5 Ways to Simplify 1031 Exchanges

The term “1031 Exchange” in itself can be daunting as it gets thrown around often. Many people don’t fully understand what it entails but may actually heavily benefit from it. Here’s what you should know if you’re considering this savvy option for investing in, or transferring real estate.

First, let’s discuss what is a 1031 Exchange? Section 1031 is usually associated with the commercial real estate industry, however, also applies to personal property, artwork, aircrafts, commercial fishing boats, and more. This action allows an investor to defer any capital gains taxes that would be due as a result of the sale, i.e. rental home or commercial building. If earnings  from the sale are reinvested, those taxes could be avoided altogether. On the contrary, if the investor were to outright sell the investment property without the intent to put the funds toward another property, they could face capital gains taxation upwards of 20-30%; Ouch.

Now that we have a basic understanding of what 1031 Exchanges are, let’s dive a little deeper and simplify the hairier details.

5 Ways to Simplify 1031 Exchanges –

  1. Rules & Regulations
    • The replacement property the funds are transferred to in the reinvestment must be like-kind, meaning, residential property for residential property, large commercial building for large commercial building, vacation home for vacation home.
    • Both titles must list the same owner for accuracy
    • Reinvestment must take place. The total value of the replacement property needs to be equivalent, or more than, the previously sold property to avoid capital gains taxes.
  2. A Further Look, Rules & Regulations – You only need to satisfy one of the three main rules when it comes to 1031 Exchanges. Just remember “3-95-200“.
    • Identify up to 3 potential replacement properties, purchase any, or all of them, no matter their total value to properly complete the exchange.
    • This is not commonly used by investors, nevertheless should be talked about. This lesser-used option essentially allows and investor to name any number of potential replacement property of any value covering 95% of the total value of all properties owned, but there’s a downside. In light terms, while it may seem like the easiest option, read more into it, as it could actually lead you, the investor, with a bigger purchase commitment than anticipated.
    • Lastly, you have the option to identify more than 3 potential replacement properties, so long as their value does not exceed 200% of the total of the released property.
  3. The Process – This one’s a peace of cake, just make sure to complete everything within the deadlines detailed in our fourth step.
    • Disposition of the original property (Selling it)
    • Great, now you have sales proceeds, or capital
    • Identify single or multiple replacement properties for investment
    • Take sale proceeds to a qualified intermediary (this cannot be an agent you’ve worked with within the past two years on the sale of that property)
    • Take the investment capital and acquire a replacement property.
  4. Deadlines – Set up your calendar, these are important dates.
    • Days #0-45: Sell the property and identify what is next you’d like to invest in, property-wise.
    • Day #45: Complete the identification or probable replacement property/properties.
    • Day #180: Close escrow on the replacement investment property within this time frame, or 180 days after the disposition of the sold property.
  5. Resources – Certainly it’s wonderful to understand what you’re getting into, potentially, by educating yourself in 1031 exchanges. If you, or someone you know is interested in learning more and going through with a 1031 exchange, leave it to the experts and avoid hefty capital gains taxation.

Discover how the experienced and qualified professionals at CSR Real Estate Services, both residential and commercial, can help you find and close on your next 1031 exchange property or to learn more about the exchange process.

 

What rules govern the return of the security deposit to the tenant?

