Five Major Mistakes When Buying a Business

The one common denominator that most millionaires have is that they own their own business. Owning your own business can be a very financially rewarding experience. The thrill of being the boss and having complete control over your own destiny are the primary reasons people leave the work force to operate their own company. Owning your own business can easily turn in to a nightmare if you make mistakes. These mistakes are avoidable if you know what to look for in the business. You have a better chance of becoming a millionaire if you avoid these 5 major mistakes when buying a business.

1. Due Diligence, Due Diligence, Due Diligence

Not everything is as it seems and that is especially true when buying a business. The owner can produce financial statements that show a business is thriving. You need to do due diligence to make sure the information presented to you is valid and shows an accurate picture of the condition of the business.

You want to make sure you know what items the business actually owns, what is leased, what is owed to the business and what the business owes to others. You do not want to buy a business only to find out there is a huge pile of bills that are due and the income you were expecting does not materialize. Doing a solid job of due diligence will help you avoid buying the wrong business or paying too much for the business.

2. Not Having Enough Cash Reserves

Running a business requires capital. Successful businesses are able to generate enough revenue to cover the cost of their expenses. In times when the revenue is less than the expenses then you need cash reserves to cover the shortfall. If you spend all your money in the acquisition of the company then you will not be able to cover shortages when they occur. This can be the quickest way to bankrupt your new business. Do not buy a business until you have the necessary funds to both buy the business and the necessary funds to keep it open after the purchase.

3. Assuming Cash Flow will Cover Debt

There will always be a transition period when buying a new business. Some vendors will have a loyalty to the seller and will pull their business when management changes. Likewise you might lose some of your buyers after the transition. These changes are unavoidable. They can have a tremendous impact on the cash flow of your business. If you purchase a business assuming the current cash flow will cover the payment on your debt, then you might be in for a rude awakening.

4. Paying for Potential

Sellers will try to set a price on a business based on the projected value of the business. For example a self-storage business that is 40% occupied at the time of purchase may be worth $1 million dollars. If the occupancy rate was 80% then the value of the business might increase to $2 million dollars. You should not pay $2 million for the business because the seller entices you on the future potential of the business.

It will be your time, effort and energy that create the future potential in the business. You should be awarded for your efforts. Do not make the mistake of over paying for a business and rewarding the seller for your hard work. The value of the business should be based on the condition at the time that you purchase it.

5. Wrong Entity Structure

The worst mistake that you can make is to buy a business using the wrong entity structure. First time business owners will buy a business and sign every contract in their name. This is a major mistake because it makes you personally liable for any loss that the business incurs. If there is loss your creditors will go after your home, your car, and your savings. Buying a business using an entity structure such as a corporation or a LLC can minimize your personal risk. Use an attorney and an accountant to help determine what the best entity structure for you to use is. Do not make the mistake of putting everything you own at risk when you buy a business.

Owning your own business can be the quickest path to becoming a millionaire but you may never reach that goal if you don’t avoid these 5 major mistakes when buying a business.

Search here for businesses for sale

Florida Home Construction Equals Growing Economy

The pace of Florida home construction is more than a positive trend for Florida real estate agents, according to a report from Florida TaxWatch. Housing starts, as a leading economic indicator, provide evidence that Florida is rebounding from the Great Recession.

"Floridians are seeing evidence of economic recovery in every corner," says Dominic M. Calabro, President and CEO of Florida TaxWatch. "New construction demand is growing, job creation is up, and for the first time since the recession, the state has a budget surplus and is sharing large tax cuts with hardworking Floridians. These positive indicators are giving taxpayers confidence, allowing them to spend more and generating state revenues."

The TaxWatch report finds that Florida averages more than 4,600 new private single housing starts each month – more than double the monthly averages in early 2009. Furthermore, future housing start projections are expected to double by 2016 for single-family homes, while multi-family new construction should double by 2017.

Positive housing starts also have a ripple effect on the state economy. They provide construction jobs and contribute to the growth of other sectors, such as housing services, home improvement stores and other retailers, along with Realtors and title companies.

"Increased investment by individuals and companies helps increase Florida's growth rate, giving businesses confidence to hire more workers," says Jerry D. Parrish, Ph.D., Florida TaxWatch chief economist. "This is one more positive sign of the growing momentum in Florida's economy."

The full TaxWatch economic commentary can be read online.

© 2014 Florida Realtors®

U.S. Economic Growth Slows in First Quarter

The U.S. economy slowed drastically in the first three months of the year as a harsh winter exacted a toll on business activity. The slowdown, while worse than expected, is likely to be temporary as growth rebounds with warmer weather.

Growth slowed to a barely discernible 0.1 percent annual rate in the January-March quarter, the Commerce Department said Wednesday. That was the weakest pace since the end of 2012 and was down from a 2.6 percent rate in the previous quarter.

Many economists said the government's first estimate of growth in the January-March quarter was skewed by weak figures early in the quarter. They noted that several sectors – from retail sales to manufacturing output – rebounded in March. That strength should provide momentum for the rest of the year.

