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The 5 Best Suburbs in the SouthEast for Self-Directed Real Estate IRA Owners to Retire To

Real Estate IRA investors and property owners looking to relocate after retirement know the south has some of the best towns in the county to live.  Many Self-Directed IRA owners are interested in keeping their investments close to their retirement destination.

Real Estate IRA owners are looking for homes at a reasonable price, relative to rental yields, stable or improving employment prospects, and the ability to get into a new property without having to commit $1 million or more into an overheated housing market.

Additionally, it is nice to have favorable landlord-tenant laws and a decent state tax environment. State and local income and property taxes can really eat into Real Estate IRA profits if you are not careful.

And lastly, since many of our clients are here in the southeastern United States, we’re also always looking for great spots that are close to family – especially grandchildren.

The editors of USA Today recently published a useful guide to the top ten suburbs for retirees, primarily using the following criteria:

  • Modest cost of living
  • Median home prices
  • Property tax rates

A number of towns here in the Southeast made the cut:

  • Bermuda Run, North Carolina

This charming town in Davie County is one of the most promising suburbs of Winston-Salem. The town was incorporated in 1999 as one of only three gated communities in the state to be designated an official municipality. It recently annexed the nearby Kinderton Village community.

Property taxes are very low at $1,666 per year, on average, based on a median home price of $167,450. Meanwhile, the population is quite affluent, with a mean household income of $108,558. So, there is lots of room for house prices to grow.

  • Plantation, Florida

This bustling Broward County suburb just west of Fort Lauderdale is an easy commute from downtown – just down Broward Boulevard. It is home to a lot of city employees and has homes available at a variety of price points.

Homes in this area are on the pricy side: The median home last year listed for $329,250, with property taxes adding an average of $4,122 to the annual cost of ownership. Incomes are relatively low, here, too, relative to house prices, with a mean household income of $79,797.

Florida has some benefits that could reflect well with investors.  The lack of a state income tax means you can enjoy more of the rental income your properties produce.  Florida is also very friendly to investors, from a bankruptcy protection perspective. This is important for Self-Directed IRA investors, as real estate can generate liability if you are not careful – though assets within Real Estate IRAs are not generally considered personal assets at risk in the event of bankruptcy.

  • Fairfield Harbour, North Carolina

Fairfield Harbour, in Craven County, is a resort community near New Bern in beautiful coastal North Carolina. Among the chief attractions: The beautiful Fairfield Park golf course. Like Bermuda Run, it is a gated community. The median list price for Fairfield Harbour is $189,900 – well within the reach of the area’s mean household income of $65,903. Property tax is quite low at $1,343.

Fairfield Harbour and the nearby town of New Bern are two of the best kept secrets in America when it comes to affordable coastal living.

  • Sunset Beach, North Carolina

This upscale Brunswick County community sports median home listing prices of $324,900, making it one of the pricier areas in North Carolina. The town consists of two mainland neighborhoods and a barrier island, which has about 1,200 homes. The area is home to three golf courses – Oyster Bay, Sandpiper Bay and Sea Trail resort – and the developments around these courses represent the bulk of the residential real estate.

The mean household income in Sunset Beach is $70,992, which means many families are stretching to afford the homes they have now – especially more recent buyers.

Annual taxes of $1,348 make it among the lowest-tax communities on the list.  This is a plus for Real Estate IRA investors looking to relocate.

  • Timber Pines, Florida

This small community in Hernando County, Florida offers some of the best freshwater fishing in the country. The closest major cities are Tampa to the south, and Ocala, to the northeast. It is a popular destination for retirees, including many Real Estate IRA investors attracted by the year-round mild climate and the lack of state income taxes on rental income.

The median house price is quite modest for Florida, at $159,900, within easy reach for the average household in the area, which logs an income of $56,974 per year.

For more information on Self-Directed Real Estate IRAs, or to schedule a no-obligation consultation, visit our website at www.AmericanIRA.com. Or call us today at 866-7500-IRA (472).

We look forward to serving you.

Self-Directed IRA Investors – Get A Proof of Funds Letter

In today’s smoking hot real estate market, buyers need to move fast. To have the best chance of securing the winning bid and successfully acquiring the asset, Self-Directed IRA investors, like everyone else, need to be fully prepared going into a transaction.  This is particularly important in the hotter, more competitive markets, where sellers are entertaining multiple bids from competing buyers.

