Updates

Written by jordan on . Posted in Blog

Just posted a new article on how to get and keep long-term capital for your small business on this blog, provided by courtesy of our friend Robert L. Breen; and the article can also be found in our new April issue.

Also just added on our website is our featured article of the month, which is an article on how to maximize your insurance spending to find the best deal with the best coverage. Each month we will post our featured article in a word doc so that way you can easily find it and store it.

Featured articles can be found at www.aptmags.com/featured

Long-Term Capital Planning for Small-Business Owners

Written by jordan on . Posted in Blog

Small-business owners need a financial strategy that supports a flourishing business and provides for a satisfying retirement.

Running a small business can be more than a full-time job. In the beginning, you typically have to spend tremendous amounts of cash for equipment and marketing while working many hours a day building your operation. Once your business is established, maintaining and building cash flow becomes the main priority. But meanwhile, business owners must also see to the financial needs of their families.

Creating a capital plan that keeps your business operating — and flourishing — while giving you the personal financial flexibility to send your children to college and retire comfortably is paramount. “How much business owners pay themselves depends on a number of considerations,” says Carlton Brown, an Estate Planning Specialist with Wachovia Securities. “It depends on the stage their business is in, what the person’s lifestyle is and, most importantly, how close they are to retirement.”

Depending on personal considerations, owners can structure their business in a way that helps them meet their own financial goals. Factors that influence a small-business owner’s capital strategy should include:

The company’s legal structure.

The business’s capacity to borrow for growth.

The owner’s ability to take money out of the company to invest in a retirement plan.

Legal Structures for Small Businesses

“Deciding what kind of legal structure you have and how it affects the business’s capital strategy depends on the kind of business you are running and how much flexibility you need,” says Martin Scoll, Vice President of Life Event Services for Wachovia Securities. Small businesses typically fall under two types of legal structures: sole proprietorships and incorporated businesses.

In a sole proprietorship, the company’s assets, liabilities and risks belong to the owner. Sole proprietors report and pay business taxes as part of their own IRS return. If you are a sole proprietor, you have much more flexibility with the business’s finances and cash, making it a lot easier to pay yourself and invest the money.

However, as a sole proprietor, you may find it harder to borrow money for your business, because your personal credit becomes a factor. Sole proprietorships are great for small retail or food operations that will have predictable, non-cyclical revenues and expenses and are less prone to lawsuits.

C corporations are the most common type of incorporated businesses. A C corporation’s income is legally separate from the owner’s personal finances. If the company is sued, the individual owner’s assets cannot be touched. With a C corporation, owners must receive a salary or a dividend as income. Dividends are taxed both at the corporate level and on your personal income tax return as capital gains, whereas your salary would only be taxed as personal income. Also, if you need to borrow a tremendous amount of money to grow, running an incorporated business is usually the best option.

Other incorporated business choices include a limited liability company and an S corporation. Both of these options give you the flexibility to take business profits out of the company without being taxed by the federal government (and usually the state, too); you only have to pay taxes on the 1040 you personally file with the IRS. While both structures help you to avoid double taxation, they also come with strict management and tax rules.

To fully understand the pros and cons of your business’s legal structure and to decide which works best for your own needs, talk to your accountant, your lawyer and your Wachovia Securities/Wachovia Securities Financial Network Financial Advisor.

Borrowing Versus Reinvesting Profits

“Different businesses have different needs at various stages,” says Scoll. “At the beginning of the business, you will likely need to borrow money from a bank for start-up costs and reinvest all your profits in order for it to grow.”

Once a business becomes profitable, it will need a fixed amount of capital to continue growing. You can address these costs by either borrowing the money or reinvesting the profits back into the company. If interest rates are high and it costs you more to borrow than you could earn reinvesting the profits outside the company, it would be wise to reinvest most of your profits back into the company’s operation. If the opposite is true, borrowing from a bank to fuel your company’s growth while taking profits out to invest in your personal portfolio may be a smarter choice.

According to Brown, it is wise to take some money out when you can afford to do so. “Plowing all your profits back into your company rather than taking them out and reinvesting them is similar to buying one stock rather than a diversified portfolio,” he says. “That can be dangerous. If your company goes out of business, all of your resources are gone. If you have reinvested some of the profits elsewhere, you have some ground to stand on.”

