Feature Article by Mike Blum & Richard Moore: Timing Is Everything...How to Maximize Returns and Minimize Risks

With the national economy still trying to find firmness, many are trying to figure out how to regain a lost footing from a 40% decline in their 401K or other investment portfolios. People holding real estate ask: “do I sell now in a down market or do I hold and hope things will regain their value in a few years”?

On the other hand, investors with capital look for a really good deal…perhaps below market.

It appears that owner/sellers and investor/buyers may have a common objective: Maximize returns, minimize risk. Or put more simply: Making money in real estate is all about timing. The big question is: When is it the right time to buy or when to sell?

Historically, the time to buy and the time to sell were solely dependent on the market value of property. When the value reaches a target value, the investor sells, makes his profits and moves on. Today, there is an added variable which must be considered when deciding to sell; Capital Gains Taxes.

Right now, capital gains taxes are calculated on 15% of the gain. Investors have enjoyed this tax rate since 2003; however, this is about to end. Without any new legislation from Washington, this rate will increase to 20% in 2011. There are indications that the White House is interested in raising rates higher than the 20%, and possibly as high as the highest tax rate. The ordinary tax rate is scheduled to return to the old 39.6%, but this rate is also under consideration by the current administration in Washington.

Therefore, the likelihood of a significant increase in the capital gain tax rate makes selling appreciated property sooner than later a smart move. So what does this mean?

Well hypothetically, if the capital gain rates moves from 15% to say 30%, a property which has doubled in value will have to fetch nearly 11% more for the sales price to return the same net after tax profit to the seller. This additional 11% will only keep the owner/seller in the same place as they are now before the tax rates go up. The problem will be more severe if the capital gain rates go higher than 30%.

So if you are an owner/seller, now may be a good time to think about liquidating property that has appreciated while the tax rates are relatively low. Capital gain tax rates will not stay at this rate for much longer. If you own open land or occupied buildings and are thinking about holding in anticipation of a higher price when the economy turns or if you have capital and are not adverse to paying less and getting more, it may be advisable to consult your financial professional and realtor to analyze your situation and plan the best course of action.

If you would like to learn more about your options contact Richard Moore at 956-630-3053 richard@cpamoore.com or Mike Blum at 956-994-8900 mikeb@nairgv.com.

Richard Moore is a CPA and owner of Richard Moore and Company. Richard is a recognize expert in his field. Michael J. Blum is a Partner and Managing Broker for NAI Rio Grande Valley, an affiliate of NAI Global one of the world's leading providers of commercial real estate services.
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School bond projects end on time and within budget for McAllen ISD

School bond projects end on time and within budget for McAllen ISD
November 09, 2009 10:16 AM 
Jennifer L. Berghom
The Monitor

McALLEN — It’s finished.

On Oct. 30 the McAllen school district celebrated the grand opening of the last component of its 2005 bond projects, the district operations complex, which also houses the system’s warehouse, central kitchen and transportation building.

The $13.3 million project was the last of several that voters approved in 2005 when the school district sought to sell $97.8 million in bonds to pay for them.

Other projects funded with the bond issue were the construction of five new elementary schools and a middle school, a new gymnasium for Lincoln Middle School, additions for McAllen High and Navarro Elementary schools, a new heating, ventilation and air-conditioning system for Memorial High School, and other renovations and improvements.

Final expenses for construction and other work were about $10 million more than originally planned, but the district was able to pay for those extra costs because the money it received from selling bonds accrued more interest than the district was paying on them, said McAllen School Board President Richard Moore.

The completion of the bond project on time and with enough money was the combination of hard work by the community, the school system, the engineering firm contracted to oversee the project and a little “dumb luck,” Moore said.

McAllen taxpayers didn’t originally support spending millions of dollars on new constructions and renovations. They shot down a similar bond request in 2003. Opponents of that bond said they did not trust the district to handle such a large project.

That prompted then-superintendent Yolanda Chapa to visit with community and business leaders to find out what the district needed to do to win the people’s favor.

“She listened to the bad news,” Moore said.

The district also formed a committee of residents from different facets of the community, called the Community Capital Advisory Committee, to assess the needs of the district and compile a report. The language of the bond referendum came from the committee; the board just ratified it, Moore said.

Proponents of the bond also formed a political action group to advertise and promote the proposal when it was placed on the ballot two years after the earlier referendum failed.

After voters approved the bond issue, the advisory committee played an integral role in making sure the project stayed on task, said Moore and former committee members. The committee stopped meeting about a year ago, when the contract to build the maintenance and operations complex was awarded.

“All of the grunt work was done by the committee,” Moore said.

Members of the group met several times over nearly a year to go over plans and make sure the district stuck to what the bond measure authorized, said Mike Blum, who served as the committee’s president.

“There are very few times when a political community is able to do something that has a multi-generational impact,” he said. “I knew going in we could make a difference.”

The district built the elementary schools with identical blueprints to save money on planning and materials, Blum said. The committee also had a Web site residents could access to learn about the bond and where the money was going.

Moore and Blum also credit Jacobs Facilities Inc. — the engineering firm hired to oversee the project — with keeping costs low enough to complete all the projects within the parameters of the referendum.

When bids started coming in for new construction of Thigpen-Zavala and Fields elementary schools, they were about $2 million more than what the district had planned a couple years earlier, Moore said.

But Kevin Hitchcock, a program manager with Jacobs Facilities and former manager of the district’s bond projects, was able to negotiate lower costs for those schools, as well as the other bond items, Moore said.

Though the district was able to complete its bond projects without having to ask for more money, some who were involved in the construction and renovations thought the final price tag was too high, especially for the district operations complex.

“It certainly cost more than it should’ve cost,” said Ruth Skow, president of the McAllen American Federation of Teachers and a former member of the advisory committee. “I feel a lot of angst about the final costs.”

Skow praised Blum for how he was able to organize the committee members, even if they all didn’t always agree.

“I’m glad it’s completed. We did our best to do what the taxpayers approved,” she said. “I was very honored to work on the bond.”

Though the district has completed its checklist of needs addressed with the 2005 bond, it already has begun assessing what might be needed in the future.

Another community advisory committee has been formed, and earlier this year it gave a report to the school board listing repairs, construction and other work the district might want to consider.

The district has not made any decisions on that report or set a timeline for acting on it.

Jennifer L. Berghom covers education and general assignments for The Monitor. She can be reached at (956) 683-4462