real estate

Enterprise Zone Tax Savings: Be Careful

     The new tax law signed December, 2017 allows for investments in Enterprise Zones to be free of capital gains tax if held 10 years. Assuming someone is in the 23.8% federal bracket for capital gains this may seem appealing, but some of the tax savings might go to sellers of these properties. Assuming the properties appreciate immediately by half of the amount of the tax savings then the seller would indirectly get half of the value of the tax cut. If the buyer overpaid by half of 23.8% then he only saves half, which is 11.9%, then if divided by 10 years holding, that’s about 1% a year saved. Every bit of savings helps to boost returns but what

2018-10-31T13:18:12-07:00October 31st, 2018|mayflowercapital blog|Comments Off on Enterprise Zone Tax Savings: Be Careful

Market Won’t Be Stimulated By Tax Cut

  The administration’s proposed new tax law may not actually end taxation of offshore subsidiaries, according to an article in the FT. In my opinion the items that are likeliest to have the biggest tax cuts and biggest source of stimulus are these items, and the possibility of a special low rate for pass through entities. However, these would be seen by moderates as unfair (especially a lower rate for elitist privately held pass-through entities) and not helpful in terms of a goal of not increasing the budget deficit. Thus these items may be unlikely to pass Congress, based on the administration’s difficulty getting other bills passed. If Congress truly ends taxation of U.S. based companies’ foreign earnings that may

2017-09-28T14:17:26-07:00September 28th, 2017|mayflowercapital blog|Comments Off on Market Won’t Be Stimulated By Tax Cut

A Sudden Drop In Inflation To Occur?

A key component of CPI inflation is rent. 62% of “rent” comes from owner-occupied homes that the BLS uses to calculate a theoretical “owner’s equivalent rent” and is not actual rent. This figure comes from estimates offered by naïve homeowners who get surveyed by the BLS. These homeowners look to actually rented comparable buildings to estimate what their hypothetical rent should be. The fair market value of rent on owner occupied homes should be higher than that of a generic apartment house since they are better quality properties. If the affluent upper-end rental properties suddenly experience a sharp drop in rents then this change will influence owner-occupied hypothetical rent. In recent years much of the new construction of homes and

2017-06-21T14:06:59-07:00June 21st, 2017|mayflowercapital blog|Comments Off on A Sudden Drop In Inflation To Occur?

What Investors Can Learn From Trump’s Tax Returns

In trying guess what Trump’s taxes might look like I did some hypothetical thought experiments. I don’t know what his net worth is or other details of his finances. It was said in the news a long time ago that he had $4,000,000 of annual living expenses. Forbes said he has a $4billion net worth. The purpose of this essay is not to come up with a figure of what he earns but rather to discuss possible types of tax situations a wealthy real estate developer/investor might encounter. Assuming hypothetically he has a $300million net worth he might buy a portfolio of $900million of rental properties and use a mortgage for about 67% of the value. If it was an

2017-01-10T23:33:01-08:00May 12th, 2016|mayflowercapital blog|Comments Off on What Investors Can Learn From Trump’s Tax Returns

Inflation Rising? Are Bonds Doomed?

Core CPI rose 2.2% over 12 months, the highest in four years. Does this mean inflation is returning? Roughly half of core CPI is housing. This cost is determined by both owner’s equivalent rent based on recent home purchases and by actual rent for people who rent. The trouble with owner’s equivalent rent is that it is based on the most recent home purchase. If only rich people can afford to participate in a new housing bubble they may overpay for houses and make CPI go up in an unsustainable way. Eventually the truth will come out and home prices will go down to return to equilibrium. There was an article that a house in Vancouver, BC sold for $700,000

2017-01-10T23:33:03-08:00February 26th, 2016|mayflowercapital blog|Comments Off on Inflation Rising? Are Bonds Doomed?

A Solution For Crashes and Recessions

    The global economy is in a slow growth mode thanks to excessive debt and an end of high, unsustainable, and somewhat bogus growth in EM countries. The Federal Reserve’s Quantitative Easing program is increasingly viewed as a failure that is actually deflationary, so it is unlikely that QE4 will be implemented. Additionally hard money conservatives in Congress could seek to pass legislation to prohibit or limit QE.    If monetarism and QE don’t work or are not allowed to work then will Congress and the president turn to New Deal Keynesian deficit spending to stimulate the economy during the next recession? I expect the next recession in roughly a year. An alternative side of the coin of Keynesian deficit

2017-01-10T23:33:12-08:00October 16th, 2015|mayflowercapital blog|Comments Off on A Solution For Crashes and Recessions

Real Estate Yields: Better Than Bonds?

  Some rental real estate in poor quality old properties yields 12% or about 8% net after paying operating expenses (ignoring depreciation). Should you buy that instead of bonds to get a decent yield?    The median U.S. housing price to rent ratio is 11.3 per Zillow. This is a gross yield of 8.8% if you bought a house and rented it out. Assuming that 25% of rent was spent on expenses and there was no mortgage then your net income would be 6.6%, ignoring depreciation and non-recurring costs to sell the home. Since depreciation is real then it should not be ignored. Assuming one holds rental real estate for a long time then the true cost of depreciation will catch

2015-08-26T13:16:00-07:00August 26th, 2015|mayflowercapital blog|Comments Off on Real Estate Yields: Better Than Bonds?

Can Cost Segregation Boost Real Estate Investment Returns?

It may be possible to get significantly more depreciation tax deduction for investment real estate using cost segregation. This is where a CPA writes a report showing how depreciable items in a building may only have a five year life instead of a 39 year life for an office building and then depreciation allowed per year is greatly increased. Assuming a third of the property’s improvements can be characterized as personal property instead of real estate then this could change the depreciation boosting the annual deduction from 2.5% to 3.6% of the cost basis of the property’s improvements. Assuming that an “A” quality office building with no debt received 7% annual rent as a percentage of the property’s value and

2017-01-10T23:33:14-08:00August 17th, 2015|mayflowercapital blog|Comments Off on Can Cost Segregation Boost Real Estate Investment Returns?