Saving for Retirement

Once you’ve decided how you want to spend your retirement, you can begin crafting a retirement plan that suits your needs with the help of your Financial Advisor and your accountant. “Being in constant contact with your accountant is time well spent,” says Brown. “A good accountant can help you know when and how much money to take out of your business so you can reinvest it for your retirement or personal needs.”

Once you have determined how much you can take out of your business, there are a multitude of savings and retirement options available to small-business owners, including:

IRA accounts specifically created for self-employed individuals or small-business owners. These often have flexible annual funding requirements with a full range of investment choices.

Unique 401(k) plans that work just like the 401(k) plans of larger corporations, but have potentially higher contribution limits than self-employed IRAs.

A SEP, or Simplified Employee Pension Plan, which has been crafted specifically for small businesses.

Remember that small-business owners should also tap into asset classes available to the average nine-to-five worker. Consider putting money into mutual funds to diversify risk, 529 savings plans for your child’s college tuition and expenses, or alternative investments to add opportunities not available in regular equities.

No matter how large or small your business is, adopting a sound capital strategy is a smart way to ensure that you have a successful operation at work and a comfortable lifestyle at home.

Together, we can discuss:

The stage your business is in, as well as coordinating with your legal/tax advisors to discuss which legal structure best meets your needs.

How to maximize the money you are able to take out of your business to meet your current cash needs.

Setting overall retirement goals — and crafting a plan to achieve them.

Wachovia Securities/Wachovia Securities Financial Network does not render legal or tax advice.

1206-42027

Wachovia Securities is the trade name used by two separate, registered broker-dealers and nonbank affiliates of Wachovia Corporation providing certain retail securities brokerage services: Wachovia Securities, LLC Member, NYSE/SIPC, and Wachovia Securities Financial Network, LLC (WSFN), Member FINRA/SIPC.

The accuracy and completeness of this article are not guaranteed. The opinions expressed are those of the author(s) and are not necessarily those of Wachovia Securities/Wachovia Securities Financial Network or its affiliates. The material is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Provided by courtesy of Robert L. Breen, a Senior Vice President-Investments with Wachovia Securities in Anaheim. For more information, please call Robert at (800) 300-4428 or visit his website at www.breen.wbsec.com. Wachovia Securities/Wachovia Securities Financial Network, LLC, member FINRA and SIPC, is a separate nonbank affiliate of Wachovia Corporation. ©2008 Wachovia Securities, LLC.

Investments in securities and insurance products: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE

Cosmic Contracts–How Can an Entity Enforce a Real Estate Contract When the Entity Did Not Exist When the Contract Was Made?

