Guam Real Estate Tips

 These are great times for Guam and what lies ahead for our island will be unprecedented economic growth and development. The island’s two main economic pillars, the U.S. Military and Tourism, remain healthy and vibrant proving that Guam is a “Business Smart Destination”. Over the next 10 years the planned military build-up for our island will infuse billions of dollars into our economy and as a direct result every sector of Guam’s economy will benefit and thrive.

HOUSING

The rental market on Guam remains soft, giving a renter a good selection of apartment, condominiums, and houses. Most residential leases are for one to three years. A security deposit of one month’s rent is standard, but there is no “key” money required. Most rentals are unfurnished but include appliances such as range, refrigerator, garbage disposal, water heater, and air conditioners. Generally, larger apartments and condominiums include water and cable TV in the rent. Larger complees include amenities such as a swimming pool and tennis court. Land Excess Federal Lands Nestled in the middle of Guam is a military base the U.S. Navy used during the first half of the 20th century. As part of the Base Realignment and Closure decision of the U.S. Congress in 1993, the U.S. Navy terminated its operation in the Naval Air Station in Agana. In September 2000, the U.S. Navy conveyed a total of 1,800+ acres of excess federal lands via quitclaim deeds to the Government of Guam, the single largest land transfer since 1950. Projected growth will occur as a result of increased local demand, development of the islands in Micronesia and expansion of the Asia-Pacific markets.

MILITARY

The second largest economic sector has been the United States Military. Guam currently is home to two (2) branches of service, the U.S. Navy and the U.S. Air Force. Military expenditures to maintain these installations are approximately $9 billion annually. Guam has an increasing military posture that provides business opportunities in construction, housing, and various logistical support services. TOURISM Guam has developed into a major tourist destination, an industry that provides the bulk of the island’s non-government income. Approximately 1.2 million tourists arrive in Guam each year generating approximately $1.35 billion revenues with visitors from Japan continuing to provide 80% of the tourist market. Although the number of Guam’s visitors fell slightly after several disastrous world events, visitor arrivals have been steadily increasing.

INVESTORS

For investors looking for new opportunities, now is a great time to consider Guam for your future investments. The government of Guam, through GEDA, is authorized by law to allow a variety of tax incentives to encourage new investment by qualified investors to Guam. GEDA grants Qualifying Certificates to investors on the basis of investment commitment, potential for creating employment and expanding the base of the island’s economy. These incentives are intended primarily for manufacturers, insurance underwriters, commercial fishing operations, corporate headquarters, agricultural operations and the tourism industry. The legal and judicial system in Guam is the same as in any other U.S. state or territory. All proceedings are in English, and based on the American common law legal system and US standards of integrity. The terms used in court documents and settlement agreements would be recognizable by any other U.S. court. Guam lawyers and judges are well trained and educated in U.S. law schools. The www.justice.gov.gu. is a comprehensive site that provides links to Guam courts, Guam Bar, Office of the Guam Attorney General, and other legal websites.

GUAM TAX STRUCTURE

 Guam residents pay a “mirrored” U.S. income tax in which the U. S. Internal Revenue Service’s code of laws is applicable. Through enactment of the Organic Act of Guam in 1950, the U.S. Congress created the Territorial Government of Guam as a separate taxing jurisdiction. Section 31 of the Act provides that the income tax laws in force in the United States shall be the income tax laws of Guam, substituting Guam for the United States where necessary and omitting any inapplicable or incompatible provisions. The U.S. Internal Revenue Code with such changes constitutes the Guam Territorial Income Tax Law thus all taxes are paid only to the territorial government, Guam residents and domestic business entities are not subject to U.S. Federal tax. There is only one taxing authority in the Territory, the Government of Guam. The administration, regulatory, and enforcement function for taxes in Guam is vested with the Department of Revenue & Taxation; which is also tasked with the registration of business entities, issuance of general business licenses and regulated licenses such as Alcoholic beverage licenses, insurance, securities and banking and recordation of secured transactions under the Guam Uniform Commercial Code. There is the usual range of other types of local taxes, such as, liquor, tobacco, gasoline, real property, gross receipts, use, admissions, amusement, recreational facilities, and hotel occupancy. However, There are no separate municipal, county, school district or improvement district taxes and there is no sales tax imposed in Guam.

