The Impact of the 2018 Tax Reform on the US Real Estate Market

tax reform tcjaBack in December the President signed the tax reform legislation known as the Tax Cuts and Jobs Act (TCJA). While the main purpose might have been to lower corporate tax rates from 35% to 21% there were also some other big changes to tax laws that are directly affecting the real estate industry.

There were a lot of predictions on what the new tax reform would look like last year while it was still in its drafting stages like who would benefit and who would suffer. President Donald Trump assured the public that the changes would definitely lessen the tax burden on the middle class. As with all changes though there will also be a group that is going to take a hit especially when it comes to the real estate market.

Before getting into the list of things that were changed here are things that were untouched, well at least untouched for now:

  • Low-Income Housing Tax Credits
  • New Market Tax Credits
  • Private Activity Bonds
  • Stadium Financing Bond Interest Exclusions
  • Gains on Personal Residence Sales Exclusions
  • Proposed Special Interest Limitations for International Financial Reporting (Not Included)
  • Proposed Unrelated Business Income Tax for Government Pensions (Not Included)

Now after reviewing that small list of things it comes quite obvious that TCJA has dramatically changed the tax landscape in the real estate market. A lot of the changes that were made are very complex and vague which makes it hard to see the resulting pitfalls and opportunities. It is important that all taxpayers carefully re-evaluate their strategies for future transactions to make sure they are considering these new tax aspects.

tax reformTax changes on a scale this big for the real estate sector have not been seen since the Tax Reform Act of 1986. This years tax reform has a lot of positive changes for the housing market but it is important to note that most will expire at the end of 2025.

Top 3 TCJA Changes that Impact the Real Estate Market

  1. Pass-Through Entities. This allows a deduction of up to 20% of business income from a pass-through entity like partnerships, LLC’s and S-Corps along with sole proprietorship’s if the individual owns the real estate directly or through single member LLC. This deduction is available for both individual owners and trusts. This new deduction is available without any regard to the level of owner participation for the business which means passive investors are eligible for the deduction. Gains from selling a property is not considered qualified business income and will not be eligible for the 20% deduction. REIT dividends are also eligible for this deduction. A lot of real estate businesses are setup to own and lease rental property. Since the new deduction is only for qualified business income there is a lot of uncertainty on how to properly determine an activity’s status as a business or trade.
  2. Depreciation. Qualifying property acquired or built after September 2017 is now eligible for a 100% bonus depreciation for the year it is put in service. This now includes for the first time both new and used property. This bonus will drop by 20% each year starting in 2023 and be completely eliminated in 2027. Properties that qualify are ones with a depreciable life of 20 years or less and qualified improvement property. There is also an additional benefit for commercial property under Section 179 which allows for the expending of assets that would otherwise need to be capitalized and depreciated. This bonus depreciation along with Section 179 makes cost segregation studying more important than ever.
  3. Excess Business Losses. This new loss limitation rule is for those non-corporate taxpayers that has a limit of $500,000 if filing jointly and $250,000 for those filing singly to claim their business or trade losses for the year. The passive loss limitation rules are still going to apply so this excess business loss will pretty much only affect the taxpayers that qualify as “real estate professionals.”

tax reform real estateObviously the government did not do a very good job of creating tax simplification with the new TCJA laws dealing with the real estate market. Most experts were wrong in predicting that the new laws were going to wreak havoc on the housing market and cause a potential crash. In fact, overall the tax reform does bring about many tax benefits for homeowners and real estate professionals.

Please leave your comments about the new tax reform impact on real estate:

Australia Avoided Real Estate Crash of 2008, is it Now Impending?

The housing market crash in the United States in 2008 led to a financial crisis that affected pretty much every asset market in almost every developed country in the world. As countries were fumbling around and proposing a wide range of policy initiatives that focused on stabilizing the real estate market Australia’s housing market seemed to remain stable.

While the Aussie stock market did take a 59% loss and some jobs were lost it is widely accepted that Australia had the easiest time during the recession had was the first get out of it. How did Australia avoid the real estate crash of 2008 when virtually every other developed country couldn’t?

Banks Remained Calm

Australia banks were able to be a lot more resilient during the crisis since they had not exposed themselves to the unrealistic debts that other nations financial institutions have incurred. Australia has four main banks (Westpac Banking Corporation, Commonwealth Bank of Australia, Australia and New Zealand Banking Group and National Bank of Australia) and all of those combined wrote down less than $4 billion worth of assets, stayed profitable and maintained top credit ratings. In the year before the real estate crash the country only had 0.2 percent of their loans labeled non-performing which was far better than the percentages seen in other countries that experienced the housing bubble burst (Germany 3.4 percent, U.S. 1.1 percent and UK 0.9 percent).