Q. What rules govern the return of the security deposit to the tenant?
A. Residential: Upon termination of a rental agreement on residential property, the landlord must furnish the tenant the unused portion of the security deposit and an itemized statement showing what deductions have been made, no later than 21 days after the tenant vacates the property. (Cal. Civ. Code § 1950.5(g).) The itemized statement must be accompanied by receipts or invoices issued by the person that performed the work that the deductions were used to pay for; or, if the landlord or landlord’s employee performed the work, the itemized statement must list the work that was done, the time spent, and the reasonable hourly rate charged. (Cal. Civ. Code § 1950.5(g).)
C.A.R. Sample Letter “Security Deposit Return” (Form SDR) may be used for this purpose and can be found in ZipForm within the C.A.R. Sample Letters library.
If the landlord retains any of the deposit in bad faith, s/he will be liable for up to twice the amount of the deposit in punitive damages, as well as any actual damages the tenant may suffer. (Cal. Civ. Code § 1950.5(l).)
A. Commercial: For commercial leases, the deadline for returning a deposit is generally 30 days. However, if the landlord only claims deductions from the deposit based on defaults in the payment of rent, and if the deposit exceeds one month plus the last month’s rent, then any amount exceeding one month’s rent must be returned within two weeks. (Cal. Civ. Code § 1950.7(c).) If the landlord retains any of the deposit in bad faith, s/he will be liable for up to $200 in punitive damages, as well as any actual damages the tenant may suffer. (Cal. Civ. Code § 1950.7(f).)
For more information, please see the C.A.R. Legal Q&A, Security Deposits.

Q. May a tenant take the landlord (or vice versa) to small claims court over a security deposit dispute?
A15. Yes, as long as the damages claimed do not exceed the jurisdictional limit for small claims court ($10,000 in most situations where the claim is brought by a natural person.). (Cal. Civ. Code § 1950.5(n); Cal. Code of Civ. Proc. §§ 116.220, 116.221.)

Business Purchase Financing

Business Purchase Financing – 3 Things You Need To Know To Get Approved

For those of you looking to buy a small business, there is good news on the lending front.  More lenders are coming back into the market for business purchase financing. Also more non-SBA lenders who are financing business purchases. However, just because conditions are improving doesn’t mean that securing business purchase financing will be attainable for everyone. Lenders are still being strict about who they are lending to and how much. Despite an improved outlook, lenders still want to make sure their loan gets repaid and for that, you need to be prepared! Before trying to get a loan this year, here are 3 things you need to know.

#1 – Learn About Your Options
As we’ve seen in previous years, getting a business purchase loan is no longer a matter of just walking into a lending institution and walking out with an approval.  Many business buyers have had to get creative in terms of where they secure financing from and that will be no different in the upcoming year.  As a business buyer, you should learn more about your options and really evaluate what kind of capital you have access to before you approach a traditional lender for funding.  While lenders are lending again, many people have less than perfect credit from the recession and as a result have a difficult time qualifying for traditional financing.  Being prepared with alternative funding sources is always a good idea regardless of your credit.

#2 Explore Seller Financing Options

Today, there are a lot of sellers that are willing to extend financing to the right buyer.  In fact, many lenders now require that the seller be a part of the financing mix.  It proves to the lender that the seller truly believes the buyer has what it takes to buy and run the business successfully.  To a lender, this ultimately means they will get their money back.

There are a few things you should know about seller financing.  One, you will probably pay more for the business.  When a seller offers financing options they are taking a risk, so that risk comes with a price tag.  Two, you need to be prepared to prove you are capable of running the business. Be prepared to write a business plan and to explain why you are going to be successful, it’s part of the process.

#3 Prepare, Prepare, Prepare

I can’t stress this enough.  Preparation is critical. Buyers need to get information before they make an offer and get too involved in the sale.  I suggest you get professionally pre-approved for financing and work with someone who understands how deals are structured to start you off in the right direction.

Buyers also need to be realistic about what it really means to buy a business.  For starters, they need to be realistic about what they can afford.  Don’t try to buy a business that costs millions of dollars when you have no money to contribute to the sale. Start smaller and work up to that.  Next, buyers need to know their limitations when it comes to the business itself. A buyer will be asked about their previous work experience, credit score, current salary if they are working, annual living expenses, outside sources of income, etc. so be prepared to share information in order to complete the transaction.

Lastly, understand that business purchase financing is a specialized form of financing. With that, getting approved really comes down to going to the right person at the right financial institution. Making that type of connection doesn’t come without preparation and it typically doesn’t come without the support of a specialty advisor in business purchase financing, so choose a good advisor/team to help you through this process.