Sellers do not want to waste time working with unqualified buyers with barriers to close.  They will quickly weed out weak buyers who cannot even come up with down payment funds.

One thing buyers love to see is a proof-of-funds letter. For most people, this is simply a verification letter from their bank they have enough cash on hand – or access to a ready line of credit – to make the necessary down payment on the property. This is especially valuable if you have not been pre-approved for a mortgage.  It is not uncommon for sellers to request the letter as part of the offer to purchase.  As such, you may need to secure a proof of funds letter from American IRA early in the process.  Ideally, having one on hand even when previewing properties is a good faith component for sellers.  If you have a pre-approval letter from the lender, if any, it is nice to be able to provide that as well.  If you are doing an all cash purchase, in or out of a Real Estate IRA, have a proof-of-funds letter is even more important!

The proof of funds letter should contain your name (or if you are using an Self-Directed IRA, the name of your IRA account), the financial institution’s name and contact information, and language similar to this:

We confirm that John Doe, owner of the John Doe Self-Directed IRA, has available funds in the sum of $_______ as of [date]. If you desire further verification of those funds, please feel free to contact us at [phone number].

Sincerely,

[Authorized financial institution representative]

In the private end buyer market, conventional mortgages could require 10-20 percent down.  They can be as low as 3.5 percent for FHA and zero down for VA loans.  In the Real Estate IRA world, down payments of 35 to 50 percent of the price of the asset are not uncommon. Add in 3-5 percent for miscellaneous closing costs and fees.

To lock the home down in a purchase contract, you may need to secure a proof of funds letter from American IRA, LLC early in the process.

Tips: Consolidate assets within your Real Estate IRA into a single cash or money market account before you go home shopping. Money in stocks or mutual funds usually will not count as funds on hand, because the assets are so volatile, and you cannot write a check on these assets. We can liquidate them for you and move them into a cash account, of course, and then send you a check, but it adds another day or two to the process, and as mentioned earlier in the article, timing is key.

Remember, if you are buying a property for your Real Estate IRA, every dime must come from within that Self-Directed IRA account. You cannot contribute any of your own personal money from outside of your Self-Directed IRA to acquire IRA assets.

For more information about Real Estate IRAs, or to arrange a no-obligation consultation, or if you are a client and need a proof-of-funds letter for a pending real estate transaction, call American IRA today at 866-7500-IRA (472), or visit us online at www.AmericanIRA.com.

We look forward to serving you.

Summer is Hot for Self-Directed Real Estate IRA Investors

Real estate is hot, and Zillow Research is projecting that it is going to get even hotter. That is terrific news for Real Estate IRA enthusiasts, who stand to benefit from several favorable trends as we roll into the peak home buying season of 2018.

First, homes are selling like hotcakes nationwide. 2017 saw the shortest time-on-market for the typical U.S. home on record. The average home sold in just 81 days last year – faster than even the crazy days of 2006-2007, just before the mortgage bubble collapse.

The high demand was not just for homes in San Francisco, Seattle and Miami. Homes sold faster in 2017 than in 2016 in nearly all the country’s 35 biggest metro markets.

July was last year’s hottest home sales month, when the average home closed just 71 days after its listing. But even that is misleading: The closing process is routinely 4 to 6 weeks long, especially for deals involving mortgages. So homes are actually coming off the market and under contract pending financing much faster than that – frequently in 30 days or even less.

On top of the lighting fast sales, the tight supply relative to demand is forcing buyers to bid against each other just to get in a home. One out of four homes sold in 2017 actually sold above their list prices.

The fastest-selling market in the U.S. was San Jose, home of the famed Silicon Valley, where buyers snapped up homes in an average of just 41 days. New York was the slowest market, with sales closing an average of 134 days after listing.

Here in the Southeast, Self-Directed IRA investments in real estate have been hopping.  Many of our clients have had great success with their accounts, the Atlanta metro market averaged 71 days. June was Atlanta’s fastest selling month when the average home closed in 63 days. Charlotte averaged 67 days, Tampa averaged 81 days, Austin averaged 61 days, Orlando averaged 86 and Baltimore averaged 94.

What lessons can we glean for Self-Directed IRAs with real estate investors?

