South Florida continues to push forward in a ranking of the most stable housing markets nationwide. The tri-county region scored 88.1 on Freddie Mac’s Multi-Indicator Market Index for December, up 15 percent from a year earlier.

The index tracks mortgage applications (including those buying land in Florida, employment, delinquencies and affordability for the top 100 metro areas across the country. A composite score of at least 80 is considered stable. A perfect score is 100.

South Florida reached the 80 benchmark last May for the first time since 2008. Of the top 100 metros, the three-county area ranked 24th, rising 22 spots from a year earlier. The national housing score was 82.7. This is good news for the nation’s housing market, but there is certainly more work to be done.

Some analysts are concerned that flat wage growth in recent years combined with rising home prices will make homes less affordable in South Florida, Cape Coral land sales and across the country in 2016.

But the job market has been mostly solid in South Florida and that should eventually lead to some income growth, which will offset the affordability challenges.

January figures released last week by local Realtor boards showed annual increases in sales and median prices of existing homes in Palm Beach and Broward counties. Still, sales fell in Miami-Dade County, and real estate agents say the market has slowed across South Florida, with homes taking longer to sell and sellers having to reduce prices to attract buyers.

The market is not as frenzied. Sellers got overly confident and were pricing their homes a bit more than what they should have been. And buyers are looking at more of a selection of properties, and they’re not jumping at the first house they see. They have other options now.

Austin, Texas had the nation’s most stable housing market in December at 98.1, according to Freddie. Denver was No. 2 at 98.3.

To learn more about the growth of SWFL real estate visit 9 Core Realty on the web!

Southwest Floridians went back to work at a fast clip last month. Collier and Lee counties both had unemployment rates in January that were among the lowest in the state, and were lower than the national average, according to a monthly report by the Florida Department of Economic Opportunity.

Collier County’s unemployment rate sank 0.5 percent to 4.8 percent from 5.3 percent over the year, while Lee County’s fell to 4.7 percent from 5.5 percent. Statewide, the unemployment rate fell to 5.1 percent from 5.9 percent. Nationally, the unemployment rate is 5.3 percent, down from 6.1 percent a year earlier.

Monroe County in the Florida Keys had the state’s lowest unemployment rate last month at 3.3 percent, while Hendry County in inland Southwest Florida had the highest at 8.4 percent.

Florida led the nation in job growth in January, according to the U.S. Bureau of Labor Statistics, adding 32,200 jobs, with the biggest chunk in professional and business services.

Collier County added about 2,700 jobs over the year, while Lee County saw an increase of 10,400.

In Collier, the most new jobs were added in construction of home sites and hospitality; in Lee it was construction, professional and business services, and trade, transportation and utilities.

While it’s worrisome that many new jobs were in the cyclical and somewhat nomadic construction industry, employers are ramping up training to create a homegrown workforce of skilled carpenters, plumbers and other workers. Small businesses in other fields are getting less fussy, too.

Before, they wanted people who had specific skills who could hit the ground running. Now they’re willing to take a less qualified person and will provide on-the-job training.

Demand for workers exceeded supply at the beginning of the year. Naples had 4,425 job openings in January. Of them, 856 were in high-wage, high-skill science, technology, engineering, and math occupations, state officials said.

Many employers are now looking for permanent workers rather than seasonal ones. If you’re looking for work, there’s a job out there. A lot of these jobs have benefits.

All sectors are hiring! In Naples, Marshall’s has hired 70 workers, and Arthrex 50. Other big names like Walgreens and Pizza Hut are looking for workers, too.

Some places are raising the wages of year-round workers to keep them from taking a seasonal job in a restaurant that may pay better, if only temporarily.

For workers who are now employed part-time there’s an opportunity to go full-time or move up if a person wants it. Everyone is in hiring mode.  this is also having an effect on real estate in the region as more people are buying homes, lots and land for sale in the area.

To learn more about the growth of the SWFL economy and it’s effect on real estate investments visit 9 Core Realty on the web.

