Wednesday, November 16, 2005

Q: I just want to get this off of my chest.

I'm so angry with my husband. We just sold our house. You represented the buyers and we don't have any complaints on how everything went. The buyers are really nice and I'm happy that they like the house. What I'm mad about is that I told my husband a dozen times that we needed to fix a tiny leak under our bathroom sink. He just kept putting it off. Well, as you found out during the inspection, that leak was causing water to run into the floor. I can't believe how much trouble it caused. We had to have the floor replaced, new floor covering put down, all of the insulation under the house had to be removed and replaced and there were even carpenter ants and rats. We had to have the ants sprayed and rats removed. This cost us a lot of money we could have used for other things.

A: You didn't really ask a question but your issue is important to share with others so I want to respond. Most people have no idea what a little water can do. I've seen situations like yours many times. A small amount of water runs down the back of a cabinet or wall and pools there. Slowly it seeps down through the floor. Over time the floor begins to rot and the water drops into the insulation under the floor. There it attracts rodents and wood destroying organisms like carpenter ants. Before too long you have a major infestation and the costs to repair can add up. You also have the added issue of mold and mildew which creates a very unhealthy environment. All of that from a tiny drip of water!

The lesson here is to never ignore a water leak, no matter how small. By replacing an inexpensive washer you could have saved a major expense. It doesn't take much water to cause a great deal of damage so get leaks fixed as soon as you notice them.

Wednesday, November 02, 2005

Q: I have a friend who is trying to talk me into going in with him on an investment property here on Vashon.

We are looking at buying a rental house or some commercial property. The trouble is that none of these have a good CAP rate, or monthly return on the money. Rents are too low. Why should I stick my neck out?

A: I just returned from an annual conference that discussed this very issue. I heard presentations by leading real estate attorneys and commercial brokers who work for large regional companies, speaking about buying investment property. According to these experts; commercial, industrial and multi-family housing is selling faster than ever before. Rents are low right now but they will catch up. Most of their investors are going in with 40% to 60% down payments so that they have a positive cash flow while sitting on property that is expected to go up in value enormously in the next five years.

On Vashon Island many of the investors I've worked with are holding properties that have gone up between 60% to 150% in less than five years. That's hard to beat in any other form of investing. In addition, there are very attractive tax benefits to not only owning investment property, but having a negative cash flow to offset other income.

You can also trade property, tax free, using the 1031 exchange provisions of the IRS code. That way you can build up the value of your real estate portfolio by rolling over the profits on one or two properties into an even better property.

There's a lot of activity in our business and commercial sector right now. It's a good time to pick up well priced commercial and business property that will become even more valuable in the future. We have a very limited supply of commercially zoned property. As we continue to gentrify, that limited business property will only go up.