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May 23, 2019 by Peter Maclennan Leave a Comment

The Opportunity Zone

Qualified Opportunity Zones

Established by the IRS to incentivize investment in low-income areas, the Opportunity Zone program is relatively new, and many investors are still unfamiliar with the benefits it provides. As of April 2018, the IRS offers tax benefits on long-term real estate investments purchased within Qualified Opportunity Zones. So what does this mean for long-term investors? Today we dive into the basics of Opportunity Zones and their three major draws.

What’s an Opportunity Zone?

Qualified Opportunity Zones or QOZ are economically distressed areas in which the government has designated certain tax incentives for investors. Typically, this means a capital gains investment is tax-deferred and the deferred gain is eligible for a partial exemption after five years or more. As described on IRS.gov website:

An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service.”

https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions

See a map of Qualified Opportunity Zones

The preferential tax treatment described above only applies to purchases made with capital gains, and only for investment properties. In other words, homebuyers who plan on living in the house are ineligible for preferential tax treatment even if it is within an Opportunity Zone.

In order to establish an investment in an Opportunity Zone, investors must establish a Qualified Opportunity Fund (QOF) as a vehicle for investment property funds.

EIG.org provides a great resource for understanding Opportunity Zones.

Why invest in an Opportunity Zone?

1. Deferred tax

Okay, this one is obvious. After all, deferred tax is the primary incentive to investors, and is effective immediately upon investing.

Investors can defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026.”

https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions

This means that the investor has seven full years to defer on the reinvested gains before tax is owed. An investor may be able to defer taxes further with a 1031 exchange before the 2026 deadline.

2. Tax exemptions

In addition to deferring taxes, Opportunity Zones incentivize long-term investments by adjusting the basis on which tax is owed:

If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain. If held for more than 7 years, the 10% becomes 15%. Second, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged.”

https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions

This is where things get good. The tax-deferred gains you invested are eligible for 15% exclusion after seven years, meaning you only owe tax on 85%. Additionally, if the investment is held for ten years, it is eligible for a step-up in basis to the fair market value. If the property was sold shortly after the ten-year mark, the investor would be paying no capital gains tax on appreciation. This is a huge incentive for someone already interested in long-term investment.

3. Economically growing areas

Opportunity Zones were designed to help boost economically distressed areas by incentivizing long-term investors with tax benefits. The first zones were designated on April 9, 2018, so we must wait to see if they will offer the long-term economic development expected.

However, what is expected through the program is that the influx of new investments will drive an increase in property value throughout the zone. Investors realize the greatest gain if they establish funds early and stay invested long-term while the property values continue to increase. It is almost a self-fulfilling prediction, but one that benefits the early investors most.

Find a Real Estate Expert

Now that you know more about Opportunity Zones and the advantages they can provide, you are well on your way to making an informed and financially successful investment. Having a knowledgeable agent to assist you will make your process smooth and your returns as high as possible.

To reach Peter Maclennan please call 925.385.8798 or email at peter@maclennaninvestments.com.

This post is for informational purposes only. Contact a tax professional prior to making investment decisions.

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Filed Under: Benefits of Real Estate Investing, Real Estate Investing Tagged With: Commercial Real Estate Investing, Investment Decisions, Investment Property, Real Estate Investing

January 23, 2018 by Peter Maclennan Leave a Comment

Industrial Real Estate Hottest Sector in 2017 and Hot in 2018

Antioch Industrial Property

Industrial Real Estate Hot in 2017

According to a report, the hottest commercial real estate class is industrial property.

The industrial sector has emerged as the growth leader in commercial real estate, according to a new report by Morningstar, a notion that’s in agreement with the wider consensus about industrial now leading income-generating real estate. As a darling among owners and investors, apartments may still be strong, but the industrial sector is the rising star.

That’s thanks to Amazon and e-commerce as a whole. Industrial logistics space outperformed office, retail, apartment and even light industrial space in terms of supply, demand, occupancy and rent growth in the first half of 2017, noted the report. Read More… on Commercial Property Executive.

The article details that much of the growth is due to Amazon and other e-commerce companies.

As recent sales of industrial properties indicate, the availability of industrial land in core Bay Area markets is not growing.

