Houses! Magazine

January 2011

Several months ago in an article titled “Seller Financing: A comeback story?” seller financing utilizing a seller mortgage and installment sales contracts were discussed. There is another option for buyers and sellers seeking ways to assist a buyer obtain a seller’s property. That option is a lease with an option to purchase.

In a lease with an option to purchase a potential buyer will put down a deposit, typically non-refundable, and will enter into a lease with the seller. The buyer will then lease the property from the seller as they would in a traditional lease. However, the lease has an option clause allowing the buyer to end the lease and purchase the property. The purchase price for the property is negotiated in advance, as is what portion of the rent will be applied as a credit towards the purchase price. If the option is exercised, a closing is scheduled and the seller conveys the property to the buyer as they would in a traditional sale. In the event the option is not exercised and the lease expires, the seller retains the rent paid and the lease is treated as a traditional lease.

While a lease with an option is a good way to get a potential buyer in a property who is otherwise having difficulties due to the credit market or other factors, such an arraignment should be carefully considered as there are pitfalls for both the buyer and seller that would not exist in a traditional sale. For example, if the seller has a mortgage on the property, the buyer needs to ensure the mortgage payments are made to avoid foreclosure issues. Also, a seller needs to ensure entering into a lease with an option to purchase does not violate any provisions of the mortgage. As with any transaction involving real estate, a potential buyer or seller should seek the advice of a real estate professional.

Ron Pennington is Chair of the Real Estate & Financial Services Practice Group at BoltNagi PC, a full service business law firm located on St. Thomas, Virgin Islands. Attorney Pennington concentrates his practice in commercial and residential real estate, acquisition, development and financing. To contact Attorney Pennington, please email: rpennington@vilaw.com or visit www.vilaw.com

St. John Sun Times 2011

HOUSES! Magazine October 2011

While there are numerous financing options available for borrowers, many are simply variations of a fixed rate loan or a variable rate loan. This article addresses the basic distinctions. There are many, and often more complex, factors in choosing between and fixed rate loan or a variable rate loan.

A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest rates change. The rate can be tied to many indexes, with the Wall Street Journal Prime Rate being one of the more common. As a result of the interest rate being tied to an index that may change, your payments will vary with the fluctuations of the interest market. Variable rate loans often have a rate that is initially lower than a fixed rate loan, however, given the fact the rate can change, the variable rate carries the risk of the rate, and payment, increasing. Conversely, the borrower may benefit from a falling rate and falling payments. Another factor to consider is most variable rate loans will at some point in the future convert to a fixed rate at the then prevailing marker interest rates. Consequently, there is uncertainty in the final rate and thus the final monthly payments.

 Fixed interest rate loans are loans in which the interest rate charged on the loan will remain fixed for the loan’s entire term, regardless of the direction the market interest rates take. This will result in your payments being the same over the entire term. While this affords a borrower more stability and certainty in the monthly payments, this comfort usually comes with a higher initial interest rate than a variable rate loan.

 Whether a fixed-rate loan is better for a borrower will depend on a borrower’s comfort level with potentially changing payments. If stability in monthly payments is important to a borrower the fixed rate may be a better loan. If a borrower would rather have a lower initial interest rate and is comfortable with the uncertainty in the monthly payment amount over time, the variable rate may be a better product.

 Another consideration is the interest rate environment when the loan is taken out and on the duration of the loan. When a loan is fixed for its entire term, it will be fixed at the then prevailing market interest rate, plus or minus a spread the lender determines for the particular transaction. In general, if interest rates are relatively low, but are increasing, then it will be better to lock in your loan at that fixed rate. On the other hand, if interest rates are on the decline, then it would be better to have a variable rate loan. As interest rates fall, so will the interest rate on your loan. With respect to the term of the loan, the longer the term the more consideration must be given to long term savings on interest as well as the potential for numerous high and low interest rate cycles.

 While every borrower’s situation and tolerances are different, and it is very difficult to predict the direction of the interest rate markets over time, adjustable-rate loans are generally beneficial for a borrower in a decreasing interest rate market, and fixed rate loans are generally beneficial in an increasing interest rate market.

