HOW DO YOU KNOW WHAT’S AN OPERATING EXPENDITURE AND WHAT’S A CAPITAL EXPENDITURE IN INVESTMENT REAL ESTATE?

April 6, 2015 on 1:47 pm | In Fascinating Information, Funny...Money, Legal, Property Maintenance, Uncategorized | 1 Comment

by Jodi SummersROADWORKS SIGN.jpg-pwrt2

Capital Expenditures and Operating Expenditures are accounted differently. Capital Expenditures are one-shot improvements that are recouped over time. Routine Repairs is regular maintenance done to a property, which are paid for out of the annual operating expenditures budget. Let’s look at each in more details…

CAPITAL EXPENDITURES

capital expedituresCapital Expenditures are generally defined as a business expense incurred to create future benefit. In commercial real estate, Capital Expenditures are generally related to material improvements or upgrades to a property. Capital Expenditures have a useful benefit beyond the current tax year in that cannot be fully deducted in the year they were purchased. Instead, such expenses are amortized over the useful life of the asset.

Examples of general capital expenditures include electrical and plumbing upgrades, a new roof, flooring, new equipment or a major overhaul of the HVAC system.

If you are painting multiple properties that could be classified as a capital expenditure, but routine painting upon move-out is just that, routine. You are not able to tap your capital expenditure reserve to pay for run-of-the mill maintenance, as those are considered routine repairs.

ROUTINE MAINTENANCE

routine repairsThe easiest way to identify routine maintenance (a.k.a. Operating Expenditures) is to ask yourself if the repair is something that tends to be reoccurring. Repairs such as move-out painting, touch-up painting, or patching a wall or floor fall into the routine category. Also in this category we find repairs of existing appliances, cleaning the carpets or patching a worn section of flooring.

The cost of routine maintenance is typically Operating Expenditures covered by an investor’s annual maintenance budget.

plumbing-repairsOf course, there are repairs could be paid for from either the capital expenditure fund or the operating fund. Rule of thumb, major expenses are paid for from capital expenditure reserves.

Replace multiple sinks or toilets would come from the Capital Expenditures reserve, but if to replace one sink or one toilet, that would come out of your annual Operating Expenditures. If you need to replace one light fixture, expect to pay for that from your Operating Expenditures budget. If you need to replace multiple light fixtures, the expense could come from the Capital Expenditures fund.

The following table summarizes many of the factual considerations used by the IRS. These factors, although not exhaustive, should be considered in your analysis to distinguish between capital expenditures and deductible repairs:

capital expeditures vs operating expenditures

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AN EZ WAY TO CALCULATE HOW MUCH OFFICE SPACE YOU NEED

March 15, 2015 on 2:44 pm | In Fascinating Information, Lenders + Vendors, Office Fodder, Uncategorized | 3 Comments

edited by Jodi Summers

Moving your office? Figuring out how much space your business needs is key finding your new office space. While it may seem cut and dry, determining the necessary space is typically a challenge. Now, there are office space calculators to help the team figure it out and keep office expense at a minimum.

TheSquareFoot set out to make this process easier and more approachable, placing a priority on usability yet still punching enough power to provide accurate size estimation. Once you’ve found what size space you need, they also give you the ability to jump into listings with a preset filter, making it easy to go from not knowing how much space you need to touring buildings in a few clicks.

Start by selecting your number of employees and how much space you’d like them to have. Choices range from Economy (100 sq.ft.), Average (125 sq.ft.) and Spacious (150 sq.ft.). You can then add rooms you’d like included such as private offices, reception areas, conference rooms, kitchens etc. Once you’re done fine-tuning you can search existing listings in most major cities.

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http://www.thesquarefoot.com/office-space-calculator

http://www.socalofficerealestateblog.com/?p=2582

SMALL BUSINESS LOANS WILL HELP YOUR BUSINESS

March 1, 2015 on 12:25 am | In Bravo, Fascinating Information, Funny...Money, Government, Investment Opportunities, Office Fodder, Solutions, Uncategorized | 3 Comments

How the Small Business Administration can Help You Improve or Start a Small Business

Courtesy of Ella MossSBA seal

People have great ideas for small business all the time, but most never get past the idea stage, and it’s often due to a lack of funding for major expenses like retail or industrial space. And many don’t realize that they might be able to access funding from the Small Business Administration (SBA), a federal agency that provides all kinds of useful information—as well as loans—for small business and start-ups.

