Mortgage on CalculatorAuthor: Staff

Congress enacted the Dodd–Frank Wall Street Reform and Consumer Protection Act, commonly known as “Dodd-Frank,” in 2010 in response to the financial crisis of 2007 and 2008. Among the purposes described in the bill’s full title, Congress intended the law “to protect consumers from abusive financial services practices.” This includes provisions affecting the residential mortgage business. Dodd-Frank has led to numerous changes in how banks handle mortgage loans. It has also affected the hard-money lending market in ways that are likely to affect California real estate investments.

Hard-Money Lending

“Hard-money loans” are a means of financing a real estate purchase or development without many of the procedural hurdles associated with bank loans. Private businesses and investors offer hard-money loans on a shorter time frame, but with higher interest rates and other expenses. Unlike banks, which focus on a borrower’s ability to repay a loan, hard-money lenders usually look at the value of the collateral when deciding to make a loan. Dodd-Frank has created new obligations for hard-money lenders who loan money for residential properties in some circumstances. It has also potentially made this type of loan more appealing for commercial real estate.

Dodd-Frank

Title XIV of Dodd-Frank is entitled the Mortgage Reform and Anti-Predatory Lending Act (MRAPLA). It amends multiple existing statutes that regulate residential mortgage lenders, including the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), and the Home Ownership and Equity Protection Act (HOEPA).
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moneyAuthor: Staff

Real estate investing can be a lucrative source of income, but as the saying goes, one must spend money to make money. Obtaining a loan through a bank has many advantages, but the process can be slow, and a bank’s conditions for approving a loan can be steep. Investors who need a loan in a shorter time frame, or who are not eligible for a bank loan, might consider hard money lending. Hard money loans come from private companies or investors rather than banks. These loans could be advantageous for some California real estate investors, but they also carry certain disadvantages and risks.

What Is Hard Money Lending?

Disability symbolsAuthor: Staff

State law in California requires property owners to make certain disclosures as part of any lease agreement for that property. When a lease involves commercial property, lessors must disclose certain matters related to accessibility for people with disabilities and their compliance with accessibility laws. The Americans with Disabilities Act (ADA) of 1990 is perhaps the most well-known statute addressing this issue. Businesses that serve the public are required to meet various requirements under the ADA. To encourage ADA compliance, California created the Voluntary Certified Access Specialist (CASp) program. Commercial lessors must disclose to lessees whether a CASp has inspected the leased premises, along with the extent of improvements to the property resulting from an inspection. California real estate investors involved in leasing commercial property need to know about both their duty under accessibility laws and their disclosure obligations.

Accessibility Law

Black’s BeachAuthor: Staff

A typical lease agreement involves a landlord (lessor) that allows a tenant (lessee) to use real property owned by the landlord, in exchange for the payment of rent. The landlord owns the real property and all of the improvements, while the tenant owns any personal property they bring with them. This works for short-term periods, during which the landlord does not plan to make any major improvements to the property.

Another type of lease, known as a “ground lease,” allows landlords and tenants to enter into long-term agreements involving the development of real property. California real estate investors can be involved in ground leases as landlords, such as if they want to extract value from a large parcel of land; or as tenants, such as if they want to develop a property for commercial purposes.

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coffee adAuthor: Staff

Real estate investment in California, as a matter of course, involves buying and selling real property. An investor may decide to sell a piece of real property as part of an investment plan, such as after purchasing a distressed residential property and rehabilitating it. A sale may also be a result of conditions that require an investor to get out of a bad investment.

Regardless of the reason for putting a property on the market, California law requires numerous disclosures about the property. Many of these disclosures required by law are ultimately the responsibility of the seller, whether or not they are assisted by a real estate broker. Real estate investors in California should be aware of these disclosures and their legal obligations.

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Author: Matthew Riley

PART 2 – The exchanger must intend to hold the replacement property (acquired property) for productive use in a trade or business or for investment purposes.

