Unless you have been asleep or out of the country, you have noticed the bizarre spread of branch banks everywhere. At the start of the Great Recession five years ago when banks were in trouble and our government bailed them out to protect the United States financial system from failure, the big banks were considered too big to fail but needed help. So the government loaned them money to protect the big banks and the banking system.

Historically banks existed to hold deposits, transfer funds, make loans, collect interest and fees, and to pay interest to depositors and dividends to stockholders. Somehow after the Great Recession all this changed. Banks still hold deposits, transfer funds, collect interest and fees, but pay very little interest on deposits (1/4 of 1% or a $2.50/year for a $1,000 deposit) and provide very few loans.

So what are they doing with all the money they are borrowing from our government? Some are using it to make trades on the Stock Exchange while others are using the money to build branch offices. Yes, they are building branch offices. Not just one or two, but a branch office seems to pop up every mile on major roads. But why build branch offices, when customers can make deposits using their phone, withdraw money at an ATM and do most of their banking electronically?

The growth of drugstores, fast foods and gas stations, is understandable, these all pertain to items that are tangible you can hold them in your hand or in your car. But other than cash, money is not tangible, and there is no real reason to even go to a bank except to deal with a problem or arrange a loan.

So why so many branch banks? One theory is that banks are using the money they borrowed from our government at less than 1% interest rate to invest in their own real estate investments. They are using the money not to make loans to regular businesses, that’s too risky. But instead of making loans they invest in real estate for their own gain, essentially backed by our tax dollars. Yes, banks can legally invest in real estate if it is used for the operation of their business. They cannot buy an investment property like an office building or shopping center. But they can own their bank buildings. One of the regulations for the ownership of real estate by banks states, “A national bank association may purchase, hold and convey real estate for the following purposes, and no others; First. Such as shall be necessary for its accommodation in the transaction of its business.”

So banks are not making real estate loans because they are considered “too risky”, yet at the same time they are investing in real estate, through the ownership of multiple branches. Marketing experts might say this is to build brand recognition and customer loyality. We’re not so sure. The bank where I have my personal account has been Coral Gables Federal, then First Union, then Wachovia and is now Wells Fargo and I haven’t once thought of moving because of the name change. As long as my money is insured, what does the name on the door matter? Call us…we can’t explain everything, but we can provide some insight into real estate issues.

By Thomas J Dixon

During the past 6 months, I have changed some of my shopping habits and started doing more Internet shopping. One reason is that there is a greater choice of products to meet my needs and another is simple economics. For example, I needed a special light bulb for a floor lamp at our office. I found a store about 10 miles away that had the bulb in stock for $10. Then I went on-line and found the same bulb for less with no sales tax. I figured that if I drove 20 miles to pick up the bulb (at 20 miles to the gallon) I would use a gallon of gas and the trip would cost $3.50. My alternative was to wait two days and have the bulb delivered by UPS. Guess which one I chose.

Now there are some things that don’t lend themselves to delivery such as groceries, large construction items and large bulky products, although my son has started ordering his dog’s food online so maybe that’s not entirely true. However, there are also some items that require in-touch decisions such as clothes and fashion items. Some things however such as shoes are easier to find on-line and then have delivered than to go to a store. To get the right size my wife orders two sizes and sends one pair back making sure that returns are postage paid.

I get the feeling that as we go from “bricks to clicks” the demand for certain types of retail space will decline as well as the need to have inventory of goods in local warehouses. The demand for small local warehouse storage space will decrease as logistic companies can move goods overnight from larger central warehouses. For retail space, the number of stores may remain the same but the size of stores will decline as the need for large inventories decline.
These changes in buying habits will have consequences beyond just the real estate industry. For example, in Florida we don’t have a state income tax instead generate state revenues from real estate and sales taxes. If more and more goods are purchased “out-of-state”, sales tax revenues will not increase at the same rate as the population increases. If sales tax revenues decline and demand for state services increases, there could be a movement to increase the sales tax, add a tax on to services, or consider a state income tax. The consequence of an increase in the sales tax may be more “out-of-state” purchases which will only make the problem worse. A similar issue has arisen with the tax on gasoline sales. The maintenance of the road system depends on the gasoline tax. Unfortunately as gas prices rise and cars become more efficient, we drive less by shopping on-line and we use less gasoline resulting in the state collects fewer taxes to support the roads.