Industrial Real Estate Stays Hot in 2018

According to research by NREI, industrial real estate and industrial properties should stay hot in 2018. A majority of survey respondents indicated that they expect the industrial market to continue expanding for at least a year. Almost 23% of respondents believe that the growth will last 2 years.

Fewer respondents were concerned about oversupply in the industrial real estate market. Over 80% of respondents indicated that the supply was just right or that there was too little supply. (Too little supply seems to be the trend in the San Francisco Bay Area.)

The experts that responded ranked the West as the top region, followed closely by industrial properties in the South.

Bottom Line:

All signs indicate that industrial leasing and sales will maintain a strong pace in 2018.


Maclennan Investment Group, Inc. offers leasing, investment, and property management services to clients in Contra Costa, Alameda, & Solano Counties. Our primary markets are along the I-680 Corridor from Pleasanton north to Martinez, including Danville, Alamo, Walnut Creek, Pleasant Hill, Concord, Pacheco, and Clayton. And also along Highway 4 from Concord east to Bay Point, Pittsburg, Antioch, Brentwood, Oakley, and surrounding Delta towns.

Please call today to see how we can help you find space for your business or fill up your building with high quality tenants. You can reach us at 925.385.8798.

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Filed Under: Industrial Real Estate, Investment Property, Real Estate Investing Tagged With: Amazon.com Inc, Commercial Real Estate Investing, Industrial Property, Industrial Real Estate, Investment Property

November 4, 2016 by Peter Maclennan Leave a Comment

Water-Efficient Fixtures & California SB-407

Spraying Water

In 2009, then California governor, Arnold Schwarzenegger signed SB-407 into law. The law requires that water-efficient fixtures be installed in homes and commercial properties.

The law defines non-compliant water fixtures as:

  1. Any toilet manufactured to use more than 1.6 gallons of water per flush.
  2. Any urinal manufactured to use more than one gallon of water per flush.
  3. Any showerhead manufactured to have a flow capacity of more than 2.5 gallons of water per minute.
  4. Any interior faucet that emits more than 2.2 gallons of water per minute.

Residential Property Owners

One of the main features of this law is that as of January 1, 2017 all water fixtures in a single-family home are to be replaced with water-efficient fixtures. Most homes that have undergone a major, permitted remodel after 2014 were required to update plumbing fixtures to water-efficient fixtures to obtain a building permit.

b) On or before January 1, 2017, noncompliant plumbing fixtures in any single-family residential real property shall be replaced by the property owner with water-conserving plumbing fixtures.

and

(c) On and after January 1, 2017, a seller or transferor of single-family residential real property shall disclose in writing to the prospective purchaser or transferee the requirements of subdivision (b) and whether the real property includes any noncompliant plumbing fixtures.

Disclosure on Transfer (Sale)

This law requires that the seller must disclose to buyers if the fixtures in their home are in compliance with this law.

Do you know if all of your fixtures are in compliance? I certainly don’t. This will likely require you to either update all the fixtures to low flow, or have an inspection certifying that they are low flow.

Commercial Real Estate and Multifamily Properties

Commercial properties and multifamily real estate have to be in compliance by January 1, 2019. For purposes of the law, the authors defined commercial real estate and multifamily real estate:

(a) “Commercial real property” means any real property that is improved with, or consisting of, a building that is intended for commercial use, including hotels and motels, that is not a single-family residential real property or a multifamily residential real property.
(b) “Multifamily residential real property” means any real property that is improved with, or consisting of, a building containing more than one unit that is intended for human habitation, or any mixed residential-commercial buildings or portions thereof that are intended for human habitation. Multifamily residential real property includes residential hotels but does not include hotels and motels that are not residential hotels.

Duplexes, Triplexes, and Fourplexes

Based on the definition of multifamily residential real estate as containing more than one unit intended for human habitation, most duplexes, triplexes, and fourplexes should fit into this category.

Disclosure on Sale or Transfer

Again the law requires that the seller of commercial real estate or multifamily property disclose to the buyer if the property is in compliance.

Plumbing Police?

Does this mean that the state is going to create the plumbing police? Beats me. The law does allow for local communities and water retailers to enact ordinances to enforce compliance. Check with your local municipalities and water district to see if they have an enforcement mechanism.