 Ron Pennington is Chair of the Real Estate & Financial Services Practice Group at BoltNagi PC, a full service business law firm located on St. Thomas, Virgin Islands.  Attorney Pennington concentrates his practice in commercial and residential real estate, acquisition, development and financing. To contact Attorney Pennington, please email: rpennington@vilaw.com or visit www.vilaw.com

HOUSES! Magazine-September 2011 Tom Bolt

In today’s rapidly fluctuating market, investing in stocks and bonds may not be the best investment. Owning rental property can be a far superior investment during periods of economic turbulence. Currently, throughout the Virgin Islands, the residential and commercial real estate markets are stable and show great potential for growth. Although this market may fluctuate, the combination of population increases, strong demand for rental property and financial inflation makes buying the right investment property an excellent way to build equity and make a profit.

The attractiveness of turning a healthy profit through the use of investment property hinges on the concept of leverage. The term leverage is used to describe the process of controlling a property through the use of financing versus owning a property outright by making a cash purchase. For example, if on one hand, you buy an investment property outright for cash at $100,000 and we assume a 6% increase per year, then your rate of return on $100,000 is only $6,000. Aside from a low return you have also effectively tied up some, if not all, of your liquid assets in the purchase. On the other hand, consider the same property purchased using financing and assume the rental payments cover your loan payments. Using a 20% down payment, you have made the same $6,000 in appreciated value, but this time using only a fifth of your liquid assets to effectuate the same purchase. In essence you have made a 30% rate of return versus a 6% rate of return. It’s for this reason that investment property is an extremely profitable vehicle for holding real estate.

Yet before you go off and running to acquire your first piece of Virgin Islands investment property consider the list of items below:

- Make an assessment of your financial goals.

- Will you manage the property in addition to being an owner? If you plan on hiring a property manager, factor the cost into your expenses (typically 6%-10% of the purchase price).

- Choose the kind of property you want. Residential property is generally less expensive than commercial property because of pure size, but generate less income. Residential property, on the other hand may require more upkeep.

- Find a real estate agent who specializes in commercial or income-generating properties.

- Choose property where there is strong demand. There’s nothing worse than owning an investment property without any renters.

- On residential property, research if there are applicable homeowner’s association restrictions on renting the property.

- Have the property inspected.

- Search past records for vacancy rates over the last five to ten years as well as at present. Long-term residents are valuable, but may also have been signed on at a lower rental rate.

- Do your due diligence on potential tenants up front using credit checks and references!

You should also consult an attorney experienced in real estate and tax matters to help you take full advantage of any tax breaks the law may offer as well as determining the most profitable way for you to hold the property. Good luck.

Tom Bolt is Managing Attorney of BoltNagi PC, a full service business law firm based in St. Thomas that includes within its practice a concentration in commercial real estate, corporate, borrower and lender representation and real estate development.

HOUSES! Magazine August 2011 Ron Pennington

A home in the U.S. Virgin Islands is typically one of the largest single investments a person will ever make. 

To help protect your investment there is a form of insurance coverage known as title insurance. Title insurance protects the homeowner against hidden title hazards that may threaten your financial investment. Title Insurance is just as important as homeowner’s, windstorm, or flood insurance. 

Purchasing a home is actually purchasing the title to the property and the improvements on the property. Title, typically through a warranty deed, is the vehicle which provides the ownership rights to the property.  Rights and claims by others to the title may negatively impact your enjoyment of the property or prove to be a financial burden for you.

Hidden hazards can emerge even after closing, which can result in unpleasant and costly surprises despite a thorough title search of the property. The title search is the first step in determining who owns the property and what other agreements, easements, right of ways, etc. may affect the property.

Documents that may negatively impact title can include the following:

Deeds, wills and trusts that contain improper wording or incorrect names

Outstanding mortgages and judgments, or a lien against the property

Easements for construction

Improper notary acknowledgments

Pending legal action

There are two types of title insurance policies available. One policy for the lender’s protection and one policy for the home owner’s protection. While a lender will require title insurance as a condition to financing the purchase, the owner’s policy is optional but is often recommended to afford the owner the protections discussed above. Often, purchasing the lender’s policy and the owner’s policy at the same time will afford the owner a discount on the insurance premium. Like most insurance policies, you hope to never use it, but if a problem arises it is helpful to have the insurance available for your protection.

Ron Pennington is Chair of the Real Estate & Financial Services Practice Group at BoltNagi PC, a full service business law firm located on St. Thomas, Virgin Islands.  Attorney Pennington concentrates his practice in commercial and residential real estate, acquisition, development and financing. To contact Attorney Pennington, please email: rpennington@vilaw.com or visit www.vilaw.com

The law firm of BoltNagi PC announced that Ashley Dworsky, Esq. will join the firm as Of Counsel in its Immigration Practice Group.

Dworsky handles all areas of immigration law, with an emphasis on business and family immigration and visa law.

His practice assists clients in securing work and entry permits for U.S. workers assigned abroad and obtaining petitions for permanent residence status, advance parole and employment authorization cards – as well as applications for naturalization and deference in removal proceedings.

Dworsky immigrated to the United States from South Africa in 1999.

Prior to his arrival in the United States, he served as an Advocate (Barrister) to the High Court in South Africa – a highly prestigious role as Advocates make up less than one percent of all attorneys in South Africa.

He has been admitted to the State Bars of Illinois and New York; the United States Federal Court of the Northern District of Illinois; Seventh Circuit Court of Appeals; Ninth Circuit Court of Appeals; Advocate of High Court of South Africa; and the United States Supreme Court.

Dworsky is a member of the American Bar Association; American Immigration Lawyers Association; National and Local Chapters of the American Trial Lawyers Association; Illinois Bar Association; New York Bar Association;and the South African Bar Association.

View Attorney Dworsky’s professional bio:http://www.vilaw.com/attorneys/ashley-d-dworsky/

The Source— September 1, 2011

A nearly three-year moratorium on new cell towers will be lifted if a bill approved in committee Thursday becomes law. The bill creates new application and public hearing procedures and gives the V.I. Department of Planning and Natural Resources regulatory and enforcement powers over tower construction. 

“This moratorium has really slowed down progress in building towers, so we really need to get this through and get the moratorium lifted,” said Sen. Louis Hill, one of the bill’s sponsors.

The bill was discussed in committee in May, but held for amendment. No one testified against the bill.

Attorney Lisa Komives, representing AT&T of the Virgin Islands, supported the bill, saying problems with cell service after Tropical Storm Irene were “exacerbated by the fact that wireless companies have been unable to build new towers for almost three years due to the moratorium.”

Jennifer Matarangas-King, Innovative’s vice president of public relation and governmental affairs, explained that the moratorium was originally prompted largely by concerns over the proliferation of towers throughout the territory, particularly on St. Thomas. She added that the moratorium, originally intended to last only six months, also addressed liability concerns and whether or not “tower owners could cover the costs of any damage.”

King noted that the new bill effectively addresses those concerns and voiced Innovative’s strong support for the bill, with some technical changes.

The bill would give DPNR broad regulatory authority to set height, setback and other requirements, as well as enforcement powers and the ability to impose fines of $1,500 per day on violators. Along with creating an application procedure, it requires DPNR to rule on tower applications within 90 days, or within 150 days if a hearing is required.

After approving Hill’s amendment in the nature of a substitute, the Committee on Planning and Environmental Protection voted to send the bill out of committee for consideration by the Rules and Judiciary Committee.

Voting yea were Sens. Neville James, Ronald Russell, Nereida “Nellie” Rivera-O’Reilly, Patrick Sprauve and Louis Hill.

Sen. Craig Barshinger was marked as not voting and Sen. Carlton “Ital” Dowe was absent.

An unfortunate by-product of these difficult economic times is the rise in home foreclosures. This has led to more bank owned properties coming up for sale. And while this can provide an opportunity to purchase a home at a discount, a potential buyer must still exercise caution when approaching a foreclosure. Below are suggestions to keep in mind when evaluating a purchase.

1. Budget your money and time carefully. The often initial low price is not the whole story. Properties that have been foreclosed may have been neglected for quite some time. This may result in repairs which will need to be included in the budget for the property. A potential buyer will also need to budget their time as well since purchasing a foreclosed home can often take more time than a traditional purchase.

2.  Inspect the home carefully yourself and engage the services of a professional home inspector. You need to know exactly what you are buying. Also, it is prudent to engage the services of a real estate agent familiar with the foreclosure market. An expert is a good ally for determining if the property is truly a good deal.

3.  Research potential liens and unpaid taxes and who will be responsible.

4.  Determine how long the property has been vacant. The longer the property has been vacant the more likely there will be repair issues due to neglect.

5.  Take in to account the landscaping. If the house has been neglected so have the grounds. Not only will the landscaping be an expense itself, overgrown trees, roots, etc. can lead to additional damage to the roof, gutters, cisterns, etc.

6.  Don’t expect a quick profit. Not only will most properties require time and money to be spent on rehabilitation, it may be some time before home prices rise to a level allowing the property to be sold for a profit despite the initial low purchase price.