What Help can the SBA Provide for Small Business Owners?

The SBA offers a range of different types of programs for helping small business owners get loans or access venture capital, and can also guarantee bonds for contractors.

SBA guaranteed loan programs are designed to help small business owners get third party sba-loan applicationloans from participating lenders. The money that a small business owner borrows doesn’t come from the SBA itself, it comes from a conventional lender such as a bank, or sometimes from micro-lender organizations or other community organizations. Many banks participate in the SBA loan program, including The Bank of America, Chase, US Banks, and Wells Fargo, as well as lending institutions like Fundera. The SBA’s role in the loan process is to provide a guarantee that the loan will be repaid; this reduces the risk for the lender, and allows them to offer loans with more favorable terms, and more relaxed qualifying criteria. Note, however, that the SBA won’t guarantee a loan for a borrower who can access conventional financing at a reasonable rate—the loans are intended more for people who would not otherwise be able to access affordable funding.

SBA loan structureIn a similar fashion, the SBA surety bond program helps contractors by acting as a third party, or surety, to a contract between the contractor and a project owner (the person the contractor is doing work for). Under the terms of an agreement between the contractor and project owner, the contractor is legally bound to provide the work they’re contracted for, but if they are unable to do so, the surety—in this case, the SBA—becomes responsible for getting the work done.handshake

The also known as the Small Business Investment Company (SBIC) is a combination private and public investment partnership designed to help small businesses locate growth capital. The funds are licensed by—but not provided by—the SBA, but the SBA supplements capital raised by investors with its guaranteed loan program. Access to venture capital funds is more limited than access to loan funds, however, and there are more stringent qualifying criteria for businesses that want to access venture capital.

What can You Use SBA Loans For?

The SBA offers several different loan programs; the amount a small business owner can borrow depends on the bank they work with as well as SBA regulations. For example, Chase bank offers loans of up to $5 million, while Bank of America offers loans of up to 3.5 million. In most cases, the SBA logobusiness must have been in operation for two or three years, and the owner or owners must have some of their own equity in the business (these are requirements of the lenders, rather than the SBA itself). The SBA has requirements of its own: for example, the business must be a for-profit organization, be an SBA-defined small business, and have a sound business purpose in mind for the funds. However, there are few restrictions on what the business can do with the money: it can be used for both long term and short term purposes, including use as working capital for paying expenses of operation, to buy equipment, fittings and furnishings, or supplies, to buy real estate such as building or land, to home_loan_entryrenovate a building, or to construct a new one. Purchasing land and buildings can be an especially advantageous way to use SBA loan funds, since it allows a small business owner to access retail or industrial space without having to qualify for a commercial loan, which is typically a more expensive prospect than a residential one. Restrictions on what can be done with the money include using it to pay or refinance other debts, to pay delinquent taxes, or for any purpose not considered a “sound business purpose” according to SBA regulations.

How to Apply for SBA Funding

The SBA offers plenty of guidance for small business owners interested in applying for loans or accessing venture capital, including help with finding local lenders, application checklists and guidelines, and further services at local offices.

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THE BENEFITS OF REAL ESTATE PARTNERSHIPS

February 15, 2015 on 12:08 am | In Fascinating Information, Investment Opportunities, Solutions, Uncategorized | 2 Comments

by Naomi Shaw

A real estate partnership can be a lucrative venture for many individuals with a limited amount of money to invest. Forming a partnership will increase your working capital, and you’ll be able to buy properties you couldn’t afford on your own.

However, there are some significant risks that can come with forming a partnership. If you choose the wrong person or company to do business with, you could find that your investment quickly becomes a loss.

Before entering into any sort of real estate business partnership, make sure you do your homework on who you’ll be working with.

Knowing Your Partner

Entering into a real estate partnership with another person or company is something you should do only after you understand who you’re working with. While helpful to work with people you know and trust, there are some questions you should ask any person or company before considering a partnership.

● How much money do you have to invest? How is your credit score?

● How many properties do you currently own?

● When do you expect to make a profit from your properties? Do you plan on holding properties for years or do you want a quick turnaround to leverage into other ventures?

● Have you had other real estate partnerships in the past? Do you currently have other real estate partners? Do you have references to any past or current partners?

