Under the most common unitrust scenario, donors irrevocably transfer assets out of their estates and into a trust created by an attorney. In doing so, they stipulate that what’s left in the trust at a specified time in the future becomes the property of designated charitable organizations. Prior to that, however, the donors can arrange to have the trust make periodic payments (at least annually) to themselves or other named beneficiaries.

Consider the example of a married couple who decides to contribute a growth stock they’ve owned for many years, but which pays little in dividends, to a unitrust ultimately earmarked for their respective colleges. The trust then sells the stock and reinvests it into greater income producing vehicles, which in turn provide periodic payments to the couple, who have been designated as beneficiaries of the trust, until the death of the surviving spouse.

In doing so, the couple is able to take advantage of the flexibility offered by charitable remainder unitrusts:
They can name whomever they want as trustee, including themselves.
They can select annual, semiannual or quarterly distribution payments from the trust subject to a minimum of 5% and a maximum of 50% of the trust value.
They can add funds to the unitrust at any time and invest the funds in whatever manner   they wish, if they are the trustees.
The income can continue for their lifetimes, or for a fixed term of not more than 20 years, or a combination of the two.

Here are some of the benefits that accrue to the donors from their philanthropy:

An Immediate Income Tax Deduction – Although their charity may not receive anything for many years, the government allows the couple to take an immediate income tax deduction for the charitable gift. The amount of the deduction, which may be taken against ordinary income up to 30% of their adjusted gross income (for capital gain property), depends on three factors: the size of the gift, the ages of the couple, and the unitrust distribution percentage. The IRS has published a table for calculating the “present value” of this future gift.  Deductions may be further reduced if the donors adjusted gross income exceeds certain thresholds.  They won’t get a 100% tax deduction for the amount the charity will receive, but they will get something each time they contribute to the trust.

Delay of Capital Gains Tax – Charitable trusts are tax-exempt; therefore the trustee will not have to pay capital gains taxes on the appreciated value of the stock when it is sold. However, when income is distributed from the CRT to individuals, it will come out as taxable to the extent there would have been taxation had the donors sold the stock. The trust retains all proceeds of the sales, which help generate greater distribution amounts for the designated beneficiaries, namely the couple themselves.

Increased Income – Investments held for a long period of time, such as land or low dividend growth stocks, can potentially generate large amounts of capital gains when they’re sold, but rarely spin off a lot of annual income. The capital gains tax-free reinvestment through the unitrust allows the couple to dispose of, without tax, an asset earning a relatively small yield, and the trustee can reinvest the proceeds in a higher yielding instrument boosting the beneficiaries’ current income. Further, over a period of years, the trust can reinvest this extra cash.

Generating Increasing Cash Flow – Selecting the right percentage distribution can make the unitrust an excellent cash flow generator. The trust assets will be revalued annually, and the couple’s income will be a percentage of that total value. If they ask for 7% of the trust value as an annual distribution and the trust earns 10% in a year, then roughly 3% will remain as a growth factor inside the trust. The following year’s 7% distribution will be larger  because the amount in the trust is larger.  It may be to their advantage to choose a relatively low payout percentage that, in turn, will allow the unitrust’s yearly payments to grow.

A Legacy of Philanthropy – The couple knows that ultimately their generosity will benefit the institutions of their choice. However, if they had been torn between leaving assets to charity or family, they may have been able to solve their dilemma with life insurance.

Proceeds from a second-to-die policy purchased with part of the income distribution from the trust and payable to their heirs could help make up for  the value of the stock they placed in the unitrust. And, if properly administered, the death benefit could be passed on free of Federal Estate Tax.

You can also arrange for a different type of unitrust to pay less than the  distribution rate you select and be owed the distribution rate in later years. That feature, and the advantages it can have toward building a retirement income, will be the subject of a subsequent article.

This material contains references to concepts that have legal, accounting and tax implications.  It is not intended as legal, accounting or tax advice. Consult your own attorney and/or tax advisor for advice regarding your particular situation.

Life insurance is issued by the Prudential Insurance Company of America, Newark, NJ, and its affiliates.  Our policies contain exclusions, limitations, reductions of benefits and terms for keeping them in force. Your licensed Prudential financial professional can provide you with costs and complete details.

Dawn Coleman-Hyman entered the financial services business in 1982.  She holds a degree from the Fashion Institute of Technology, New York, New York.  She started with the Prudential Insurance Company of America in Flushing, New York.
Dawn opened her current office and company, Coleman Insurance and Financial Services, in 2000.  Her practice caters to small business owners, and families, to grow and protect their wealth.
Ms Coleman-Hyman is a past president of the National Association of Insurance and Financial Advisors, Long Beach, California, a past president of NAIFA California, past president of the Rossmoor Community Services District, and a past VP of operations for the Boys and Girls Club of Long Beach. She holds her life, health, and property and casualty licenses and is series 6, 63 and 65 licensed.
Her address is:
2505 E 7th Street
Long Beach, Ca. 90804
Phone 562-438-5118.
CA. license 0685858