In Part 1 of this blog series about 1031 like-kind exchanges, we discussed a real estate investor’s relinquished property (the property an investor is selling), and the requirements such property must meet under Section 1031 to qualify for a like-kind exchange.

If an exchanger’s relinquished property meets Section 1031 requirements, then the next set of questions involve the replacement property, which we discuss, here, in Part 2.

One central inquiry is to investigate the exchanger’s intention in acquiring and using the replacement property.  For an exchange to receive tax-deferred treatment, the exchanger must intend to predominantly use the replacement property in furtherance of a trade or business, or as investment property.

Many of the same issues raised in Part 1 about relinquished properties are the same for replacement properties.  Therefore, our discussion about how requisite intent for relinquished property also applies for replacement property.

Here, in Part 2, I will focus attention on particular holding requirements for replacement properties, highlighting two things:

First, a safe-harbor provision for a specific and common type of replacement property––secondary and vacation homes; and secondly, specific requirements unique to replacement property, which the exchanger must meet when selecting such properties.

(a)      Safe Harbor for replacement properties the exchanger intends to use as a second residence or vacation home?

The safe-harbor requirements for secondary residences or vacation homes are the same as I articulated for relinquished secondary or vacation homes. See Part 1.1. For these types of property, Revenue Procedure 2008-16 provides that if the exchanger meets its requirements it has established the requisite intent for the replacement property.

Under the safe-harbor requirements, the exchanger must own the home for two years immediately after the exchange, and for each of those years, or 12-month periods, the Exchanger must both:

(1) Rent the unit at a fair market rate for 14 or more days; AND

(2) Restrict their personal use to the greater of 14 days – OR – 10% of the number of days it was rented at a fair market rate within that 12 month period.

An investor must follow these requirements to defer their taxes under Section 1031.

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luxury villaAuthor: Staff

California’s tourism industry is a source of pride across the state. For a savvy real estate investor, vacation rentals might seem like an obvious venture. Tourists need places to stay, after all, and why not offer them an alternative to hotels? Well, not so fast. The legal status of vacation rentals in California is not at all clear. Numerous restrictions may apply, including city ordinances and homeowners’ association (HOA) rules. The “sharing economy” has further complicated the legal landscape throughout the state. San Diego real estate investors should be extra diligent when considering going into the vacation rental business.

What Is a Vacation Rental?

homeAuthor: Staff

The financial commitments required in real estate investing can vary in size and scope, from purchasing a handful of shares in a real estate investment trust (REIT) or real estate syndicate to purchasing a house or office building. The latter type of real estate investment generally requires a substantial outlay of cash. Very few individual investors have that kind of money on hand, but a prudent investor should always explore ways to avoid putting their own money at risk. Numerous resources exist for financing real estate investment purchases and projects. Real estate investors should carefully review their options. Identifying the best type of financing depends on the property or project, the resources available to the investor, and the investor’s goals.

Types of Real Estate Investments

For rent signAuthor: Staff

Real estate investment can take many forms and offers many ways to obtain a return on one’s investment. Some investors purchase real property in order to make improvements and sell it, while others may purchase property with the goal of leasing it for rental income. Leases on real property can be broadly divided into two categories:  residential and commercial. While residential leases are subject to a wide range of legal restrictions aimed at protecting tenants, commercial leases allow far greater flexibility. Both types of leases involve their share of risks, from the hassle of collecting unpaid rent to the possibility of serious damage to the property. Commercial real estate investors in San Diego should be aware of the opportunities—and liabilities—that commercial leases have to offer.

How Are Commercial Leases Different from Residential Leases?

ForeclosureAuthor: Staff

Real estate ownership, both residential and commercial, frequently involves financing some portion of the purchase price with a mortgage loan. Should an owner stop making payments to a lender, the lender can attempt to recover the balance of the loan through foreclosure:  the forced sale of the property at auction, often at a below-market price. This presents opportunities, but also risks, for real estate investors. Understanding the foreclosure process and the potential liabilities involved is essential for California real estate investors who are interested in “distressed” properties.

What Is a Foreclosure?