The Protecting Americans from Tax Hikes Act of 2015 (“PATH Act”) included a number of significant changes to the U.S. federal income tax rules related to real estate investment trusts (“REITs”) and investments by non-U.S. investors in U.S. real estate (commonly referred to as “FIRPTA”). The PATH Act changes raise practical questions regarding both their direct impact and their interaction with other existing provisions especially when buying investment land for sale. This series of blog posts addresses questions of significance relating to the REIT and FIRPTA changes in the PATH Act. This post focuses on the U.S. tax rules for “qualified foreign pension funds” investing in U.S. real estate.

The PATH Act alters the treatment of certain foreign pension funds and their subsidiaries. Distributions or dispositions of a United States real property interest (“USRPI”) by a qualified foreign pension fund (or a blocker, for this purpose a wholly-owned non-U.S. subsidiary of such a fund, formed in any jurisdiction) on or after December 18, 2015 generally are no longer subject to withholding or tax under the FIRPTA regime. This is a welcome change, since it reduces the disparity between non-U.S. and U.S. pension funds with respect to investments in USRPIs. However, the general FIRPTA exemption does not mean that the qualified foreign pension funds can invest in any USRPI without any exposure to U.S. federal income tax. A qualified foreign pension fund will be subject to U.S. federal income tax on its net “effectively connected income” (“ECI”) if an election is made under Section 882(d) to treat such rental income as ECI, and, if no election is made, such rental income will be subject to gross basis U.S. federal withholding tax generally at 30% unless reduced by an applicable treaty. Well-advised non-U.S. investors typically find the ECI election for rental income beneficial as it typically results in an overall lower U.S. federal tax cost. However, the election also requires the non-U.S. investor to file U.S. federal income tax returns, and therefore, investing through a blocker is often thought to be beneficial as only the Blocker needs to file U.S. federal income tax returns, and not the ultimate non-U.S. investor when deciding how to purchase land for sale.

Prior to the PATH Act, the Section 882(d) election was largely irrelevant to the consequences of a sale of a USRPI since such a sale was subject to U.S. federal income tax either as the sale of an ECI generating asset or as a USRPI sale subject to FIRPTA. Following the PATH Act, however, this calculus changes significantly if a qualified foreign pension fund or its blocker makes the Section 882(d) election and generally recharacterizes the USRPI from a capital asset to an ECI generating asset, then the qualified foreign pension fund would be liable for U.S. federal income tax on the gain resulting from the sale, even if no liability would arise under FIRPTA. By contrast, if the Section 882(d) election only recharacterizes the rental income generated by the USRPI as ECI, then the FIRPTA exemption would mean that gain on a sale of the USRPI generally would escape U.S. federal income tax, with limited exceptions including depreciation recapture as discussed below.

While there is limited precedent, it would appear that the IRS would take the view that a Section 882(d) election does not change the character of the underlying asset. In Revenue Ruling 92-74 and a private ruling from 1990, the IRS ruled that the Section 882(d) provisions should be analyzed identically to the Section 871(d) provisions (which deal with non-U.S. individuals), referring to Treasury Regulations Section 1.871-10(c)(2), which states that real property or any interest in real property subject to a Section 871(d) election will still be treated as a capital asset for all other purposes of the Code. Therefore, this authority suggests that gain recognized on the sale of a USRPI generally may not be recharacterized as gain from the sale of ECI generating assets as a result of the Section 882(d) election. It is not clear whether or when the IRS might update or clarify this authority in light of the PATH Act (which as discussed above makes the answer to this question more relevant than it was under prior law).

A very important caveat to the discussion above is that notwithstanding the answer to the question about the effect of the Section 882(d) election, depreciation recapture nevertheless would be subject to U.S. federal income tax on a sale of a USRPI, even if capital gains on such dispositions may not be. Section 1250(a)(1)(A) and Treasury Regulations Section 1.1245-1 provide that tax on depreciation recapture is owed even if, in the absence of the depreciation recapture rules, there would be no tax owing on the transaction, and nothing in the analysis above or the PATH Act would appear to alter this result.