Source: Peter Siegel, MBA is the Founder & President of BizBen.com.
Click here for full Article on Bizben.com

15 Years of Success

This year marks CSR‘s 15th birthday! That’s right, we’ve been around for, perhaps, longer than you’d think. While this year we celebrate success as a growing, healthy company in the heart of Silicon Valley, we couldn’t have made it this far without the progressive thinking, motivation, and family-like-culture that our Leadership Team, Staff, and Agents posses. So why is this such a big deal? Well, research supports the fact that nearly 50% of businesses fail within the first year of life, 73% within the first five years, and an astounding 96% within 10 years time. This alone makes us pretty proud to still be standing strong after year 15. 

In 2003, Bonafede brothers, Steve and Brian, decided to continue their real estate business with their own Silicon Valley flavor, along with close friend, Dave Wendt.  From the start,  it was all about family and building relationships.  The business consisted of the two brothers, their sister, Laura, and Brian’s wife, Dina Bonafede. From there, close friends joined in and provided lending services to start the company’s initial growth. Just a few short years later, in 2007, CSR grew to 50 agents and staff, despite the economic downturn. Through it’s many ups and downs, business stayed above water and the Bonafede brothers stepped up to the plate. They continued to educate veteran and new agents on how to best maneuver through the ever-changing market. Simultaneously, CSR’s Commercial Division was formed by close business partner, Tony Odom. Both businesses fought for success together and grinded it out through seemingly impossible times. While it seemed nobody could buy a house and businesses were closing left and right, somehow, CSR made it through to the light at the end of the tunnel.

2012 rolled around and the company was in need for a few adjustments in order to maintain growth among Silicon Valley’s vast technology boom. That year, Terry Meyer, VP of Operations & Broker Associate, joined the CSR family. With heavy knowledge and experience within the real estate arena, Terry was able to collaborate with the Bonafede brothers and act as the glue that held the expanding company together through recruiting, branding, and promoting a company culture of inclusiveness and education. The following year, in 2013, Duane Hood joined forces with the Commercial division, thus forming CSR Commercial Capital, which provides comprehensive financing solutions.

The next year, in 2014 CSR Cares was born. One of the guiding principles at CSR is that we support and ignite positive change in the community where we work and live. The foundation is a non-profit organization focused on supporting and benefiting children within our community. To this day, CSR Cares has raised over $1,000,000 in an effort to support the well-being of children and the community. 2016 came around and our agent pool grew to 70 agents and staff, and exceeded 100 agents the following year.

2017 was a big year for CSR. Not only did we expand to Roseville, CA, we also can check a successful business merge off the bucket list. In September 2017, Silicon Valley Associates (SVA) joined forces with CSR and appointed Don Jessup as Vice President. In the latest news, both CSR Residential and CSR Commercial divisions have been recognized by Silicon Valley Business Journal and named in the Top 10 Real Estate Firms in Silicon Valley. Here’s to 15 years of success and many, many more.

CSR Commercial Real Estate Welcomes Erika Cervantes

The Commercial division at CSR Real Estate Services welcomes Erika Cervantes to the team as Commercial Leasing & Sales Manager. Ms. Cervantes began her Commercial Real Estate career working directly for one of the largest individual commercial property owners in the Bay Area. Ms. Cervantes has dealt with all aspects of commercial leasing and property management for nearly a decade. From tenant management, building maintenance, leasing of retail, office & industrial property types, Erika demonstrates professional excellence throughout her career.

Being bilingual, Erika is able to connect with a larger audience and gain trust from the masses. Ms. Cervantes’ success lies within her philosophy, that if you take care of your clients, they will take care of you.

“Beyond Erika’s experience and skills, her will to go well above and beyond, and her driving force of doing what is in her clients’ best interest is why we knew we had to have her on our team” explains Jonathan Hanhan, CSR Commercial.

Ms. Cervantes is a strategic and key addition to support the growing Commercial team with Tony Odom and Jonathan Hanhan in the expansion and sustainability of quality care and service to their key clients. Her technical skill set, character and congruency with CSR’s culture, of doing what is best for clients, is what makes this career marriage the ideal match.

