|Dear Potential Investor,
If you are in the know, then you are aware that you MUST buy a piece of property in the GO Zone AND have a renter in place before the end of THIS YEAR (2009). That doesn't leave you much time to find a GO Zone qualified property in an outstanding location with good income potential.
Well, here is the good news! You have a chance to piggy back off of our hard work for the last 2 years working in the GO Zone. We are aware of all the projects that qualify for this amazing benefit and we can say that hands down this project offers the best combination of benefits than any other in the GO Zone.
|As an investor, you already know what is meant when we say 'depreciation' and welcome it as your friend when filing your tax return. If you are not familiar with it, you may be tempted to think we are referring to falling values.
We aren't talking about falling values here folks, but instead how the IRS allows real estate investors to depreciate the structure of their property as a tax deduction. This can result in HUGE tax savings for you!
Let’s look at an example of the depreciation you would normally be allowed to use as a tax deduction. We will use the straight-line depreciation (most common method). Let’s say you bought an investment property for $127,650 (your acquisition cost). To calculate the depreciable basis we would need to deduct the cost of the land (IRS does not allow land to be a depreciable asset). Let’s say the land was 10% of the acquisition cost.
$127,650 X .10 = $12,675 <---- cost of the land
We would then subtract the land cost from the acquisition cost.
$127,650 - $12,675 = $114,975 <---- your depreciable basis
Since we are using the most common method of depreciation (straight line-method) we would divide the depreciable basis by 27.5 years.
$114,975 / 27.5 = $4180.90 <---- the amount you can use as a deduction each year for 27.5 years
This benefit in and of itself is a great reason to invest in real estate, but check out how awesome the numbers look when you factor in the 50% Bonus Depreciation.
$127,650 X .10 = $12,675 <----cost of the land
$127,650 - $12,675 = $114,975 <---- your depreciable basis
$114,975 / 50% = $57,487 <---- the amount you can use as a deduction for the first year
|First off we are not just here to tell you about this and sell you a piece of property; instead we want to show you how to take advantage of this opportunity.
We have a tax advisor (with 33 years experience) who wrote a book on the GO Zone to do a FREE one on one consultation with you. You will even get a free tax kit!
Attn: You may have already looked into this with your current tax professional and have been told that you will not qualify. That may be true if you are in the 10% who really do not qualify. We have had several cases of clients who have been told they will not qualify and find out that they do. We do not expect your local tax professional to be a GO Zone expert, but do not over look a GREAT opportunity because they are not familiar with it.
Each person has their own unique tax scenario, but most people that we have consulted have qualified. We offer free one-on-one consultations with our tax advisor if you want to make sure you qualify. Our tax advisor will work in cooperation with your current tax professional if necessary to maximize your benefit and make everyone feel comfortable with the process. Our tax advisor is so confident in his knowledge that he is willing to sign your tax return as the preparer.
If you decide to invest we also give you a free year of tax preparation service by our tax advisor.
|This very well may be the most important question you could ask.
Our advisor will sit down with you, your spouse, your partner, or even your personal CPA or financial advisor to fully explain if you qualify. If so, how much and exactly how to execute this. He will supply you with a full 8 page tax modeling of how much you will save to the dollar and even show you how your Internal Rate of Return (IRR) will increase 200% - 300%!
Let’s look at an example.
Peter is a lawyer and his wife Jane is a nurse. Together, they have an Adjusted Gross Income of $150,000. For the sake of this example, we will assume they pay $10,000 annually in Federal taxes every year (even though clearly they pay more).
If they bought 1 single story 2 bedroom town- home, they would offset their 2009 Federal Income taxes (they meet material participant or real estate professional, which our tax advisor will cover with you).
2009: $10,000 (leaves them with $46,244.02) Now they will carry back 5 years with the remaining depreciation.
2004: $10,000 (leaves them with $36,244.02)
2005: $10,000 (leaves them with $26,244.02)
2006: $10,000 (leaves them with $16,244.02)
2007: $10,000 (leaves them with $6,244.02)
2008: $6,244.02 (there is no more remaining depreciation)
By purchasing 1 Single Story 2 bedroom town house, Peter and Jane have just increased their bank account by $56,244.02. They also own a positive cash-flowing real estate asset that puts around $200 in their pockets every month, while growing their wealth.
|If you have been researching the GO Zone, but haven’t invested yet, then you have probably seen projects in other areas like Mobile, Alabama or Biloxi, Mississippi. We are very familiar with all the areas encompassed by the GO Zone. Let’s take a moment at look at the 3 states that qualified for the Bonus Depreciation.