And on Friday, economists expect the government to report a solid 200,000-plus job gain for April.

"While quarter one was weak, many measures of sentiment and output improved in March and April, suggesting that the quarter ended better than it began," said Dan Greenhaus, chief investment strategist at global financial services firm BTIG.

Still, the anemic growth last quarter is surely a topic for discussion at the Federal Reserve's latest policy meeting, which ends Wednesday afternoon. No major changes are expected in a statement the Fed will release. But it will likely announce a fourth reduction in its monthly bond purchases because of the gains the economy has been making. The Fed's bond purchases have been intended to keep long-term loan rates low.

In its report Wednesday, the government said consumer spending grew at a 3 percent annual rate last quarter. But that gain was dominated by a 4.4 percent rise in spending on services, reflecting higher utility bills. Spending on goods barely rose. Also dampening growth were a drop in business investment, a rise in the trade deficit and a fall in housing construction.

The scant 0.1 percent growth rate in the gross domestic product, the country's total output of goods and services, was well below the 1.1 percent rise economists had predicted. The last time a quarterly growth rate was so slow was in the final three months of 2012, when it was also 0.1 percent.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he expects the economy's growth to rebound to a 3 percent annual rate in the current April-June quarter. Other economists have made similar forecasts.

A variety of factors held back first-quarter growth. Business investment fell at a 2.1 percent rate, with spending on equipment plunging at a 5.5 percent annual rate. Residential construction fell at a 5.7 percent rate. Housing was hit by winter weather and by other factors such as higher home prices and a shortage of available houses.

A widening of the trade deficit, thanks to a sharp fall in exports, shaved growth by 0.8 percentage point in the first quarter. Businesses also slowed their restocking, with a slowdown in inventory rebuilding reducing growth by nearly 0.6 percentage point.

Also holding back growth: A cutback in spending by state and local governments. That pullback offset a rebound in federal activity after the 16-day partial government shutdown last year.

Economists say most of the factors that held back growth in the first quarter have already begun to reverse. Most expect a strong rebound in growth in the April-June quarter.

Analysts say the stronger growth will endure through the rest of the year as the economy derives help from improved job growth, rising consumer spending and a rebound in business investment.

In fact, many analysts believe 2014 will be the year the recovery from the Great Recession finally achieves the robust growth that's needed to accelerate hiring and reduce still-high unemployment. Many analysts think annual economic growth will remain around 3 percent for the rest of the year.

If that proves accurate, the economy will have produced the fastest annual expansion in the gross domestic product, the broadest gauge of the economy's health, in nine years. The last time growth was so strong was in 2005, when GDP grew 3.4 percent, two years before the nation fell into the worst recession since the 1930s.

A group of economists surveyed this month by The Associated Press said they expected unemployment to fall to 6.2 percent by the end of this year from 6.7 percent in March.

One reason for the optimism is that a drag on growth last year from higher taxes and deep federal spending cuts has been diminishing. A congressional budget truce has also lifted any imminent threat of another government shutdown. As a result, businesses may find it easier to commit to investments to modernize and expand production facilities and boost hiring.

State and local governments, which have benefited from a rebound in tax revenue, are hiring again as well.

Joel Naroff, chief economist at Naroff Economic Advisors, said he expects job growth to average above 200,000 a month for the rest of the year – starting with the April jobs report, which will be released Friday.

"Those are the types of job gains which will generate incomes and consumer confidence going forward," Naroff said.

Copyright © 2014 The Associated Press

Floridians’ Confidence in Economy Remains Flat

Floridians' consumer sentiment remained steady in April, declining one point to 79, according to a new University of Florida (UF) survey.

"The overall consumer sentiment index is remaining relatively flat given the lack of significant economic news," says Chris McCarty, director of UF's Survey Research Center in the Bureau of Economic and Business Research. "Here in Florida, the economy remains on a steady path without any big changes either negative or positive."

Three of the five components making up the index decreased, and two increased.

Respondents' overall opinion that they are financially more secure than a year ago fell three points to 69 from a post-recession high in March. Their expectations of improved personal finances a year from now also fell, dropping six points to 77; and overall confidence in U.S. economic conditions over the next year dropped five points to 77.

However, expectations that the nation's economy will do better over the next five years rose five points to 82.

Finally, the component measuring whether the present is a good time to buy a big-ticket item, such as a car, increased three points to 89.

Florida's unruffled consumer sentiment, however, is five points lower than the national level of 84, and McCarty suggests that concern over employment may help explain why. Last month, Florida's unemployment rate ticked up one-tenth of a percent to 6.3 percent – but that might not be bad news, McCarty says.

"A typical pattern after most recessions is for unemployment to temporarily increase as previously discouraged workers see more job availability and reenter the labor force," he says. "There is no doubt that Florida lost workers from the labor force. The question is whether they permanently left to take early retirement, or whether they temporarily left for job training or are just biding time until the labor market improves."

