Ron Hodges Saipan,NMI

WELCOME TO AMERICA

Saipan Real Estate’s  
...CNMI economic report 2010

Federalization has addressed the international reputation of labor abuses and human exploitation in the CNMI. Federal officials have confirmed that workers are no longer tied to their jobs, and federalization proponents can thank the US Congress for ensuring that the democratic ideals of our nation apply to the CNMI. Only months into US intervention and Saipan has virtually no labor abuse, and not much is expected.

The cruelest form of labor abuse, however, is unemployment, and Saipan has catastrophic unemployment among aliens and citizens alike, the remnants of an economy driven by the textile industry. The CNMI is the most impoverished American region of the last half century. There may have been over 10k illegal aliens as well, but an umbrella permit was honored by the US, effectively stalling some aspects of federalization for two years. The Governor’s strategy to stall US intervention blanketed maids, dancers, illegal business operators, their employees, freelancers, and every immigration fraudsters who lined up, so they have a legal right to remain in the CNMI until November, 2011. There is little employment in Saipan for the near foreseeable future. Foreign owned businesses operating here must exit when their two year permit expires. CNMI investor visa holders have until 2014 to meet US investor visa requirements or restructure their business and move.

The regulations governing guest workers are not final, but if they mirror the original version, the unique CW transitional guest workers program used in conjunction with the CNMI transitional investor’s visa program will make right what was long wrong in the CNMI. A bill floating in the US Congress would grant residency, not permanent residency green cards, to workers with US citizen children until they can petition their parents at age 21. Those effected persons could not bring additional relatives to the US. That plan could ease suffering if they are allowed travel privileges, because the laws of supply and demand will prevail in the job market. If the proposed law restricts travel for unemployed workers, then the US will have made Saipan a national disaster.

Guam needs 20k workers for the US military build-up, and some think NMI workers should be allowed to travel to Guam for work, but others think they will be subject to abuse there as well. Neither Guam officials nor residents want unskilled permanent residents from the NMI. The CNMI hopes the Guam build-up will employ citizens earning prevailing wages, which will stimulate the region and spill into the Commonwealth. Employing cheap alien labor would insult millions of unemployed Americans and may jeopardize the Democratic Congressional majority if highlighted.

Governor Fitial has lost much respect among local citizens not on his payroll due to his abuse of power, unqualified cabinet selections, embarrassing the NMI internationally regarding massagee-gate, inaction during a local exodus abroad, his belligerence toward the federal government, corruption including gouging potential foreign investors, corrupting the 2010 census, his exclusion from talks over military activity, his exclusion from drafting regulations, abysmal stewardship of our resources, control and plunder of the retirement fund, dreadful council and advisement, obsession to restrict guest workers, his control of the AG, failure to keep campaign promises, orchestration of a law reducing salaries of government workers that excluded the legislature and himself, and blanketing of all aliens with an umbrella permit that doomed opportunity for unemployed local citizens and forced the austerity salary reduction.

Austerity and reality demand CNMI constitutional changes. The CNMI spends an extraordinary amount for governance and has unnecessary bureaucratic waste. A small government would prove affordable, flexible, and able to adapt to a rapidity changing world. CNMI professionals would volunteer for a city council to aid in this transition. The land alienation law continues to prohibit growth and development, but impoverished residents have little confidence in the legislature’s ability to enact reform.

CNMI residents face four serious economic problems. First, about 50% of NMI residents send earnings abroad as remittances, undoubtedly the highest percentage on the planet. While Philippines survive by receiving money, the CNMI has an extraordinarily high percentage of people remitting their income abroad. Second, our banks send our depositors money to other shores to stimulate their economies, chiefly Guam and Hawaii, instead of investing where the wealth originated. Third, foreign workers are willing to accept jobs below prevailing wage, making local citizens unable to compete for jobs that they should be performing. This increases our numbers receiving US aid. The recent austerity measure reduced government workers hours by ten hours a pay period, or 12.5% of NMI government employees yearly economic wealth is lost. Lastly, illegal foreign businesses operate here without a US investor visa and send their profits off island as well, strengthening their East Asian homelands but paralyzing the CNMI. These businesses will close before 11-2011.