If you are considering selling residential real estate in the near future you will need to work with your real estate professional to comply with this law. Hiring a property inspector can go a long ways towards this.

It looks like the plumbers, handymen, and handywomen of California are going to have a lot of faucets to fix.

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Filed Under: CA Real Estate, Investment Property, Real Estate Investing Tagged With: Commercial Real Estate Investing, Investment Property, Real Estate Investing

February 2, 2016 by Peter Maclennan Leave a Comment

Residential Landlords and Mold – Senate Bill 655

Moldy Wall

A Moldy Wall – by Matti Mattila*

Senate Bill 655 Housing Standards Mold

Senate Bill 655 was signed into law on October 9, 2015 and went into effect on January 1, 2016. This law adds mold to the list of habitability issues that a tenant can use in defense of an eviction case.

How is mold defined under SB 655? “Mold” means a microscopic organism or fungi that can grow in damp conditions in the interior of a building.
The California Apartment Association boasts that this law protects both the landlord and the tenant. The tenant is protected from the harmful effects of exposure to mold over an extended period of time.

The landlord is protected from eviction defense attorneys using “mold” as a last minute defense in an unlawful detainer proceedings. To qualify as a habitability issue, the mold must be visible, the landlord must have been notified of its presence, and it must NOT be attributable to the tenants misuse or neglect.

Dealing with Mold in a Rental

From the California Association of Realtors­­® (CAR) Q&A on the law:
QUESTION: “If the landlord suspects that the tenant’s failure to keep the property clean and sanitary has contributed substantially to the mold problem, should the landlord nonetheless repair the mold problem?”

ANSWER: “Yes. Even where it’s clear that the tenant’s own negligent actions have led to the mold problem, the conservative course of action from a risk management perspective, is to act quickly to repair the problem. Afterwards, if it’s clear that the tenant had caused the problem, the landlord may bill the tenant for the cost.

Recall that a landlord has a duty to maintain the habitability of the property. This obligation is found under common law, by statute, and often in the terms of the lease agreement. Failure of the landlord to maintain the property in a habitable condition may allow the tenant various legal remedies such as rent withholding, termination of the rental agreement, discounted rent and other rights and damages. Because the risk of liability is high, it’s prudent to take a cautious approach by remediating first, and assessing costs afterwards.”

CAR® Form on Mold

The California Association of Realtors® provides a standard form, “Lease/Rental Mold and Ventilation Addendum”, for dealing with mold issues when you are leasing a unit. You can use it to address some of these issues when a new tenant takes occupancy.

You should always address tenant issues with your legal counsel to get their advice on matters pertaining to law.

Further Reading on SB 655:

  • What Rental Property Owners and Managers Need to Know About the New Substandard Housing Mold Law – Apartment Association of Southern California
  • Newly signed mold bill protects both landlords and tenants – C.A.A.
  • MOLD AND THE RESIDENTIAL LANDLORD
  • Mold bill vastly improved with help of CAA

*Photo Credit: Moldy Wall by Matti Mattila Used with Creative Commons License 2.0

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Filed Under: CA Real Estate, Investment Property, Real Estate Investing Tagged With: Investment Property, Real Estate Investing, Rental Property

October 15, 2015 by Peter Maclennan Leave a Comment

How Much Are California Investors Spending?

California Real Estate Investor Profile

Some interesting takeaways from the graphic above.

  • The final sales price grew by a whopping 17.2% from 2014 to 2015. “Good deals” are getting harder to find.
  • Costs are going up.

I think the costs of rehab are rising because contractors are busier. They are having to pay their employees more to retain them. Some contractors are experiencing a shortage of labor.

As equity in housing increases, expect to see more owners renovate their homes. This will keep upward pressure on construction costs.

If you have questions about investing in real estate, please feel free to reach out to me via phone or email.