Australian banks face very little competition when it comes to customers shopping for loans since the countries population doesn’t even reach 25 million. In fact, non-bank lenders during their highest mark only accounted for about 20 percent of all loans in Australia. These banks are consistently landing virtually all of the new home loans by using cross-selling techniques with their inexpensive bank accounts, credit cards and insurance that tell the consumer “the more you buy the more you save.” This was key to keeping the homebuyers from shopping outside of their banks for mortgages that have lower costs and no documentation.

Population Growth

Many economist point to Australia’s economic ties to China as being the main reason for the country quickly escaping the 2007-2009 recession but their population growth has proven to be an even bigger factor. The Aussies tend to have a different, if not opposite, strategy than most other countries when the economy is in trouble, they start bringing on more people. During the first quarter of 2009 the country experienced a net growth of 97,000 immigrants which is the highest number in a single quarter in the last 25 years. This influx of people led to a 2.1 percent population increase which was quite a difference from what other countries were experiencing as far as population growth with the UK at just 0.28 percent and the U.S. at 0.88 percent during the sametime.

Real Estate Shortage

The higher than average increase in population means the higher demand for housing but Australia’s real estate development market could not meet the demands. It was estimated that in 2008 there were only about 100,000 new dwellings built which is less than a third of the number of families estimated to have migrated to metropolitan areas around the country that year. This shortage of housing resulted in real estate prices staying buoyant throughout the recession and beyond. In fact, since 2007 the average Australian home has increased about 6% in value after taking inflation into consideration. This is great news for the Aussies since as a group the family home is the largest single portion of their wealth.

The Reserve Bank of Australia (RBA) was able to keep interest rates relatively high in the years leading up to the financial crises. The housing bubble that crashed in 2008 was fueled by inexpensive money but in Australia the houses were never cheap enough to attract the huge number of buyers from any and every income class. Australians were paying 6.3 times their household annual earnings to purchase a home compared to just 3.6 times in the United States during 2008.

Real Estate crisis

Is the Real Estate Crash Impending?

While the ability to avoid the real estate crash in 2008 may seem amazing it is going to be extremely hard to maintain. What goes up must go down is the old saying and eventually everything becomes normalised. The Australian dollar is declining as a result of the US and Europe markets recovering which is forcing the RBA to increase their interest rates to avoid deflation. The increase in interest rates leads to higher monthly payments for investors since most Australia loans are the adjustable type which will lead to more mortgage delinquencies. Banks will have to respond to the increase in delinquencies with tighter lending standards. Combine all of this with the highest unemployment rate in the last 15 years and it looks like a very tough road ahead for Australians to avoid a real estate crash.

Please comment on your thoughts about the housing market in Australia:

Which Aspects of Property Management Can Be Outsourced?

As the increase of outsourcing continues to rise across all industries, property owners worldwide are now looking into outsourcing their property management needs. Using advanced technology to the point that professionals can literally work from anywhere in the world it only makes sense that property managers can handle most of their tasks using the internet.

Business and property owners look to take advantage of these virtual property managers to save them money in hourly rates and payroll taxes as well as other overhead expenses like health insurance, management costs and office space / supplies.

Outsourcing is definitely not a new concept in managing properties as almost everyone uses an outside source to handle their background and credit checks for future tenants and/or employees. Listed below are some of the property management tasks that are commonly outsourced by small to medium sized businesses around the world.

Aspects of Property Management to Outsource

  • Administrative Tasks. Almost all of the administrative tasks dealing with property management can be outsourced. Property managers can remotely manage the rent payments, lease agreements, vendor invoices, HOA violations, notices dealing with eviction or late fees, welcoming emails and record keeping of property documents.
  • Property Marketing. This crucial task for property management is probably the most beneficial to property owners. Outsourced property managers have deep knowledge on how to advertise properties in the most efficient way to get the results needed. Using proper planning and oversight properties will be quickly introduced to potential clients so no time goes by as unoccupied. These social media masters will create a marketing strategy and get listings sent out the ways that will have the biggest impact. Marketing is definitely an aspect of property management that can be outsourced.
  • Customer Service Line. Outsourcing to a call center for handling over the phone inquiries is pretty straightforward. Call center agents can provide future customers with directions and operating hours, tenants rent balances, lease expiration dates, answer follow ups on work orders, provide planned maintenance statuses and taking messages for on-site staff.
  • Tenant Screening. From anywhere in the world property managers have the necessary tools available to them to filter out the good tenants from the potentially high risk tenants. These remote managers can run credit reports, contact current and former landlords, contact employers, follow up with references, maintain tenant scorecards and send denial or approval letters.
  • After Hour Support. Rather than hiring a person as a property manager outsourcing is usually a fee to provide a service. Owners do not have to rely on a single person to handle the tasks needed and the outsourcing company makes sure everything is covered 24/7. The service can take care of after hour messages, handle emergencies, coordinate immediate repairs to plumbing, electric, HVAC, windows/doors and assist with lockouts.
  • Maintenance Coordination. One of the most time consuming tasks for property managers is handling all of the requirements when dealing with maintenance. Luckily for property owners this is one of the easiest tasks to outsource. Virtual property managers will take all of the maintenance calls, troubleshoot issues tenants are experiencing, create work orders, post invoices, shop and dispatch vendors, follow up on completed work, provide statuses to tenants on work progress and update the on-site maintenance staff.