Taxes assessed in Guam

Gross Receipts Tax (aka Business Privilege Tax) Businesses – 4% on monthly gross income due by 20th day of following month income received or accrued Commercial banks & lending institutions – 4% on annual net income due by 90th day following tax year Use Tax – 4% assessed on personal property imported into Guam. not applicable to items imported for resale, to used goods, to property with value of $1,000 or less and to aircraft parts & materials Hotel Occupancy Tax – 11% of daily room rate Alcoholic Beverage Tax – tax on all imported alcoholic beverages, locally manufactured alcoholic beverages are exempted $10 per wine gallon on distilled beverages $2.75 per wine gallon on vinous beverages $0.04 per each 12 fl ounce on malted beverage Tobacco Tax – tax on all imported tobacco products $0.35 per each 100 cigarettes 10% of landed cost of cigars $0.35 per pound for all others Real Property Tax Upon the sale of land and/or buildings – 35% of the full cash value On the assessed value – .005% for land and .01% for building Amusement Tax – $50 to $250 on various types of coin operated machines Recreational Facilities Tax – $5 to $100 on various types of facilities such as bowling alleys, golf courses, billiard halls, shooting galley, etc. Liquid Fuel Tax – levied on a distributor of liquid fuel $0.10/gallon on diesel $0.04/gallon on aviation fuel $0.11/gallon on all other fuel Personal Income Tax Individuals who are citizens or residents of Guam are required to report their income from all sources when computing their Guam taxes. Their income taxes must be paid into the Treasury of Guam. Non-residents except those who acquired their U.S. citizenship through the Organic Act, or through naturalization proceedings in the District Court of Guam, incur income tax liability to Guam only on income derived from Guam sources. Self-employed individuals who are covered by the Federal Old Age Insurance and Schedule C of individual income tax return Form 1040. A U.S. citizen who is a resident of Guam at the last day of the taxable year (usually December 31) will be required to file an individual income tax return in Guam reporting his or her worldwide income. In such case the U.S. Internal Revenue Code provides that no return need be filed with the U.S. Internal Revenue Service. Guam individual tax rates are the same as those in the U.S. Internal Revenue Code and can be found in Section 1 of the Guam Territorial Income Tax Law. Individual income tax returns for the calendar year are due on or before April 15 of the following year. Individuals reporting on a fiscal year basis must file their returns on the 15th day of the fourth month following the close of the fiscal year. When the due date for doing any act for tax purposes – filing a return, paying taxes, etc., falls on a Saturday, Sunday, or legal holiday, you may do that act on the next business day.

Corporate Tax

Guam domestic corporations are subject to income tax on their income from all sources at the same rate schedule published by the U. S. IRS for the applicable tax year. Other corporations doing business on Guam incur income tax liabilities to Guam on all Guam source income. Corporations are required to file an income tax return for the calendar year on or before March 15 of the following year. Corporations on a fiscal year basis must file income tax return on the 15th day of the third month following the close of the fiscal year. Corporations not engaged in business on Guam are liable to a 30% tax on certain types of income from Guam sources. The tax rates for corporations doing business on Guam can be found in Section 11 of the Guam Territorial Income Tax Law. However, with the passage by the U.S. Congress and signing into law (by President George Bush) of the Guam Foreign Investment Equity Act – U.S. Public Law 107-212 on August 21, 2002 it provided Guam with the authority to tax foreign corporations doing business in Guam at the same rates that the 50 U. S. states currently are able to access relative the existing tax treaties the U.S. has with certain foreign nations such as Japan, Canada, Russia, Korea to name a few.

GUAM ECONOMY

The Guam economy is in the midst of a strong economic expansion owing largely to its booming tourism, the construction industry and the huge U.S. military presence. Various projects and initiatives are continually being developed by both the public agencies and private companies to promote growth and progress in the abovementioned sectors. To provide a more stable and diversified economic base, the government has likewise started “cultivating” other sectors such as bonded warehousing, captive insurance and legal arbitration. Guam is committed to developing the island as the hub of economic activities in the Marianas. We look forward to working with expanding local and multinational companies and new firms interested in making Guam as their home.

Research by GEDA

 With this type of knowledge you can make yourself an invaluable source of information that prepares homeowners for the challenges they are likely to face, yet you can offer them some guidance and alternatives to foreclosure. The information provided here is an overview of foreclosures and how to meetwith a homeowner facing a foreclosure and hopefully help them to avoid a foreclosure.