Florida's labor force also got bigger.

"While it is too early to tell, this increase could signal improvements ahead in Florida's job market, at least for those workers having a job, even if the wages for those jobs are lower than they were prior to the recession," McCarty says.

Housing continued to improve in March with the median price for a single-family home rising to $173,000, a level not achieved since last August.

Floridians can expect consumer confidence to remain in the upper 70s to low 80s, given the dearth of significant economic news, McCarty predicts. However, international developments, such as the conflict between Ukraine and Russia, and a continuing decline in the growth of the Chinese economy could darken consumers' mood.

Conducted April 1-24, the UF study reflects the responses of 402 individuals, representing a demographic cross-section of Florida. It's benchmarked to 1966, which means a value of 100 represents the same level of confidence for that year. The lowest index possible is a 2; the highest is 150.

© 2014 Florida Realtors®

Unemployment Rate Lowest Since 2008 After April Surge

The U.S. economy added 288,000 jobs in April, taking the unemployment rate to 6.3 percent, the lowest it has been since September 2008.

Americans gained the most jobs and at the fastest pace in the last two years, with April being the best month of job creation since January 2012 and the second best since mid-2009, after the economy emerged from the recession.

Economists polled by Bloomberg had estimated a 218,000 increase in non-farm payrolls, with the unemployment falling only 0.1 percent to 6.6 percent. April's numbers were far better than estimates, suggesting the economy was moving out of its winter rut.

The Labor Department also revised the numbers for February and March, and they were higher than previously estimated. The economy added 203,000 jobs in March, up from the 192,000 initially reported and 222,000 in February, up from 197,000.

But the good news was dampened a little by the drop of 806,000 Americans from the labor force, pushing the labor participation rate down sharply. Also, average hourly earning did not rise.

Construction and retail saw strong growth last month, adding 32,000 and 35,000 jobs respectively. Professional and business services added another 75,000 jobs combined, a count closely followed by economists who consider them a barometer for white-collar activity.

The numbers are sure to boost expectations for growth this quarter, with many economists estimating a 3 percent growth in the U.S. economy. Friday's report offers hope for such estimations.

Copyright © 2014 United Press International (UPI), Inc.

Economic Recovery Continues as First Quarter Small Business Transactions Remain Strong

BizBuySell.com's First Quarter 2014 Insight Report shows continued strong business-for-sale activity, well above historical levels, following 2013's record-breaking year.

BizBuySell.com the Internet's largest business-for-sale marketplace, reported today that small business transactions remained at high levels in the first quarter of 2014, continuing the growth trend that began in Q1 of 2013.

Participating business brokers reported 1,726 closed transactions in Q1 2014, marking the fifth straight quarter to exceed 1,600 transactions, a benchmark that had not previously been reached since before the start of the Great Recession in 2008. In fact, immediately after the recession began, reported transaction activity dropped significantly, with transaction totals for 2009 and 2010 dropping to an average of 1,126 reported transactions per quarter. There was only a very small improvement in the next few years as an average of 1,182 businesses changed hands per quarter in 2011 and 2012. At the outset of 2013, the recovery finally truly took hold and in the last 5 quarters, an average of 1,756 small businesses have closed, an average of 52% more per quarter than seen during the 2009 to 2012 period.

Read more at BizBuySell.com

Uncertainty on Tax Breaks Affecting Small Businesses

Small businesses are in limbo as they wait for Congress to make decisions that could save them a lot of money. 

Bills in Congress would extend tax deductions widely used by small businesses making equipment or property purchases. One, known as the Section 179 deduction, has shrunk to a maximum $25,000 this year from $500,000 in 2013. Another, called bonus depreciation, expired at the end of last year.

The deductions are a big deal for small companies, saving them thousands or even millions of dollars on capital investments. But because Congress decides every year how big the deductions will be, owners can't plan their equipment budgets until lawmakers vote. And in recent years, worried about the ballooning federal deficit, Congress has put off those votes, sometimes until late in the year.

The annual uncertainty hurts small businesses looking for a break when their combined federal and state tax rates run as high as 40 percent, says Doug Bekker, a certified public accountant with the firm BDO in Grand Rapids, Mich. They don't know if they should make the purchase in the current year or defer it. And as the economy gets stronger and businesses are more profitable, they're concerned about tax bills.

"If you talk to the typical small business out there, there's a very high level of frustration," Bekker says.

The Section 179 deduction, named for part of the U.S. tax code, allows small businesses to deduct up-front the cost of equipment like vehicles, computers, furniture and manufacturing machines rather than depreciate them over a period of years. The deduction fell to $25,000 for 2014 because Congress hasn't approved a higher amount.

Many small businesses rely on the deduction. In a survey of more than 1,100 owners by the advocacy group National Small Business Association, 34 percent said they take advantage of it.