Unfortunately the GO Zone benefits have expired for all counties in Alabama so this state if out of the question if you are looking for GO Zone benefits.
While the GO Zone benefits have been extended in the hardest hit counties in Mississippi you may want to take a long hard look before investing in Mississippi and here’s why….there is a state run program called the Small Rental Assistance Program (SRAP) that was implemented (in addition to the GO Zone benefits) to help rebuild the rental stock. This was a great program for investors who took advantage of it when we advertised it last year, but if you didn’t invest in Mississippi with it, then we recommend you don’t invest in Mississippi at all now. Due to our extensive research, we have seen first hand how this program has already had a negative impact on market rent. Many unscrupulous developers rushed to sell investors on their ‘great deals that would qualify for the SRAP’. This led to overbuilding in many areas of the Mississippi coast. An over supply of rental homes naturally lowers market rents (supply and demand). In addition to an oversupply of rental homes, the SRAP itself will start to cause a downward pressure on rents because the premise of the program is to set rent to a fixed price (according to the Mississippi Development’s rules).
We can safely say that the national economy is in a recession, but what is wrong with the national economy doesn’t completely apply to Louisiana. Louisiana has long experienced economic trends that were counter-cyclical with the rest of the United States. Of primary relevance has been the oil and gas industry, which supplies many jobs, as well as a significant portion of the state’s operating revenues in the form of severance taxes. While higher energy costs may provide downward pressure on the economy of the nation as a whole; they are a positive force in Louisiana. While oil and gas prices have moderated recently due to declining world demand, they remain within a historically high range and the industry is actively growing in the Gulf of Mexico.
Recent comments by a joint meeting of the Senate Committee on Commerce, Consumer Protection and International Affairs and the House Commerce Committee by Louisiana Economic Development agency’s Stephen Moret indicate that the state has gotten 32 commitments from businesses, from bakeries to the military, to move or expand their operations in Louisiana and creating thousands of new jobs in the process.
Thanks to the media and efforts by people like Brad Pitt the country knows this area needs rebuilding, so yes, this is a very healthy market to buy rental property in.
|What is the most famous saying in real estate? Location, location, location. It can get old to hear, but there is so much truth to this saying because it’s been proven over and over.
This area is blessed with a highly educated demographic and government that is conducive to business growth, St. Tammany has long been among Louisiana’s fastest growing communities, now ranking as the fourth largest parish in the state. St. Tammany also boasts an award-winning public school system, and serves as a bedroom community for the skilled and highly compensated employees of companies such as NASA Stennis Space Center. Due to it’s unique location at one terminus of Interstate 12, St. Tammany forms one point on the triangle connecting Baton Rouge and New Orleans, and a significant portion of the 10/12 Corridor. The 10/12 Corridor, particularly highlighted post-Katrina by the Center for Planning Excellence, effectively extends from Houston, Texas to Pensacola, Florida, and is anticipated to become the major economic development engine of the southeast United States.
In addition GNO (Greater New Orleans, Inc.) has recognized a smaller included triangle which stretches from New Orleans (NASA Michoud Assembly Facility, National Center for Advanced Manufacturing, New Orleans Regional Business Park) to St. Tammany (University Square, currently under development, and the University of New Orleans Research and Technology Park, also currently under development and this investment opportunity is across the street!!) and Mississippi (Stennis Space Center). This Advanced Technology Triangle contains, and will contain, assets not available in such proximity elsewhere in the country, and offers the potential to become a nationally recognized technology manufacturing and research hub.
University Square brings together the University of New Orleans, Southeastern Louisiana University and Delgado University into a shared campus for degreed programs, research and workforce training. St. Tammany Parish President Kevin Davis said the $40 million learning park is ‘visionary’ and will become a model ‘not only for the state of Louisiana, but the entire country.
The average household income in this zip code is $68,000.
As you can see, Louisiana in general, the New Orleans region, and the St. Tammany Parish in particular, have an unprecedented opportunity to flourish in a poor national economy.
|The project is located directly across from a brand new community town center commercial development (under construction). The first phase of the $900 million dollar development is 400 acres that includes 700,000 square foot or retail space.
Once complete, it will contain nearly 1,000,000 feet of retail space for stores and restaurants, 500,000 square feet of medical facilities, 325,000 square feet of commercial office space. The site also will house the 350,000 square foot UNO Research and Technology Park.
This development is a proven growth factor that attributes to appreciation. It will contain anchor tenants such as; Barnes and Nobles, Belk, 15 screen movie theater complex, and research center for the University of Louisiana. It will be a major attraction not only for the immediate area, but also become a retail hub for the entire St. Tammy Paraish and region. If you do not have one of these where you live, you have probably visited one similar on vacations.