Stabilized Occupancy
This real estate term is mentioned several times in this article, so I wanted to briefly define it.  When a real estate buyer completes a business plan (as he should) for a property he is evaluating, he needs to choose a “stabilized occupancy” number.  This number represents the average long-term occupancy that the owner hopes to achieve.  This number will differ between properties depending on product type and geographic location, but is generally in the 89% to 95% range.
Where The Good Deals Are NOT
Before discussing where these good deals are, let’s discuss situations that are best avoided.  I get a lot of phone calls from investors looking for commercial foreclosures.  For my investors who are seeking income, I recommend avoiding foreclosure sales.
Wait, I should stay away from commercial foreclosures?  I thought that those are the best deal?
All commercial foreclosure properties have one thing in common – a HUGE problem.  If the property had stabilized tenancy and positive cash flow, then the owner would not have let the bank take it back from him.  These buildings can have huge vacancies, large capital improvement requirements, or even environmental problems.  I always remind investors that commercial properties are valued based on the income that they produce.  A problem building has some defect that is affecting its’ cash flow.  This problem usually needs to be fixed before the property can be sold at a profit.  Usually it is a bad problem that is hard to fix – otherwise the previous owner would have solved it prior to foreclosure.
So, that office complex foreclosure that you’re eyeing is cheap – but it may be only 20% occupied.  The surrounding submarket could have huge vacancies as well.  Sure; if you could lease it up (an industry term for “bring the property to stabilized occupancy”), then you could sell it for a profit.  This could take a LOT of work.  (And risk).  In my opinion, it is better to buy good properties now.  Good, stabilized properties are available at lower prices today in part due to the problems these bad deals have brought to the market.  By buying properties with good tenants that are cash flowing, we can take advantage of lower prices while avoiding many of the problems.

Opportunity – Retail Centers for Lower Prices
Back in the late 1990’s, the prices of retail centers were low.  Vacancies were rising, and one story going around was that “nobody will shop at retail stores anymore – they will buy everything over the internet.”  The prices on retail centers – strip malls and larger enclosed malls – were low.  Those who bought retail in this time period were able to sell at a profit between 2002 and 2004 after things recovered.
Such an opportunity could be before us today.  Spurred by lower sales, higher vacancies, and some high-profile bankruptcies (Circuit City and Mervyn’s), retail prices are low today.  Opportunities exist to buy retail centers that are anchored by strong tenants with long-term leases – and benefit when prices rise again after the eventual recovery.  Both Circuit City and Mervyn’s had been weak performers for over a decade – their closure was not a large surprise to most.
A 20-year lease is only as good as the company behind it, so tenant evaluation is very important.
Many larger shopping center companies have been in the news recently – they are having financial problems caused by loans coming due.  These companies are being forced to sell their good properties in order to pay down debt on their underperforming ones.  Distressed sellers can mean better prices for investors.
Opportunity – Energy to Beat Inflation
According to the US Department of Energy, the United States is the 3rd largest oil producer in the world.  (This statistic always surprises people.)  However, as the planet’s #1 consumer of oil, the US is also the #1 buyer of foreign oil.   The 12.25 million barrels of oil that we import every day is more than twice that of Japan – the world’s second largest importer.  The oil that we import every day is greater than the combined oil exports from Norway, Iran, the U.A.E., Venezuela, and Kuwait.  (Worldwide exporters #3-7, respectively.)
Since we consume much more oil than the rest of the world, it makes sense that the price of oil is denominated in dollars.  Even if that changes, we still must pay for it with dollars.  If you believe that inflation is in our near future, than you can expect oil prices to rise.  Since the dollar we are buying oil with is worth less, we must spend more of them when we buy.
Therefore, if we own domestic oil production, inflation can push our income – and the value of our investment – higher.
Use Lemons to Make Lemonade
To use another cliché, “Every cloud has a silver lining.”  Finding the silver lining is tough – investors need to learn where to find it.  Those that are motivated to learn could gain a sizeable advantage.  In this economy, there is room for good deals.  Cash is king today, and now could be a great time to take advantage of these lower prices.

Christopher Miller is a Managing Director with Specialized Wealth Management in Tustin, California and specializes in tax-advantaged investments including 1031 replacement properties.  Chris’ real estate experience includes work in commercial appraisal, in institutional acquisitions for a national real estate syndicator, and as an advisor helping clients through over two hundred 1031 exchanges. Chris has been featured as an expert in several industry publications, and on television, and earned an MBA emphasizing Real Estate Finance from the University of Southern California. Call him toll-free at (877) 313 – 1868.

Securities are offered through Private Asset Group, Inc.  Member FINRA/SIPC. 3070 Bristol St. Suite 500, Costa Mesa, CA 92626. 714-545-5002. Specialized Wealth Management and Private Asset Group are not affiliated.  This document does not constitute an offer to sell, nor is a solicitation of an offer to purchase securities.  Any such offer shall be made solely pursuant to a Private Placement Memorandum.  All investments have MATERIAL RISKS. Past performance is never an assurance of future results.  Investors must read the SPONSOR’S Memorandum paying particular attention to the section on RISK FACTORS before they invest and for further disclosures about terms, risks, etc. Please consult a qualified tax advisor for specific tax issues.

Typically, under a commercial property policy, coverage is significantly restricted for buildings that are vacant beyond a certain period of time. Usually, certain types of coverage are completely eliminated during the vacancy. Continued, full coverage often requires additional premium and the attachment of an endorsement indicating the insurer’s acceptance of the increased risk.