Before the recession, the deduction was fairly predictable, rising to keep pace with inflation. In 2007, Congress voted to nearly double it to $250,000 to stimulate the economy. It was $500,000 the next three years, but the final vote on a 2012 deduction didn't come until the beginning of 2013 – too late for anyone who had decided against a purchase in 2012 believing there'd be no tax break.

Bonus depreciation is another break small businesses want back. It allows companies of all sizes to take an immediate deduction for 50 percent of the purchase price of equipment or real estate, with the remainder depreciated over a number of years.

It may look like Congress is anti-small business when it makes companies wait, but lawmakers are putting a higher priority on the federal budget and the overall tax code, says David Primo, a professor of political science and business at the University of Rochester. They're avoiding the political fallout that will come their way if they create a large deduction and then reduce it when the government needs money.

"They might as well keep re-upping it year after year rather than risk revoking it," Primo says.

There may be good news for owners who have been frustrated by a lack of clarity. House Ways and Means Committee Chairman Dave Camp, R-Mich., has proposed setting a permanent amount for the Section 179 deduction as part of a bill that would revive bonus depreciation and other business and individual tax breaks.

And last week, the Senate Finance Committee approved a bill that would extend deductions into 2015. The bill goes next to the Senate floor; if it passes, it will have to be reconciled with any version that passes the House.

In the meantime, small business owners are adjusting their plans – and in some cases spending less.

Bill French has stopped buying equipment like bulldozers until he knows how big his tax deductions will be. French, owner of W.L. French Excavating Corp. in North Billerica, Mass., spent $1.2 million already this year, not realizing how low the deduction had fallen. His other planned purchases are on hold. Last year, French spent about $2 million on equipment and estimates he saved more than $1 million in taxes because of the deductions.

"I'm just going to rebuild what I have," French says. "It doesn't make sense to buy new equipment."

Copyright © 2014 The Associated Press

Infrastructure Quality is Key to Commercial Investors

According to a survey of public- and private-sector leaders conducted by the Urban Land Institute and EY Global Real Estate, the quality of infrastructure systems – including transportation, utilities and telecommunications – is a top factor influencing real estate investment and development decisions in cities around the world. Other top concerns include consumer demand. The results of the survey are included in Infrastructure 2014: Shaping the Competitive City, which can be downloaded online.

The survey, conducted in January 2014, reflects the opinions of 241 public sector officials and 202 senior-level real estate executives (developers, investors, lenders and advisors) based in large and mid-sized cities across the globe, with concentrations in the United States, Europe and Asia Pacific.

Report findings

• 88 percent rated infrastructure quality as the top influencer of real estate investment and development. Public leaders rated infrastructure quality as the highest influencer (91 percent) and private leaders ranked it second highest (86 percent).

• Demographic forces, including consumer demand and workforce skills, ranked as another top consideration determining real estate investment locations. Consumer demand was viewed as the top factor by the private sector (90 percent).

• Strong telecommunications systems (including high-speed internet) led the list of infrastructure categories that drive real estate investment, along with good roads, bridges, and reliable and affordable energy.

• Public transit led the list of infrastructure investment priorities. Seventy-eight percent of survey respondents' said public transit systems, including bus and rail, should receive top priority for infrastructure improvements, followed by roads and bridges (71 percent) and pedestrian facilities (63 percent).

• Investment priority rankings tended to be the inverse of quality perceptions, with only 48 percent of survey respondents ranking public transit as "good" or "very good" in quality, and 51 percent saying sidewalks and pedestrian facilities were good or very good.

• The public's willingness to pay for infrastructure was ranked as the top factor shaping both infrastructure and real estate development over the next 10 years, followed by consumer demand for compact, walkable development, and the prevalence of families with children. The cost and availability of energy and the use of innovative pricing systems to fund, manage and operate infrastructure ranked slightly lower.

• Three-quarters of respondents identified cooperation between developers and local governments as the most significant funding approach for new infrastructure. Other strategies that require collaboration between real estate and civic leaders – including value capture and negotiated exactions – also top the list of likely infrastructure funding sources. All funding strategies offered in the survey – including contributions from federal and state governments – received relatively strong responses, suggesting the need for a range of funding options.

• The survey found skepticism among respondents about long-term operations and maintenance of infrastructure. Overall, 30 percent said local governments usually neglect it; 72 percent said it's considered only some of the time or not at all. Private sector respondents were much more pessimistic about this than public sector leaders; and respondents from outside the U.S. had a more positive view than those in the U.S.

"This survey indicates a growing awareness among the public and private sector of the importance of investments in a variety of transportation systems, including 'active' transportation that offers an alternative to constant car use," says ULI Chief Executive Officer Patrick L. Phillips. "We have entered a new era that requires new approaches to funding and building infrastructure to support the creation of communities that are healthier, more livable, economically prosperous, and environmentally sustainable."

© 2014 Florida Realtors®

Commercial Lending Increased in 2013

The Mortgage Bankers Association (MBA) issued commercial loan numbers for last year in its "2013 Commercial Real Estate/Multifamily Finance Annual Origination Volume Summation."