The post textile industry CNMI is a welfare territory and fraud to obtain US federal aid is evidenced by shocking statistics. According to the local news, the CNMI has roughly three households receiving US federal aid for every voter, an astonishing admission of fraud. Numbers indicate many residents must draw multiple pay checks per household. Food stamps are traded among guest workers and politicians alike. Former Senators in the NMI have been sent to federal prison for having 27 ghost employees on their payroll.(Below - Dane Hodges fishing Saipan)

Real estate sales are slow and leases realize record lows, upscale housing is limited, and there is a glut in substandard structures. Financing commercial or residential property is difficult and the cost of money is pricey. Accurate appraisals are tough to find, and many Saipan properties have expiring leaseholds from the boom time of the early 90’s. CDA loan default rates are nearly 90%, and title issues with unresolved probates are routine. A NMI Senate initiative seeks to change the Article XII land alienation law(restricts land ownership to persons of Northern Marianas Decent and all others can’t exceed a 55 year lease term) to allow 99 year leases. If passed, it would create real estate activity because FDIC banks consider a 99 year lease equal to a fee simple for financing purposes. Land value is based on supply and demand, and demand is largely based on the availability and cost of money. When people can easily qualify for a low interest loan, prices skyrocket, but high interest and difficult borrowing requirements create the stagnant mess that now exists. The advantage to the 99 years is that locals could get an extra bite at the apple, but the disadvantage is that it will lose in court the first time a US citizen, NMD or not, challenges the law after 11-4-11.

For short takes, restaurants and bars are suffering from high utilities, poor water, and rising minimum wages. Russian, Chinese, and Korean investors are funding small construction, chiefly personal homes, generally cash customers due to difficult financing. A bill to legalize marijuana has been offered by a lawmaker that could have economic merit if properly administered, unlikely for a legislature unable to manage a lemonade stand without federal funding. Being displayed in the cases of Amsterdam would provide more advertisement, economic development, and enhancement of tourism than MVA has ever accomplished though and could add an export product currently lacking in the economy! Casino talk for the outer islands has waned even though the island of Rota pays a casino commission. Tinian’s casino looks like a ghost town with a curtain closing half the gaming floor to reduce utilities. The only economic opportunity for young people on either of those islands is welfare or a ticket east. The House Speaker has proposed Saipan casinos again even though two straight referendums were soundly defeated. The long term trajectory of US intervention could unite Guam and the CNMI into the Marianas Province. A united MP could potentially become the 51st state and have two voting Senators in Congress. The CNMI legislature will not support this because it would jeopardize the gravy train they themselves are riding. The NMI landed the Marianas Marine Monument, but the visitor’s center for that wonder of the world may land in Guam. NW’s split with Continental has opened European and Asian ports offered by Delta, United, and all their partners, opening Saipan to vast new markets. CNMI involvement in the Marine relocation remains unclear.

Perhaps the brightest recent news for the CNMI is visa waivers for Russians and Chinese tourists, the only US soil with that distinction. Russian and Chinese arrivals are on the rise and have incredible potential considering that there are thousands of millionaires within short flight range. The market possibilities for winter residences are enormous. Korean tourism continues to improve, helping to offset a collapse in Japanese arrivals. There is a spark of investor confidence attributed to the stabilizing effects of federalization and the visa waivers.


Politics and economics aside, Saipan, the capital of the Northern Marianas Islands, is an enchantingly tranquil tropical delight of unimaginable beauty; highlighted by turquoise crystal water, fire red sunsets, panoramic views, and unparalleled weather. Saipan's has hosted 3/4 million tourists in a single year, entirely from East Asian, making Saipan a playground of seaside golf, scuba diving, sport fishing, snorkeling, parasailing, wind surfing, kayaking, biking, beach volleyball, and barbecuing on the remote pristine beaches. The friendly laid back nature of the inhabitants is as legendary as the tropical breezes.


Saipan’s economic strength is smallness and geographic location. With Saipan’s tiny number of citizens, a little improvement in the regional economy, a minute amount of US investment, or developing a second economic leg could have a dramatic positive effect on the economy.

Ron Hodges
Saipan Real Estate

CNMI economic report 2009

The first day of 11-28-2009 the Commonwealth of the Northern Marianas Islands will be federalized and all labor and immigration matters will be under direction of the United States of America.

This is the biggest news in the NMI since the US Marines swarmed Sugar Dock in WWII. Long the subject of human rights concerns and labor abuses from the garment industry of Saipan, the commonwealth has taken a new direction for the 21st century.

In early 2007, US Representative Donna Christensen submitted HR-3079 to federalize the commonwealth, to end the labor abuses, to end the Jack Abramoff era of corruption, to secure the borders, provide for a non-voting delegate to the US House of Representatives, and to provide stability and opportunity for the Northern Marianas islands. President Bush signed a similar version of this bill into law in May. 2008, with an effective date in June, 09.

The preliminary federal regulations would deal the CNMI some tough cards if enacted. Russians and Chinese will no longer not receive a visa waiver and NMI tourism, hotels, and future casinos will question that decision.  The military build-up of Guam and our neighbor Tinain, relocating Marines from Japan and Okinawa will be the largest US military expenditure in US history. Insiders report the impending military zone surrounding the Marianas islands caused the cancellation of visa waivers to China and Russia to better secure Americas western border.

Foreign nationals, including Russians, Chinese, Japanese, and Koreans may take advantage of investing in Saipan through the CNMI retiree or investor visa programs that will guarantee their right to live and/or operate in the CNMI and Guam, which will likely be integrated into the US investor visa program at the end of the transition period, set for 2014. Foreign nationals who capitalize on this window of opportunity by June, 2009, may be able to acquire a visa for investing for as little as 100,000. dollars and a full investor visa for a 250,000. investment.

US federalization of the NMI should have positive effects on the CNMI. The US will add immigration and labor employees, which should have some impact on the local economy, and will also increase law enforcement and accountability support as well. Instability has long been a detractor to investment in the commonwealth and federal intervention will certainly improve investor confidence. There is currently little or no investment in the CNMI from major US or international companies, which could change with stability. Foreign investors have de facto quit current investment and business plans due to uncertainty, the world financial crisis, and to determine how federal regulations will effect foreign investors and contract guest workers. The total number of federal employees in Saipan and how much administration will take place in Guam is unclear.

The demise of the textile industry, the exit announcement of JAL, and the Article 12 land ownership law have driven our real estate prices down. Lack of bank financing has been another peripheral effect of our protectionist land alienation.

Our property values spiraled upward in the late 80's and early 90's on speculation from Japanese investors. Our real estate crashed and has never recovered from the boom time. Our land continued a downward trend through the Asian economic crisis of the mid and late 90's and 2004/2005 brought more grim news to our prospective.

The Jan. 1, 2005 free trade agreement effectively ended the garment industry and their trade advantage here.

Construction costs are still reasonable, but this has not generated much new construction. We have an abundance of Filipino and Chinese labor (currently 4.05 per hour rising in .50 increments along with the US minimum wage hike) and now import materials directly from the Asian mainland(a substantial savings as compared to US products). Rising wages and increased shipping costs due to the volatile price of oil will increase construction costs here, closing the current window of opportunity.

The CNMI total population will drop sharply minus revenue generated by the textile industry coupled with an economy in crisis and transitioning into US wage law. Residents are mixed on whether garment industry revenues were worth their adverse societal effects, but either way, Saipan's population will drop significantly.

The CNMI Article 12 (NMD indigenous land alienation law)has driven realty prices lower more than any other single factor. Only persons of indigenous Northern Marianas decent can own land and others acquire a 55 year lease on real property. This law expires in 2011 unless the local Congress is able to abolish it early. Residents are evenly split on the land issue.  Legislation to extend the lease law to 75 years was recently defeated in the NMI House of Representatives. President-elect Obama and a Democratic US Congress will enact economic stimulus incentives to encourage real estate investment that will send US prime lending rates from 0 to 4%. The CNMI will miss this opportunity throughout 2009 because lending institutions are apprehensive about loaning money against our crippled leasehold positions. Changing to a 75 year lease would not incite outside investment or create mortgage lending. If the NMI Congress changed to a 99 year lease, federal lending would then be available to NMI residents and potential investors.

Recent news says the US will have a military base on Tinian as well and will house relocated Marines, US Airforce, and the US Navy.

In conclusion, we are an island paradise blessed with the worlds best weather, trade wind breezes, turquoise ocean for water sports and diving, indescribable sunsets and vistas, spectacular beaches, minimal traffic, and a laid back pace that makes us Americas most exotic tropical destination. We are also the most favorable tax structure on US soil(by far) and NMI residents are the only Americans not required to pay US federal income tax.

Opportunity here would seem to be great for several groups, especially foreign nationals executing a retiree or investor visa prior to US intervention, contractors and vendors supporting the US military build-up, local islanders gaining stability from federalization, and those wanting to build or invest before a certain rise in construction costs.

Glossary of Real Estate Terms

Abatement
In a lease, the reduction or elimination of rent for a period of time.

Accelerated Depreciation
Depreciation methods that allow a taxpayer to take faster write-offs than with straight-line during the early part of an asset's useful life.

Accumulated Depreciation
The sum of annual depreciation deductions taken to date. Also, accrued depreciation.

Adjustable Rate Mortgage (ARM)
A mortgage loan in which the interest rate is not constant over the life of the loan, but is adjusted periodically according to a predetermined formula or index.

Adjusted Basis
The original cost of an asset, such as real estate, plus capital improvements, less accumulated depreciation and costs of sale. The taxable gain at the time of sale is, in general, the selling price less the adjusted basis.

Adjusted Gross Income (AGI)
Gross income less certain adjustments, including IRA, alimony, and Keogh deductions. Used in determining the investor's passive loss allowance.

Alternative Minimum Tax (AMT)
A tax that may be triggered if certain tax benefits, such as passive losses and accelerated depreciation, reduce an individual's income tax liability. You must use Federal tax form 6251 to determine if you are subject to the Alternative Minimum Tax.

Amortization
a) The process through which a loan is retired over time through periodic repayment of the principal.

b) The process of taking a partial annual tax deduction for an item that cannot be expensed in a single year. For example, points paid to secure a loan must typically be deducted (amortized) over the life of that loan.payment plan which enables the borrower to reduce his debt gradually through monthly payments of principal.

Annual Debt Service (ADS)
The total of all payments on a mortgage loan, including both interest and principal, for a year.

Annual Property Operating Data (APOD)
A form that lists a property's gross income, individual operating expenses, and net operating income. Similar to a profit-and-loss statement for a business.

Appreciation
The increase over time in the value of an asset due to economic factors rather than to improvements or additions.

Assumed Mortgage
A mortgage in which the purchaser of a property assumes Liability of an existing mortgage loan. Typically the purchaser takes over the existing balance, terms and payment schedule. Many mortgage loans contain a "due on sale" clause which prohibits assumption by requiring the original borrower to pay off the loan if he or she transfers title of the mortgaged property to a third party.
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B

Balloon Payment
A provision in a loan which requires the principal balance to be paid off in a lump sum before the loan would be retired through normal amortization.

Basis
The starting point for computing gain or loss on an investment; typically, the original purchase price. See also, Adjusted Basis

Book Value
An asset's original basis less accumulated depreciation
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C

Capital Addition
An addition to a piece of real estate having a useful life of more than one year, or an improvement that is likely to prolong the life of the property. A capital addition is different from a repair, which maintains rather than increases the life of a property.

Capital Gain
Gain from the sale or disposition of a capital asset, such as real estate. May be long term or short term

Capital Improvement
See Capital Addition

Capitalization Rate (Cap Rate)
The ratio between a property's net operating income and the sum of its purchase price (or value) and capital additions.

Cash Flow After Taxes (CFAT)
The cash flow before taxes, reduced by the tax liability that the property generates for the owner, or increased by the tax savings.

Cash Flow Before Taxes (CFBT)
During a given period, all of a property’s cash inflows less all of its cash outflows. Inflows are counted whether or not they must be included as taxable income and outflows are counted regardless of deductibility. Cash flow is not affected by a depreciation deduction, which is not a cash item. “Cash flow before taxes” ignores the property’s effects on the owner’s income tax liability.

Cash-on-Cash Return
The rate of return on an investment measured as the ratio between the cash flow before taxes and the initial cash investment

Closing Costs
Costs paid, typically to an attorney, for documentation and representation in connection with the purchase or sale of a piece of real estate. Title insurance is usually considered a closing cost, but real estate commissions, loan fees, prepaid interest and fire or liability insurance are not considered closing costs.

Commercial property
See Non-Residential Property

Commission
A fee paid, typically to a real estate agent or broker, for negotiating a loan, lease or sale.

Comparables
For purposes of valuation, properties that are similar to the subject property and that have been recently sold or leased

Consumer price index (CPI)
An index published by the U. S. Bureau of Labor Statistics and widely used as a measure of inflation. The index estimates the cost of buying a fixed group of goods and services and compares that cost to the base year (1982) which was assigned an index value of 100. The CPI is commonly used in escalation clauses of commercial real estate leases so that the rent generated by those leases will keep pace with inflation. Also, cost-of-living index.

Costs of Sale
Fees typically paid to a broker and/or attorney to effect the sale of a piece of real estate. These costs are not tax deductions as such. Rather, they are an adjustment to the basis of the property and thus affect the taxable gain on sale.
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D

Debt Coverage Ratio
The ratio between an income property's annual net operating income and its annual debt service.

Debt Service
The total loan payment, including both interest and principal

Depreciation
Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.

Depreciation Allowance
The amount of the tax deduction that a property owner may take each year until he or she has written off the entire depreciable asset. In real estate, the physical structures are considered depreciable assets, but the land is not. Therefore, there is no depreciation allowance for the value of the land. See also, Useful Life

Discount Rate
The compound interest rate used to reduce expected future cash flows to their estimated present value.

Discounted Cash Flow Analysis (DCF)
An income-property appraisal technique that estimates value by discounting all expected future cash flows to the present and summing the discounted amounts.
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E

Effective Gross Income (EGI)
See Gross Operating Income

Escalation
A clause in a real estate lease that provides for an adjustment to the rent, usually based on some external event such as a rise in the Consumer Price Index (CPI).

Equity
The difference between a property’s value and the balance of the mortgages and other debts against it.

Expense Stop
A provision in a lease where the tenant agrees to pay the excess of certain operating expenses over a base amount. The landlord pays the expense up to the amount of the expense stop and the tenant pays or reimburses the landlord for the rest.
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F

Fair Market Value
The price at which a property would change hands from a willing seller to a willing buyer, where neither party is under a compulsion to sell or buy and where both have reasonable knowledge of all pertinent facts. Also, Market Value

First Mortgage
The first, or senior claim against an asset, as security for repayment of a debt.

Funded Reserves
A sum of money put aside so that it will be available to handle an extraordinary expense or improvement. For example, an investor may anticipate the need for a new roof five years after acquisition of a property, and place money into a reserve account in advance so that funds are available when needed.
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G

General Partner (GP)
The person or entity in a limited partnership that bears unlimited liability and all of the management responsibility of that partnership.

Gross Operating Income (GOI)
A property's annual Gross Scheduled Income, less allowances for vacancy and credit loss. Also, Effective Gross Income

Gross Rent Multiplier (GRM)
A method of estimating or expressing a property's value as a multiple of its gross rental income.

Gross Scheduled Income
The annual income of a property if all rentable space were in fact rented and all rent collected; the total potential income.
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H

Half-Month Convention
A provision of the tax code as of this writing that allows only one-half month of depreciation in the month a property is acquired, and one-half month in the month it is sold.
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I

Improvement
See Capital Addition

Income Property
Real property leased to tenants and held for the purpose of generating ongoing rental income.

Inflation
The loss of a currency's purchasing power over time.

Inflation Rate
The annual rate at which a currency loses purchasing power.

Initial Investment
The amount of cash invested at the time a property is purchased.

Interest-Only Mortgage
A mortgage loan in which the borrower makes periodic payments of interest only and pays the full principal balance at the end of the loan term.

Internal Rate of Return (IRR)
The rate of return that discounts all anticipated future net cash flows (including the reversion) back to a present value that equals the initial investment.
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J
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Lease
A contract granting possession of land or a specified part of a building for a specified time in exchange for rent.

Lessor
An owner who leases property to a tenant; landlord

Lessee
A tenant who leases property from a landlord

Limited Partner (LP)
An investor in a limited partnership who typically has none of the management responsibility and whose liability is limited to the amount of his or her investment.

Limited Partnership
A partnership having a General Partner who manages the partnership's investments and bears unlimited liability, and Limited Partners who have no management control and whose liability typically is limited to the amount of their investment.

Limited Partner's Ratio
The ratio between the amount invested by a particular limited partner to the total amount invested by all of the limited partners.

Long-Term Capital Gain
The gain on an asset held more than 12 months.
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M

Marginal Tax Bracket
The rate at which the investor's next dollar of income will be taxed.

Market Value
See Fair Market Value.

Modified Financial Management Rate of Return (MFMRR)
See Modified Internal Rate of Return

Modified Internal Rate of Return (MIRR)
An alternative to conventional Internal Rate of Return (IRR). IRR will usually will fail to yield a result in a situation where there are negative cash flows. The MIRR calculation takes any negative cash flows, zeroes them out and discounts them at a safe rate back to day one of the investment period. The discounted amount is treated as additional capital needed on day one. MIRR also takes positive cash flows and compounds them forward to the sale year, using the reinvestment rate (also known as the risk rate).

Mortgage
A lien against a property that secures a mortgage loan or note

Mortgagee
The lender in a mortgage agreement.

Mortgager
The borrower in a mortgage agreement.
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N

Net Operating Income (NOI)
A property's Gross Operating Income less the sum of all operating expenses. NOI represents a property's profitability before consideration of taxes, financing or recovery of capital.

Net Present Value (NPV)
The discounted value of all of a property's future cash flows (including the reversion) less the initial cash investment.

Non-Residential Property
Real property that does not satisfy the definition of Residential Property; property not primarily intended for use as dwellings
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O

Operating Expense
Expense necessary for the maintenance of a piece of real property and to insure its continued ability to produce income. Loan payments, depreciation and capital expenditures are not considered operating expenses.

Owner-Occupant
A property owner who occupies part or all of his or her property.
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P

Pass Through
An operating expense that is passed on, in whole or in part, to a tenant.

Passive Activity
A business or rental activity that the taxpayer does not materially participate in managing or running. See also, Passive Loss Allowance.

Passive Loss Allowance
The dollar amount of losses from passive-activity investments that an individual taxpayer may deduct against ordinary income. In general, losses from passive activities can only be used to offset income from other passive activities. As of this writing an exception exists for owners of rental real estate, who may deduct up to $25,000 of net losses from rental real estate investments in which they actively participate. This allowance is reduced for taxpayers with Adjusted Gross Income over $100,000.

Personal Property
Property that is movable, not permanently attached to the real estate. Appliances are personal property.

Points
A fee paid to a lender for the lender’s service in making the loan. Typically a point is equal to one percent of the amount of the loan. Points are not deductible as an expense, but must be written off over the life of the loan.

Present Value (PV)
The discounted value of a series of future cash flows.

Principal
The amount of a loan, exclusive of any interest

Pro Forma

A statement or report of projections about the possible future performance of an income property. A pro forma uses assumptions as to future revenues, expenses, interest rates, tax considerations, etc.
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Q
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Recoverable Expense
See Pass Through

Refinance
The process of retiring all existing loans against a property and replacing them with a new loan. In a cash-out refinance, the new loan is greater than the sum of the loans being retired and the borrower receives the difference in cash.

Rehabilitation Tax Credit
A credit that may be taken against one's total tax liability for improvements made to certain properties. Credits of up to 20% of the improvements made to historic properties and up to 10% of the improvements made to non-historic properites are available as of this writing. A variety of conditions and limitations apply, including the dollar value of the improvements in relation to the property's basis, the amount of time allowed for the project, certification requirements, passive loss limitations, alternative minimum tax considerations and others.

Reinvestment Rate
In Modified Internal Rate of Return, the rate at which the investor believes believes he or she could reinvest the positive cash flows from your investment. Also, Risk Rate

Rentable Square Feet
The portion of a rental property that may be leased to tenants.

Resale
See Reversion

Residential Property
Real estate designed and intended as dwellings, including single- and multi-family homes but not hotels or motels. A property that combines both residential and non-residential uses must derive at least 80% of its gross rental income from dwelling units to be considered residential for purposes of depreciation. If a mixed-use property is owner-occupied, then the fair-market value of the owner's unit must be taken into account when determining the residential or non-residential status of the property.

Revenue Reconciliation Act
Tax law passed in 1993, which changed the useful life for non-residential property, introduced the concept of "real estate professional" and limited the tax on capital gains to 28%; the capital gains provision was superseded by the Taxpayer Relief Act of 1997 and again by the Jobs and Growth Tax Relief Reconciliation Act of 2003.

Reversion
The value of an investment at the time of its resale

Risk Rate
See Reinvestment Rate

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S

Safe Rate
In Modified Internal Rate of Return, the interest rate at which you believe you can put money aside, in a secure and reasonably liquid form, so that it will grow to meet the amount needed to cover future negative cash flows.

Sensitivity Analysis
An analysis where one or more independent variables is altered to determine the effect on a particular dependant variable. For example, one might test how different rental rates affect the cash flow before taxes or how different purchase prices affect the Internal Rate of Return. Also, What-If Analysis

Short-term Capital Gain
The gain on an asset held 12 months or less.

Straight-Line Depreciation
A depreciation method that allows the owner to write off an asset’s basis in equal amounts over its useful life. For example, if an asset were to have a 10-year useful life, the straight-line depreciation allowance each year would be 10 percent of the basis. Note that in the tax code as of this writing there exists a so-called half-month convention for real estate, where the taxpayer is allowed only one-half month depreciation in the month of acquisition and one-half month in the month of resale.
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T

Tax Reform Act
A tax bill that substantially altered the treatment of capital gains, ending the 50 percent capital gain exclusion. The law also introduced the concept of passive activity investments and limited the losses from such activities that could be taken against ordinary income.

Tax Shelter
An investment vehicle that can shield a part of an investor's ordinary income from taxation.

Tax-Deferred Exchange
A provision of the tax code (sec. 1031) that permits property owners to exchange like properties. If certain criteria are met, the parties can defer recognition of gain or loss and therefore also defer the tax that might have occurred in an outright sale.

Tenant Improvements (TI)
Improvements made to a rental unit by a landlord for the benefit of a tenant. Such improvements are capital expenditures, not repairs.

Term
The number of periodic payments over which a loan is amortized.

Treasury Bill
A government obligation representing a virtually risk-free investment.
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U

Useful Life

The length of time, as specified in the tax code, over which an asset may be depreciated. The Useful Life for tax purposes is not necessarily the same as the actual physical life expectancy of a particular asset.

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V

Vacancy and Credit Allowance
A deduction from the Gross Scheduled Income for losses due to unoccupied space and uncollected rent. The ressult is the Gross Operating Income, also called Effective Gross Income.

Ron Hodges Saipan,CNMIee divers and Ron Hodges, Saipan, CNMI Northern Marianas