So how does this impact real estate investment decisions? We will still go shopping and still have the need for retail/services space. Those things which cannot be delivered will still need space. Personal services such as doctors, barbers, beauty salons, gyms, restaurants and bars are some that come to mind. On the other hand, services which can be done remotely don’t need expensive local space and can be located anywhere. For example, who really wants to go into a bank when you can make deposits and withdrawals at an ATM and pay bills on-line or with your phone?
Unless we see the changes before they happen we won’t know how to get on the right side of the trends. Call us. We are always looking for the impact of future trends on real estate investments.

By Tom Dixon

If you live in Florida and own property, you will receive a TRIM (Truth in Millage) notice in the next 4 to 6 weeks. This notice will give you an estimate of the real estate taxes that the property must pay, based on the assessment and millage rate. The assessment is established each year by the County Property Appraiser using mass appraisal techniques. The millage rate is based on funds the city and county government need to operate. The real estate taxes for a property is then calculated by multiplying the assessment – say $100,000 times the millage rate of say 19 mills, which is really 1.9% or .019. This equals a tax of $1,900. I sometimes think that the use of the term millage rate is to confuse the taxpayer. It would be much clearer if it was expressed as a percentage of value.

As a taxpayer, you are only obligated to pay your fair share and the only part of the real estate tax equation which can be appealed is the assessment. For non-homestead property, the tax year of 2008 is very important because the Florida Constitution was changed to limit the increase in the assessment from year to year. The following is an extract of the new assessment procedure for non-homestead property.
Assessments of non-homestead property shall be changed annually on the date of assessment provided by law; but those changes in assessments shall not exceed ten percent (10%) of the assessment for the prior year. …. such property shall be assessed at just value as of the next assessment date after a qualifying improvement …such property shall be assessed at just value as of the next assessment date after a change of ownership or control and …changes, additions, reductions, or improvements to such property shall be assessed as provided for by general law….
There are serious unintended consequences of this amendment. For example, over time – as the difference between the assessed value and the just value increases – fewer and fewer property owners will be motivated to sell and fewer buyers will be interested in buying because of the impact of the increase in assessment and taxes after a sale. The next problem will be the lack of motive to upgrade, change or improve property because again, this will cause a re-assessment of the property. However, this is the Florida Constitution and unless it changes, you should take advantage of these benefits.
With the general decline in real estate values from land, condos, single family homes to income properties, the year 2008 is the best opportunity to lock in the low valuations so that in future years as the real estate market improves, your assessment and real estate taxes will be at a minimum.
After you receive the TRIM notice, there is usually a period of 25 days to file an appeal petition if you wish to protest the assessment. Then, sometime in the next 12 months there will be a hearing before a Special Magistrate to protest the assessment. As a property owner, you can file the appeal and present your arguments before the Special Magistrate. However, many property owners have found that using a professional is much more effective.
With our 30 plus years of combined knowledge of South Florida real estate valuations as estate brokers, professional appraiser, teacher and economic analysts, we are well equipped to represent property owners in the successful appeal of real estate tax assessments.

CALL US — WE CAN MAKE SURE THAT YOU ARE ONLY PAYING YOUR FAIR SHARE OF REAL ESTATE TAXES.

Over the past months the reported inventory of homes for sale in the South Florida market is very small, prices are rising and sellers are getting multiple offers above the asking price. Some buyers have never even viewed the home. These are facts which are true. Although these facts may be true they need to be considered with other information.
Being active in the residential and commercial market I have an account to make on-line offers to purchase properties at the Miami-Dade County foreclosure auction. These foreclosure auctions are held daily and permit a buyer to make bids for properties on line. With a deposit of 5% of the amount of your bid you can bid for properties with the understanding that you must pay the balance within 24 hours.

My analysis of this electronic bidding system shows that between April 15th and July 1st of this year the county is scheduled to auction over 7,500 properties, mostly condos and single family. If the 1,200 properties listed for “Short Sale” are deducted, the inventory of homes for sale will increase by 6,300 homes. This compares to the Multiple Listing Service list of approximately 11,900 condos and homes for sale in mid-April. Therefore, in the next several months the inventory of homes and condos for sale could easily increase to 18,300 or an increase of over 50% as the foreclosed properties are placed on the market.