According to MBA, commercial and multifamily mortgage bankers closed $358.5 billion in loans. Commercial banks and savings institutions were the leading investor groups with $100.5 billion. CMBS (commercial mortgage-backed securities) had the second highest volume, $79.8 billion, followed by life insurance companies and pension funds; Fannie Mae; REITS, mortgage REITS and investment funds; and Freddie Mac.

Multifamily properties saw the highest origination volume, $136.9 billion, followed by office buildings, retail properties, hotel/motel, industrial and health care. First liens accounted for 97 percent of the total dollar volume closed.

"Improving property markets and a strong appetite among lenders led to a very active year in commercial real estate finance," says Jamie Woodwell, MBA's vice president of commercial real estate research. "Multifamily rental properties drew the most financing, and banks and thrifts were the largest source of commercial real estate lending. Despite the fact there are fewer maturing loans in need of refinancing this year, originations should continue to be buoyed by higher property values, rising property incomes and still low interest rates."

Driven in part by increased coverage, the report's dollar volume for commercial and multifamily mortgages closed in 2013 was 47 percent higher than the volume reported in 2012. Among repeat participants, the dollar volume of closed loans rose by 22 percent.

MBA sells the report online: $250 for non-members and $150 for members. For more information, visit MBA's Online Store.

© 2014 Florida Realtors®

Four Big Predictions for Commercial Real Estate

By 2039, commercial real estate should be thriving. But over the next 25 years, it will be greatly influenced by changes in demographics, technology, globalization, and economic and environmental realities, according to CNBC.

Commercial practitioners gave CNBC several “bold” predictions for the U.S. commercial real estate sector by 2039:

• Many shopping malls fade away. As e-commerce rises, malls will continue to decline, according to Rick Fedrizzi, president and CEO of the U.S. Green Building Council. He expects some teardowns, but repurposing will give new lift to many spaces. “Established places like shopping malls will become like town centers, where people can come together, where their doctors and day care will be, where they can gather after major devastations.”

• Baby boomers drive construction. Several commercial real estate areas will likely benefit from baby boomers’ influence, experts predict. For one, “we’re an aging population, so in 25 years, there’s going to be a heavy focus on medical-related facilities,” says Kenneth Riggs, president and CEO of Real Estate Research Corp. Riggs also predicts a shift toward affordable multigenerational housing, particularly near mass transit. Also, more boomers may turn to senior housing, and growth will be explosive. “Right now, senior housing is a food group in real estate, but it’s like vegan or something, not that established,” Riggs says. “In 25 years, it will be a major food group.”

• Urbanization booms. Gen Xers and Yers who seem to prefer living and working in compact areas will, in part, drive this trend. The multifamily residential market is expected to grow due to the expanding preferences of urbanization, and more companies will move to downtown areas to aid in recruitment efforts, says Rick Cleveland, a managing director at Cushman & Wakefield. Suburbs will also remain important, but they may try to replicate the city experience with greater mixed-use projects that comprise rental, retail and office. “The way most of the suburbs will evolve is that there’s an interim step: They’ll be connected to cities by high-speed or light rail, and they’ll become walkable communities with a sense of place,” says Fedrizzi.

• Green building evolves. Efforts to meet environmental standards tend to be costly, but industries realize that they are important in the long run. Commercial buildings 25 years from now will need to be up to the U.S. Green Building Council’s LEED standards, according to the commercial experts interviewed by CNBC. That may mean some existing structures will need to be torn down or undergo a retrofit.

Source: “7 Bold Commercial Real Estate Predictions,” CNBC.com (March 24, 2014)

© Copyright 2014 INFORMATION, INC.

Warren Buffett: Real estate taught me how to invest

In his annual letter to shareholders, billionaire and Berkshire Hathaway CEO Warren Buffett talks about how two small non-stock investments in real estate from years ago were keys to teaching him about investing. Buffett says in the letter that in 1986, he purchased a $280,000 400-acre farm about 50 miles north of Omaha, Neb. From 1973 to 1981, the Midwest saw an explosion in farm prices, but then the bubble burst and prices declined up to 50 percent or more. That’s when Buffett decided to buy.

“I knew nothing about operating a farm,” Buffett writes. “But I have a son who loves farming, and I learned from him both how many bushels of corn and soybeans the farm would produce and what the operating expenses would be. From these estimates, I calculated the normalized return from the farm to then be about 10 percent. I also thought it was likely that productivity would improve over time and that crop prices would move higher as well. Both expectations proved out. I needed no unusual knowledge or intelligence to conclude that the investment had no downside and potentially had substantial upside. There would, of course, be the occasional bad crop, and prices would sometimes disappoint. But so what? There would be some unusually good years as well, and I would never be under any pressure to sell the property.”

Now 28 years later, Buffett says the farm has tripled its earnings and is worth five times or more what he originally paid for it.