 Please note that the foreclosure process is different from state-to-state and therefore the information provided focuses on the common components fundamental to the foreclosure process.

 Foreclosure prevention must become a core component of what REALTORS® do. Alfredo recommends you become well-versed in the laws that govern the foreclosure procedures in your specific marketplace.

 Why are there so many foreclosures?

You watch the news, hear stories, and know people are losing or have lost their homes. There are several factors that have been contributing to the rise in foreclosures over the last several years.

 Predatory Lending

Loans approved for borrowers who do not have the necessary financial resources tomeet the obligations of the debt; along with, the lenders’ failure to provide sufficient information regarding future adjustments of the interest rates (i.e. Adjustable Rate Mortgage – ARM).

Declining Prices

Millions of homes are now worth less than the loan amount and are referred to asbeing “upside down.” In this scenario, if homeowners are having difficulty making payments, many choose to “walk away” from the property and the mortgage allowing foreclosure to take place. Unfortunately, foreclosed properties are typically sold at “below market” prices which further contributes to price reductions.

 Unemployment

Because the real estate market is directly tied to the job market, the rise inunemployment has had an adverse effect on the market. New jobs are needed to create the need for new homes. It has been estimated that it will take 1.2 new jobs to create the need for one more house.

Increased Debt

The amount of credit card and installment loan debt in this country has been continuallyincreasing for a number of years, as have the interest rates on those loan instruments.

 Increase in Home Inventory

The National Association of REALTORS® estimates that six-months ofinventory creates a neutral market, meaning that there is an equal number of buyers and sellers which causes the price of real estate to remain static.

As a real estate investor or buyer, you are faced with a myriad of issues in real estate specially when it comes to trying to avoid paying taxes by deferring those taxes to a new property. I will provide yourself with information about the exchange process that will help you to  comply with  IRS requirements in regards to purchase and sale contract – whether it be for a  relinquished property (property to be disposed of in an exchange) or replacement property (property to be acquired in an exchange).

If the purchase contract is not assigned to the QI(Qualified Intermediary)  and notice thereof not given to the other party at or before the transfer of the property, the taxpayer will be treated as if they transferred the property directly to the other party with no involvement of a QI(Qualified Intermediary).

The IRS reiterated this requirement in Private Letter Ruling 200130001, wherein the taxpayers were required to pay tax on their gain from the sale of two properties because no notice of their assignment to the QI was given to the purchasers of their relinquished properties. This is a harsh result, but one that is easily avoided by taking these three simple steps:

First, if you are is selling non-owner occupied property, determine whether they intend to do an exchange and, if so, make sure that they engage the services of a reputable QI well before closing.

Second, You or your agent must inform the other parties to the contract about the exchange and that the contract will be assigned to the QI. You should also inform the other party that, notwithstanding the assignment to the QI, you remain the real party in interest and their rights to enforce the contract remain unaffected by the assignment. Additionally, you should add a clause in the contract (your QI can provide this language) – by way of an addendum – whereby the other party agrees to cooperate in the exchange. This additional clause notifies the other party that your client is doing an exchange and – more importantly – helps protect against the possibility of that party later refusing to cooperate in the transaction (e.g. refusing to acknowledge the assignment).

Third, confirm with your QI and the closer to confirm that they have obtained – before transfer of the property – a written assignment and acknowledgment thereof. Both the assignment and the acknowledgment are typically executed by all parties at closing.

Beginning with the close of the Relinquished Property, you have 45 days to identify the properties you intend to purchase and 180 days (or the due date for your tax return – whichever is earlier) to complete the acquisition of those properties. In addition, the 45 day identification period and the 180 day exchange period are calendar days. If the 45th day or 180th day falls on a weekend or holiday, the deadlines still apply. There are no extensions for Saturdays, Sundays, or legal holidays. No extensions are allowed on the 45 day deadline.

Let me know if you have any questions!

Alfredo Bustamante

Locating the best loan for you involves comparing loans such as conventional, jumbo, FHA / VA, weighing mortgage benefits among fixed-rate, adjustable-rate, interest only and combo (piggyback) loans, evaluating FICO scores, getting preapproved, making sense of the GFE & HUD-1, finishing with underwriting and final loan approval.