Insurance companies are interested in protecting ongoing businesses and premiums are based upon active occupancy. Therefore, if a property is vacant there is a considerable increase in its coverage cost. Since vacancy is often only discovered after a claim, the typical commercial property policy’s Loss Conditions severely limit coverage when a vacant building has suffered damage.
Definitions
Before any restrictions can be imposed, the insurance company must define exactly what they mean by vacancy and the definition is affected by the type of occupancy:
Tenant - When the insured is a tenant and the policy covers that insured’s property interest, the definition of building is the unit or suite that has been rented or leased to the tenant. That building is considered vacant when it no longer contains enough business personal property to conduct the customary operations of the insured tenant.
Building Owner Or General Lessee - When the insured is a building owner or general lessee, building is defined as the entire building. The building is considered vacant UNLESS at least 31% of the TOTAL square footage is rented to a lessee or sub-lessee and used by the lessee or sub-lessee to conduct its customary operations OR is used by the building owner to conduct customary operations.
Buildings Under Construction – Buildings that are under construction or renovation are not considered to be vacant.

Vacancy Provisions

Now that vacancy has been defined, the vacancy condition can be stated. If the building where loss or damage occurs has been vacant (see definition above) for more than 60 consecutive days before the loss:
the insurance company will pay NOTHING if the loss was caused by vandalism, sprinkler leakage, glass breakage, water damage, or theft (including damage from attempted theft). the insurance company will reduce any loss amount by 15% if the claim is due to any Covered Cause of Loss not listed above.

The vacancy exclusions and limitations may be even stricter in reducing or eliminating coverage or allow for only 30 days before the carrier considers the property as vacant.

Vacancy Permit

When vacancy does occur, many companies, for an additional premium, will add a provision (sometimes called a Vacancy Permit). This form changes the policy wording so that it provides coverage for the property during specific time periods that it is vacant.
Court Case: Pappas Enterprises, Inc. & others v. Commerce and Industry Insurance Company–Supreme Judicial Court of Massachusetts, Suffolk–February 14, 1996–661 North Eastern Reporter 2d 81.

Sixty-Day Vacancy Period Spans Two Policy Terms
Pappas Enterprises, which owned numerous properties in the Boston area, had secured fire coverage from Commerce and Industry Insurance Company. On September 1, 1990, the insured renewed their policy which had been in continuous force since September 1, 1988.
On October 27–57 days after the effective date of the current policy–one of the properties was damaged by fire. Commerce was notified and found that the property had been vacant since May 1989–a period in excess of one year. It denied coverage, and the insured filed suit.
The insured’s policy excluded property coverage for a loss occurring while the insured premises were vacant or unoccupied beyond a period of 60 consecutive days. The insured argued that the property had been vacant for only 57 days under the current policy. The company contended that the 60-day vacancy could also include consecutive days of vacancy during the prior policy period.
The trial court found that there was no controlling Massachusetts authority, and cases decided elsewhere were not applicable to all the circumstances of this case. Also, if the provision was ambiguous, the ambiguity was in every fire policy written in the state. The judge certified two questions to the Supreme Judicial Court of the state:

1. Does the 60-day vacancy provision for fire policies apply in cases where part of the 60-day period occurred prior to the effective date of the current policy?
2. If not, would the result be different if the current policy was a renewal of the previous policy, and part of the 60-day period occurred prior to the renewal?
The higher court decided that the consecutive days of vacancy prior to the effective date of the current policy could be counted only if the current policy was a renewal of substantially the same coverage provided in the prior policy.

The court answered the first question in the negative because the vacancy exclusion does not apply when the loss occurred within 60 days of the effective date of the current policy, assuming there was no prior policy with the same coverage.
The second question was answered in the affirmative. Thus the court decided that a vacancy period of a prior policy period should be tacked on to the vacancy continuing through the subsequent policy period, if the subsequent policy was a renewal of the prior policy with no substantial change in coverage. The decision was made in favor of the insurer.
The court noted that the insurance company agreed to assume the increased risk during a 60-day vacancy and not during a period of a vacancy lasting more then 60 days.

About the author
Eric Paulos is a Certified Insurance Counselor, apartment owner advocate, licensed California insurance agent, author and speaker. Eric Paulos Insurance Services caters exclusively to the apartment owner community, offering insurance and risk management services. Contact phone: 800-974-6787 Fax: 800-959-9603, Email: eric@apartmentins.com. Visit www.apartmentins.com for 24 hour a day, 7 day a week online quotes. Download free money-saving articles and reports. Apartment Management readers are also invited to log on for a free subscription to Eric Paulos Insurance Services’ monthly apartment insurance tips & bulletins.

Software Advice, a web site that advises software buyers about which property management software to buy, just released the results of their 2009 Property Management Technology survey.

The survey garnered responses from 70 property managers from around the country and came up with some very interesting conclusions.

Among them:

• What technology a growing property management company uses;
• How prevalent social media use is;
• How property management specific software allows companies to manage more units per employee; and
• How companies are struggling to track leads that come from the Internet

Software Advice also made the full results of the survey available for download on their web site, if you want to dive deeper.

