About Nottinghill Ventures

Posted on October 24, 2010 by

In 2003, Nottinghill Ventures began evaluating and acquiring preferred equity, equity, and debt interests in real estate throughout the state of Texas. As of September 2010, Nottinghill Ventures has completed over four million dollars of private equity transactions.

Today, our investment portfolio includes commercial holdings in the Houston and Dallas markets, mobile home parks in the Houston market, retail space in the Houston market, and residential holdings in Austin and The Woodlands.

Going forward, we are seeking opportunities, will continue investing, in Limited Partnerships seeking private equity investments in Houston, Austin, Dallas, and San Antonio commercial markets and mobile home parks, and will continue acquiring single family homes in The Woodlands, Texas for rehabilitation and placement in our leasing and resale portfolio.

Posted in About

OBAMACARE AND ITS IMPACT ON THE REAL ESTATE INVESTOR

Posted on December 21, 2011 by

Last year we discussed the new 3.8% Medicare Tax on unearned income embedded within Obamacare and its impact on Investors (see THE TRUTH ABOUT THE 3.8% MEDICARE TAX ON THE SALES OF YOUR HOME).  Regrettably, nearly one year later neither our President or our Congress have done anything to stop the implementation of the legislation, so the reality is that Investors need to begin planning ahead for its implementation. 

As you well know by now, the new tax will apply to single taxpayers with a Modified Adjusted Gross Income (MAGI) of $200,000 or more and married taxpayers with a MAGI of $250,000 if filing a joint return or $125,000 if filing a separate return.  Unless you are an ex-patriot living overseas or have a significant amount of foreign earned income your MAGI will equal your adjusted gross income.  To calculate your tax liability, you will pay the lesser of :  a) 3.8% of your net investment income (i.e. interest, dividends, rents and royalties, and other ordinary business income, less appropriate deductions, but excluding distributions from qualified annuity, pension and profit sharing plans, and excluding tax-exempt interest), or b)  3.8% of the amount that your MAGI exceeds your appropriate threshold.   As a word of warning (and planning) net gains from the sale of Real Estate and other trade property is subject tax as well.

SO WHAT DO WE DO WITH OUR REAL ESTATE HOLDINGS NOW?

Since the tax will take effect on January 1, 2013, you have a full year to plan to reduce the impact of the new tax.   Assuming that you will have enough net investment income to be subject to the tax, then during 2012, you should review the entirety of your portfolio to determine the gains and losses you’ve incurred since your acquisition of the assets.  I would suggest close cooperation with your tax professional throughout this process.  Those properties that do have significant gains should be prepared for sale and sold over the next year, thereby harvesting the gains before the implementation of the new tax.  Gains may be retained or reinvested in the new projects you choose.

There are a few rules relating to those of you who are heavily involved in Real Estate.  Rental income is also subject to the 3.8 % tax UNLESS IT IS CONSIDERED TO BE DERIVED IN THE ORDINARY COURSE OF YOUR BUSINESS.  So, if you can be considered to be an Active Real Estate Investor, you could avoid this tax on your rental income pursuant to the “active” classification.  To do this you will need to show that you spend at least half of your time specifically in the real estate business.  You will need to show that you allot 750 hours per year to that business.  If that is too difficult to do, consider consolidating all of your real estate related businesses as one activity and electing to consolidate all real property interests into one business.

You have twelve short months, now is the time to work with your tax and accounting professionals to determine what properties to sell, what properties to retain, and where to invest the gains you’ve harvested over the past few years. 

Perhaps our Congress or our Supreme Court will stop this mess before January 1, 2013, but I doubt it. The worst position that you will find yourself in is to not prepare for the inevitable implementation or the single most damaging piece of legislation to hit this country since the New Deal.  Just give thanks for Nancy, Harry and Barack for this new tax that has so much to do with the healthcare of our nation.

Posted in Commercial Real Estate, Investing, Residential Real Estate, Retail Real Estate, The Woodlands, Uncategorized | Leave a comment

THE TRUTH ABOUT OBAMACARE’S 3.8% MEDICARE TAX ON THE SALES OF YOUR HOME AND ON YOUR INVESTMENT INCOME

Posted on December 21, 2011 by

You have all heard it, received e-mails about it, and read tidbits about it, but no, there is not a 3.8% Medicare tax on the sale of real estate embedded deep within Obamacare.  What is embedded within the Law (26 USC 1411) is a new tax on net investment income effective January 1, 2013.  It is not something the average homeowner needs to worry about, because the tax would not be imposed on a married couple’s investment income unless that couple’s gross income exceeds the income threshold of $250,000 ($200,000 for an individual).  In addition, if you do sell your home and your one time gain causes you to exceed the income threshold, a married couple will be allowed to exclude $500,000 ($250,000 for an individual) from the sale of the home.