There are two misconceptions I hear many times  from people in the financial media, real estate and lending professions, including those from the public. It’s one thing for the laymen to get it wrong; it’s another thing entirely when a financial professional gets it wrong.

The first is how mortgage rates are determined, followed by the affect on mortgage rates by the U.S. Federal Reserve Bank.

What are mortgage rates based on?

The only correct answer is Mortgage Bonds or Mortgage Backed Securities. Mortgage rates are not based on the 10-year Treasury Note. When shopping for a new home loan,  many of you will jump online to your favorite financial web site to see how the 10-year Treasury Bill is doing. In reality mortgage-backed securities (MBS), cause mortgage rates to fluctuate. In fact, it is not unusual to see them move in completely different directions and, without professional guidance, that confusing movement could cause you to make make a poor financial decision.

When the Fed lowers the short-term discount rate, this is designed to stimulate consumer spending on short-term credit, which affects credit card rates, some car loans and lines of credit. The short-term discount rate has little affect on long-term mortgage rates.Think about this: the market moves faster than you may expect — sometimes at lightning speeds. When investors spot a short-term stimulus, they bail out of the safe haven of bonds (or mortgage backed securities) and move those dollars into stocks. When this happens, we see a rally in the stock market and a sell-off of mortgage backed securities, both of which cause interest rates to go up.

When the Fed cuts the rates, especially by a large or repeated percentage-point drop, people automatically assume that mortgage rates will fall. But if you follow mortgage rates, like I do, you will see that most of the time, the rates fall very slowly, if at all. Historically, when the Feds have dramatically cut rates, interest rates remain almost identical to the rates established months before the cut as they do months after the cut.

The Fed’s moves aren’t totally irrelevant and do have a delayed and indirect impact on home loan rates. When investors worry about inflation, this concern will push rates up. When Congress wants to stimulate action and raise money for a deficit, it will create more U.S. Treasuries for US to buy. This added supply of new Treasuries can also cause rates to move higher.I caution my clients to try to avoid the call of the siren and the false sense of security it creates by thinking mortgage loan rates are going to improve just because the Fed cut rates.Even more crucial is when a buyer is in the process of making a decision whether to lock a loan just before a Fed rate cut. Say a buyer is in contract and thinking the Fed is going to lower rates next week. The buyer might be tempted to wait before locking the loan (big mistake). Well, when the Fed makes that big drop, say by 50 basis points or more, it actually can cause 30-year-fixed rates to initially spike. But then over time the rates generally level out or regain their losses — depending, of course, upon current market trends. So, if my buyer is within three weeks of closing before an anticipated Fed cut, I usually recommend locking ahead of the Fed rate cut to protect that original good interest rate.

Once again let me know your thoughts!!

Alfredo Bustamante

The location of U.S. forces in densely populated areas in mainland Japan and on Okinawa established the need to relocate some of these forces to other locations, while still meeting the alliance security needs. Through careful analysis of requirements, assets, capabilities and strategic locations such as Korea, the Philippines, Singapore, Australia, Hawaii, Guam, Okinawa, and the continental United States (including Alaska), the U.S. determined Guam as the preferred location for repositioning Marine forces from Japan.

Currently, the Department of Defense owns 40,000 acres on Guam-approximately 29 percent of the land mass. The availability of DoD lands on Guam and the existence of global mobility capabilities at Andersen Air Force Base and the Naval Base Guam significantly lowers estimated relocation costs over any other potential location in the Western Pacific.

As part of this realignment effort, the U.S. Government and Government of Japan agreed to relocate 8,000 to 9000 Marines and around 24,000 dependents from Okinawa to Guam by 2014. 

I believe that this military relocation will be beneficial for the Guam economy by providing jobs and opportunities for all the local residents, however my only concern  is the sexual and non controlled alcoholic behavior that drives 9,000 US Marines plus to create conflict and crime for the locals and their families.

This is about working together and doing what is right in all respects, taking into account all opinions and all perspectives to prevent major problems in regards to the military relocation and to prepare for a better future for Guam and all of us.

Please let me know your thoughts!!!!!!!!!!!!!!!!!!Alfredo

Happy Holiday’s

By Alfredo Bustamante

Determine how much you can afford, then how much of this you are willing to pay. Tell your Realtor the maximum you can/will pay and let the Realtor decide the price range of properties to show you, in order to reach this.