Here are what some of the respondents had to say about the state of technology in the property management industry:

“I feel web based software is coming of age. The biggest obstacle most face is ownership rights of their data.”

“Property management has been late to adopt technology. in the last couple of years we have seen many more offerings in the property management space and I think that there is still a long way to go compared to many other industries.”

“We need more integration with leads and leases. We need the search, show, follow up, lease process that can be seen on a computer report.”

“I view technology as vital to our future growth – remote connectivity to a server based hub structure, text pull and push campaigns, mobile phones and PDAs all play apart. Web based technology too – Google Analytics, our website, online services.”

How are you using technology in your property management job?”

Click Here to Go To Their Website

No one really knows what Congress is going to do about the estate tax.  At an advanced tax seminar that I attended in October, most commentators discussed Congress extending the current law to 2010 as the most likely outcome.  This way Congress will not have to deal with any estate tax legislation this year given the current legislative priority for health care, clean energy and education.

Unfortunately, because of the record deficits, the estate tax will be still around.  It is merely a question of whether a couple will be able to transfer $4 or 7 million of their assets estate tax free.  That means that between 98 and 99% of the country may not be subject to estate tax.

When I have this discussion with my clients, I mention that planning will still continue in order to protect their assets and shift income to heirs.  Today, $4 or 7 million is still a lot of money even in this depreciated real estate market (that may have finally reached the bottom.)

Estate Planning.
The first newsletter topic deals with the fact that in order to transfer the $4 or 7 million to their children, clients will have to establish the typical family trust that provides for the first $2 or 3.5 million to be transferred into a decedent’s trust.  I recommend that the decedent’s portion of their estate should allow the flexibility having the surviving spouse be able to change how the distributions to their children will be if there is a change in circumstances after the death of the first spouse.  Unfortunately, this type of planning is not provided for in some family trust documents that I have reviewed.

What else should you be thinking about, if you have substantial assets that will not be subject to estate tax either because of total repeal of the death tax (good luck) or more than likely your estate may be under the exemption amount? What are the various planning tools to use in this environment?

Wealth Management.
If wealth preservation is a key motivator for you and protecting heirs at the same time, using a limited partnership or limited liability company will certainly be one tool.  This is particularly true where real estate is a major asset.  Various types of trusts will also be something to explore.

Income Shifting Strategies.
An individual who is funding benefits or obligations (e.g., college tuition or support costs) for someone (e.g., a college age child or a parent in a nursing home) who is in a lower income tax bracket should consider adopting approaches by which the ordinary income or capital gains of the individual are shifted to the lower tax rate taxpayer. There are a number of methods for accomplishing this task, including the following:

1. Trusts can be created to hold income-producing assets; the trust income is allocated among the beneficiaries based on the trustees’ discretion.

2. The transfer of noncontrolling interests in flow-through entities (e.g., limited liability companies (“LLCs”), partnerships, and S corporations) may be used to shift income to lower-bracket family members without giving up control over the underlying asset or the family business. However, for most individuals, the federal estate tax issues surrounding family limited partnerships (“FLPs”) will become moot. FLPs remain an excellent tool for maintaining control of an asset, while income earned from the asset is allocated to lower-bracket family members.

3. A business could hire family members to work in the business. However, if the business owner has earned income over $90,000 (in 2005), then this approach could create Social Security taxes which the business owner would not have incurred.

Conclusion.
Benjamin Franklin said that only taxes and death are inevitable. As long as we have taxes, tax avoidance will remain an important motivation for many people.  This does not mean that planning does not continue on in preserving and protecting your assets.

D. Michael Trainotti has a general tax practice in Long Beach which emphasizes real estate, closely held businesses and estate planning matters. He has a master’s degree in taxation and is a member of the tax sections of the State Bar of California dealing with real estate, pass-through entities and estate planning. He is also a member of the same tax sections of the Los Angeles County Bar Association and the American Bar Association. Mr. Trainotti would be pleased to hear from you regarding  future topics of interest or comments on this article. Please contact him directly at his office at (562) 590-8621 or by e-mail at mike@trainotti.com. You can also visit his website at http://www.trainotti.com

When politicians pass a law without thinking of the consequences, the American businessman is left holding the bag. The price of non-compliance or un-permitted compliance is even more costly. Newer technology saves the day.

At seven years old, Virginia Graeme Baker (VGB) got caught in a spa intake suction drain and drowned. Such incidents are very rare, but she was a relative of a politician who then decided he had to take responsibility for making sure that no other child suffered the same fate. With no research to substantiate the claims, he crafted a congressional bill saying that the cost of compliance would be less than fifty dollars per pool and sold the idea to Congress, No research was done to reveal the true cost of compliance or the frequency of such pool accidents. The true cost of compliance being between $1,000-$2,000 and the frequency being about one per year across the whole US.

US Consumer Product Safety Commission revealed its latest figures on child drowning injuries and deaths. According to the CPSC, almost 300 children under age 5 drown in spas and pools annually, while 3,000 young kids sustain injuries that require emergency medical attention. But that is not the real picture as regarding the VGB Mandate:

• 2/3rds of the victims killed or injured in pools and spas are toddlers, ages 1-2.
• 80% of drowning deaths take place in residential settings, not commercial.
• Between 1999 to 2008, 69 injuries and 11 deaths occurred due to spa and pool entrapment accidents.

