and subsidized rent projects:
Sales Comparison Approach:
The sales comparison approach analysis further demonstrates the typical market values in this submarket. We have utilized information on comparable sales both from our internal database and from the Harris County Appraisal District database. Most sales within the submarket are listed:
Valuation of LIHTC Projects
The key difference between Low Income Housing Tax Credit project (LIHTC) and a market rent project is that the LIHTC project has deed restrictions which limit the maximum rent that can be charged. The restrictions also limit the maximum income of the residents. The Oregon Supreme Court ruled that the assessed value for LIHTC projects should be less than the assessed value for market rent projects since the rent at LIHTC projects is less than market rent, and the rents restrict the market. In Texas and most other states, the LIHTC project is limited by a 30-year deed restriction which runs with the land. In other words, it may not be revoked unilaterally by the property owner even if the property is sold or foreclosed. In exchange for these onerous restrictions, the LIHTC property owner receives a generous tax credit allowance from the U.S. government. Developers typically sell the tax credits for approximately 45 percent to 60 percent of the project development cost.
The primary difference between LIHTC projects and market rent projects is the rental rate. Operating expenses will be similar in either case, but the LIHTC project will likely have higher occupancy due to its below-market rents. Section (b) of the definition of market rent in the Texas Property Tax Code is as follows: both the seller and the purchaser know of all the uses and purposes to which the property is adapted and for which it is capable of being used and of the enforceable restrictions on its use.
The LIHTC projects are located in targeted areas established by the federal government which have below-average income levels.
Income Approach:
The following are three income analyses of hypothetical 200-unit apartment complexes which each has 160,000 net rentable square feet. Contract rent is estimated to be $0.62 per square foot at the LIHTC project based on what is typical in the Houston area. (Our firm prepares approximately 20 market studies for LIHTC projects each year.) Market rent at new complexes in the Houston area is typically $0.80 to $1.10 per square foot per month. For the purposes of this analysis, market rent for new complexes is estimated to be $0.85 per square foot. Market occupancy is estimated to be 96 percent for the LIHTC project due to the below-market rents and 92 percent for the market project. Operating expenses may be slightly higher at the LIHTC project to account for accounting and communication with government agencies because of the LIHTC requirements, but this amount is expected to be offset by the lower ad valorem taxes. The analysis shows three income approaches. In addition to the LIHTC and upscale market rent projects, a mid-range project with rental rates roughly between the others is included for comparison purposes. A 10 percent capitalization rate for the LIHTC project has been included based on its below-market rents, which appear to make the income stream more stable. An 11 percent capitalization rate is used for the mid-range project since its rental rates would be far above market for the area. The capitalization rate for the upscale market rent project is 9.5 percent based on data in our files.
It appears clear that using market rent in the valuation of an LIHTC project would produce an appropriate result. Further, it appears the capitalization rate used in valuation of the LIHTC project using contract rents would overstate the values based on comparable sales. While investors would appreciate the stable income stream due to the below-market rents, few investors would want to pay $25,000 per unit for an apartment complex in an area where most complexes sell for $5,000 to $15,000 per unit.
Valuations of real property with above- and below-market rental rates offer challenges to property owners and assessment officers. There will likely be legitimate differences of opinion for the foreseeable future. Using the sales comparison and income approaches to value indicates a wide range of value. Thoughtful consideration and negotiation will be required to form a consensus on these issues.
By: Patrick O'Connor
Posted in Real Estate | Tags: Affordable Housing, Appraisal Techniques, Disadvantaged Areas, Exigencies, Fortune 500, Government Agency, Hud, Lihtc Program, Low Income Housing, Low Income Housing Tax Credit, Low Income Subsidized Apartments, Occupancy Rates, Operating Expenses, Project Developers, Property Tax Code, Purchaser, Section 1, Subsidized Housing, Texas Property Tax, Texas Property Tax Code | No Comments »
Common Kinds of Inground Pool Liners
Inground pools are among the most common type of swimming that are found in homes and other establishments. Apart from being a source of fun and relaxation, inground swimming pools can also greatly increase the fair market value of your home.
As with any part of your home, inground are prone to damage brought about by long periods of being exposed to the chemicals that are used in the water of the pool to treat it and keep it free from bacteria and other types of particles. This is the reason why inground are installed during the construction process of the swimming pool.
There are different ways on how inground are installed. The first, and the most popular method, is the overlap method. This inground installation method involves the liner being allowed to go over the edges of the swimming pool before being folded on the edges and securing them with plastic clips.
The second type of inground installation process is the beaded liner process. This involves the use of a beader track, which is actually a long row of clips that is allowed to run throughout the entire length of the pool. The liner is then attached on these clips and secured with additional plastic clips.
The expandable liner installation method is used for those inground swimming pools where an expandable vinyl pool liner is used to line the insides of the pool.
Choosing the right kind of pool line installation method is selected based on the depth of your swimming pool as well as the overall design that you select. The contractor in-charge of constructing your pool will be in the best position to help you make this choice. As such, it is extremely important to make sure to take some time to sit down and talk with them about this.
By: Margaret Sutton
Posted in Home Improvement | Tags: Bacteria, Chemicals, Different Ways, Establishments, Exposed, Fun, Inground Pool Liners, Inground Pools, Inground Swimming Pools, Long Periods, Margaret Sutton, Particles, Pool Installation, Pool Line, Reason, Relaxation, Swimming Pool, Vinyl Pool Liner | No Comments »
For Sale By Owner – 4 Ways To A Quick Home Sale
Spring is the season for selling homes. Over 40 % of homes sold in the entire year are sold in the spring time. Due to the fact that school let’s out and it is easier for families to move into their new home during the summer months.
When you are planning to sell your house for Sale By Owner, timing and planning are the most important tasks you must do to have a successful home sale. Proper staging of your home for sale can mean the difference between a quick sale or a slow one. Here are 4 ways that you can have the most appeal to the most amount of buyers.
4 WAYS TO A QUICK HOME SALE AND PRESENTATION
1. Timing & Planning – The best time to sell your house is in the spring time. So make sure you have taken the time to figure out what the proper asking price should be. You can do this by driving around your neighborhood and seeing what others are asking for their house. Also look up a on websites what the median price for your type of house is going for. Take the average of the two and price your house about ten thousand below that value. This will insure that your house will be the first to sell.
2. Provide Finance Options: Owner financing allows you the ability to make more than Fair Market Value on your house. By working with a contract buyer you can get all cash at closing when you set up your financing correctly. You can also work with mortgage brokers to help you get your buyer approved for financing.
3. Marketing Plan – An important step in selling your home is to have a marketing plan. How are people going to know that your house is for sale? Why would they want to buy your home? How can you help them buy your home? When creating a marketing plan think from the buyers point of view. You can use yard signs, classified ads in the paper, flyers and marketing strategies to create: Attention-Desire- Action.
4. Staging Your House: When the buyer walks into your home they will experience it with all five senses. Make sure you have new paint on the wall, new hardware on the sinks, doors, and electric sockets. Make sure your home is clean and free from clutter. Have the smell of fresh apples and cinnamon baking in the oven. Have soft music in the background. All these appeal to difference senses. At the end of the day people buy based on feelings and not logic.
By: G Allan Roberts
Posted in Real Estate | Tags: Asking Price, Best Time, Contract Buyer, Finance Options, Five Senses, House For Sale, Marketing Plan, Marketing Strategies, Median Price, Mortgage Brokers, Neighborhood, New Paint, Owner Financing, Paper Flyers, Point Of View, Selling Your Home, Spring Time, Staging Your House, Ten Thousand, Yard Signs | No Comments »