Wednesday, April 22, 2020

Working From Home Could Have Big Impact On Home Sales

Perhaps the biggest challenge with what I term “disaster marketing” is that many people either wait too long to address the issue(s) or remain in denial. The point is that the pandemic will impact almost everything in our lives, including real estate, for years to come.

Properties that had higher value yesterday may not have those same amenities tomorrow. Your strategy should be to prepare to successfully anticipate those changes so that you can gain the best advantage.

The significant increase in the number of people working from home is likely to be the biggest factor toward change in real estate, especially in large and medium sized cities and suburbs.

Over the past 20 years, we had been seeing the trend of residential properties having a higher value when located near a commuter train station or public transportation hub. The added convenience of people being able to travel to and from downtown or wherever they work or attend school with minimal to no driving would often increase sale and rental prices within the surrounding blocks.

It was possible that a seller within a couple blocks from the train station could get a couple thousand dollars more because of that valuable location, than for the same property if it were five miles away.

Although it is too early to know for sure, it appears that the impact of so many people working from home will have long lasting effects on society.

We don’t know how quickly parents will trust their kids to daycare centers nearly as much as they did before. The ability to work from home would typically significantly reduce or eliminate those concerns. Employers will realize that working from home most or all days would likely reduce sick days and emergency leave for that very reason.

Employees might be more productive without having to spend an hour or more every day of commuting time, saving wear and tear in the car or on the bus or train.

What about real estate?

If more and more people wind up working from home on a regular basis, there becomes much less emphasis on location location location. Being near the train station may not matter. A buyer could “save” a few thousand dollars looking a few miles away.

It is too soon to know if school districts will mean as much as they used to or not, since it is possible that online teaching could become more prominent.

People will, understandably, be reluctant to look toward possible drastic long term changes for all of us.

However, when it comes to real estate, this could be a very good time to consider pushing toward a plan for your own benefit.

For example, if you are considering downsizing, and are working from home, you could consider moving further away from your current job because of a drastically reduced commute.

It is just like when you hear people say, “I wish I knew that five years ago. I would have bought stock in such and such”.

Again, what is happening now could very well come with some important “permanent” changes. It is worth considering what “five years from now” could bring, and, more importantly, how your real estate portfolio could look.

Tuesday, April 21, 2020

How Retail Fail Impacts Residential Real Estate

For some people, living near a major shopping mall is an important consideration. Even if that is not important for you or your clients, the impact of the pandemic will likely be felt for years to come when it comes to the large shopping malls.

When retailers such as Macy’s and Nordstrom are closing stores and scrambling to secure new financing, the near future for the malls they occupy becomes significantly less favorable, since these are considered anchor stores.

J C Penney has reportedly been attempting to secure new financing as well.

Now, on April 20th comes word that Neiman Marcus is going as far as to prepare to seek Bankruptcy protection all 43 remaining stores along with its 12 “Last Call” stores around the country.

Part of this is that Macy’s and Nordstrom have been looking at borrowing against their real estate holdings. In the event of an eventual default, the result would likely be banks and other financial institutions taking over large portions of major shopping malls.

It is not as though the banks have the know how to implement thriving retail outlets, and that would be assuming that consumers will be willing to again flock to shopping malls once the pandemic is over.

What does this have to do with residential real estate?

That is a question that agents and home owners need to be asking. Many businesses, including coffee shops and fast food restaurants, repair services and specialty retailers, and gas stations, rely to some extent on drawing from the traffic heading to and from a major mall area.

Losing the mall will impact surrounding businesses. If and as they are also lost, the nearby residential community would also suffer.

This is the time to consider the possible impact on residential properties located in what have been busy or even congested shopping mall areas. Is this the time for an investor to get a steal? Or would current owners be forced to lower their price in order to attract bids?

While it is too soon to tell, it is not soon enough to be prepared to do what is best for you and your family.

Wednesday, April 15, 2020

Redevelop Your Opportunity Zone

 NOTE: Within one hour of the below original post, the IRS announced an extension for Opportunity Zone (along with 1031 Exchange) investors, which eases or removes the concerns addressed below.

There are more than enough challenges for real estate investors under the current circumstances. However, those who have invested in Opportunity Zones could be facing a separate set of serious challenges.

Although this is not legal advice, which yours truly is not authorized to provide here, if you are an Opportunity Zones investor or represent one or more, there are matters to look into as soon as possible.

The I R S has, understandably, relaxed tax filing and payment deadlines from the usual April 15th until July 15th for 2020. Even in doing so, they appear to have failed to address deadline requirements as they related to active Opportunity Zone investments.

To recap, an investor had until December 31st of 2019 to invest capital gains into an Opportunity Zone fund. As a result, the investor was given a 180 day window to reinvest in a specific property or properties located within a specified Opportunity Zone.

Each Opportunity Zone is a low income community in need of redevelopment and improvements to real estate. An investor can invest locally or in any Opportunity Zone around the country without restriction, and whether developing or improving one or more existing properties.

Upon the funds being held for five years, the IRS forgives 10% of capital gains on the prior investment. After seven years, until December 31st 2026, the benefit increases to a 15% tax benefit. Thus, in the event of a $1,000,000 investment held for seven years, the tax savings would amount to $150,000.

Briefly, deadlines were put into place in order to provide benefits to investors as well as the needed economic development for the designated communities around the country.

Meanwhile, there are already several major consequences from the pandemic, the first of which are the government delays in approval of various construction plans related to properties and development within Opportunity Zones.

At the same time, government and construction entities are in a battle over essential and non-essential construction and whether or not it is safe for union workers to perform their duties on active projects.

Furthermore, banks and other lenders are faced with challenges in providing originally promised financing, whether due to financial or logistical reasons.

For example, appraisers are often unable to visit a property location to produce analysis needed for loan approval regardless of the bank or lender’s revised financial status.

These factors are only part of the problem, as the fact is that, as of press time, the IRS has yet to specifically address the impact of all of this on investing in Opportunity Zones.

Consequently, a number of possibilities may exist. Investor deadlines could easily be missed due to problems with financing and/or construction. Investors could need to pull out from their Opportunity Zone funds, even with facing a penalty and heavier tax consequences, due to needing their funds in order to operate or meet payroll.

It is possible that some communities designated as Opportunity Zones could be moving along faster than others, which could unjustly favor investors who chose that community for other reasons.

With all of this, there are potential additional complications. In the event that some or all of the designated Opportunity Zone communities around the country are or were designated as a federal disaster area, such areas would be under a different tax standard.

Again, through circumstances beyond an investor’s control, some investors could face a different or additional set of legal and tax concerns.

Until or unless there is clarification from the IRS, or a direct revision or extension of the 180 day Opportunity Zone window is announced, investors are faced with this series of questions and challenges.

Again, this is not intended to be legal advice, which we cannot provide. Having said that, the suggestion is for Opportunity Zone participants to seek legal counsel sooner rather than later. You want to be in the best possible position to defend your investment due to these unforeseen circumstances.

We suggest doing so – while you have the opportunity.