Last month pool suction from the old-style drain trapped a child underwater in Florida…
While every life is important, every possible accident, even with all the money in the world, cannot be prevented.

The final draft of the Virginia Graeme Baker Pool and Spa Safety Act required only commercial pools and spas to be retrofitted with a new twin drain cover, despite this accident happening in her backyard spa. Technology at the time, did not exist to affordably make the correction to the over 200,000 commercial pools covered in the mandate. Less than 5% of commercial pools had met compliance by the original May 2009, deadline. The economic costs were too high, the technology was still too expensive and most county health departments, charged with enforcing the law had been under staffed because of government budget cuts.

Last month pool suction from the old-style drain trapped a child underwater in Florida, but the family got the child loose in time. In September 2009 in Southern California, another child was not as lucky. These  are the only two occurrences reported in over a year across the whole country. Regardless of whether the new law applied to these probable residential incidents, they made headlines. Because the news media looks for tragedies to promote, these incidents hit the news with commentary on the new law.

Luckily things have changed recently. By December 19, 2008 the first practical approved drain cover came out. God bless technology, for developing more affordable retrofits. Depending on the county (Ventura said no, Los Angeles said yes) you may be able to do the retrofit with a licensed scuba diver if he is also a pool contractor. Before December 2008, the pool had to be emptied and the pool contractor had to dig out a channel along the bottom, re-pipe the drains, and re-plaster the area of the repair. Unfortunately sometimes plaster in an empty pool starts to peel. When that happens, the owner must re-plaster the whole pool!  The channel drain cut out all that work. The installation technology has been getting simpler and quicker. Prior to the technology allowing scuba diving retrofits,

Technology did not exist to affordably make the correction to the over 200,000 commercial pools…the required pool draining wasted over 17,000 gallons of water while most of the country was in drought. To make matters worse, refilling the pool sometimes incurred a fine for using too much water. One San Fernando Valley City fined a motel owner $1,500. for water wastage.

Today the newer retrofits cut labor costs in half. However by October 2009, the state-of-the-art retrofit drain made in San Diego, California, was not even available in pool supply houses anywhere in Southern California. Doug Watkins, a licensed pool contractor and licensed scuba diver, has been bringing them from his Utah location. Utah has totally retrofitted all the commercial pools in the state, and Doug Watkins was showing me the latest and best technology.

Interestingly enough, Southern California is neither up-to-date nor compliant. In an attempt to save money some pool owners hired illegal alien contractors to install the new drain covers. These Non-licensed contractors are still digging a trench to retrofit the drainpipes manually, because they do not even know there is a simpler way. Owners think they are saving money and instead pay much more than necessary as well as incur future difficulties.
In October, the State of California decided to issue its own law regarding the VGB mandate. They gave us an extension until July 1, 2010 to have our pools fully compliant and signed off. They specified which contractors could do the work. See Doug Watkins’ website www.Services4Pools.com for the exact rules as to who in addition to licensed pool contractors can do some or all of the work.

The Health Departments will most likely be doing inspections of every one of the 200,000 commercial pools at some time, in order to catch those pools retrofitted without a permit and by unlicensed pool contractors. Permits can only be pulled by approved contractors. It will be very interesting to see what happens when the owner tells the health department that they have complied, and the inspector does not see a retrofit permit on file. Then the Health Department will issue a citation with a fine and demand the job be redone and signed off by a licensed pool contractor. Believe it or not, a general contractor will not do. Is this crazy?

Crazier still, in Arizona the Health Department indicated they do not have the funds to hire inspectors to enforce the mandate. So Arizona motels think they can postpone doing the work. Not so. Even though the county cannot enforce the code; we have our legal eagles —the litigation attorneys— looking for a lawsuit waiting to happen. The pool owner in Southern California where that child died in September 2009 might be turning over the deed to his property to that child’s family. There is not enough insurance in the world to cover non-compliance with a Federal mandate when inaction takes the life of a child. The insurance company might refuse to pay the claim because of that non-compliance with the law.
What is the solution? First, if you have a commercial pool: Beg or borrow (but please do not steal) the few thousand dollars needed to comply with the law. Second, do not hire anyone but a licensed pool contractor. Find out what your options are so you do not pay for a completely rebuilt pool when you can comply with the law for a minor cost. Third, make sure you have a permit. Lastly, vote out of office every politician who votes to spend, spend, spend  your money in any manner you are not in total agreement with.
For the actual laws and more information you can go to www.services4pools.com. Doug Watkins can be reached for questions at 800-864-0420 or by email at  info@Services4Pools.com

About the author
Willard Michlin is a California real estate broker, landlord, property manager and author. He can be contacted in his Moorpark office at kismetrei@earthlink.net or by phone at 800-864-0420

Get to know your investors and potential investors: Each property that you syndicate is not for everyone. You must meet with each investor or potential investor and find out what their financial objectives are. Where do they see themselves 5-7 years from now? Can they afford the investment? Are they able to wait 5-7 years? What if the property does not perform as planned? How much will that affect them? How much can they afford to lose? What is their tolerance for risk? What are their expectations? Please do not accept any investor in any project if it does not meet their investment criteria.