Ultimately, qualified foreign pension funds have potentially received a significant benefit from the changes made to FIRPTA by the PATH Act, but qualified foreign pension funds and their blockers remain exposed to U.S. tax liability on their interests in USRPI.

To learn more about how the PATH act will affect your foreign investments in the US visit 9 Core Realty on the web.

As the financial crisis fades into the rearview mirror, many entrepreneurs might be encouraged to get back into the real estate game.  In many regions across the country, real estate sales and prices are on the rise.  While real estate investing is cyclical in nature, achieving success depends upon a number of factors.

First you must understand the basic fundamentals of real estate, know your market, and anticipate what other investors and homebuyers seek.

Owning Your Own Agency

The real estate business offers opportunities to acquire wealth, and owning a brokerage is one way to manage the risk of market fluctuations.  At the same time, there are responsibilities like assuming managerial duties and the overhead costs of running an office.

If you are new to the real estate game, it is essential to leverage your previous experience and tap your career and educational achievements.  In so doing you will be better able to plan and execute your business strategy.

Relationship Building

Any successful business endeavor depends on building relationships, whether with your business partners, clients or employees.

If there are other investors involved in the business, it is essential to define these relationships by having a written agreement that specifies the role and responsibilities of each individual, methods for resolving disputes, and exit strategies like buy/sell provisions.

Moreover, attracting clients often depends upon the skills of sales agents. While finding salespeople is relatively easy, retaining them is another matter.

In addition to providing them with leads, competitive commission structures and benefits, it is essential to develop a positive business culture where employees’ contributions are valued.

Finally, in the course of conducting business, it is crucial to develop relationships with real estate attorneys who are familiar with the local markets and who can handle the complexities of contracts of sale, title searches, arranging for financing, and conducting closings.

The Real Estate Game

If your goal is to get rich quick, think again this many not happen when buying investment land. You may be familiar with late night infomercials trying to convince you that it is possible to get rich by flipping houses with no money down.  Don’t believe the hype. The fact is that learning how to build a real estate business is not easy.

In the long run, however, the potential financial rewards are huge. Ultimately making money in real estate requires knowing the location, history and future of a particular market.

Having a successful real estate business is about staying ahead of the competition when buying land in Florida.

This is a matter of doing some homework by studying pricing trends, selecting desirable locations, understanding the tax implications, ascertaining school rankings, and foreseeing the expansion of nearby markets.

The Right Price

By studying pricing trends, the savvy entrepreneur will be able to perceive the fair market value for properties and differentiate a good investment opportunity from an overpriced property.  This means studying the current trends in a number of markets to determine where prices are accelerating more quickly. An area with lower prices often provides better long-term rewards.

Location, Location, Location

At the risk of stating the obvious, real estate is all about the location. This means investing not only in currently desirable markets, but up-and-coming areas as well. One way to determine the prospects of a market is to look for the development of new infrastructure, particularly roads and schools. These are usually good indicators that a community is poised for growth. Other signs of growth include land clearing, surveying and new construction, and roadway improvements designed for increased traffic flow.

Death and Taxes

Avoiding taxes, like death, is not realistic. That being said, there are ways for an entrepreneur to minimize the tax consequences of real estate investing. A town with lower property taxes will typically be more in demand, and properties can be bought and sold more quickly based on this demand.

Getting a handle on the tax structure of a particular area not only requires obtaining information from the local tax assessor, but also foreseeing if a reassessment is on the horizon. Taxes tend to rise in areas that are becoming crowded, where schools are filled to capacity, and roadways need improvement.

Teach Your Children

Parents who are looking to buy a home are invariably concerned about the quality of education in a community. This means that you need to be familiar with the school rankings associated with the market. Schools are typically ranked by the students’ performances in math and English by district; the current controversy over Common Core notwithstanding.

In short, new home buyers want access to quality education for their children and will be more inclined to buy a home in communities with higher rankings.

