Monthly Letter for February 2017

Monthly Letter
Monthly Letter for February 2017

Monthly Letter for February 2017


California produces 60 percent of American roses but the vast number sold on Valentine’s Day in the U.S. are imported, mostly from South America. Approximately 110 million roses, the majority red, will be sold and delivered in a three-day period.

We are all too familiar with the sobering statistics on marriage. Around 50% of marriages end in divorce, and often times the root of all that unhappiness is money. I recently saw a study that there are five money habits that most happy couples share.

  1. They make money a priority.
  2. They talk about and agree on financial goals.
  3. They set spending limits.
  4. They have joint bank accounts.
  5. They share responsibility for retirement planning and investment decisions.

At the end of the day, communication is the most important thing. I have been fond of saying that marriage is a contract that you negotiate the rest of your life. And good negotiations take good advertising, marketing and customer service. Gee… sounds like work…

Speaking of work, we at CDC Commercial like to consider selling as loving and serving people. We think that’s what makes us different than our competition.

Unemployment continues to drop in San Diego dipping to 4.2% in December. San Diego Airport passenger traffic was up 3.2 percent last year which is a good indicator for positive growth in our local economy. Tragically, the Chargers have decided to leave town. Regardless of where you stood on the issue, it will still be a hit of about 1600 jobs and $104 million in expenditures according to Allen Gin, an economics professor at the University of San Diego.

Taxes rarely make for exciting reading material but if you own investment property, you absolutely want to understand IRC 1031 (“1031 Exchange”). Keep in mind this does not mean you have to find someone to trade their property for yours. You actually sell like normal, use an accommodator to hold your money (title company) and buy another property. This allows you to defer capital gains taxes. I like to say that you should “defer until you die (at which time the tax goes away – in most cases) and refinance to live.”

After the sale, the clock starts ticking for you to find that new property. You have 45 days to identify a new property (or properties) you want to buy. You also must complete the purchase within 180 days. Since closing a property is unpredictable many chose to identify more than one property. And that is fine, provided you follow a few more rules:

  • Three-property rule: You can identify up to three potential properties to buy as long as you close on at least one of them.
  • 200% rule: You can identify any number of replacement properties you want to purchase so long as their eventual combined fair market value isn’t more than 200% of your relinquished property. So let’s say you sell a property for $500,000. The combined market value of your purchase should be no more than twice that, or $1 million.
  • 95% rule: You can ignore the 200% rule and identify any number of potential replacement properties for any amount as long as you buy 95% of the aggregate value of those properties. So if you sold a property for $500,000, you could identify five properties worth a total of $2,500,000. But you’d then have to actually buy at least $2,375,000 (that’s 95%) worth of those properties.

While these rules are complicated, they must be followed–there are no exceptions or extensions. If you mess up, the IRS could decide you don’t qualify for a 1031 exchange and send you a huge tax bill. So make sure you know how it works. If you’re in doubt, consult an accountant or real estate agent for more details.

Now the kicker – with the newly elected Congress and President, tax reform has been announced as a top priority, with a bill promised in 2017. Surprisingly, Sector 1031 may be eliminated. If you thought we were safe with a real estate guy in the White House, we are not. Congress is writing the bill. Once they pass it, President Trump will have to sign it (no line item vetos will be available!). Take action now – contact your congressmen and women. Click here to do easily. Deletion of this tax code will have a 13.1 billion dollar annual decline in annual real estate transaction according to Ernst & Young, LLP. That means it impacts everyone’s values (simple supply & demand).

Nick’s Numbers:

Hi all, thought I would share some numbers on total sales transactions and 1031’s in San Diego for 2016.

Total Market 1031s
# of sales 214 49
$ volume $628 mi $209 mil
Private 65% 76%
Institutional 35% 24%

When one of my kids was born the nurse told me that kids spell love -T-I-M-E. I have never forgotten that. So now I ask you to remember that time is how you spend your life. That means time should be spelled L-O-V-E. Be Happy! Hope you enjoy the story…


Sales and Marketing Perspective 

You see a gorgeous girl at a party.

You go up to her and say, “I am very rich. Marry me!”

That’s Direct Marketing.

You’re at a party with a bunch of friends and see a gorgeous girl.

One of your friends goes up to her and pointing at you and says, “He’s very rich. Marry him.”

That’s Advertising.

You see a gorgeous girl at a party.

You go up to her and get her telephone number.

The next day you call and say, “Hi, I’m very rich. Marry me.”

That’s Telemarketing.

You’re at a party and see a gorgeous girl.

You get up and straighten your tie; walk up to her and pour her a drink.

You open the door for her; pick up her bag after she drops it, offer her a ride, and then say, “By the way, I’m very rich. Will you marry me?”

That’s Public Relations.

You’re at a party and see a gorgeous girl.

She walks up to you and says, “You are very rich.”

That’s Brand Recognition.

You see a gorgeous girl at a party.

You go up to her and say, “I’m rich. Marry me.”

She gives you a nice hard slap on your face.

That’s Customer Feedback!!!

CDC Commercial Inc
About the Author – Don Zech, President at CDC Commercial, Inc.
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