Alameda Investment Properties

  • List View
  • Map View
  • 237 41st St, Oakland, CA
    237 41st St
    Oakland, CA
    Photo of 237 41st St, Oakland, CA 94611 (MLS # 41014158)
    $13,750,000
    • Lot Size
      29,621 sqft

    • Home Size
      28,399 sqft

    • Beds

    • Baths

    • Year Built
      1956

    • Days on Market
      84

  • 175 Santa Rosa Ave, Oakland, CA
    175 Santa Rosa Ave
    Oakland, CA
    Photo of 175 Santa Rosa Ave, Oakland, CA 94610 (MLS # 41017709)
    $11,250,000
    • Lot Size
      19,167 sqft

    • Home Size
      33 sqft

    • Beds

    • Baths

    • Year Built
      1967

    • Days on Market
      13

  • 2477 Virginia Street, Berkeley, CA
    2477 Virginia Street
    Berkeley, CA
    Photo of 2477 Virginia Street, Berkeley, CA 94709 (MLS # 41018514)
    $11,000,000
    • Lot Size
      12,633 sqft

    • Home Size
      19,491 sqft

    • Beds

    • Baths

    • Year Built
      1964

    • Days on Market
      3

  • 1732 University Ave, Berkeley, CA
    1732 University Ave
    Berkeley, CA
    Photo of 1732 University Ave, Berkeley, CA 94704 (MLS # 41011460)
    $7,995,000
    • Lot Size
      13,940 sqft

    • Home Size
      17,610 sqft

    • Beds

    • Baths

    • Year Built
      1928

    • Days on Market
      116

  • 5901 Camino Tassajara, Pleasanton, CA
    5901 Camino Tassajara
    Pleasanton, CA
    Photo of 5901 Camino Tassajara, Pleasanton, CA 94588 (MLS # 41007070)
    $7,500,000
    • Lot Size
      10.81 ac

    • Home Size
      4,684 sqft

    • Beds

    • Baths

    • Year Built
      1978

    • Days on Market
      159

See all Real estate matching your search.
(all data current as of 2/5/2023)

Listing information deemed reliable but not guaranteed. Read full disclaimer.

 
 

Contra Costa Investment Properties

  • List View
  • Map View
  • 39 E 6Th St, Antioch, CA
    39 E 6Th St
    Antioch, CA
    Photo of 39 E 6Th St, Antioch, CA 94509 (MLS # 41015712)
    $1,498,000
    • Lot Size
      18,731 sqft

    • Home Size
      5,475 sqft

    • Beds

    • Baths

    • Year Built
      1925

    • Days on Market
      54

  • 7000 Holland Tract Rd, Brentwood, CA
    7000 Holland Tract Rd
    Brentwood, CA
    Photo of 7000 Holland Tract Rd, Brentwood, CA 94513 (MLS # 41015251)
    $3,199,000
    • Lot Size
      50.76 ac

    • Home Size

    • Beds

    • Baths

    • Year Built
      1974

    • Days on Market
      65

  • 818 Navaronne Way, Concord, CA
    818 Navaronne Way
    Concord, CA
    Photo of 818 Navaronne Way, Concord, CA 94518 (MLS # 41013742)
    $1,649,000
    • Lot Size
      12,633 sqft

    • Home Size
      4,305 sqft

    • Beds
      5 Beds

    • Baths

    • Year Built
      1949

    • Days on Market
      90

    View Virtual Tour
  • 1428 Flora St, Crockett, CA
    1428 Flora St
    Crockett, CA
    Photo of 1428 Flora St, Crockett, CA 94525 (MLS # 41012773)
    $896,000
    • Lot Size
      5,228 sqft

    • Home Size
      3,034 sqft

    • Beds
      6 Beds

    • Baths

    • Year Built
      1908

    • Days on Market
      102

    View Virtual Tour
  • 5312 Sacramento Ave, Richmond, CA
    5312 Sacramento Ave
    Richmond, CA
    Photo of 5312 Sacramento Ave, Richmond, CA 94804 (MLS # 41011819)
    $1,200,000
    • Lot Size
      6,099 sqft

    • Home Size
      2,500 sqft

    • Beds
      5 Beds

    • Baths

    • Year Built
      1953

    • Days on Market
      113

See all Real estate matching your search.
(all data current as of 2/5/2023)

Listing information deemed reliable but not guaranteed. Read full disclaimer.

 
 

 

 

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Filed Under: CA Real Estate, Investment Property, Real Estate Investing Tagged With: Investment Property, Real Estate Investing, Real Estate Investor

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Welcome to Maclennan Investment Group, Inc., your East Bay Area real estate investment advisors. Maclennan Investment Group assists buyers and sellers of real estate maximize the investment potential of their real estate assets.

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