Sometimes you might feel the need to accept the investor in order to be able to close escrow. Don’t do it. If you accept with the wrong investor, this is an invitation to a catastrophe.  Did I do it -of course I did it a couple of times and each time I ended regretting it. Would I do it again? Definitely not! I would rather lose the deal than put someone in the wrong deal or have someone hurt.
Strive to under promise and over deliver; if you think you can deliver a 15% return, promise the investors 13%. If you deliver 13½% they will be happy, invest with you again and tell their friends. But if you say 15% and deliver 14 ½, they will be disillusioned with you even if they know your intentions are good and you did your best.
If I can give you advice it would be this:

Whether a private investor or private equity company, most people will invest not just for the deal, the property location, purchase price or even its potential. First and foremost they will invest in YOU.

Success in syndication requires two things:

1) Integrity and values. In caring for results for the investor first, your reputation, like a virus, will spread very fast in delivering what you promise or even delivering more than you promise

2) Skills. Know where and how to find a good buy, how to structure winning partnerships and effective management.

We cannot help you with your integrity and values but we can help you with your skills and that is why we are holding regular Syndication Workshops in Los Angeles and sometimes in Orange County.
You want to buy an investment property, but do not have money for a down payment or closing costs?  Do you just forget it?  That’s probably what you have been told by people who think they know what they are talking about, but simply do not.
Obviously they have not thought of OPM, other people’s money syndications, partnerships or group investing.
For example, Mark, one of my students, was a real estate investment broker; he was good at finding properties but did not have nor could he raise the money. I helped him find an investor, Jerry, who happens to also be a good manager.
I coached both of them to start syndicating apartment buildings. They both started part-time about 5 years ago. Now Mark and Jerry have built a fortune, quit their jobs, and they are doing real estate investment full-time. They are making 5 times more money than when they had jobs.

Syndication is perhaps one of the greatest secrets of the richest people in the world.  So the most successful real estate investors tend to use group investing.

As a matter of fact, the best source of cash for your real estate deals is OPM or syndication. And the more you use other people’s money, the faster you make your millions. The higher the return on the investment, the faster it grows. Syndication, like a snow ball rolling down a steep hill, grows amazingly fast. So I encourage you to start investing and using syndication now, because the sooner you let that ball roll, the quicker you make your millions.

Karim has founded and operated 19 successful companies, and made his first million by age 26, by buying and fixing distressed properties and businesses. For 45 years Karim has developed, invested in, financed, brokered, and managed properties in 8 countries. Karim is the author of “The Smart Real Estate Investors Guide: Your Road Map to Wealth in Any Economy”. Karim hosts monthly real estate seminars in Los Angeles and Orange County.  He mentors, writes, teaches, and speaks about real estate frequently and has been published in 115 business and real estate publications nationwide. Contact info: 310-471-0650, karim@dynamicscapital.com, www.dynamicscapital.com

First, I will need to define some real estate lingo.
Many commercial leasing terms exist to describe who pays the property’s expenses.  Who pays which, and how much, of those expenses is all spelled out in a tenant’s lease agreement.  Three ways to describe commercial leases are:

1. Gross lease, 2. Modified Gross (or Net) Lease and 3. Triple Net (or NNN) Lease.
A gross lease is the easiest to understand.  Under this lease, a tenant pays rent only, and the landlord pays for all utility bills, insurance, and property taxes.  A modified gross, (sometimes called a “Net”) lease is one where a tenant will pay some expenses.  For example, an apartment building that has electricity separately metered to the units is charging modified gross rents.  Tenants pay their electricity bills, while the landlord pays everything else.  (Water, gas, sewage, garbage, maintenance, and insurance – to name a few.)  Triple Net describes leases where the tenant pays all of the expenses previously mentioned.  In fact, the name “triple net” is an abbreviation for the term “Net taxes, Net insurance, Net maintenance.”  Note that the term “double net” is sometimes used to describe leases.  This means that the landlord, not the tenant, is paying one of these bills.
I could write an entire article on the differences between commercial leases, but this article focuses on properties that are triple net leased to credit tenants, so I will focus on that topic.  The previous summary will have to do for now.

Benefits of Triple Net Leases
With Triple Net Leased properties, the tenant is responsible for paying expenses; so the landlord’s income will not vary month to month due to operating costs.  Every rental property owner knows the frustration of collecting rents on a 100% occupied building, but seeing that month’s net income drop due to property taxes or an unexpected water bill.  With triple net leased properties, the tenant pays expenses along with his rent; leaving the investor a stable income stream.

The Triple Net Leases That I Prefer
I prefer Triple Net Leases that are backed by a credit tenant.  For example, most fast food stores are owned by franchisees, rather than by their corporate namesakes.  If a restaurant goes out of business, its landlord likely won’t be receiving checks anymore – if that lease was guaranteed by a franchisee, rather than a major corporation.
For this reason, I prefer Triple Net Leased properties featuring leases backed by major corporations.  Major corporations have higher credit ratings than smaller companies, so they are a better credit risk;  although nothing is ever guaranteed, a larger company is more likely to pay their rent than a smaller one. These leases can be found in assets such as bank buildings, drug stores or office buildings.  Let’s examine each of these asset types.