Written by jordan on . Posted in Blog

By David S.White, Esq., of Fainsbert Mase & Snyder, LLP This time we look at a refreshingly short, recent opinion of the California Court of Appeal for the Second Appellate District (covering Los Angeles). The case is about an abortive sale of a hotel –a mere six pages worth of legal wisdom and guidance! The case illustrates a truly metaphysical proposition in the law –right up there with the classic:’ if a tree falls in the forest and nobody is there to hear it, does it make a noise?’—but, nonetheless, one which is quite important to be familiar with for any reader of this periodical who has more than a passing fancy for real estate. The charmingly impersonal name of the case is 02 Development, LLC v. 607 South Park, LLC. This reflects our modern penchant for forming (sometimes multiple) entities for real estate conveyancing and using somewhat less than inspiring names for those entities- you won’t find names like these in the old case books. At trial, the Court granted Summary Judgment in favor of 607 South Park (the Seller) in a lawsuit brought by 02 Development (the Buyer) for breach of an agreement to buy and sell, respectively, a hotel property. Summary Judgment is the procedure in civil cases where the Judge can declare a winner and a loser in the whole case without having to go the distance to a full trial. This is based on (usually voluminous) legal briefing and evidence showing that the facts are not in dispute and arguing that, therefore, the legal rules can be applied directly to those facts by the Judge, thus saving the taxpayers the massive expenses of tying up a courtroom and all of its personnel for a full-blown trial. Here, the trial Judge ruled in favor of the Seller for two reasons: 1) Buyer did not legally exist at the time the contract was entered into, and; 2) Seller was justified in refusing to go forward with the sale because Buyer was not then ready, willing and able to fund the purchase. Both sound like pretty solid reasons for the Seller to win and the Buyer to lose, no? Now it was time for the Appellate Court to take a closer look. The purchase and sale agreement, entered into in March 2004, provided for the sale of the hotel for $8.7 million by 607 South Park, LLC, as Seller, to a Buyer named Creative Environments. In February 2005, Creative Environments entered into an assignment agreement with 02 Development, LLC, purporting to assign Creative Environments’ rights as Buyer in the hotel purchase contract to 02 Development, LLC. As I am mentally ready for the Super Bowl while writing this over Super Bowl weekend, an ‘assignment’ of a contract is the legal equivalent of a quarterback handing off the ball after the snap to a running back who then runs for a touchdown. But, in February 2005, when this assignment agreement was entered into, 02 Development, LLC did not then exist. A gentleman by the name of Epstein signed in February 2005 on behalf of 02 Development, LLC, but the 02 Development, LLC entity was not formed until several months later in May 2005, when Epstein sent in all the completed paperwork to the California Secretary of State’s office and paid the fees. OK, nobody’s perfect, you say. . . The Seller called off the sale before the date for closing the sale escrow came around. When 02 Development, LLC (Buyer) then sued 607 South Park, LLC (Seller) for breach of the contract to sell the hotel, Buyer argued that Seller breached the agreement to sell the hotel by, among other things, denying that Buyer had any rights in any contract to buy the hotel and therefore refusing to go forward with the sale. Seller argued the contrary, that neither Epstein nor 02 Development (the Buyer) had either the $8.7 million needed to close the deal or a loan commitment to provide the purchase money to close the deal and buy the hotel, so, therefore, Seller was legally justified in calling off the sale early. Buyer responded that: 1) a business entity can legally enforce a ‘pre-organization contract’ (a contract which was entered into before the entity existed- the metaphysical part), and; 2) Buyer only needed to show that it could come up with the money when the contract said it was time to pay, and not a moment before; thus Seller blew the ball dead too soon (sorry, Super Bowl fever strikes even old lawyers!). The Appellate Court first discussed the ‘pre-organization contract’ issue, saying that this point is ‘hornbook law,’ meaning that the point is so obvious that even a lowly law student should know it from his or her textbooks. ‘Hornbook’ is a very old name, originating back in the 15th Century, for an early primer or legal textbook. The Appellate Court noted the rule in many cases that ‘pre-organization contracts’ can, indeed, be enforced by the legal entity for whose benefit the contract was made, after the entity was later formed. Seller argued that an entity that does not exist cannot enforce its supposed contract rights. To this, the Appellate Court said: you are technically right, but the point is irrelevant here! Even though 02 Development, LLC did not legally exist when Epstein assigned it the contract rights as Buyer, a few months later when 02 Development, LLC was formed, this entity then was legally able to enforce those contract rights which were made for its benefit when it was a mere gleam in Epstein’s eye and not yet legally in existence (not unlike presents given to a newborn baby at a baby shower before the baby has been born). Seller, not to be outdone, then argued that, when 02 Development, LLC did finally come into existence, it never thereafter ratified (meaning, approved of) the contract that was created months before its birth, supposedly for its benefit. The Appellate Court countered that, because Seller left this argument out of its briefing papers before the trial court, Seller could not now make this argument for the first time to the Appellate Court. The Appellate Court further suggested that this lack of evidence of ratification, or later approval, actually might have been a winning argument for Seller to keep its trial court victory on appeal. The Appellate Court’s disposition of this issue does not really discuss the metaphysical question of exactly how one goes about enforcing a contract made by an entity which did not exist at the time. In keeping with our Super Bowl theme, you could say the Appellate Court did not squarely face this issue; they ‘punted.’ Next, the Appellate Court considered the second argument (which it called the ‘causation’ argument) – that Buyer did not have the money to close the deal, so Seller was perfectly within its rights to repudiate the deal early (what lawyers call an Anticipatory Breach of the contract – a breach done in advance of when the actual performance under the contract was required). This issue should be decided based on who had the burden of proof, another way of saying: whose job it was to first prove this point. Here, Seller argued that it was Buyer who had the job to first prove that Buyer either had the $8.7 million in hand or that it had a commitment from a lender to lend Buyer the money to close the deal. Remember, it was Seller who was the moving party on the Summary Judgment motion. The Appellate Court said that No– it was Seller, as moving party seeking Summary Judgment, (not Buyer!) who actually had the burden of proof (Seller first had to prove) that Buyer did not have some other way to get the money other than either having the funds in hand or having a commitment from a lender for a loan of the funds. Further, the Appellate Court said that Seller should not have refused to perform the purchase and sale contract to sell the hotel to Buyer without first giving Buyer a chance to come up with the $8.7 million to buy the hotel. Because Seller had what was sometimes called ‘a happy trigger finger’ back in days of the Old West, Seller had pulled the trigger too soon by calling off the sale before time for closing had come, therefore, Seller was wrong in never giving Buyer a chance to come up with the money to close the deal. Therefore, the Appellate Court said, it was not Buyer’s job to first prove for the Summary Judgment motion that Buyer could come up with the purchase money to buy the hotel. That burden (of proof) never shifted away from being the Seller’s original burden as moving party on its motion for Summary Judgment—in other words, it was always Seller’s job first to prove that Buyer: 1) did not have the purchase money, and; 2) did not have a loan commitment, and; 3) that Buyer had no other conceivable way to get the money! Perhaps the Buyer had a rich uncle, or hit the lottery, or was expecting the money to fall from a passing airplane (like D.B. Cooper!) The Appellate Court finally said that the trial court was wrong to have granted Summary Judgment in favor of the Seller for these two reasons, reversing the judgment in favor of Seller, and sending the case back to the trial court for trial. The Buyer had to be given the opportunity to perform up until the time escrow was to close; Seller cancelled too soon. Lastly, the eternal, final question: what have we learned here? – reversing the Summary Judgment means that the Seller and Buyer will now have to incur all the expense, delays and attendant stresses involved in taking this case to and through a full trial, having lost their opportunity to avoid trial through the streamlined Summary Judgment process, i.e., if Seller had waited until after the scheduled time for close of escrow to may have prevailed, Seller may have prevailed. __