Up the Road Apiece

Another key to achieving success in the real estate game is to know what’s happening on the outskirts of town. As the prices of properties downtown escalate, some homebuyers may be priced out of the market and will look to surrounding areas that may be poised for future growth. Some typical signs of growth include areas where major train stops or bus routes are being planned.

The Bottom Line

In the end, building a successful real estate business means being in the game for the long haul. As an owner, it is essential to learn about industry trends concerning market prices and future development and to be patient as you execute your plan. By having a talented team around you, you can navigate the ups and downs of the real estate cycle and reap the long-term financial rewards.

To learn more about joining the real estate game visit 9 Core Realty on the web!

In our last blog post, we provided many helpful tips for foreign investors.  You can find that article here.  Today, we’ll continue with additional information that all foreign investors must know before purchasing investment real estate in the United States.

FOREIGN INVESTMENT IN REAL ESTATE PROPERTY TAX ACT (FIRPTA)

When a Foreign National sells property in the U.S., the IRS must be paid capital gains taxes. Accordingly, the IRS will withhold 10% of the gross purchase price of the property. When a US tax return is submitted reporting the capital gains tax, if there is any refund due, the money will be refunded to seller.

CAPITAL GAINS TAX DEFERMENT VIA 1031 EXCHANGES

The US government allows Foreign National sellers to use Section 1031 of the IRS Code to defer capital gains taxes for as long as the capital gains of a property are used to purchase a subsequent investment property per Section 1031 of the IRS Code. Such a transaction requires the structuring of a “like kind exchange” as well as the use of a qualified intermediary. Rules for carrying out a 1031 Exchange are extensive and should be followed to the letter in order to benefit from this unique tax deferment opportunity.

U.S. ESTATE TAXATION

Many Foreign Nationals are not aware that ownership of a U.S. home triggers U.S. estate tax on death, and a gift of the property during lifetime triggers U.S. gift tax. U.S. estate and gift tax is imposed at a rate of 40% and an individual who is neither a U.S. citizen nor domiciled in the U.S. can shelter only $60,000 of U.S. situs assets on death (i.e. assets located or deemed to be located within the U.S.). In terms of gifting, an individual who is neither a U.S. citizen nor domiciled in the U.S. can make annual exclusion gifts of $14,000 per year to anyone and can currently pass $143,000 per year to a spouse who is not a U.S. citizen free of gift tax. This is in contrast to the $5,250,000 that a U.S. citizen or domiciliary can pass free of estate tax on death or by gift during lifetime as well as unlimited transfers to a U.S. citizen spouse.

STRUCTURING THE PURCHASE

Owner of investment real estate (foreign or US) should consider forming an LLC to hold the property (and no other assets), since using this structure limits the owner’s liability to the value of the LLC, thereby limiting the owner’s liability to the net value of the property. In addition, setting up a Foreign Corporation in which the Foreign National holds shares for the purpose of owning the LLC would provide protection to the Foreign Buyer against estate tax, since the property would be “owned” by the Foreign Corporation. This form of title has the added advantage of providing anonymity and liability protector to the shareholder. This structure would also permit the transfer of the property from one party to another by the selling of shares of the corporation rather than the sale of the property, which might otherwise trigger a taxable event.

However, owning a property in a foreign corporation triggers other more immediate tax concerns.  Some of these concerns are: the application of the corporate tax rate (up to 35%) in lieu of the preferential long-term capital gains rates on sale (up to 20%); possible imputed rental income for use of corporate property by the shareholder; loss of the step-up in the income basis of the home upon the death of the owner (the basis of the stock in the corporation would be adjusted but the inside basis—the home itself would not receive a basis adjustment); and the loss of the ability to avoid a home from being reassessed for California real property tax purposes upon transfer from parent to a child.

If you are a foreign investor looking to purchase lots and land for sale and invest in the US Real Estate market visit 9 Core Realty on the web!