The developer of this massive commercial development has a proven track record with 3 centers currently in operation and 2 more currently in the development phases. It is expected to generate 3,000 jobs during construction and 5,000 jobs once complete.
|When creating the pro-formas, we used the rental amount expressed in the 24-month lease agreement. We derived the annual tax rate by calling the assessors office and getting quoted for a non-owner occupied unit. We also obtained a written insurance quote (can view in the insurance section) and the HOA numbers were figured by the developer.
We have increased the rental amount after the 24-month contract by 3% annually. We have also increased the insurance cost by 2% annually, taxes 2% annually and HOA 2% annually. We have not accounted for any vacancy loss, as the 24-month leases takes care of this.
All figures are based on a 20% down payment at a 30 year fixed mortgage at 6%. Your cash-flow would increase with interest only type payments, but we want to portray conservative figures. You can see that these properties offer a strong cash flow of $200 to $300 a month and solid cash-on-cash return between 9% - 14%. Other ratios such as the Gross Rent Multiplier are included at the bottom of all pro-formas, as well as long term hold Return on Investment.
|The developer is a second generation builder (his son is also in the business now) with over 40 years experience. He owns a property management company and takes great pride in his projects. He wants to see his project succeed as much as you and I do. That is why he puts his money where his mouth is and signs a 24-month lease with you at closing at a set market rate. This allows you to make a decision without having to worry about what will happen if you do not have a tenant right away.
Here are the set market rental rates for your 24-month lease agreement.
Single Story 2 Bedroom: $1,095 a month
Single Story 3 Bedroom: $1,245 a month
Two Story 2 Bedroom with attached garage: $1,324 a month
Two Story 3 Bedroom with attached garage: $1,450 a month
|This is a common question and concern, especially for investors who have never purchased out of state. The overwhelming majority of investors who build awesome portfolios of incoming producing property usually invest out of state because the ‘numbers don’t work’ in their local markets.
By focusing on turn-key new construction, we have helped to greatly mitigate your risk. There is a small HOA of $30 a month to take care of basic upkeep like lawn care, annual exterior power washing, landscaping etc.
The goal is to make this a process where you collect your monthly check and keep conversations to a minimum.
|From our comparative research, the average home price in Slidell is $235,000. The average single family home price is $200,000 and town home price is $180,000. The average price per square foot is $125.
If you break down the project, you will see that it beats these measures in every regard and has a better location, due to the growth of the area. The average price per square foot is $96 dollars and sells well below appraised value.
One Story 2 Bedroom, appraised at $151,000 your price as an investor $127,650
One Story 3 Bedroom, appraised at $152,000 your price as an investor $129,750
Two Story 2 Bedroom with Garage, appraised at $178,000 your price as an investor $157,650
Two Story 3 Bedroom with Garage, appraised at $181,000 your price as an investor $159,750
|A concern as a property owner in hurricane affected areas is insurance. It is crucial to have quality and sufficient coverage in the event of a disaster. Your purchase does not close until after the certificate of occupancy has been issued, so if not already done, you will not need to cover any builders risk related insurance.
The written insurance quote below is for a non-owner occupied unit with wind, fire and flood. These are the types of insurance you will need and want to carry as a property owner. The annual insurance premium is $1,354 or $112.83 a month.
|Click on the picture of the plat map. You are free to choose your property from this list and then check availability with me. Currently about half of the project is complete or in the construction process, so you do not have to wait for construction time.|
|Once this market matures and your property has appreciated nicely you will have a handful of options depending upon your goals.
The first option would be NOT to sell, but instead hold for the income. If you have locked in a 30 year fixed rate loan, your monthly debt service won’t increase that much each year, while rent will continue to increase. Over time your cash-flow will continue to get better and better.
The other option would be to do a 1031 exchange, when a better opportunity presents itself, this piece of tax code allows you to do a TAX FREE move into a different property. This wealth building technique is exactly how savvy investors increase their net worth over time.
|Market conditions have affected the size of down payments required by investors. The credit requirements have also tightened up, so only the Grade A borrowers are able to obtain loans. This is bad news for a lot of people, but good news for those who qualify. As a real estate investor, tougher credit markets create a stronger rental market. Banks are not only very cautious of whom they lend money to, but what asset they are lending money on.
Independent appraisers are picked by the banks, to ensure that the property is worth what they are lending money on. Any investor should plan on the traditional 20% down payment. This is another reason we sought out a quality project at a great price point that matched market rents. The 4 Good Faith Estimates (GFE's) below were prepared by a local bank. Their fees are minimal and origination is only 1%.
Click Here to see the Good Faith Estimates