Prequalification or Preapproval.
This is a beneficial first step. It helps both you and the Realtor by knowing the price you can afford, and it also points out any potential qualifying problems early, so that you may be able to have them resolved early rather than delaying a closing or even losing a home you want. It also helps you in the negotiating stage as the Sellers will want assurance that you can purchase the home. A prequalification can be done rather quickly, and can be done by phone. It lets you know what you can afford, and basically is saying that IF what you say is correct and can be verified, they SHOULD be able to grant the loan. A preapproval is actually an approval of your loan, subject only to the house qualifying, i.e. subject to its appraisal and inspections. This step will require a signed loan application, and probably the payment of a fee for the credit report. You should determine how long this approval is good for, and whether it locks in an interest rate, or how it would vary if the rate changes.

The search.
Make out a two lists of what you are looking for in a house: those things that you MUST have, and those things that you would LIKE to have. When talking to your Realtor, go over not only what you want, but why you want those things – a good Realtor may be able to suggest homes that don’t meet your stated requirements, but do meet your needs.

Shop with a pad of paper – make notes.
It’s usually helpful to name houses, so you and your Realtor can more easily talk about them and know you are referring to the same house. Past buyers have come up with such labels as The Pink House, The Grumpy Lady’s House, the House with the 3 dogs, the House with the Neat Kitchen, etc. Years later you may still remember some of the labels of homes and laugh.

Share your feelings with your Realtor.
Don’t just say Yes or No, but express what things you liked and did not like about each house. Your agent should begin to see a pattern, and set his creativity to work. The first day’s appointments were made ahead of time, but the second time out the homes chosen should reflect the information gleaned the first time. By the third time, if the agent just doesn’t get it – it may be time to choose another agent.

The Offer.
When you’re ready to make an offer on one, have your agent do a market analysis on the home – what have comparable homes sold for in the area, how do they compare to this home, what others are on the market – and have him review it with you. Your offer should be made based on what the home is worth rather than on the listing price of the home. There are no hard and fast rules on negotiating strategy – it depends on the situation and the parties involved. Rely on your Realtor here, which is one of the places that experience counts – successful experience, that is.

Signing/Initialing.
Once the terms are acceptable to both sides and all parties have initialed all the changes, the date of the last signature or initial becomes the effective date of the contract, which is the trigger for many of the time frames in the contract. Until all parties have initialed all changes, you don’t have to have a contract!

Between Contract and Closing.
You/your Realtor should schedule the inspection immediately – the good inspectors may be backed up for weeks ahead, so schedule as soon as you can. Sometimes I schedule the inspection as soon as the negotiations start, if I think they will be successful, in order to get the inspector of choice within the time frame. You may want to also have a roof inspection. If you are purchasing a home near the water, you will want to have a seawall inspection done as well. (Damage to seawalls, docks and swimming pools are not covered by flood insurance.) If you want to have inspections for radon, lead-based paint, environmental hazards, etc. you will need to have these completed within the same period. Pest control inspections are generally not done until 30 days before closing, due to lender requirements.

Going to the Lender.
Bring a copy of the fully executed contract to your lender. If you have not made written loan application, do so now. Be sure the lender notes the deadlines not only for closing, but for written loan approval. Tell the lender that you want a copy of the closing statement at least two days prior to closing. Be sure to make formal application (signed application, along with check for any application fee) within the time specified in the contract. If you do not do this timely, the financing contingency may be declared null and void. Have your lender fax your realtor the loan application that has been made.

The lender will order your credit report and order the appraisal of the property.

You/your lender/your Realtor will order the survey. This used to be done at the end of the process, once your loan received written approval. Due to insurance requirements, especially if an elevation certification is required, this should now be done soon after you have a contract. Ask your lender to order this right away.

Start on your insurance now.
If a typhoon or tropical storm is within a certain distance of Guam, insurance companies will not issue policies unless they have already been paid for in full. So do this right away, don’t wait for a tropical storm to come into the area. Most lenders do require typhoon insurance, but you may want to check with the lender, especially if the home you are buying comes with typhoon shutters.

Utilities.
At least two weeks prior to closing, arrange for the utilities to be turned on in your name as of the date of closing. Most of them will require an advance deposit from you.

Funds.
Your funds to close must be paid by a locally drawn cashier’s check (made out to the title company) or wired funds.

For more info on buying, renting, selling and investing in real estate on Guam, see Guam Properties for Sale.