Bank Buildings-
Think about your local bank branch.  Chances are that it is free-standing (not attached to another business), is in a great location on a corner lot, and has been operating as a bank for over a decade.  Sure, banks have received a good share of negative press with all the recent bank failures.  What happens when a bank fails, though?  A stronger bank buys its assets, and assumes all its’ leases.  For example, when Washington Mutual recently failed, J.P. Morgan Chase took over all the company’s assets.  That is bad news for Washington Mutual stockholders, but good news for the company’s landlords.  WaMu branches were simply replaced with Chase banks.  When a landlord gets a tenant with stronger credit, the value of his property goes up – so buildings occupied by Washington Mutual have potentially seen their value increase since Chase has taken over.  This is why, as one real estate executive once told me, “banks are the only tenant that fail up.”  When a bank is absorbed by another, 10-15% of locations in urban settings are shuttered.  (Less in the suburbs).  If this happens, the owner needs to re-lease a property that is on a corner lot in a high-traffic area.  This space is easier to re-lease than one without these attributes.

Drug Stores-
Freestanding drug stores have become a hot asset in recent years, boasting long-term leases and credit tenants.  Good deals are harder to find in this segment, however, as many properties feature leases that are strongly biased towards the tenant.  I have seen properties where the drug store’s lease is for 75 years, with no rent increases.  Such a lease’s value is actually declining every year as inflation grows.   The equivalent of $120,000 today is $7,300 in 1933.  (75 years ago.)  A landlord may have been satisfied with $7,300 of annual income back then – but he (and his children and grandchildren) would not have stayed happy.  For these reasons, contracted rent increases are very important when evaluating triple net leased properties.

Office Buildings – sale-leasebacks
Triple net leases can often be found in office properties through  a sale-leaseback transaction.  Under such an arrangement, a company that wishes to raise money will sell it’s real estate, and sign a lease to occupy that real estate for many years.  When a company owns the real estate it occupies, this can indicate a long-term commitment to a given location.  These companies tend to spend money – much more than normal tenants do – retrofitting buildings for their unique needs.  However, many companies are in business to seek a higher return on equity than real estate provides – that is their motivation to spend all that energy manufacturing and marketing products.  If their goal is a 20% or higher return on investment, that company may want to sell their real estate to re-invest in their business.  For instance; they could buy more machines to make more widgets, and potentially earn more income.
Investors can find great deals with sale-leasebacks, and often can find an excellent, well-maintained property, leased to a credit tenant under good terms for a long duration.
Of course, buying triple net leased properties contains all of the risks involved with buying any kind of real estate.  Sticking to excellent locations, with credit teants and long term leases can possibly decrease these risks.
Of the many ways to invest in triple net leased properties, I offer several options starting at $50,000 of equity.  Perhaps triple net leased properties could compliment your existing real estate portfolio – it is certainly worth investigating.

Your finances are an important part of your quality of life.  To achieve your goals, a panel of experts rather than a Jack of all trades is appropriate.  As you would see a specialist for medical issues, you need a specialist for financial matters.  You are worth it!

Christopher Miller is a Managing Director with Specialized Wealth Management in Tustin, California and specializes in tax-advantaged investments including 1031 replacement properties.  Chris’ real estate experience includes work in commercial appraisal, in institutional acquisitions for a national real estate syndicator, and as an advisor helping clients through over two hundred 1031 exchanges. Chris has been featured as an expert in several industry publications, and on television, and earned an MBA emphasizing Real Estate Finance from the University of Southern California. Call him toll-free at (877) 313 – 1868.

By Chris Miller

Who is doing the best in this slow economy? Whose investments are performing the best in this environment?
The portfolios of real estate investors who have learned to diversify are.  Every several years, an economic downturn like our current situation hits – as it did at the beginning of this decade, as in the early 1990’s, etc.  Once we climb out of our current situation, another one will come along in several years.  Smart investors, like those that I advise, have learned by watching these cycles – and know the value of diversity.  This article will discuss diversifying within your real estate portfolio.

So – I don’t need to trade my real estate for stocks, bonds, or gold?
Heavens, no!  If you had sold half your real estate and put it into the stock market in 2005, where would you be now?  Many of my investors are comfortable with real estate because they understand it, it can yield excellent cash flow with tax advantages, and because property allows investors to use the power of leverage (through loans).

How do I diversify my real estate portfolio?
Diversifying your real estate portfolio means owning properties:
In several asset classes
In multiple geographic locations
With a diverse tenant mix

Owning Different Asset Classes
I typically refer to this as “diversifying by product type.”  For example, hotels as an asset class are suffering as a result of decreased business and personal travel during this recession.  There is a silver lining in this cloud, however; lenders today are hesitant to supply funds for construction of new hotels.  An under-supply of hotels is likely to result – just like after September 11, 2001.  Back then, a similar downturn in travel produced just that, and we saw high room rates result from undersupply in many high-demand areas – like in Manhattan, New York.  Just like other business cycles, those boom times may be coming. Having parts of our portfolio in, say, retail and multifamily properties would lessen the temporary pain now.