Understanding Your Partnership Agreement

Before you commit to any type of partnership, it’s essential that you come up with an agreement as to how the partnership is going to work. The most important things you need to discuss when setting up a real estate partnership include:

● How partners will get paid and when. Do partners share profits or are profits tied to resale only?

● What your responsibilities in the partnership are. Usually, one partner will manage properties while another is responsible for finding new properties. Of course, all partnerships differ. Defined roles are important.

● Is the partnership going to be reviewed at certain times? Many partnerships review profits about once per year. After all, not all partnerships are worth maintaining if there’s no growth or profit.

Hire an Attorney

If you form a good partnership, chances are you won’t ever need to consult your attorney. However, you do need to hire a qualified attorney who will help you setup your partnership.

Trying to do it yourself will most likely leave big gaps in your contract, and unless you’re incredibly well versed in business partnerships, those gaps could create potential problems down the road when it becomes time to sell properties, split profits, or dissolve the partnership and its assets.

Hiring an attorney seems costly, but it’s going to cost you a lot less than a business partnership gone wrong.

A real estate partnership is often an excellent way to make more money than you ever could on your own while balancing the work that real estate investing takes. However, partner with the wrong person, and you could end up losing all of the money that you had to invest.

Do your homework and ask questions, and always set up a binding legal agreement that helps both partners understand how they’ll be working together and how they’ll be able to exit the partnership if needed.

Naomi Shaw is a freelance writer in Southern California. Real estate is something she is passionate about and she loves covering the many different facets of it in her writing. She works with Ovlix.com.

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SOCAL OFFICE REAL ESTATE SNAPSHOT FEBRUARY 2015 – IT WILL BE A VERY GOOD YEAR

January 31, 2015 on 9:02 pm | In Bravo, Lease Rates, Market Snapshot, Office Fodder, Statistics, Trends, Uncategorized | 2 Comments

by Jodi Summershappy dance snoopy

If you’ve held on to your Los Angeles area office real estate through the stagnant years, 2015 is your time to cash in. Up until recently, office space demand has roughly equaled inventory additions. Finally, operations in the major office districts in Greater Downtown, the Westside Cities and the San Fernando Valley/Tri-Cities areas are seeing significant improvement.

Let’s look at Westside office space…where the past year, Silicon Beach office vacancy rates dropped to 14.3% as technology firms continue to seek out real estate in the ultra-hot neighborhoods of Venice, Santa Monica, Marina del Rey, Mar Vista, Playa Vista and Culver City. As the young and digital take over the Westside, according to Marcus and Millichap, median asking rents for office space climbed 10.4% to $42.97 per square foot. Rents for Class A space was up 9%% to $44.73 per square foot. Class B/C asking rents for jumped 13.7% in the period to $39.51 per square foot. In 2015, full-service Los Angeles Office Asking Rents - 4Q 2014asking rents will improve 5.7% to $44.12 per square foot this year as conditions remain favorable for leasing managers. Keep in mind, despite the huge gains, asking rents finish the year 8.5% below the pre-recession peak.

Rising rents have impacted sales trends. Average sale prices for West Side office buildings ncreased 7% in the period to $453 per square foot. Top-tier properties changed hands close to $500 per square foot.

Although buyer demand supported market appreciation, transaction velocity dipped 17% year over year as investors opted to hold onto properties as Net Operating Incomes continue to climb. Mostly, 2014 saw class B assets changing hands, as cap rates compressed to the low-6% range because of improving operations.Los Angeles Westside Office Sale Prices per sq.ft. - 4Q 2014

Expect the Westside Cities market to remain tight, as only 70,000 sq.ft.is under construction. Development is expected to be limited on 2015. The largest project is a medical office building at 121 N. San Vicente Blvd. The 32,000-square foot property is scheduled for completion in the second quarter of 2015.

Looking at 2015, vacancy rates will fall to 13.8%. As centrally located space becomes occupied and prices rise, affordable space will draw tenants priced out of prime office districts. Asking rents could climb as much as 5%.

For more information please contact Jodi Summers and the SoCal Investment Real Estate Group @ Sotheby’s International Realty – jodi@jodisummers.com or 310.392.1211, and let us move forward together.

Los Angeles Office Vancancy Rates 4Q 2014

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http://www.marcusmillichap.com/research/researchreports/reports/2014/08/12/los-angeles-office-research-report

http://www.socalofficerealestateblog.com/?p=2701

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