David S. White is Senior Litigation partner of Fainsbert Mase & Snyder, LLP. Mr. White has litigated all aspects of California real estate law for 31 years and has frequently lectured on litigation and real estate topics for real estate industry trade associations and for attorneys through the California Continuing Education of the Bar program. Mr. White has held a California Real Estate Broker’s license for 21 years, is a Realtor ®, often tries real estate law cases in court and teaches continuing education courses for real estate licensees, also occasionally acts as an expert witness, and may be contacted at (310) 473-6400, by fax at (310) 473-8702 or by E-Mail at dwhite@fms-law.com.

3 Crucial Steps to Shop for the Best Apartment Loan

Written by jordan on . Posted in Blog

Here is an article from one our affiliates on how to get the best loan:

by Henry Young


1. GET YOUR PAPERWORK IN ORDER:
Make sure you have your Rent Roll updated and Income/Expense Statements for the last 2 years on the building available. Every lender is going to need this information along with your tax returns so you can get a head start by having this paperwork ready.

2. DON’T FOCUS JUST ON THE RATE: Besides getting a quote on the rate, make sure you find out and understand the other terms of the loan: type of prepay, lender fees, good faith deposits, loan maturity, amortization term, is the loan assumable and what happens after the fixed period? Remember this: A lower rate doesn’t always mean it’s the best loan for you!

3. ESTABLISH A RELATIONSHIP WITH A LENDER: Choose a lender that is going to take the time to review and understand your entire real estate portfolio and develop a financing plan not just for this one transaction, but for future needs as well.

If you would like more information on this article or would like to speak to an Apartment Loan Specialist that can help you with all of the above, please contact Fortune Bancorp at (888) 889-8757 or email Darren DiMarco at darren@fortunebancorp.com.

Things to come

Written by jordan on . Posted in Blog

In weeks to come, there will be many changes to the website; and we are hoping that people will enjoy our new additions.

New features are:

  • A Featured Article section that will allow readers insight into the market
  • Links to affiliates that will allow you to find other websites that match your needs
  • An online classified section, giving you the opportunity to find real estate in the southern California region on our website

Greetings from Apartment Management

Written by jordan on . Posted in Blog

Apartment Management Magazine is a 49-year-old monthly publication mailed directly to over 70,000 property owners. We are located in the Southern California region, and aim to provide each of our clients with the best service possible.

We just opened this blog so that way we can give you info about the Apartment Management industry, and give you a sense of what we are about. We are looking to post about what is new and important in our industry, and give you all the best information as possible.

As the housing market is constantly changing, we hope to keep you informed and provide material that can be discussed and dissected.

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