Own in Multiple Geographic Locations
I often hear that most real estate investors own within 20 miles of their home.  Investors who owned in pre-Katrina New Orleans or in Northridge when the 1994 earthquake hit experienced a bit of “concentration risk.”  Since different regions of the country can have distinct economic cycles as well, it makes even more sense to invest in multiple areas. For example, the retail space vacancy rate in Orange County rose from 3.2% in 2006 to 7.2% today.  Tampa, Florida has seen a much milder rise of 4.2% to 6.2%.  So, rather than having two retail properties in Orange County, having one local and one in Tampa can reduce your risk by exposing you to more markets.

Diverse Tenant Mix
Owning 20 Mervyn’s stores or renting your apartments exclusively to “Big Three” assembly-line autoworkers may have seemed like a good idea 20 years ago, but 20/20 hindsight shows the flaws in that thinking.  Similarly, we would like to diversify real estate portfolios among companies, industries, and markets.

How I achieve this diversity?
I work with several national real estate syndicators who buy and manage properties all over the country – of all product types.  Although the opportunity to buy all of a large, institutional property always exists, few have the means to make a $20 million down payment on such a property – even fewer can do it and stay safely diversified.

One solution is to buy partial interests in these properties.  When the investment is structured correctly, these partial interests can be purchased as part of a tax-free 1031 exchange.  So an investor can sell his management-intensive properties and exchange into, perhaps, part of a high-rise office building in downtown Chicago.  By doing so, he can potentially get a better quality asset, better tenant quality, long term leases, freedom from day-to-day management, diversification, and sometimes better cash flow than he was getting on his own.

Many of my investors have been using this method for years.  By selling just one of their properties and exchanging into a partial interest, my clients can achieve lower portfolio risk through diversification and often increase their cash flow while doing so.  As a bonus, they offload day-to-day property management responsibility to a professional company, and have more free time as a result.

If you would like to explore diversifying your property portfolio, but aren’t fond of buying properties in asset classes you aren’t familiar with, then perhaps partial interests is a topic worth exploring.

This is neither an offer to sell nor a solicitation of an offer to buy an interest in any properties.  Offers are made solely pursuant to a Confidential Private Placement Memorandum.

Christopher Miller is a Senior Consultant with Midpoint Financial Services in Tustin, California and specializes in tax-advanted investments including 1031 replacement properties. Call him toll-free at (877) 313-1868

At any given time, one style or the other may be the best bet for you.  Oddly enough, at times you may even be better off employing both styles. Even if you start off with one style, changes in your lifestyle or the market may lead you to make a switch to the other or use both styles at once.

Value Investing
Value investing involves choosing stocks that may have an unappreciated potential — those that may not be the most popular in the market at the moment but that have sound fundamentals and might be poised for a turnaround. Value investing involves searching for a company that appears to have a good financial future, but that the market either doubts or has not yet noticed. It includes buying stock in these companies before the market fully recognizes them, and then waiting for the market to see their true value.

To help identify a value stock, look for some of these characteristics:
•    Value stocks generally trade below their intrinsic value (private market value per-share). In other words, their stock price does not reflect what the company actually would be worth if all its assets were sold.
•    Value stocks often have higher dividend yields. These companies can be more oriented toward paying a dividend rather than reinvesting for growth.
•    Value stocks may have hidden value such as land, assets, property, patents or other investments that investors may overlook.
•    Value stocks often have a lower growth rate than growth stocks.
•    Value stocks may be more sensitive to the economy than growth stocks. An improving economy may spur higher earnings and drive up a value stock’s price.  Thus, value stocks often outperform growth stocks early in an economic cycle.

Growth Investing
Growth investing focuses on stocks that experience faster-than-average growth and are expected to continue such positive trends.  Past performance, however, is no indication of future results.

When deciding whether a certain stock is a growth stock, you may want to look for the following characteristics:
•    A growth stock usually shows higher revenue and earnings growth potential relative to its industry.
•    Growth stocks are often industry leaders in sales and profits and often have the highest price-to-earnings ratios.
•    Growth stocks usually have low or non-existent dividend yields because the profits are generally reinvested back into the company as opposed to being paid out as dividends.
•    Growth stocks’ earnings often compare best when the overall economy’s growth begins to slow.  Thus, growth stocks have tended to outperform value stocks later in the economic cycle.

Before deciding on what style is best suited for you, and to avoid some of the volatility any particular investment may offer, you may want to use a more defensive technique by combining both these types of investments.  This strategy would allow you to capture blended returns with blended risk.  Your financial advisor will also be able to help you decide the best investment style for your needs.

The accuracy and completeness of this article are not guaranteed. The opinions expressed are those of the author(s) and are not necessarily those of Wachovia Securities/Wachovia Securities Financial Network or its affiliates. The material is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Provided by courtesy of Robert L. Breen, a Senior Vice President-Investments with Wachovia Securities in Anaheim. For more information, please call Robert at (800) 300-4428 or visit his website at www.breen.wbsec.com. Wachovia Securities/Wachovia Securities Financial Network, LLC, member FINRA and SIPC, is a separate nonbank affiliate of Wachovia Corporation. ©2008 Wachovia Securities, LLC.

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Investments in securities and insurance products: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE