Archive for October, 2008

This past week I merged my real estate Sole Proprietorship with Prudential Location LLC because I feel strongly that the time is NOW for Oahu Real Estate. Working with a large firm like Prudential enables me to more easily get the word out that now is a great time to buy Oahu real estate. I feel strongly that this is the type of real estate market that two or three years from now everybody is going to say, “I wish I had bought then”.

All the market factors are lining up perfectly for the next six to twelve months……Let me explain. It is as simple as 1, 2, 3.

1. Interest rates are dropping below 6% on residential mortgage loans. Rates are seldom that low and when they have reachd that level, mortgage loan rates usually do not stay there for long.

2. Mortgage Money is available….that what lenders across the island are telling me. With five percent down or less. Of course, the Buyers DO need to have a steady job, and areasonable credit rating. The days of Buyers needing to prove employment, have cash on hand and credit worthiness have returned for good, hopefully.

3. Inventory, foreclosures and pricing of properties in our Oahu housing market indicate that the signs of a market shift are coming, that is the supply of new home construction and foreclosure homes are beginning to be absorbed by first time buyers, investors and secure homewoners taking advantage of their financial strength and current market weakness. This spring may be the tipping point when the market activity flourishes. I believe it will. This Buyer and investor activity will create its own momentum. as more buyers and investors choose to buy now the demand they will create will stabilize the market and lead to market appreciation. It is simple supply and demand.

Did people who bought at the peak of the Oahu market in late 2005 and 2006 lose equity? In most neighborhoods, yes, and in some neighborhoods they lost a lot. Are Buyer’s who buy over the next year likely to be buying at the (or near the) bottom of the market and benefit from excellent appreciation. Every indication that I see is…..YES!

THEREFORE, I am telling all of my Buyer clients and anyone else who will listen……..what one of the richest men in the world used to say…..(J. Paul Getty)….”I buy when other people are selling.”

First Time Buyers – THE TIME TO BUY IS NOW! Prices and interest rates are down and the federal government is still offering a $7500 tax credit that is scheduled to expire in the Summer of 2009.

Investors – THE TIME TO BUY IS NOW! You still have to carefully analyze occupancy and rental rates, as well as, truly understand your cash flow situation, but the time to buy is in a DOWN market.

So….Get in the Game…..and call me today and I can help you call the plays to make you a winner….Aloha, Jon.

Hawaii’s High Tech REALTOR Joins Forces With Hawaii’s Premier Technology Based Real Estate Company

Just a quick blog entry to announce that I’ve recently merged JON MANN REALTORS, LLC, with PRUDENTIAL LOCATIONS, the largest locally owned and operated real estate firm in Hawaii. The company has a deep understanding of our islands’ unique housing market and extensive knowledge of historical real estate trends that I will be able to share with my clients.

In spite of the recent economic turmoil, It is truly an exciting time for me to be in real estate. Interest rates are still at historically low rates making first time home-buying a realistic and attainable goal for many people. Opportunities also exist for the astute investor to acquire an initial real estate investment, or to trade up to a larger property.

As “Hawaii’s High Tech Real Estate Agent”, joining forces with Hawaii’s premier technology based real estate company was just common sense and good business practice, allowing me to continue to provide excellent customer service and now be armed with unmatched information technology tools, and educational devices for my clients. A win-win combination to be sure.

So continue to look here each week for valuable information on Oahu real estate and if you know of anyone interested in buying, selling, or investing in real estate, I would appreciate your referring them to me. I assure you that I will do my very best in assisting and advising them to enable them to achieve their Hawaii real estate goals. Please call or email me anytime…Mahalo and Aloha, Jon.

Selling a Principal Residence Formerly Used for Investment Purposes? Amendment to IRC §121 May Reduce the $250,000/$500,000 Exclusion.

Internal Revenue Code (“IRC”) §121 allows taxpayers selling a principal residence to exclude $250,000 of gain from taxation (or, $500,000 for married taxpayers, filing jointly) as long as they have lived in the residence for 2 out of the preceding 5 years.

Alternatively, for taxpayers selling investment/rental property, while they may not exclude gain from taxation, they can nonetheless defer payment of taxes by completing their disposition as an exchange under IRC §1031.

While the rules for excluding gain from taxation or deferring payment of taxation may seem fairly straightforward under the above code sections, they become more complicated if the property was used as both a principal residence and for investment/rental purposes.

Fortunately, in February of 2005, the IRS issued Revenue Procedure 2005-14 clarifying that taxpayers are entitled to take advantage of both the §121 capital gains exclusion and the §1031 capital gains deferral. However, Rev. Proc. 2005-14 only addresses situations wherein the property being sold is investment property formerly used as a principal residence; it does not address how to apply §121 to situations when the property being sold is a principal residence formerly used for investment purposes.

Now, pursuant to the Housing Assistance Tax Act of 2008, taxpayers selling a principal residence formerly used for investment purposes, have specific guidance on the application of §121. Specifically, IRC §121 has been amended, effective January 1, 2009. Again, the amendment only affects taxpayers who are selling a principal residence (“qualified use”), which they formerly used for investment (“non-qualified use”). The central point of the §121 amendment is that these taxpayers are not entitled to the full §121 exclusion because the prior investment use is considered “non-qualified” use and any gain allocated to the period of non-qualified use may not be excluded under §121.

How to determine the amount of gain that is not eligible for exclusion:

The period of non-qualified use (period not used as a principal residence) must be divided by the total years of ownership to determine the amount of the gain that is not eligible for exclusion under §121.

Any period of non-qualified use before January 1, 2009 should not be included in the calculation. And, depreciation should also be excluded from the calculation and is simply taxed at the applicable recapture rate.

Summary of the rules under §121 amendment
• Sale of residence that was formerly investment property – the taxpayer is entitled to only a prorated portion of the $250,000/$500,000 exclusion.
• Non-qualified use prior to January 1, 2009 is disregarded, except for purposes of meeting the 5 year rule under HR 4520, if applicable1
• Gain resulting from depreciation is taxed and is disregarded for purposes of determining the prorated amount of the exclusion

Taxpayers selling a principal residence after January 1, 2009, which was formerly used as an investment/rental property should consult with their tax or legal advisors regarding the application of the amendment to §121 to their particular situation.

Significant content for this blog entry was provided compliments of:

Julie Tumbaga
Vice President, Hawaii Regional Manager, Old Republic Exchange Company
733 Bishop Street, Suite 2700 • Honolulu, HI 96813
(877) 591-1031 toll free
jtumbaga@orexco1031.com

Julie would be glad to answer any questions you had about exchanges, so contact her today…Thanks Julie, for the information….Aloha, Jon.

Now that the Congressional financial bailout plan is now law, the credit spigot will start flowing again, banks will resume lending, and an economic recovery can begin, right?

No so fast, my friend.

Some experts say the most important thing that needs to happen before the $700 billion bailout even has a chance of working is that home prices must stop falling. That would send a signal to banks that the worst has passed and it’s safe to start doling out money again.

The problem is the lending freeze has made getting a mortgage loan tough for everyone except those with sterling credit. That means it will take several months or much longer to pare down the glut of houses built when times were good — and those that have come on the market because of soaring foreclosures — before home prices start appreciating.

Housing is a critical component to the U.S. economy and by extension the availability of credit. Roughly one in eight U.S. jobs depends on housing directly or indirectly — from construction workers to bank loan officers to big brokers on Wall Street. A turnaround in housing prices would boost confidence in the wider economy and, experts hope, goad banks into lending again.

Although the housing industry usually leads the economic receovery, banks are still cautious that the economy is going to get worse before it gets better. Still, the government hopes that by scooping up billions of dollars in bad mortgage debt and other toxic assets, banks eventually can clean up their shaky balance sheets, crack open the vaults and send money washing through the system again.

The rescue plan also raises the federally insured deposit limit from $100,000 to $250,000, a move that could boost banks’ reserves and further grease the lending wheels.

We shall see. Some concerns exist.

To begin with, even when the Treasury starts buying bad assets, some banks may hoard the cash they receive in return until they see how the plan pans out. That has the potential to make the lending logjam worse. It also creates a vicious cycle: No trust means no lending; tight credit means it’s harder to buy a home; the more difficult it is to buy or sell a home, the further home prices will fall; and the further prices drop, the more foreclosures there will be. Basically, the very same problem we are dealing with currently.

As of now, U.S. home prices are down 20 percent from their peak in July 2006, yet still have further to fall, and must hit bottom before demand picks up. The long-awaited bottom in prices could be a year or more away on the national level.

Jobs are another big concern. The stranglehold on credit has choked companies big and small that depend on regular inflows of borrowed money to pay employees and stay afloat. Local jobbes losses here on Oahu have been significant in 2008.

The Labor Department said Friday that employers cut 159,000 jobs in September, the fastest pace of losses in more than five years. Experts say that number will grow as the effects of the credit gridlock course through the economy in coming days and weeks.

The nation’s unemployment rate is now 6.1 percent, up from 4.7 percent a year ago. Over the last year, the number of unemployed people has risen by 2.2 million to 9.5 million.

The unemployment rate could rise to as high as 7.5 percent by late 2009, economists predict. If that happens, it would mark the highest since after the 1990-91 recession.

Boosting employment is critical to kick-starting lending because if jobs are growing, then incomes are a growing, and if incomes are growing then people are consuming.

The bailout does not adequately address the three main reasons for the economic mess….too much debt, too much spending, and too much greed……It will, however, most likely, positively affect the recovery of the housing industry and the outlook for employment….and hopefully each individual person will look into themselves and address the debt, spending and greed issues prevalent in out modern American economy/society……In my opinion, that is…….Aloha, Jon.

Note: Some content for this blog entry was para-phrased from an article by AP business writer By STEVENSON JACOBS.

……I say this with tongue firmly planted in cheek…..But given the last two weeks we have had on Wall Street, I wouldn’t mind a little stability for my investment capital…..And, for the first time in three years on Oahu, home prices for Buyers are starting to look much better.

For the first time in three years, median home prices on Oahu fell below $600,000.

After holding fairly steady for much of the year, Oahu home prices tumbled last month, down 9.2 percent for single-family homes and nearly 12 percent for condos.

The median price for Oahu homes in September was $590,000, down from $635,000 in August and $650,000 the previous year. It was the first time the median price fell below $600,000 since 2005.

Condos fell to $296,000, down from $328,000 in August and $335,000 a year ago.

Transactions also fell, with 215 home sales recorded last month, down from 255 a year ago. Condo sales tumbled 26 percent, from 414 sales in September 2007 to 305 this year.

So, call me once you have sold those stocks and I will share with you why “CASH IS KING” in real estate and how I can help you get a great deal……(really)…….Aloha, Jon.