The listed homes which have been selling are generally in good condition with sellers motivated to maintain their property to maximize the sale price, whereas most of the foreclosed homes have issues which make them difficult to sell because of their physical condition. These physical conditions will affect the purchase price so we might see a decline in prices as foreclosed properties are placed on the market. Again the facts will show a change in pricing but other factors need to be considered such as property condition at the time of sale.

Years ago I tried to convince an apartment builder to buy land to build an apartment building. His comment was “where will the tenants come from?….do you see anyone sleeping on the streets”. There are only so many buyers who can afford the all cash or 20% down-payments and a history of good credit. The real estate boom years of 2005 to 2008 came about because there were NINJA loans (No Income, No Job, no Assets) with a 3% or smaller down-payment, rapid speculative price increases and television shows on how to flip houses. Unless we get an influx of new residents the demand for these foreclosed properties may reach a saturation point.

Facts can be both true and misleading. Yes there is a shortage of homes listed for sale, but there is also a very large shadow inventory or pool of homes coming to market which will have an impact on the future price of housing. We interpret facts to help us make knowledgeable decisions to help our clients.

By Thomas J Dixon

Every time I make payments towards my retirement account I think about the stories of Bernie Madoff, MF Global and other investment schemes, where the investment money was “lost”. To date MF Global is missing roughly $1.6 billion, JP Morgan had trading losses of $2 billion and I’m sure there will be other horror stories. Once a month I receive my retirement statement that some months show increases and some months losses of my funds. This is only a printed document from a national financial company. I trust that these statements are correct and the money will be there when I retire.

However, to be on the safe side, with my son Andrew we purchased a duplex, for investment, to rent out and receive the benefits of appreciation, cash flow, tax depreciation deductions, with returns greater than the ½% interest we are receiving from our bank. But the most important part of this real estate investment is the knowledge it is there. We can physically touch our investment.

In the United States, ownership of real estate is protected in the sense that it is very difficult for it to be stolen, it cannot be taken by the government without compensation, with its financing provides leveraged returns and its ownership is recorded in the public records. This combination makes real estate purchased at the right price a very good long term investment.

The question is how to make an investment at the right time and the right price. Many investors say the most important factor is location, location and location. While location is important, timing and price are also very important. The best timing is when the market is near the bottom and will rise over time. The right purchase price is when the rental income less expenses will give a positive return. I believe we are near the bottom of this real estate cycle and now is the time to consider the purchase of investment real estate.

The negatives of owning real estate are the issues of property management, paying bills, collecting rent, overseeing maintenance and here in South Florida worrying about hurricanes. The positive is the security of knowing the investment is really there and it is yours.

Let us help you make sure “YOUR MONEY IS REALLY THERE”

Tom Dixon

Hello, I’m Roger Lopez and this is my first newsletter for the Dixon Magenheimer Sisler Report.

Anthropology is the scientific study of humanity. It concerns itself with the biological and cultural evolution of our species.  Generally it can be divided into four fields: biological anthropology, linguistics, cultural anthropology, and archaeology. The film character Indiana Jones is an anthropologist.

Biological anthropology focuses on the questions surrounding our physical evolution, as well as the evolution of the rest of our primate family. A lot of people are often surprised to learn that humans are classified as apes, just like chimpanzees and gorillas (our genetic cousins), except that we wear clothes and occasionally eat at the Cheesecake Factory. Monkeys and the rest of the primate clan are our cousins as well. The cultural and linguistic subfields deal with questions about our universal behaviors as well as those that make us unique in relation to other societies and how these are intertwined with our language. Archaeology, as our friend Indiana Jones has taught us, is the science of describing ancient cultures through their artifacts and fighting Nazis.

I have known the Dixons for 15 years, half of which I spent learning all about our species. I began my anthropological career at the University of Miami where I took classes spanning all four fields of the science. I graduated with a B.A. in anthropology with a strong focus on the biological component. I went on to graduate school at Kent State University in Ohio where I enrolled in the Master’s program. I spent three years learning about feeding behavior and the biomechanics of several species of South American monkeys. This required me to spend a whole summer in the jungles of Suriname stalking monkeys and drinking a significant amount of rum.