Benefits of Outsourcing Property Management

Companies normally look to outsource property management to minimize the amount of staff needed. Savings are immediately obvious when office space is freed up and owners have that peace of mind of not having to worry about staff. Employees take vacation and sick days which causes problems. The more staff involved in operations then the more problems, that is just the nature of business. Outsourcing property management clears owners mind and calendar. They no longer have to worry about staff because the service those staff will have been provided is already taken care of by the outsourcing company.

The Pros and Cons of Outsourcing Your Real Estate Transaction Coordinator

Transaction CoordinatorThe number of real estate companies that are outsourcing their transaction coordinator processes continues to increase each and every year. The benefits of outsourcing can really make a huge positive impact for your company considering the cost savings and overall increase in efficiency you will experience.

As you already know there are never any business decisions that are free from risks and this is no different. You have to be willing to accept your loss of control over most of the real estate transaction coordination processes which can be extremely risky. Before deciding whether to outsource your real estate transaction coordinator or any other business activity for that matter you need to carefully consider all of the pros and cons associated with outsourcing.

 Pros to Outsourcing Your Real Estate Transaction Coordinator

    • Talent Pool – You will be able to choose your employee from the largest pool of talent there is which is the internet. There are highly experienced real estate transaction coordinators located throughout the world and outsourcing gives you the ability to take advantage of their skills. Don’t constrain yourself to the local talent pool when finding someone to handle one of your most important business processes.
    • Reduce Costs – It is no secret that one of the main benefits to outsource is to save money. Salaries overseas are substantially lower than in your home country and you don’t have to worry about all of the additional costs of insurance, holidays and office space. One word of caution though is to not just find the cheapest service or employee to handle your transactions but find the right one with the right qualifications you require.
    • Increase Productivity – While you might be risking some quality assurance and a slight disconnect between you and the outsourced transaction coordinator on how to perform their tasks but there is still a lot to gain as far as productivity. Outsourcing forces you to centralize and automate these real estate transaction processes which will definitely encourage productivity, accuracy and accountability. Reducing the amount of tasks that require human input allows you and your team to focus on growing your client base.

Cons to Outsourcing Your Real Estate Transaction Coordinator

    • Security risks  The most common concern with outsourcing your transaction coordinator is it will expose your company to some additional security risks but with the right precautions the risks would be minimal. You can best protect your company’s information by using non-disclosure agreements (NDAs). Make sure you check online for reviews and feedback from previous clients before choosing your outsourcing company.
    • Loss of Control  This is most often viewed as a benefit but losing complete control of the transaction coordination can be a scary concept for you to fully accept. You must be willing to give up complete control over the process so you can increase your businesses scalability.
    • Quality Control– You are probably worried that you will not get what you pay for when outsourcing your real estate transaction coordination. Things can get overlooked or processed incorrectly and end up costing you more than what the service is worth. Of course this is a very rare occurrence but usually you will be able find some negative reviews online about the outsourcing company if they have had issues in the past.

You can use this as a guide to help you decide whether outsourcing would be beneficial for you and if you are willing to accept the risks. Certain benefits will only pertain to specific company situations and most of the risks can be mitigated.

Cold Calling for Real Estate Listings

Lead GenerationMany real estate agents today expect that cold calling would be a huge waste of lead generation time and money. Everyone has come across the many articles online that say “cold calling is dead” and how you should never make another cold call again. The number of real estate agents and companies that use cold call prospecting continue to decline each year which leaves a great opportunity for you to take advantage of.

Cold calling remains the most valuable way of filling your client database and increasing your number of listings. Statistics show that if you just randomly called 209 people to ask if they are looking to buy/sell at least 1 of them will set an appointment. Unfortunately it takes about 6 hours to talk to 209 people due to all of the unanswered or disconnected numbers. No real estate agent has 6 hours a day to dedicate to cold call prospecting.

The good news is that by using our real estate lead generation service you won’t have to worry about finding the time to cold call but can still reap the benefits of getting appointments with new clients. You just provide us your appointment schedule and the geographic locations to call and we will take care of the rest.

How Does Lead Generation Work?

Our professional real estate telemarketers will call the potential prospects in your area to see if they are in the market of buying or selling. Once the agent is on the phone with an interested customer they will then transition their conversation to schedule an appointment with you. The calling script will be tailored to exactly what you are looking for so you are not wasting time with people that can’t use your services.

Sample Cold Calling Script:

Hello, Good morning/afternoon, is this ______?

Hi! My name is ______ and I’m a real estate expert for ________ community….. I am sure you are busy now so I will make this quick!

If you haven’t noticed there’s been a lot of buying activity in your neighborhood recently, and I thought I’d give you a call to see if you’ve given any thought to selling?

  • If No = Do you think you will ever be in the market for a new house?

If you have sometime this week we can stop by to give you a list of comparable sales in your area so you have an idea about the value of your home. Is this something you would be interested in looking over?

Great! What day works best for you?

Migrating Your Records to a Real Estate Management Software for Dummies

real estate recordsTaking your business to the next level can be as easy as just getting all of your real estate records migrated over to a CRM (Client Relationship Management) software. This software system will be your one stop shop for storing, analyzing and managing all of your real estate data and customer interactions throughout the process of buying or selling.

The real estate industry is definitely a business that relies on relationships so it is important that you handle your human networks with the utmost care. Your CRM will assist in building strong customer relationships by improving your tendency to follow up on time which results in higher customer retention rates. In addition to improved relationships you will also have the benefit of automating a lot of processes and improving overall team communication for your business.

Processes Automated Using CRM Software:

From individuals managing their own real estate business to huge corporations, businesses of all sizes will benefit from getting their real estate records migrated to a CRM software. Businesses use the CRM to get an organized system in place rather than getting the “right” people in place. Almost every process in a business can be turned into a SYSTEM.

SYSTEM stands for Saves You Stress, Time, Energy and Money.

Hopefully by now you are convinced that it is time to get your real estate records onto a CRM. There are many different brands of real estate CRM softwares out there so first you will need to do research to see which one fits your needs and your budget. I highly suggest you chose one that is cloud-based and fairly simple to use so you can have real-time collaboration with all of your colleagues using the same record.

5 Real Estate Records CRM Software Suggestions

  • Infusionsoft – a cloud-based sales and marketing solution that offers Customer Relationship Management (CRM), Marketing Automation and E-Commerce functionalities in one suite that helps small businesses across various industries deliver sales volumes and customer service experiences.
  • HubSpot – customer relationship management platform that is also cloud-based, HubSpot helps companies of all sizes track and nurture leads and analyze business metrics.
  • Bitrix24 – is real estate software free for up to 12 agents. Bitrix24 offers you unlimited records, email marketing, integrated telephony, mobile CRM, and agent management tools that help automating routine business processes and sell more effectively.
  • Zoho – a web-based free real estate database software tailored to the needs of small and mid-sized businesses. Its interface includes sales and marketing automation, product configuration, customer support and help desk, reporting and customer analytics.
  • Marketing 360 –  real estate marketing company that provides an intelligent combination of integrated software and professional marketing services. The free real estate software is designed for organizations of all sizes and professionals including marketing experts, content writers, designers, developers, and video producers who understand today’s digital marketing needs.

real estate crmChoosing the software is the easy part but now you need to get all of your records uploaded to that CRM. It will make the transition a whole lot smoother if you start out with organizing all of your records into different departments first. A simple way to do this is to start out with just four departments: Marketing, Acquisitions, Properties, Financial Documents.

When you are collecting and organizing all of your records it is a good time to remove anything that is now obsolete. Even though using software saves you the burden of physical clutter it is still in your best interest to only migrate the documents that are still relevant to your business. With that being said, anything you are unsure of should definitely be saved and scanned it into your new CRM.

Completing the tasks involved in migrating all of your data to the CRM can become extremely time consuming. Depending on the amount of data you have it could take weeks for your company to upload everything while all of your other business functions get put on hold. Majority of real estate companies making the jump to cloud-based records choose to outsource the data entry part.

We have data entry specialists that are able to complete the migration process for you in as little as two days. Not only are you saving time by using our service you also get the latest and greatest designed CRM system that includes all of your real estate data with 100% accuracy. Get your new CRM system setup with all of your data migrated for just $9 per hour.