So, not so bad is it?  At least not unless you are an investor.  If you make your living as an investor (in Real Estate or otherwise), the tax will be imposed on nearly every dollar you make, after deducting associated expenses, in excess of the threshold of $250,000 ($200,000 for an individual).  It will apply to all Net Investment Income (income less associated expenses) including capital gains, dividends, rents, royalties, interest, passive income, annuities (but not deferred retirement annuities), and the sale of investment properties.  The sale of rental real estate will not enjoy the same exclusion ($250,000/$500,000) as would a personal residence.

As an investor, it may be time to rethink your long term investment strategy to minimize your exposure to the new tax on Net Investment Income before the January 1, 2013 effective date.  There are strategies out there to enable you to avoid or minimize your exposure to the tax by positioning your investments to keep your Adjusted Gross Income below the $200,000/$250,000 threshold thereby avoiding the tax completely.  These include using installment sales, deferred annuities, pensions, municipal bonds, IRA contributions, and Roth IRA Conversions, and charitable remainder trusts.  In addition, you can position your investments to minimize the types of income that trigger the tax (i.e.  avoiding limited partnership income, passive income, rental income, income on sales of passive assets, royalty income).

None of this seems to have much to do with our physical health, but it can sure impact your mental well being.

Posted in Commercial Real Estate, Investing, Residential Real Estate, The Woodlands | 4 Comments

WEEKEND PROJECTS

Posted on May 25, 2011 by

UPDATE YOUR STAIRCASE WITH IRON BALUSTERS

While the entryway to your home is certainly the most important for first impressions, it is often dated and neglected.  One quick and easy way to update your entryway on a modest budget is to replace your existing wooden balusters with heavy gauge iron balusters using your existing wooden handrail.  You can complete the project in 2-3 days for less than $1000.00 if you do the work yourself, or for $2,350 if you fully contract out the work.

For our project we selected a simple arrow/double arrow design and planned to space all balusters with no more than a four inch gap between them.  We used “belly bars” for the upper walkway, which curve outward.  The balusters were ordered from Stair Warehouse of Houston, and our total bill for 75 balusters, inclusive of the matching foot for each baluster, epoxy and epoxy gun came to less than $850. 

The process begins by breaking out the old balusters.  You may chose to use a saw, but there is a lot more sawdust created that way. Then, it is a good idea to fill and sand any gouges, depressions, and holes that you are not using on both the upper and lower rails.  Next, measure the holes for the top and bottom of each baluster and drill all holes to a depth of one inch.  Your local code will require no more than a 4 inch space between eah baluster.  Before you begin putting the balusters in, I would suggest that you do your first coat of stain and varnish.  Once you are done with the first coat, you can start with the cutting and installation of the balusters.  Each baluster should be cut 1 ½ inches longer than the distance from the lower rail to the upper rail.  Then it should be fit into place with the foot on, but not tightened.  After you’ve placed 15-20 balusters you may epoxy each into place (the foot will eventually cover up any minor mishap).

When all of the balusters have been set and epoxied, you can finish up with a second coat of varnish.  After it’s dry, the baluster feet may be secured with an allen wrench.

I you don’t want to do all of the work yourself, you can have the balusters installed for around $750 by Da-Glo and all of the painting and varnishing done by Spring Painting for around $750. 

Posted in Renovation, Residential Real Estate, The Woodlands | Leave a comment

TEN HELPFUL TIPS TO GUIDE YOU ON YOUR WAY TO INVESTING IN LOCAL PRIVATE EQUITY- (Part 10 of 10).

Posted on March 28, 2011 by

READ AND UNDERSTAND THE PARTNERSHIP DOCUMENT

Within our previous posts in our Ten Part Private Equity Investing Guide we’ve discussed the importance of knowing the investment, knowing the incentives (alignment), and knowing the economics of the deal.   Each of these discussions focused on the necessity of extracting certain information from the partnership document and supporting information relating to the deal.  The partnership document is important because it determines the course of the partnership through both good times and bad.  It determines how, when money is made, you get your share, what that share is, and when you get it.  It also sets forth the terms governing the partnership if the partnership fails to make money and what happens to your contributed equity (and when).  These are provisions that you must take the time to study, learn and be comfortable with because they will have a significant impact on your investment.  If it becomes too cumbersome to muddle through, remember that you do have one tool to help you–your Lawyer.

In our preceding post, we discussed Lawyers and the notion that legal advice is worthless unless it is coupled with overall business advice.  Well, this is just the area where a lawyer can, and should, earn his fee.  It is well worth the time and money to have a face to face discussion with your Lawyer about the Partnership Document and provisions within it that you don’t understand or that you are uncomfortable with.

Congratulations!  You’ve finished your review of the Partnership Documents, your work is completed, and you are ready to invest with confidence and make money.  Good Luck!

Posted in Investing, The Woodlands, Uncategorized | Leave a comment

TEN HELPFUL TIPS TO GUIDE YOU ON YOUR WAY TO INVESTING IN LOCAL PRIVATE EQUITY- (Part 9 of 10).

Posted on March 3, 2011 by

LAWYERS GOOD IDEA/BAD IDEA

Lawyers can be a good idea if you properly manage them. First and foremost, you need to know what you’re getting. You want a lawyer with the requisite legal and business experience with a huge emphasis on the latter. When investing in private equity, you are looking for a lawyer with experience in both private equity offerings and the subject matter of the offering. It is a waste of time and money to hire a lawyer with private equity experience in real estate only, when you are looking at an oil and gas offering. The advice that you are seeking is clearly legal advice, but legal advice is worthless unless it is coupled with overall business advice on things such as whether the offering meets with industry standards, whether it is fair and balanced compared to other investments, and whether it makes good overall business sense.

Lawyers can be a bad idea if they tend to get hung up on legal details that have little, if any, impact on the transaction. Unfortunately, many lawyers tend to pad their billable hours researching minor or insignificant issues. Look for a lawyer with a reputation of transaction completion and a depth of experience in the field. In addition, while it is commonly known that the optimal number of lawyers in a deal is zero, each side may need one to work through the complexities of a transaction. The problem is that lawyers like company, and would prefer to see more lawyers in a transaction. Rest assured, if you allow more than one lawyer for each party in a transaction, each lawyer added to the mix will increase the risk of transaction failure exponentially.

Posted in Investing, The Woodlands, Uncategorized | Leave a comment

TEN HELPFUL TIPS TO GUIDE YOU ON YOUR WAY TO INVESTING IN LOCAL PRIVATE EQUITY- (Part 8 of 10).

Posted on February 21, 2011 by

REVIEW A LOT OF DEALS

When cousin Mark show up at your door and says that he has the deal of a lifetime for you, don’t believe it.  For a deal to fall into your lap like that is like winning the lottery.  Don’t feel obligated to a friend, a family member, or a business collogue and invest in just any deal.  Actively search for deals and analyze them as previously discussed.  Look to your bankers, investment firms, friends, business colleagues, and industry professionals.  You will find that of ten investment offerings, probably one (at the most) will meet with your approval.  Considering that you will spend some time on each deal, it may take numerous hours of your time to settle on the best vehicle for your ultimate investment.  It is your money, your investment, and you, and you alone, are responsible for the return on that investment.

Posted in Investing, The Woodlands | Leave a comment

TEN HELPFUL TIPS TO GUIDE YOU ON YOUR WAY TO INVESTING IN LOCAL PRIVATE EQUITY- (Part 7 of 10).

Posted on February 15, 2011 by

KNOW THE ECONOMICS

There are two things to consider when you are getting to know the economics of the deal.  First, determine whether the deal parameters being offered are consistent with other deals that are similar in nature to it.  That is to say, is the deal being offered to you consistent with the industry standard?  The terms of the deal will dictate, to a large extent, the determination of the variables in the Issuer’s Pro Forma, so it is imperative that you confirm that the Issuer’s deal points are consistent with industry standards.  For example, oil exploration deals will vary from region to region.  If you are reviewing an oil exploration deal, you should determine whether, in that particular region, it is customary for the Issuer to retain an Overriding Royalty (if so, how much), and whether the Issuer should be carried (free of cost) to Casing Point or beyond (and to what extent).  In addition, you should determine to what extent are Issuers typically compensated on the front end, and throughout the life, of the transaction.

Second, you must run your own numbers, and test the sensitivities of the Issuer’s assumptions.  Ask the hard questions and insert new variables into the model.  For example, in a Real Estate transaction many variables have an impact on your economics, for example you could consider the impact of:

  1. A delayed completion date,
  2. A higher vacancy rate,
  3. A higher ad velorum tax rate based on the purchase price rather than the appraised value prior to the purchase,
  4. A larger capex reserve,
  5. A lower appreciation rate,
  6. A later exit date,  
  7. A failure to obtain a key permit.

These are just a few of the variables you need to consider.  At Nottinghill, we look for deals that do not hinge on one key for success, and we risk weight each key variable looking at the probability of the occurrence of each major assumption.  Avoid deals were your money, and the company’s success are predicated upon one or two coin tosses, or farfetched assumptions. 

Once you have a handle on how the economics work and what  the drivers are to the success of the venture, you are nearly on your way to finalizing your investment decision.

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