One day I decided to no longer pursue a life of anthropology. Making a career out of the science requires a Ph.D., something for which I was not prepared to commit. Despite my decision, I knew I had been exposed to a vast wealth of knowledge and to an invaluable set of skills. Aside from its academic component, anthropology serves many purposes in the “real world”.  Archaeologists often work closely with governments and the private sector to ensure that land meant for development is free of any significant cultural resources (i.e. artifacts). And within recent history, linguists served an important function during WWII by helping the U.S. government decipher Japanese and German secret codes as well as developing our own undecipherable language based on Navajo.

While the leap from anthropology to real estate may seem counterintuitive, and it certainly was accidental for me, it can make more sense than expected.  We believe real estate is about problem solving and understanding the needs of others and from where these needs stem and solving them. Being able to relate to anyone irrespective of their background is essential to successfully representing buyers and sellers. I recently earned my sales associate’s license and plan on making good use of it. If you are looking for representation in a real estate transaction, or if you just want to chat about monkeys, now you know who to call.

In Florida this is the time of year when property owners are notified of the amount of the real estate taxes to expect on the tax bill which will be sent the first of November. This notice know as a TRIM or “Truth in Millage” notice. For 2011 if proposed changes are adopted this should be equal on average around 5% lower property taxes than 2010 for properties whose values have not changed. If you do not see this drop in taxes, it is likely because the Property Appraiser’s Department has raised your assessed value!

How can they do this? Although the Market Value may have declined the “Assessed Value” (the amount used to calculate your taxes) increased because of the provisions Florida’s “Save or Homes” or Homestead Exemption legislation. Homestead Exemption provides that the assessment for residential properties, with Homestead Exemption, cannot increase per year by more than 3% or the Cost of Living, whichever is less. This can happen up until the Assessed Values and Market Values meet. But under no circumstances can your Assessed Value exceed your Market Value.

The other possibility is that the Millage Rate decreased less than the property’s value increased. Real estate taxes are calculated by multiplying the “Assessed Value” (or “Taxable Value” for Homesteads) by the “Millage Rate”. The “Millage Rate” is based on the amount of money local government needs from real estate assessments divided by the total “Assessed Values.” For example, if government needs $1,000,000 to operate and the total “Assessed Value” is $50,000,000 the millage rate is 20 mills or more simply 2.0% of “Assessed Value”. If government needs $1,000,000 and the total “Assessed Value” declines to $45,000,000 then the Millage rate will increase to 22 mills or 2.2%. Therefore, when “Assessed Values” decline and government needs remain the same the Millage rate will increase

Although the “Millage Rate” for all classes and types of properties in a government area are the same, the limitation on the increase in assessments under “Homestead Exemption” does not apply to non-homestead properties, for those properties there is now a 10% increase cap for the portions of your tax bill that are paid to the City/County/Region, but the cap does not apply to the School Board portion of which for the Taxable Value always equals Market Value, and is taxed on that amount. I know it’s confusing but at least you don’t need a CPA to calculate it for you just yet.

What can you do to make sure you are only paying your fair share of real estate taxes? If you believe your property assessment (value) is too high you can have us appeal on your behalf. We will review the county’s assessed values and compare against sales and income information to determine if a reduction is warranted and present this evidence to the Value Adjustment Board. Last year alone we saved our clients on average about 20% off their taxes.

However if you believe the millage rate is still too high you should attend the City and County Budget Hearing Meeting to express your feelings and demand sensible government spending. Our government needs to be held accountable for how they spend our tax dollars, and no one can do that but it citizens.

In addition a few things have changed for folks petitioning their real estate assessments. First, the state is now requiring that at least 75% of the taxes be paid before hearing the case. No more waiting until after the hearing to receive a revised tax bill. Second, refunds issued as a result of a Value Adjustment Board hearing after April 1^st, will have accrued interest of 1% per month between April and the date of the refund.

The good news for 2011 is that we expect less people will be dissatisfied with their assessments as the Property Appraiser appears to be catching up with the market and drastically lowering values. However, times are still tough for commercial property owners, and with few arms-length transactions to base values off of, now more than ever, is the right time to review your assessed values based on income potential. Call us to setup a petition before the Sept. 15^th deadline, and we’ll handle it from there. Alternatively you can CLICK HERE to apply online.

-Andrew Dixon