He also talks in the letter about another key small investment he made in 1993: a New York retail property adjacent to New York University that the Resolution Trust Corp. (RTC) was selling. He made the purchase just after the bubble had burst in the commercial real estate market.

“Here, too, the analysis was simple,” Buffett writes about purchasing the property with a small group of investors. “As had been the case with the farm, the unleveraged current yield from the property was about 10 percent. But the property had been undermanaged by the RTC, and its income would increase when several vacant stores were leased. Even more important, the largest tenant – who occupied around 20 percent of the project’s space – was paying rent of about $5 per square foot, whereas other tenants averaged $70. The expiration of this bargain lease in nine years was certain to provide a major boost to earnings. The property’s location was also superb: NYU wasn’t going anywhere. … Annual distributions now exceed 35 percent of our initial equity investment. Moreover, our original mortgage was refinanced in 1996 and again in 1999, moves that allowed several special distributions totaling more than 150 percent of what we had invested.”

Buffett says he uses the two stories to teach fundamentals of investing, such as the importance of focusing on the future productivity of an asset and its prospective price change.

“My two purchases were made in 1986 and 1993,” he writes. “What the economy, interest rates, or the stock market might do in the years immediately following – 1987 and 1994 – was of no importance to me in determining the success of those investments. … A ‘flash crash’ or some other extreme market fluctuation can’t hurt an investor. Indeed, tumbling markets can be helpful to the true investor if he has cash available when prices get far out of line with values.

“A climate of fear is your friend when investing; a euphoric world is your enemy.”

Source: “Buffett’s Annual Letter: What You Can Learn From My Real Estate Investments,” Fortune (Feb. 24, 2014)

© Copyright 2014 INFORMATION, INC. Bethesda, MD (301) 215-4688

Consumer Confidence Stable in February

The Conference Board Consumer Confidence Index®, which had increased in January, fell slightly in February. The Index now stands at 78.1, down from 79.4 last month.

The decline was driven by the Expectations Index, which gauges attitudes about the economy six months from now. That component dropped to 75.7 from 80.8. The Present Situation Index, by contrast, climbed from 77.3 to 81.7.

“While expectations have fluctuated over recent months, current conditions have continued to trend upward and the Present Situation Index is now at its highest level in almost six years (April 2008, 81.9),” says Lynn Franco, director of economic indicators at The Conference Board. “This suggests that consumers believe the economy has improved, but they do not foresee it gaining considerable momentum in the months ahead.”

Consumers’ appraisal of current conditions improved for the fourth consecutive month. Those claiming business conditions are “good” increased to 21.5 percent from 20.8 percent, while those claiming business conditions are “bad” declined to 22.6 percent from 23.4 percent.

Consumers’ current assessment of the labor market also improved. Those claiming jobs are “plentiful” increased to 13.9 percent from 12.5 percent, while those saying jobs are “hard to get” decreased slightly to 32.5 percent from 32.7 percent.

Consumers’ expectations about the future, which had been improving over the past two months, retreated. The percentage of consumers expecting business conditions to improve over the next six months decreased to 16.3 percent from 17.0 percent, while those anticipating business conditions to worsen increased to 13.3 percent from 12.2 percent.

Consumers’ outlook for the labor market was also more pessimistic. Those expecting more jobs in the months ahead declined to 13.3 percent from 15.1 percent, while those anticipating fewer jobs increased to 20.6 percent from 19.0 percent. The proportion of consumers expecting their incomes to increase declined from 16.6 percent to 15.4 percent, but those anticipating a decrease in their incomes also declined, from 13.9 percent to 13.1 percent.

Nielsen conducts the monthly Consumer Confidence Survey, based on a probability-design random sample, for The Conference Board. The cutoff date for the preliminary results was Feb. 13.

© 2014 Florida Realtors®

Commercial Outlook Positive

Market fundamentals in commercial real estate continue to improve but at a slower pace, according to the National Association of Realtors® (NAR) quarterly commercial real estate forecast. Lawrence Yun, NAR chief economist, said fundamentals are still on an uptrend.

“Growth in commercial real estate sectors continues at a moderate pace from a very slow pace of absorption, despite job additions to the economy,” says Yun. “Companies appear hesitant to add new space. Office demand is expected to see only slow and gradual improvement. Demand for retail space is benefiting from improved household wealth, while industrial real estate is stable with increasing international trade, which requires warehouse space.

“Of course, the apartment market fundamentals are the strongest, as nearly all of the new household formation in the past 10 years has come from renters, and not homeowners,” Yun adds.

National vacancy rates in the coming year are forecast to decline 0.2 percentage point in the office market, which has the highest level of empty space, 0.1 point in industrial, and 0.3 point for retail real estate. With rising apartment construction, the average multifamily vacancy rate will edge up 0.1 percent, but this sector continues to experience the tightest availability and strongest rent growth of all the commercial sectors.