But wait, that’s not all; Erika also values community outreach and helping others in need which is a perfect parallel to CSR’s Charity, CSR Cares. For over 6 years, Erika has dedicated her time and efforts towards assisting the homeless and is on the Board of Directors for the Youth at Risk Organization.

Welcome to CSR, Erika!

Erika Cervantes

Commercial Leasing and Sales Manager

(c) 408.648.7514

(f) 408.559.5505

(o) 408.558.5000 Ext. 7351

Erika@CSRCommercial.com


 

 

CSR Commercial Capital Closes $17M Construction Loan

CSR Commercial Capital closed on a $17,000,000 construction loan for a 4 story mixed use podium build project located at 955 South First Street just south of downtown San Jose.  The project consists of 50 apartment units ranging from 1 to 3 bedrooms, along with five ground floor retail spaces totaling 5,136 s.f. Parking for the project consists of 74 residential spaces and 28 commercial spaces.  Tenants will also benefit from lush landscaping, a 452 s.f. children’s play area, and over 5,800 s.f. of courtyard space featuring barbecue and picnic areas.

The project was brought in to CSR Commercial Capital by the President of CSR’s commercial sales and leasing division, Tony Odom, who previously acquired the property for the client.

“The most challenging aspect of this transaction,” commented Duane Hood, President of CSR Commercial Capital, “was that we had an out of country borrower who, although he possesses permanent residency and extensive experience overseas, is not a U.S. citizen and has not previously developed in the U.S.  Aside from those regulatory challenges, however, we could not have asked for a better client. His responsiveness and decisiveness were instrumental in his ability to close this loan and move this exciting project toward completion.”

A representative for the buyer and partner in the ownership group commented, “In addition to just obtaining the land, CSR acted as a full service commercial real estate firm throughout this transaction, including interviewing the architects and general contractors and working with the city and title company to resolve issues. Moreover, CSR interviewed many qualified lenders, then brought us the most competitive commitments. We were able to select a lender which best suited our needs. We couldn’t be happier with the work the team at CSR has done.”

Learn more about what CSR Commercial & Commercial Capital can do for your business.

A Little Competition Never Hurt Anybody

It’s February which means it’s time to reflect on CSR Real Estate Services’ accomplishments. Of course these successes would be impossible without the undying dedication of its army of hard-working staff, expert real estate agents and seasoned Leadership Team. A huge congratulations is in store for all of the award recipients at the 2018 CSR Annual Award Ceremony.

  • Laura Bonafede Odom – *CSR Value Award*
  • Dina Bonafede – Top Listing Agent 2017
  • Rita Chao – Top Selling Agent 2017
  • Michael Kaldani – Rookie of the Year Award
  • Anna Kilgore – Most Improved Agent
  • James Laden – Transaction Coordination Award
  • Jennifer Murdix – 2017 Employee of the Year
  • Joanne Escobar – 2017 Team Player Award
  • Rita Chao – Top Producing Agent of the Year, President’s Club
  • Kelly Hunt – CSR Cares Award
  • Jeanette Salceda – Special Recognition, Dedication Award
  • Kelly Hunt – Award for Professionalism & Excellence
  • Jonathan Hanhan – Commercial Agent of the Year
  • Kelly Hunt, Dina Bonafede, Anna Kilgore, Laura Odom, Jeffery Lee, Allen Benjamin, Lupita Rodriguez, Stephen Whitlock, Alisha Pruitt – Top 10 Producing Agents in 2017 (President’s Club)
  • Johny Barney, Steve Cabral, Dave Campanga, Miles Pruitt, Jonathan Hanhan – Diamond Award for Outstanding Work

Congratulations to all!

 

Reaching New Heights

Silicon Valley Business Journal’s “Book of Lists” recognizes a compilation of the top-performing companies, by industry, within Silicon Valley. Released annually at the start of the new year, competitors evaluate how they rank among the rest.  It’s no surprise that CSR Real Estate Services continues to reach milestone after milestone over the years. The company’s various divisions embody professionalism, teamwork and ingenuity while placing a high value on integrity, passion and hard work. CSR Real Estate Services is proud to announce that over the past couple of years, both the Residential and Commercial division have continued to climb “The List” to earn a dual spot of Top 10 Residential & Commercial Real Estate Firms in Silicon Valley for 2017-2018. This is quite the jump when looking at just a few years ago in 2014 when they weren’t listed amongst even the Top 25. In 2015 the Residential division earned the title of Top 25 and leaped to 13 in 2016. That same year, the Commercial division joined the list and placed Top 10 out of the gate, matching that status in 2017 and meeting Residential there to bring home Top 10 all around.

“These are numbers that don’t really grasp the story in its entirety. In 2017 our office grew by 41 active agents while most other companies in our market may not have been so lucky. We have much gratitude and are thankful to have had to opportunity to gain so many wonderful staff members and agents over the past year through strategic recruiting, opening another office location in Roseville, California and having the privilege of merging with Silicon Valley Associates Real Estate. Just wait and see what we do in 2018,” details Terry Meyer, VP of Operations and Broker Associate of CSR Real Estate Services.

While CSR celebrates their victories, employees and agents of the ever-growing company get back to work and continue setting higher goals to reach even more aspirations ahead.

 

Commercial Real Estate Outlook: 2018.Q1

Analysis from RCA pointed to a growing gap between sellers’ high price expectations and buyers’ willingness to pay those high prices. 
The small cap space closed the chapter on 2017 on an upbeat note. Commercial real estate in SCRE markets continued to experience advances in investment sales, as the momentum picked up in the final quarter of the year. Following on the second quarter’s 4.4 percent increase and the third quarter’s 3.6 percent gain in sales volume, REALTORS® reported that sales volume advanced a solid 9.1 percent in the fourth quarter. 
International transactions remained a fixture in  REALTORS®’ CRE markets in the final quarter of the 2017. The average international sale price was $1.2 million in the fourth quarter of the year. Indicating a likely preference for safety of capital over returns, the average cap rate for SCRE international deals was 6.7 percent.
Office demand softened in the fourth quarter of 2017, even as employment in office-using industries expanded.  Office vacancies increased 1.7 percent in the fourth quarter, to $32.17 per square footIndustrial vacancy declined in the fourth quarter, to 4.5 percent. Industrial asking rents advanced in the fourth quarter by 0.6 percent, to $6.92 per square foot.
With rising wages and employment, consumer optimism was well- reflected in the fourth quarter’s  holiday shopping season figures. Demand for retail spaces advanced, with net absorption totaling 3.1 million square feet during the quarter, according to CBRE. Retail construction activity slowed, with completions totaling 9.1 million square feet. The retail availability rate picked up, moving to 6.6 percent in the fourth quarter, as asking retail rents reached $17.12 per square foot.

Helpful Hints to Successfully Renew Your Lease

It is up to the Tenant to notify the Landlord of his/her intention to exercise the “Option to Renew”  during the lease specified notification window. Tenants need to be vigil about lease termination dates and option exercise timelines, not only to keep their renewal options in-tact, but to have better leverage when negotiating a renewal. Furthermore, if the Tenant does not notify the Landlord, the Landlord is not obligated to allow the Tenant to renew.

Avoid Costly Mistakes

One crucial mistake that a Tenant often makes, is to assume he/she can simply go to a month-to-month term until they find another location. Most leases will have a “Holdover” clause. These clauses in the lease agreement often allow the Landlord to charge a premium of sometimes as high as 200% of the last month’s rent.

How your Commercial Broker can help you

Keep in mind, it is always best to contact your commercial real estate professional at least a year prior to the expiration of your lease term to assist with these matters.  Commercial real estate professionals can:

  • Listen to your needs and provide specific options. Is it best to move or stay?
  • Explain current market conditions and how they affect your potential move
  • Provide a Lease vs. Buy analysis to see if it makes more sense to buy rather than lease
  • Perform a comparable analysis to assist in re-negotiating with the current Landlord
  • Find a new location and negotiate terms
  • Provide a timeline for tenant improvements and assist in coordinating move