5 Key Steps To A Becoming a Successful Real Estate Investor

5 Key Steps To A Becoming a Successful Real Estate Investor

5 Key Steps To Becoming A Successful Real Estate Investor

Success in Real Estate is not based on luck, family connections, or natural talent. There are no genetic or biological factors that will guarantee success in this business. BUT! You CAN be successful. Here’s the good news:

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What Are You Already Good At And How Did You Get That Way?

We all grow and profit as investors in much the same way we would become successful in any other industry. When leading skill development workshops on Negotiating Skills, Deal Structuring, Creative Financing or any of our Investor Quick Start programs I often ask the attendees to think about something they have been good at or had success with in the past, be it a talent like playing the guitar, a sport or a hobby.

What made you good? What separated you from others?

The responses are always similar. They understand the specifics of what they were good at, they were focused, had a good plan, executed it, surrounded themselves with like-minded individuals who shared a similar passion, and were coached by a successful, experienced person.

As a youngster, I learned to play the trumpet. I took lessons in school with all the other kids. What helped me to excel and eventually play professionally were the hour and a half weekly private lessons with a professional musician. He helped me see the music differently; develop practice drills and a plan for effective practice.

Enjoying a successful business in Real Estate is no different. Virtually every successful, wealthy agent, broker and investor I know became wealthy because they took the time to educate themselves on different options and opportunities, have laser sharp focus, execute a well thought out marketing plan, surround themselves with a strong, experienced team, and have a coach or mentor.

Feel free to use this image, just link to www.SeniorLiving.Org This microstock required lots of post processing to get the blue tint. I also needed a bounce card to get more detail in the glasses.

1. Understanding Requires Core Knowledge

What is going on with the market now? What will the market be like a year from now?

In order to have a long, profitable career, you will need to be familiar with multiple ways to purchase properties and multiple ways to sell.

The strategy you utilize in a sellers’ market will most likely be different than the strategy you utilize in a buyer’s market. If you aren’t flexible and prepared to adapt to the changing market conditions, then you will be left behind. When the market changed from red-hot to ice-cold a few years ago, many agents and investors stubbornly kept the same marketing plan. They simply failed to respond to new conditions. After all, it had worked well in the past, so why change? Many of those folks are no longer in the business.

Rehabbers who failed to adapt have since lost their jobs had to find new careers. Recognizing when to focus on short sales, lease options, subject to, selling with owner financing, or buy and hold strategies is important.  Mastering the different strategies required to adapt to a changing market will allow you to maximize your profits.

2. Possessing Laser Sharp Focus Is The Secret

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Mastery of anything has a number of requirements but none is more important than one’s ability to focus. When are you at your professional best? It’s when you know exactly what you want and exactly what you are required to do in order to achieve your goal.

When do most mistakes occur? When uncertainty exists. Uncertainty is the opposite of focus. When you are focused, you complete tasks. People who lack focus tend to procrastinate and/or make unnecessary and sometimes costly mistakes.

There is no doubt that knowledge, or lack thereof, plays an important role in focus, as does our next step; having a detailed plan.

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3. Your Marketing Plan

You can have all the knowledge necessary to close any real estate transaction, but if no one knows what you do, then how will you close any deals? If you are not generating leads and connecting with people, you will not have any opportunities for transactions.

So how do you attract motivate sellers? A good marketing plan will identify a number of different strategies. I recommend a minimum of 3.

Note – if 3 is good more are better!

When planning out your marketing strategies remember to budget your time as well as the financial requirements. It does you no good to have a goal mailing 500 letters a week or distributing 1000 flyers if you don’t budget time for this activity as well.

So what works best for attracting motivated sellers? When done properly, a targeted direct mail campaign is the most successful form of advertising. Incorrectly implemented is can also be a great waste of money. It is important that you work with an experienced company that has a solid track record and the right mailing list.

If you have no marketing dollars then you have to make marketing time to spread the word. Whether it is door knocking, gum-flapping or handing out business cards or flyers in front of a supermarket (I don’t recommend this) you must get the word out! Sometimes other people can help with this.

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4. Build Your Dream Team

We’ve all heard the expression, “No man is an island.” It is true and you cannot do this business alone! Even if you are an extremely capable person that doesn’t require assistance from anyone else to buy, fix and a house, you will still require the services of another contractor, a lender, a title agent and attorney, CPA or other professional.

Why do you need all this help? What would you do if while you’re working on a project and another great deal falls in your lap? Leveraging others allows you to focus on your business and build your wealth faster. The assistance of others will lead to more transactions and more profits.

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5. Leverage a Coach or Mentor

Think of one well known, highly successful person who is at the top of their field. It doesn’t matter if they are an athlete, actor, business tycoon or famous personality, they have one thing in common: a coach.

Coaches have experience in areas that you do not, can guide you, help you avoid major blunders, and drive you to do more than you ever thought possible.

It doesn’t matter how many books you’ve read or cds you’ve listened to; your first few deals will throw something at you that you’ve not seen before or even anticipated. When this unexpected and sometimes frightening situation occurs, it’s good to have someone who’s been through these situations before guiding you through the transaction.

To summarize, while virtually anyone can have success in the real estate business, not everyone will have success. If you seriously wish to be wealthy, then do what other wealthy real estate professionals do. They commit themselves to being life-long learners and never stop expanding their knowledge base.Screen Shot 2016-03-04 at 2.26.32 PM

Successful investors are extremely focused; they plan and execute diligently. They surround themselves with other successful professionals, and are coached by someone who will help them continually achieve more and do it in less time.

We are now accepting applications for our new and improved 12 month Personal Action Coaching and Transformation Program (PACT). This session starts in January! Learn more from our information and videos at www.PACTProsperity.com. To your success…..

So You Want To Invest In A Condo?

So You Want To Invest In A Condo?

While I love investing in many types of real estate, for me, different asset classes have different exit strategies. As a general rule, I am not a holder of condos as long term investments but will, from time to time, buy them for resale. My concern with holding condos or town homes as long term investments is the potential for an HOA or condo association to hold too much control over my investment. I am sure there are many very successful condo investors out there so this is not an attack. The asset class just isn’t my first investment choice.

If you want to invest in condos and town homes the key is to recognize some of the potential risks and consider your options in advance. This way you can mitigate surprises before purchasing the unit.

Many people believe owning a condo or town home is easier than owning a single family home because you don’t have to worry about yard maintenance, roof repairs, etc. Compared to buying a single family house there are definite differences with condos. When purchasing a condo you are not only buying your unit. You are also buying an ownership interest in the common areas of the condominium project such as the lobby, grounds, building exterior, etc. With common ownership comes risk and respponsibility.

The following information doesn’t cover everything you need to know, but it is a good start.

Insurance

It is usually a good idea to get a copy of the certificate of insurance, which is a summary of the condo association’s policy. First see if the replacement costs covered by the policy are an accurate reflection of the cost of rebuilding. You’ll want to make sure that the policy has a building-ordinance clause, which means that the insurance will cover the cost of bringing the building up to code if there is any rebuilding to be done.

This is usually more costly in terms of premium but is is much better than not being financially prepared for major repairs (especially when code related upgrades are required). On older buildings, there may have been many building code upgrades since the time of construction. As an example, over the years Florida’s hurricanes have wreaked havoc and many condo investors have suffered significant losses due to extended vacancies while waiting until their association and insurance carriers arranged for and completed repairs.

Finally, make sure that you understand exactly what the association policy covers and what you are responsible for. Typically property and liability insurance does not cover the interior of your unit, but rather the exterior of the building and common areas. You may need to buy your own insurance to protect your interior space and your tenant will need a renter’s policy to insure their belongings.

The HOA

Take a look at the minutes of the condo association board meetings to see what the owners have been griping about. If everyone was complaining about the faulty electrical, plumbing or the landscaper’s absence, you know that the complex is having management difficulties. Even if there aren’t any complaints, reading the minutes will reveal the sorts of projects that are under way at the complex; projects the seller may have neglected to mention. HOA fees pay for expenses such as maintenance of the common areas, insurance (property and liability), non sub-metered utilities, if any (such as water for irrigation and pools or electricity for exterior lighting and gates), repair reserves and more.

Management

I’m cautious of a condo complex whose owners manage the place themselves. Although many are operated efficiently, self-management can lead to more hassles for owners; especially non-occupant owners. If the condo development is professionally managed, check out the management company as thoroughly as you check out the association. Ask other owners. Ask people in nearby buildings. And be sure to interview the day-to-day manager directly. If you get saddled with a bad property manager, you can be sure of this: Your dream condo investment just might keep you up at night.

Fees

Be sure to ask what is included in the HOA fees and find out the delinquency rates of present owners. A portion of your HOA fees should be designated toward reserves and you should find out how much is allocated to reserves. You should also review the balance to confirm it is sufficient to cover things like roof repair and replacement, mechanical systems, façades, and other large capital improvements?

If people aren’t paying their association fees on time, it could be a sign of owner discontent or an indication that the association might be underfunded. Either way…it’s a red flag. If reserves are insufficient to pay for large expenses or capital improvements (or if reserves have already been designated for another planned expense) the HOA will assess an additional fee on the condo owners. This is called a “special assessment.” The seller should be able to tell you if any special assessments are planned, but do not rely solely on this information.

Ask to see all board minutes within the previous 12 months and ask to talk with the HOA treasurer. Find out if there is any pending litigation either by the HOA or against the HOA as these can often result in a special assessment for legal fees or damages. It is also a good practice to compare the association fees to those of similar nearby complexes. Are they too high or suspiciously low? Keep in mind that complexes with pools, gyms and other amenities may have higher maintenance and liability insurance costs.

High-rise comdominium towers typically have more complex mechanical systems such as elevators and HVAC systems that usually require extra reserves and maintenance fees. On the other hand, low-rise and single story developments may have extensive grounds that require landscaping and repaving. You might also ask to see two to three years of HOA fee history so that you can see how they are trending. Have they gone up significantly? Will they continue to go up? These are all good questions to ask of the seller or of the HOA treasurer. If the seller is a bank, you won’t learn much so talkig with the HOA Treasurer is a must!

Reserves

If the fees are low in comparison to nearby complexes, ask why? In newer condo and townhouse projects, builders sometimes charge lower fees to entice buyers. Yet, once the units are sold and the property is turned over to the HOA, the fees increase significantly in order to cover the costs of maintenance and reserves. Ask if the community has done a reserve-fund review in the past five years.

According to Lester Giese, the author of The 99 Best Residential & Recreational Communities in America, he recommends the following formula: If the complex is one to 10 years old, the reserve fund should have 10% of the cost of replaceable items (roofs, roads, tennis courts, etc.). Between 10 and 20 years old, the repair fund should be at 25% to 30%. At 20 years, that amount should be 50% or above. Residents who brag that they don’t pay much in maintenance may be in a complex that either is not being kept up well or is living

Liens

One thing to be careful of is that the HOA may place liens on units for non-payment of fees and seek a deficiency judgment against any of the unit owners for non-payment. You could be on the hook for the seller’s delinquency. A title report should disclose any liens placed on the unit you are buying. Don’t assume, however, that the condo association will put a lien on all outstanding fees, and that it will therefore appear in the title report. You must get a guarantee from the seller that all fees are paid as agreed as well as an estoppel letter from the HOA. A good title company or closing attorney can help you with this but be sure to make the request.

Condo docs

State governments require condo developers to file a declaration with the local county, which describes the condominium project, establishes a homeowners association and either refers to or includes the bylaws. The bylaws govern how the association should be run, such as the number of meetings per year, required votes, and the election of directors and officers. The declaration may contain covenants, conditions and restrictions (CC&R’s) which are rules specifying how condo owners may use their property and the common areas. These rules are binding on all purchasers. Once the developer hands the project over to the HOA, additional rules can be added through voting (according to the bylaws established).

CC&R’s and condo regulations limit the rights of property owners, but with the intention of retaining and improving the value of the property in the subdivision or project. Possible restrictions could be pets, holiday decorations and home businesses.

You should be sure to get a copy of the declaration, the bylaws (if not included) and all rules and regulations established by the condo association to make sure you are aware of any restrictions that will conflict with your intended use of the unit.

A good friend failed to do this before his purchase and then learned that the association had to approve all new tenants, his investment unit sat vacant for over a year and a half because their requirements were so strict. He eventually lost the place because he could no longer afford to make payments on a vacant condo.

Renting, Resale & Financing

Not only should you make sure you are aware of and willing to accept the restrictions imposed by an HOA, you need to ensure that the rules are sufficient to maintain your investment objective and resale value of the unit. If the tenant population is over 10%, there should be clear rental policies, either listed in the bylaws or appended as an amendment. Will the management company find tenants for you? Are you allowed to find your own? If the management company does it, do they get enough good tenants? You might want to ask other tenants or owners about their experience. In addition, ask to see the association’s lease, and have a real estate attorney review it to protect you.

An important thing to consider is that an association can change its bylaws to prohibit or restrict renting at any time. The more owners who rent, the less chance that will happen. More importantly on resale, a lender may consider all units in a condominium project that allows too many rental units to be investment property. For example, if the complexes rules allow 30% or more units to be rented (even if they aren’t actually rented) lenders could deny potential buyers a home loan for an owner occupant and will instead offer an investment property loan that may require a lower loan-to-value ratio and a higher interest rate. If a rental restriction is not in place, or if there is room for the HOA to adjust the level of rentals, your ability to sell the unit later could also be impaired.

Caveat Emptor

Buying a condo or town home may seem easy compared to buying a single family house. But in many ways, it carries a higher level of risk and requires more due diligence on the part of the purchaser. Just as you might when purchasing a single family house, a home inspection by a reputable and knowledgeable in inspector is recommended. For owner occupants and tenants condominiums and town homes offer many benefits such as on-site amenities, low maintenance and convenience. Condominium and town home living often provides a desirable lifestyle for many given their tendency to be located in pedestrian-friendly neighborhoods or other urban environments. These benefits however, don’t always translate to an ideal investment. It is always up to the investor to perform their due diligence, examine the paperwork thoroughly, ask lots of questions in order make an informed decision before you buy.

After the fact is a tough time to learn and you don’t want to ever find yourself at the mercy of the Greater Fool Theory.

Happy investing,

Augie

5 Keys To Building A Successful Creative Real Estate Investing Business

Why are you interested in the creative real estate business? What is it you are trying to accomplish? These are two questions we all need to answer for ourselves. The bottom line is to recognize that you are in the property investment business and treat it that way. It requires planning, discipline, and execution or else it can be a dangerous and unproductive hobby.

We have been property investors long enough to experience ups and downs, a market boom and bust, changes in target markets, even changes in our own strategy. We have fine-tuned our investment strategies, focused on target markets, built our team and systems and have a pretty good handle on things. Honestly, this is a good start, but we still have to ask ourselves, “What does our business represent and deliver?”

To answer this last question we started by defining what we do and then identifying our goals. We buy properties below market value or with excellent terms in order to produce positive cash flow. We constantly seek to improve operations resulting in greater effectiveness, efficiency and value. We generate profits from rents or the sale of the property.

While this is what we do it isn’t the entire story. There are still more questions to answer. So what are our goals? How do we do what we do? What is the result? What is our real estate investment philosophy? What are the most important things that lead to our success? How will we continue to succeed long into the future? What are the fundamentals that we live by?

These are the kinds of questions that help us get closer to answering the grand question about what our creative real estate business stands for. Here is what we came up with:

1. Minimize risk and maximize annualized return – This is our goal. We first understand and minimize the risk. This includes making sure worst case scenarios are not so bad. We focus on maximizing annualized return instead of your one time return. A 10% return is great. A 5% return in one month is twice the annualized return as 15% in 6 months. That’s a big difference especially when you compound it over the long term.

2. Control and manage our success – We do not speculate, as the market is out of our control. We buy based on solid fundamentals. Appreciation is an extra bonus. The numbers must make sense on every investment.

3. Stick to our criteria – We stick to our criteria of properties with 50-70% LTV, strong cash flow and a decent area. We also seek to upgrade our portfolio by periodically purging weaker properties and replacing them with better performers.

4. Strong and multiple exit strategies – We only do deals with tremendous equity and tremendous cash flow, which results in strong multiple exit strategies. This supports our goal to minimize risk and maximize annualized return.

5. Make informed business decisions – We do not make decisions based on hype, emotion, excitement or by following what everyone else is doing. We justify our decisions with thorough due diligence, thereby making the best informed business decisions.

These 5 keys are the foundation of our business and they help position us to be successful in any market for as long as we are actively investing.

So, if I had to say what our creative real estate investing business represents and delivers in a few sentences it is this, We represent creative real estate investing done the right way. We control and manage our success, stick to our criteria, ensure strong multiple exit strategies and make informed decisions that allow us to achieve our goals of minimizing risk and maximizing annualized return.

Whether you are a beginner or an experienced professional, you should go through this exercise as well. Doing so could establish the foundation for a long and successful creative real estate investing career.

Learn how to jump-start your investing business at www.quickstart.pactprosperity.com

A Petition You Should Sign – Fix the E2 Visa Problem

Immigration Is an issue that is hotly debated in the US and rightly so, illegal immigrants cost our taxpayers billions of dollars cast a shadow over the whole issue of immigration.  There are many legal imigrants who come to the US and are a benefit to this country.  Only recently have some of the stranger aspects of US immigration policy come to my attention as the result of challenges some of my friends are facing.

In one case the parents of a 22 year old daughter who have green cards have to send their daughter back to England because she is too old to stay in the US and it could take two years for her to receive approval even though she has a job available to her which she desparately wants to accept, though her current 60 day visa does not permit her to work.

I have other friends who have legally entered the US and invested in businesses, created jobs and pay taxes who have to renew their E2 Visa’s every two years and risk being declined and having to leave the country on 30 days notice.  There is a petition that needs 5,000 signatures by October 25 in order to be considered by the White House.  Granted that is only a first step but a necessary one.  I invite you to participate in supporting a common sense solution to a rather de-humanizing problem. The language of the petition is below.

Allow E2 Treaty Investor Visa holders, who have brought investment and created jobs in the US, to apply for Green Cards

E2 Treaty Investor Visa holders are required to bring in foreign investment to buy or start up a US business and create jobs for US citizens. To our knowledge this is the only visa that asks for a substantial investment without leading to Green Cards. Legal permanent residency would give these small business owners more stability to expand their businesses, thus leading to even more jobs.

There have been 2 Bills in the last 2 Congresses which have not been successful and we are actively working to have a new Bill introduced in this Congress. However we realize that this E2 Visa is relatively unknown and hope that is the reason why reform has not taken place thus far.

We are LEGAL Immigrants, who are helping the US Economy at a difficult time.

We urge the White House to consider this.

Go to the link below and sign the petition, you’ll be glad you did.

Email this link to your friends and family: http://wh.gov/4TP

 

Save Seller Financing – Did You Post Your Comment? Do It Now!

Only a few days remain to post your comment on the proposed rule changes that could be the death knell for seller financing.  You can post your here http://1.usa.gov/pF9Fv0.  The comments I submitted can be found  below:

The SAFE ACT intended to protect consumers from big businesses and I applaud these efforts whenever they accomplish what they set out to do.  My concern is when unintended consequences arise and citizens, American property owners as well as future American property owners, can actually be harmed. I am requesting that private individuals be exempted from the proposed rules changes and submit the following comment.

1. The seller did not construct the home to which the financing is being applied.
2. The loan is fully amortizing (no balloon mortgages allowed).
3. The seller determines in good faith and documents the buyer has a reasonable ability to repay the loan.
4. The loan has a fixed rate or is adjustable after 5 or more years, subject to reasonable annual and lifetime caps.
5. The loan meets other criteria set by the Federal Reserve Board.

Under this Act the only buyers who will be able to use seller financing are the buyers who can already qualify for conventional financing with perhaps the exception of how much of a down payment they need.

Seller financing has always been the alternative to government regulated financing. It is a meeting of the minds between two private individuals who negotiate an arm’s length contract to purchase property using an installment sale.
Seller “financing” provides housing for millions who otherwise could not qualify for conventional loans.  It additionally, provides an outlet for properties that do not qualify for conventional or even GSE programs such as older manufactured homes that provide entry level and retirement housing for many Americans.

Homeowners are neither bank officers nor mortgage lenders.  By requiring them (many if not most of whom who take back a mortgage are older Americans) to qualify buyers using bank standards means they will simply refuse to sell with owner financing.  Thus millions of people will be deprived of home ownership.  This will have a near term negative impact on the current economy by reducing the number of sales which pay transfer taxes to our state and county governments and long reaching effects in terms of preserving property rights as well as one’s ability to freely buy and sell property.  Even the Wall Street Reform Act saw fit to allow up to 3 seller-financed transactions per year without MLO requirements.Why should a buyer be required to divulge their income and assets to the very person with whom they are negotiating the terms of a sale? This is not required when there is a 3rd party lender.  Requiring the buyer to turn over all their financial information to a stranger opens the door for identification theft and fraud.  It also deprives American’s, both buyers and sellers, to use their free will to honestly come to a meeting of the minds and transact the purchase or sale of a property in a manner beneficial to the principals (not a 3rd party lender who may have no vested interest).

This also opens the door to an additional risk; predatory borrowing. This is where an unscrupulous buyer knowledgeable about the Dodd-Frank Act leads an uninformed seller (and this will be the majority of sellers) into negotiations not in compliance with the ability-to-repay requirements. That buyer lives in the property trying to resell it for a profit and if they are not successful within three years they rescind the sale and get all their money back.  This will jeopardize the ability of many deserving people who may never qualify under bank standards (Federally mandated or not) to ever own their piece of the American dream because no one would accept that risk.

By not allowing a property owner to negotiate a balloon payment, there is a good chance that a seller 55 years or older will die before receiving all their equity. Many seniors have invested in real property with the intent of selling it using seller financing (an installment sale) in order to supplement their income in retirement, but also with the hope that they would not be stuck with a 30-year investment. The Dodd-Frank Act does the same thing insurance companies do that sell 30 year annuities to seniors. Our government has criticized this deplorable practice because seniors will die before they receive all their investment.
The restriction of no balloon doesn’t affect just seniors, it has financial consequences for anyone using seller financing. Under the Act community banks are allowed to originate fully amortizing loans with a five-year balloon. The rationale is that they hold these loans in their own portfolios and the government recognizes their need to hedge against inflation and rising interest rates. Yet, the Act does not recognize that private property owners who have 100% skin in the game need the same protection. If there has to be a restriction it should at the very least be the same allowance given to community banks of a balloon in 5 years.I have heard the suggestion that a seller financing the sale of his or her own property would completely avoid the issue of licensing by retaining the services of a licensed loan originator. If a mortgage loan originator (MLO) fails to properly follow the ability-to-repay guidelines the buyer still has three years in which to rescind the sale which leaves the seller at risk and will most likely bankrupt them.  As I am sure you can see, the unintended consequences of these proposed rule changes, if accepted “as-is” without exempting individuals will negatively impact millions of American families.

This could be financially devastating to the seller. Let’s not forget that today’s buyer will be tomorrow’s seller. These sellers are a diverse group. They come from all walks of life: low income, high income, non-English speaking, seniors, widows, minorities, but this requirement places the same standards on individuals as banks and mortgage lenders, only with more risk – the banker is in the business of mortgage loan origination and factors that risk into his business plan, whereas the individual seller does not have capital reserves and doesn’t do this as a business. Also, unlike a bank, they do not carry errors and omission insurance.

My mother is 80 years old and owns two properties; a condominium and a co-op.  Neither of these will qualify for bank financing in the current market.  At some point she may need to sell and convert these properties into an income stream to provide for her long-term care unless she can find a cash buyer.  A cash buyer will likely force her to accept a substantially lower price because she’ll have no other option available to her and she’ll be at risk that for up to 3 years, that a case of buyer’s remorse could reverse her sale.  Is that in her best interest?  Additionally, as her and many other seniors in a similar situation exhaust their reduced assets, the government will be forced to pick up the tab for her care, further exacerbating the federal debt or reducing the quality of life for America’s elderly.On behalf of my family and families across America I am asking that you clearly distinguish between banks who are lenders who actually lend money and property owners who are principals in negotiating an installment sale in order to collect their equity in the sale of a home.  In a seller financed transaction both parties are consumers neither of whom need be disadvantaged by these proposed rules.

Please feel free to contact me directly at Augie@PACTProsperity.com

Your decisions will impact millions of American families. Thank you for your consideration.

Florida Real Estate News from the 2011 Legislative Session…

As an investor in the Florida market what happens in the local legislative arena is as important to me as what happens in our nation’s capitol.  According to Florida Realtors News there was plenty of real estate related activity in the legislative session that just ended.  Property taxes, insurance rate adjustments and more.  How does it affect the investor community, the real estate agent community or property owners in general?  Just read on…

There was a newfound emphasis on fiscal accountability, thanks in large part to a nearly $4 billion budget deficit.

And unlike the previous two years, there were no federal stimulus funds to reduce the deficit.

BILLS THAT PASSED

The cap IS scrapped

It took five years and vigilant lobbying on the part of Florida Realtors and members of the Sadowski Housing Coalition, but the Legislature finally voted to remove the $243 million cap on the housing trust funds. This victory shouldn’t be taken lightly. Several times throughout the session, it appeared the trust funds would be eliminated altogether.

Ensuring that doc stamps will still be directed to affordable housing, their intended purpose, is a huge benefit to Florida families and the real estate industry.  Credit goes to Rep. Gary Aubuchon (R-Cape Coral) and to Sen. Mike Bennett (R-Bradenton) for sponsoring HB 639 and SB 912.

This year, the Florida Housing Finance Corporation has $64 million for state and local housing programs.

Tax relief for non-homesteaders and first-time buyers

Since the 2009 legislative session, Florida Realtors has sought to lower the annual assessment cap on non-homestead properties from the current 10 percent approved by voters in Amendment 1. The vehicles this session were two proposed constitutional amendments: HJR 381 by Rep. Chris Dorworth (R-Lake Mary) and SJR 658 by Sen. Mike Fasano (R-New Port Richey).

On Day 58 of the session, HJR 381 by Rep. Chris Dorworth passed after contentious debate on the Senate floor, with opponents saying the measure would perpetuate the inequities inherent in Save Our Homes and negatively impact local coffers.

If approved by voters in November 2012, the proposal would reduce the yearly assessment cap on non-homestead property from 10 percent to 5 percent. It would also give anyone who hasn’t had a homestead exemption in Florida for three years a property tax discount of 50 percent of the home’s assessed value, not to exceed the median home price in that county. This additional first-time homestead owner exemption phases out for the property owner over five years while their Save Our Homes is phasing in.

The measure also allows the Florida Legislature to prohibit assessment increases when property values fall. Currently, the Legislature does not have the power to prevent local governments from “recapturing” the tax revenues that Save Our Homes shields during a rising real estate market.

Property tax relief for wounded veterans

Currently, disabled veterans who were Florida residents when they entered military service qualify for the combat-related disabled veterans’ ad valorem tax discount on homestead property. SJR 592 by Sen. Mike Bennett (R-Bradenton) goes before voters in November 2012 to extend this property tax benefit to any disabled combat veteran residing in Florida, regardless of where they lived when they entered military service.

Tax cut for small business

A $30 million tax cut for small businesses received little opposition, even gaining support from Democrats. HB 7185 by Rep. Steve Precourt (R-Orlando) boosts the exemption to the corporate income tax by increasing the exemption from $5,000 to $25,000. That amounts to a cut of roughly $1,100 per business. More importantly, many small businesses will not have to pay any corporate income taxes. Proponents praised the measure as a way to stimulate growth and create jobs, and as a step toward an even bigger rollback of corporate income taxes sought by the governor.

Easing the financial burden of challenging property tax assessments

So many property owners are challenging their assessments that a number of school boards have been unable to forecast their budgets. As a result, Rep. Ana Rivas Logan (R-Miami) filed HB 281 on behalf of the Miami-Dade School Board. As originally filed, this bill required property owners who appealed their assessment to pay 75 percent of the appraised value. Florida Realtors helped to amend the bill to allow owners to make a good faith payment during the appeal process if it extends beyond April 1 of the next year.

Another attempt to stabilize the insurance market

For nearly 20 years lawmakers have promised – some may say threatened – a significant overhaul of the property insurance system. That was certainly possible this session, as more than 24 bills were filed offering a range of solutions to the current insurance crisis – including a proposal to raise Citizen premiums by up to 25 percent.

In the end, the big insurance bill that passed, SB 408 by Sen. Garrett Richter (R-Naples), seeks to reign in the cost drivers that cause premiums to rise and discourage voluntary market insurers from doing business in Florida. Key provisions include:

  • Insurers must continue to offer sinkhole coverage, but can limit coverage to homes and not other structures on people’s property, including garages and pools. Insurers may also call for an inspection of property before issuing sinkhole coverage.
  • Defines structural damage as it relates to sinkhole loss.
  • Allows insurers to initially pay actual cash value for repairs to dwellings. Florida is one of only a few states that requires insurers to pay replacement claims upfront regardless of whether the insured items are replaced or not.
  • Insurers may require that repairs be made before fully paying a sinkhole claim.
  • Claims for loss from sinkholes must be made within two years; for hurricanes, three years.
  • Limits public adjuster compensation.

While this year’s “Consumer Choice” legislation failed to pass, SB 408 allows insurers to raise rates by up to 15 percent to cover their increases in reinsurance costs. State insurance regulators would still have to approve any increase.

Deregulation of commercial insurance lines

In an effort to stimulate competition among commercial insurers – and in the process further lower rates that are already at an all-time low – the 2010 Legislature deregulated errors & omissions and other kinds of commercial insurance. HB 99 by Brad Drake (R-DeFuniak Springs) furthers the deregulation process by exempting five additional lines of commercial insurance, including non-residential property insurance, from the rate filing and approval process in current law.

Additionally, the bill allows insurers selling certain types of coverages to make pricing changes on an expedited basis, enabling them to avoid some of the expense incurred in a full rate filing and review process. Realtors should know, however, that current law prevents insurers from making rates excessive or discriminatory.

Protection for title insurance policyholders

HB 1007 by Rep. Mack Bernard (D-West Palm Beach) was introduced on behalf of the Department of Financial Services (DFS) to ensure that property owners continue to have title insurance coverage even if their underwriter is liquidated. When an underwriter is liquidated, as is currently the case, all other underwriters in the state pay an assessment to DFS, and this would be passed on – over a period not to exceed seven years – to new policyholders in the form of a surcharge of up to $25. DFS indicates that the surcharge resulting from the underwriter currently being liquidated would be significantly less than $25.

State oversight of growth management laws curtailed

HB 7129 by Rep. Ritch Workman (R-Melbourne) makes big changes to the state’s role in growth planning and oversight first laid out in the 1985 Growth Management Act. This includes empowering local governments to plan their own growth and development; changing “concurrency” rules so that local governments have more options when working with new projects, rather than forcing developers to plan first for schools, roads, parks and other amenities; and prohibiting local governments from enacting local “Hometown Democracy” growth-by-ballot proposals. Florida Realtors supported permit extensions included in this bill.

Additionally, the Legislature passed at least one other developer-friendly bill, HB 993 by Rep. Ken Roberson (R-Port Charlotte), which includes a provision changing the “burden of proof” for challenges to permits.

If signed by the Governor, as is expected, HB 993 will shift the burden of proof from the permit-holder to the person challenging the new development.

Licensure requirements of home inspectors

SB 396 by Sen. Mike Bennett (R-Bradenton) changes the initial requirements for certain persons acting as home inspectors today and removes language enacted last year that allowed Division 1 contractors to perform both the home inspection and make repairs.

You’re S.A.F.E. to move about the transaction

SB 1316 by Sen. Nancy Detert (R-Venice) codifies into the Florida S.A.F.E. Mortgage Licensing Act the same language contained in a federal act that allows Florida real estate licensees to list and sell short sales without having to first obtain additional licensure under Chapter 494.

Controls on state spending

Lawmakers approved a constitutional amendment to limit state government revenue and return excess monies to taxpayers. If approved by voters, CS/SJR 958 would replace the existing state revenue limit – which is based on personal income growth – with a new state revenue limit based on inflation (CPI) and changes in population. Proponents said the so-called Smart Cap curbs the ability of lawmakers to expand government in times of economic prosperity. Opponents challenged the need for the cap, noting that state revenues have never reached the cap established in 1994.

Sales associates catch business tax break

Sales associates who don’t currently pay a business tax (formerly known as occupational licenses taxes) at the local level should be happy with HB 311 by Kenneth Roberson (R-Port Charlotte). Local governments that were not collecting business taxes from sales associates on Oct. 13, 2010, may not do so in the future. Local governments that were collecting business taxes from sales associates on that date are not impacted.

Last year’s condo bill revisited

HB 1195 by George Moraitis, Jr. (R-Fort Lauderdale) seeks to fix aspects of last year’s big condo legislation. Provisions of interest to Realtors and property managers include:

  • Clarifies that condos less than four stories high with exterior corridors are exempt from installing manual fire alarm systems.
  • Clarifies that associations are permitted to install impact glass and other code-compliant windows for hurricane protection.
  • Diminishes certain rights of unit owners who are delinquent in their association fees, such as use of common areas.
  • Clarifies the process by which an association communicates with tenants of unit owners who are delinquent on association fees and dues.

Curbing adverse possession scams

Florida’s adverse possession law dates back more than a century and was created to let people pay taxes on property they don’t own, and eventually own it after seven years. It was meant to encourage people to take over abandoned property, reduce blight and generate tax revenue.

The number of foreclosures around the state has spawned a new kind of scam, however. Unscrupulous persons or companies scout for vacant homes and rent out the home – often without the knowledge of the property owner. Realtors or family members discover the property takeover when they find the home’s locks have been changed. When confronted, these scam artists claim ownership under adverse possession.

SB 1142 by Sen. Paula Dockery (R-Lakeland) establishes a number of requirements for persons and companies claiming adverse possession, as well as the county property appraiser. For instance, the property appraiser must provide notice to the owner of record that an adverse possession claim was made. The bill also gives priority to the title holder who resumes payment of property taxes, even if an adverse possessor already made a payment.

Local government’s ability to ban short-term rentals frozen

HB 883 by Rep. Mike Horner (R-Kissimmee) prohibits local governments from enacting a ban on short-term rentals after June 1, 2011. Local governments with existing rental ban ordinances are not impacted.

If you are a Florida realtor or investor these changes affect you and your customers.  It pays to be informed!