NAR’s latest Commercial Real Estate Outlook offers overall projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data for metro areas were provided by REIS Inc., a source of commercial real estate performance information.

Read more at Florida Realtors®

'Economy is Improving at Moderate Pace' - Janet Yellen

Federal Reserve Chair Janet Yellen said Tuesday the central bank remains on course to pare its stimulus program despite a recent slowdown in job growth.

“We have to be very careful not to jump to conclusions” about recent weak job gains, she told the House Financial Services Committee as she delivered her first semi-annual testimony before Congress. She cited extreme winter weather that hobbled the economy and job market.

By the time the Fed next meets March 18-19, she said, Fed policymakers will be able to assess job growth in February, and will also look at a range of data, including consumer spending. Monthly job gains, which averaged more than 200,000 from August to November, slowed to 75,000 in December and 113,000 in January.

The Fed is buying $65 billion a month in Treasury bonds and mortgage-backed securities after reducing purchases by $10 billion in each of the past two months. Citing an acceleration in the economy and job gains, Yellen reiterated plans to trim purchases in “measured steps” this year.

She said it would take “a notable change in the outlook” for the Fed to pause its tapering strategy.

“It’s a fairly high bar to shake the Fed off the pattern it’s on,” says Barclays Capital economist Michael Gapen. He says Yellen’s testimony shows she may be more of a “centrist” as chair after being known as more concerned with stimulating job growth than preventing high inflation.

Yellen, who was previously vice chair, became the first woman to lead the central bank on Feb. 3, succeeding Ben Bernanke.

She downplayed concerns that the waning of the stimulus is partly responsible for emerging market woes as higher U.S. interest rates prompt investors to pull money from overseas holdings and shift it to the U.S. She said the Fed made clear it would pare purchases as the recovery advanced.

Yellen said the Fed expects the economy to expand “at a moderate pace” this year and in 2015 after picking up the second half of 2013. But with unemployment at 6.6 percent, she said the labor-market recovery “is far from complete.”

She is to testify before the Senate’s banking panel on Thursday.

Copyright © 2014 USA TODAY

Housing and Lower Debt to Drive 2014 Economy

The U.S. economy is headed for stronger growth in 2014 that will steadily chip away at the unemployment rate, top economists predict in a largely optimistic USA TODAY quarterly survey.

The jobless rate, which dipped to a five-year low of 6.6 percent in January, will fall to 6.3 percent by the year-end, their median forecast shows.

Job gains, which averaged 194,000 a month last year, will reach a monthly average of 200,000 this year, they predict. Employers added 113,000 jobs in January, well under economists’ forecasts, the government reported last week.

The economy got off to a slow start in January amid financial turmoil in emerging markets, a stomach-churning drop in stock prices and extreme winter weather that kept many shoppers at home. But the economists surveyed expect growth to accelerate after a weak first quarter, reaching a solid 2.8 percent rate for the year.

“I think we will regain momentum and not fall on our face,” says economist Diane Swonk of Mesirow Financial, drawing a contrast with previous ups and downs in the 5-year-old recovery.

Many of the 40 economists surveyed Feb. 5-6 recently cut their first-quarter forecasts. Most of the change is due to adverse weather and an expected pull-back in business stockpiling after firms aggressively replenished shelves in the second half of 2013.

While growth late last year was driven by the stockpiling, this year’s expansion will be fueled by higher consumer and business spending, says Dean Maki of Barclays Capital. “It’s more durable.”

Many were anticipating a breakout year in 2014, signaling a new course for a sluggish recovery. Households have shed much of the debt they amassed in the mid-2000s real estate bubble. A stock run-up and rising home prices have made consumers feel wealthier. And the effects of federal spending cuts and tax hikes are fading, while state and local governments are poised to boost outlays after years of austerity.

Some see financial troubles in emerging markets such as Turkey as risks to the USA’s outlook. But 64 percent said their 2014 forecasts are more likely to prove too conservative than too rosy.

Copyright © 2014 USA TODAY, Paul Davidson, and Barbara Hansen

Chinese Investors Spend Billions on U.S. Real Estate

Chinese investors broke sales records in their drive to purchase U.S. commercial real estate in 2013, and analysts expect they will remain active in the global market, with untapped billions more to invest in coming years.

The U.S. real estate market attracted $3.1 billion of capital from China last year -- an increase of more than 900% from just $264 million invested in 2012, according Jones Lang LaSalle.

New York attracted the most money from China last year as Chinese investors poured $2.9 billion to buy property in the global capital, representing a considerable increase over the 2012 investment level of $200 million.

"There was a dramatic increase in the amount of Chinese investment in U.S. real estate in 2013, with transaction volumes more than tripling the previous high year,” said Rob Hielscher, managing director, Jones Lang LaSalle’s International Capital Group.

Migration for investment in overseas real estate markets has become a top choice for Chinese applicants, according to a report on China's capital migration status released by a Chinese think tank last week.