According to a recent survey conducted by the National Association of Realtors, for the 12-month period ending with January 2015, international buyers (“Foreign Nationals”) invested $82.5 billion in U.S. residential real estate, which equates to about 4.8% of total U.S. sales. The top-five international buyers were from the United Kingdom, India, Mexico, China and Canada for purchases in primarily Arizona, California, Florida and Texas. These homes are primarily purchased as vacation homes, for investment, or as temporary professional relocation and also include those buying investment land. It is important for Foreign Nationals to understand both the process and unintended tax and estate planning considerations which may arise.

PURCHASING PROPERTY IN THE U.S.

Purchasing property in the U.S. especially FL land for sale can be a transparent and efficient process. Unlike in many countries where buyers must bounce from agent to agent to find a property, new listing for sale are generally required to be posted on a listing service within 24 hours so that active listings are available to all brokers and agents.

Sales commissions are always paid by the seller and are divided equally between the buyer’s and seller’s brokers. While some seller’s brokers may engage in dual representation, that is, representing both the seller and buyer in a transaction, it is always advisable for a buyer to work with an exclusive buyer’s agent who will better protect the interest of their client.

FOREIGN NATIONALS MUST CONSULT WITH A TAX SPECIALIST IN THEIR HOME COUNTRY

There are a number of differences between a Foreign National and U.S. National when Foreign Nationals purchase real estate in the U.S.   A Foreign National should seek local tax advice in their primary residence, as overall tax liability may depend upon the Foreign National’s home country tax treaty with the US, if any exists. As an example, if the property was owned for more than one year, the capital gains tax rate in the U.S. is 20%, but a Foreign National could be required to pay a different rate depending on the home country’s tax treaty with the U.S. and structuring of the transaction.

ELECTION TO PAY U.S. INCOME TAXES ON NET RENTAL INCOME

The IRS requires Foreign National to elect to pay US income taxes on any net income (rental revenues less expenses) derived from a rental property. The penalty for this election not being made on a timely basis is an assessment of 30% tax on gross rental income. Moreover, an investor would not be able to deduct any expenses such as depreciation, interest, property taxes, or common area charges. Taxes must be filed even if the Foreign National is incurring tax losses in order to take advantage of the various tax deductions available.

RENTAL INCOME DEDUCTIONS

The IRS provides various opportunities for property expenses for an investment property to be deducted from rental income. Mortgage interest, common area charges, property taxes, depreciation of the asset over 27.5 years, insurance, and amortization of closing costs are all deductions against income, providing the opportunity for negative taxable income. In future years, when the investment is generating taxable income, such income may be offset by the prior year’s negative taxable income (a.k.a. tax loss carry forward), which can result in a tax-efficient investment for many years.

If you are a foreign investor looking to invest in the US Real Estate market visit 9 Core Realty on the web!

U.S. home prices increased at a solid clip in December, helped by a healthy job market and low mortgage rates.

The Standard & Poor’s/Case-Shiller 20-city home price index rose 5.7 percent from a year earlier, same as the annual increase in November.

Prices rose 11.4 percent in Portland, Oregon; 10.3 percent in San Francisco and 10.2 percent in Denver. Washington, District of Columbia, registered the lowest annual increase, at just 1.7 percent.

In December, the index reached the highest level since February 2008 — but it remained nearly 12 percent below its July 2006 peak.

No market in Southwest Florida is included in the Case-Shiller measure. Florida is represented by the Tampa and Miami markets, which saw an increase of 6.9 and 7.1 percent, respectively which includes property purchased by Florida land trusts. 

Mortgage rates remain near historic lows more than two months after the Federal Reserve raised short-term interest rates for the first time since 2006. Unemployment has fallen to an eight-year low, at 4.9 percent.

David Blitzer, chairman of the index committee at S&P Dow Jones, said steady price increases would encourage builders to start putting up more new homes. Last year, construction companies broke ground on 1.1 million properties and home sites, the most since 2007.

Builders have been focusing on apartment complexes to take advantage of rising rents. But the real estate data firm Zillow said Tuesday that growth in home-rental prices slowed in January, rising a seasonally adjusted 2.9 percent from a year earlier and cooling even in hot markets such as San Francisco and Denver.

To learn more about the SWFL real estate market, visit 9 Core Realty on the web!