Wednesday, October 3, 2018

The Next Big Thing: Opportunity Zones

As part of last year's Tax Act, there is a new way that investors can use their money to minimize taxes and invest in real estate.  Opportunity zones have been created around the country, and there are 72 of them in Connecticut, with 7 of those in New Haven, 7 in Bridgeport, and 10 in Hartford.  People can substantially rehab or build new structures in those zones--or even invest in operating businesses--and postpone taxes or even have them forgiven, under certain circumstances.  Residential and commercial real estate are both covered.  Much of the program is similar to the 1031 exchange option that has been around for years, but is broader, if the investment is in those particular census tracts.

We've been told that even accountants and lawyers may not be up to speed on this investment potential, because only recently have the zones been finalized.  You can find the Connecticut interactive map on the site.  Because the rules are specific and unforgiving, it's best to check with tax professionals before buying, but looking can start immediately!  It isn't that often that we have something so new to share, and we're glad that real estate is included.

Sunday, September 16, 2018

The First Two Weeks

There seems to be a persistent practice in real estate of "testing the market" with a price higher than what the agent believes that the property will bring at closing.  Sometimes there is an agreement that the price will be lowered after some stated period, often thirty days.  Agents often feel that sellers become wedded, however, to the original listing price, and forget completely that they were told that a lower price would be more in line with market expectations.

While testing the market might seem like a reasonable course of action, especially if there is a clear understanding up front that the price will be lowered in x days if not enough action, or an offer, is generated, those of us in the industry should know better. We now have access to all kinds of information that tells us who looks at a listing, when they search, and how (with what device).  We know popular hours, phrasing that captures attention, and click-through rates by property.  We can see whether they looked at it, saved it, forwarded it, or contacted us about it.  Administrators like me get a copy of every email inquiry sent to an agent on certain search engines and platforms.

And what do we know from all of that?  We know the power of the new.  Overwhelmingly, the greatest interest in a property comes in the first two weeks after it gets listed, whether it is commercial or residential, and no matter the price or location.  Some properties clearly generate more activity than others, but always get the most attention early.  Sometimes that is because prospective buyers have signed up for notification alerts, so that a new listing will show up in their emails.  Many times it is because the buyers themselves look on a regular basis, and click on anything that they haven't seen before.  The end result is the same:  They gravitate toward the newest entries.

So it's easy to see the problem with testing the market.  Your property gets the most exposure and the greatest number of views at the original price, which is higher than the agent, and perhaps even the seller, thinks is the true selling price.  Agents often talk about how much higher the likelihood is of securing a buyer in the first two weeks after the listing comes onto the market, but, in order to secure the listing, they also often sabotage that chance, by using the most useful marketing time to expose the property at the wrong price.

We know that buyers today know a lot, and often as much as agents or sellers, about the value of properties, through comparisons of available inventory, and market knowledge gained online and elsewhere.  They aren't going to overpay, and many aren't going to potentially waste their time making offers that will be refused.  They concentrate instead on properties that are listed at compelling prices, which suggest that they will sell quickly.  That motivates buyers to make speedy offers, at prices near, at, or above the listing price, especially if they see that there is a lot of activity at open houses, or with showings.  It's better to accept the reality that buyers know value, than to think that serving up higher-priced listings will change their minds about the correct price.

If there is one takeaway from this, it should be that sellers need to ask agents this question:  What price do you believe that my property will close for in the end?  Then list as close to that number as possible.  And enjoy the attention your property will receive.

Friday, August 24, 2018

Think Broadly About Investment Property

If you own property that you are using, but would like to free up the cash you have invested in it, consider the potential for selling and leasing back.  We are seeing many investors in our market, looking for places to put stock market gains, proceeds from other real estate sales, or just extra liquidity.  They are perfectly willing to buy commercial rental property, but they want it filled. If you are willing to sign at least a five-year lease to stay where you are, you have a good chance of finding an owner for your building.  That will allow you to expand, deploy the funds elsewhere, or just diversify your own portfolio.  Even if you buy another property elsewhere, or of a different type, you have spread your risk farther.

We have seen many downsizing baby boomers who are willing to sell their big homes and rent apartments, often in cities.  Now that the stigma of being in a rental property has all but gone away in the housing market, why not use the same theory in the commercial sector?

Monday, August 6, 2018

Never Too Soon to Think about Taxes

We are clearly in the dog days of summer, and many people are just sitting by pools, beaches, or air conditioners, but fall is just around the corner.  And what comes after fall?  The end of the year, and always faster than we think it will arrive.

If  you are a buyer or seller of commercial real estate, it makes sense to start end-of-year tax planning now. We don't know everything yet about the new tax act, but we know some things, and we know provisions that haven't changed.  In addition, any change in your circumstances, life choices, or tax status can cause you to need to plan for the future with an eye toward minimizing tax consequences.

One of the cardinal rules of transferring real estate is that it almost always takes longer than you think it will.  Hence, my mid-summer plea to think ahead.  Why rush in December, when you can get a jump on the end of the year by starting now?  Even if you want your property to go onto the broader market after Labor Day, the process of getting things set to list, taking good pictures, filling out forms, and tracking down signatures can be lengthy.  Vacations and back to school duties can also cause slowdowns.

Don't miss the fall bump in the market by beginning too late.  Call us today to take advantage of the time left before everyone packs up their picnic baskets and heads back to work!

Thursday, July 12, 2018

New Haven Rental Boom

Most people who follow the New Haven area real estate market know that we have had a surfeit of new luxury rental properties come onto the market in the past few years.  Most of them have surpassed their expectations in terms of the speed with which they filled up.  Even the projected decline in other rental interest has not materialized.

Now the question is:  What will pop up to service all these new renters, many of whom work in other parts of the State or even in NYC?  They clearly have been populating the many bars and restaurants that are constantly opening in New Haven, and have been a boon to lots of organizations.  There will be more needed to fulfill all of their needs, however.  Even dogwalkers will see the effects of a young professional demographic increase. Services that appeal to millennials, either because they save time or because they cater to new interests and requests, will continue to grow as this group expands.  Farm markets and other local options for eating will prosper, and traditional goods and services, including hairdressers, nail salons, and dry cleaners, will lengthen their hours to accommodate the needs of users who work later hours.

Although we've seen some increase in the demand for retail and service locations, we expect to see more in the future.  We probably don't even know either the total demand or the range of expectations that will arise, whether it is for breweries or cigar bars or something that hasn't yet been offered.  If you've thought about expanding  your business into our region, or starting a new company, here's your chance!  We're glad to help.