The Annual Report on Chinese International Migration 2014 found that a growing number of Chinese investors are rushing to go abroad in order to buy properties in places like North America.

The report, put out by the Center for China and Globalization and the Social Sciences Academic Press, noted that in 2011, China became the second-largest overseas property buyer in the United States.

Copyright © 2014 CoStar Realty Information, Inc.

Warehouse Demand Increase Good News for Commercial Real Estate

Warehouses are becoming a commercial real estate boon, as more retailers beef up their online business.

Online retailers such as Amazon are leading the trend, snapping up spaces for smaller distribution centers near major urban areas in an effort to get products closer to where people live, says Sam Chandan of Chandan Economics.

Warehouses are “some of the best performing space that we see in commercial real estate right now, across all property types,” Chandan told CNBC news.

The latest PWC Investor Survey pinpointed warehouses as the strongest prospect for investment and development in 2014.

Housing analysts expect other companies to follow Amazon’s lead in purchasing warehouses near urban areas. "Small mom-and-pops are getting into the e-commerce game now as well," says Frank Cohen, senior managing director for Blackstone’s Real Estate Group.

Warehouse development is on the rise, and there has been an increase in speculative building, too. About 62 percent of the 59 million square feet under construction by the end of the third quarter in 2013 was being constructed without signed tenants, according to a report by CoStar, a commercial data firm.

Source: “Real Estate’s Least Sexy Sector Is Red Hot,” CNBC (Jan. 22, 2014)

100% Occupancy at Lakewood Ranch Main Street, Florida

Recent leases signed by new tenants has taken Lakewood Ranch Main Street, Florida to 98% leased. One more business has issued a letter of intent and is expected to sign a lease for the final tenant space on Main Street in January 2013, which means it will be 100% leased for the first time.

“This is the first time ever since the center was a pipe dream,” Julia DeCastro, director of leasing and sales for Lakewood Ranch Commercial Realty, said of having the shopping center 100% leased.

Lakewood Ranch Main Street celebrated the opening of Health Living Organics in December and Decal World in November. The University of South Florida will open its cooking school in the former Viking culinary center space in February.

When Lakewood Ranch Main Street opened in 2005, its owners planned for it to be similar to St. Armands Circle — a high-end destination shopping center — out east. But the real estate market crash in late 2008 made them rethink that concept.

Lakewood Ranch developer and Main Street co-owner Schroeder-Manatee Ranch acquired Casto Lifestyle Properties’ 50% stake in the plaza in December 2009 and began making the center a destination for families.

DeCastro said Main Street’s tenants consist primarily of family-owned businesses, and she has worked hard to create the right mix of specialty store offerings, without duplicating services. “To have a town center that’s 100% occupied in this market is just amazing,” she said.

Source: East County Observer, (Jan 22, 2014)

Commercial Lending is Growing (Finally)

Commercial and multifamily mortgage lending is expected to increase in 2014 as lenders’ appetites to place new loans grow even stronger, according to a new Mortgage Bankers Association (MBA) survey of the top commercial and multifamily mortgage origination firms.

MBA polled lenders on their expectations in the New Year. A full 91 percent of the top firms expect originations to increase in 2014, with 48 percent expecting an increase of 5 percent or more. Almost two-thirds (64 percent) expect their own firm’s originations to increase by 5 percent or more.

“Commercial and multifamily lenders anticipate a market in which lending continues to grow, and their firm gets a bigger piece of the pie,” says Jamie Woodwell, MBA’s vice president for commercial real estate research. “Borrowers’ appetites to take out new loans are expected to remain strong, but perhaps drop a bit from 2013 levels. The resulting competition to lend leads originators to expect loan risk to increase marginally in the face of moderating returns.”

A majority of respondents expect originations for commercial mortgage backed securities (CMBS), commercial banks and life companies and pension funds to increase, and for originations for Fannie Mae, Freddie Mac and FHA to decrease: 65 percent anticipate a “very strong” appetite among firms to make loans and 23 percent anticipate a “very strong” appetite among borrowers to take out loans. Lenders were surveyed on a scale of “very weak, weak, fair, strong, or very strong.”

Read more at Florida Realtors®

Small Business Owners Less Stressed About 2014

In a survey of 500 small businesses in the United States, 41 percent reported increasing levels of stress. That's not good, but it's a lot better than it was: 49 percent said stress was increasing in 2012, and 50 percent thought so in 2011.

Stress among small business owners has been coming down from even higher levels during the height of the financial crisis, which is good news for everybody.

Despite being less stressed than they were, small business owners are not overly optimistic about 2014. Fifty percent of them said that they were, down from 55 percent in 2013 but up from 45 percent in 2012, pointing towards it trending sideways.

Owners do, however, have higher hopes than the rest of the world, where optimism dropped to 38 percent from 48 percent last year. Optimism in the U.S. always leads the rest of the world by a pretty wide margin.

Source: 2014 Outlook: The Good News Is, You'll Be Less Stressed, Inc.com (Dec 31, 2013)