According to Zillow’s market research, summer is the time to list homes for sale. People want to move when children are out of school, and summer is the traditional time for businesses to transfer employees for that reason.  You want to have the sale wrapped up by the time the kids go back to school in September.

The higher the demand, the more bids you can consider in a short amount of time. To maximize Real Estate IRA profits, bunch your bids to drive buyer competition. The time to do that is when the market (and the weather is hottest.)

Conversely, the time for your Self-Directed IRA to buy real estate is in the fall or winter.  Buyers are less competitive, and you may be able to snag a bargain for your Self-Directed Real Estate IRA investment portfolio.

You can get concessions in many markets. Another Zillow report found 76 percent of sellers had to give something up in the negotiation process.  Price, of course, was the most common.

For more information about Real Estate IRAs, or to schedule a no-obligation consultation on how you can take more direct control of your retirement finances and benefit from direct real estate ownership within an Self-Directed IRA or other retirement account, contact us today at 866-7500-IRA (472).  Or visit our extensive library of articles and blog posts and other educational materials at www.AmericanIRA.com.

We look forward to working with you.

Real Estate IRAs: Because You May Live Longer Than You Think!

The good news is longevity is way up! The bad news is longevity is way up!  Due to the increase in longevity, Real Estate IRAs are the way to go!

Well, as bad news goes, we have heard worse. It is great that people are living longer. However, longer lifespans present a problem when it comes to retirement planning: Any given nest egg must last a lot longer than it used to.  It must also generate a reliable stream of income the whole time, without fail.

People are underestimating the problem: A recent study of British senior citizens found that people in their 50s and 60s are grossly underestimating the likelihood that they will live to age 75, 85 and beyond.

The report, from the Institute for Fiscal Studies, found that people in their 50s and 60s tend to underestimate their chances of survival to age 75 by around 20 percentage points and to 85 by around five to 10 percentage points. Meanwhile, those who have reached their 80s become overly optimistic about the chances that they will see 95.

The result is a significant gap between the assets required to generate a retirement income for that long and the probable need itself.

“As individuals are given more responsibility for saving for their retirement, and more freedom over how they use those savings in their later years, it is a concern that many are systematically misjudging their longevity,” said IFS research economist David Sturrock. “When people underestimate their chances of surviving through their 50s, 60s and 70s, they may save less during working life, and spend more in the earlier years of retirement than is appropriate, given their actual survival chances.

The Value of Real Estate IRAs

At American IRA, we believe Real Estate IRAs should be part of any significant retirement portfolio: real estate is a proven long-term income generator, which also provides the potential for capital gains, and the prospect of increasing rental income as a hedge against inflation.

Leverage and Real Estate IRAs

Real Estate IRAs also have the advantage of ready access to leverage.  This greatly increases the cash-on-cash return for Real Estate IRA investors as compared to more Traditional IRA asset classes, which are typically unleveraged.

Lenders know that real estate is a relatively stable source of wealth and makes excellent collateral for loans. It is therefore much easier to get financing for real estate than for other forms of investment. While you cannot sign a personal guarantee or pledge non-real estate assets as collateral for a loan to buy property within your Real Estate IRA, there are several lenders eager to help you finance Real Estate IRA properties. You just have to do your borrowing on a non-recourse basis.

This means the loan must be secured entirely by the property in your Real Estate IRA. The lender can have no claim or recourse against you, personally, nor any assets held both inside and outside the Self-Directed IRA.

We often see lenders willing to finance about 65 percent of the purchase price of the real estate investment, though they frequently have tighter requirements for condominiums or properties in historically volatile real estate markets, such as Florida.

You should be aware of the impact of unrelated debt-financed income tax, however, which may result in a current tax liability for gains attributable to borrowed money, rather than your own contributions to your retirement fund.

Real estate is also frequently a much better asset to pass on to heirs than a closely-held small business or other more esoteric investment; as homes are usually easier to sell than businesses.  Real estate investments could also be managed easier than a small business held within a Real Estate IRA, for example.

Real Estate IRAs and Diversification

Real Estate IRAs can also help protect owners against stock market risk: The more different asset classes you have making up your retirement portfolio, the less affected you could be by unexpected declines in any one asset class. We believe Self-Directed IRAs, including Real Estate IRAs, can help investors achieve meaningful diversification across a variety of asset classes that are difficult to access using conventional off-the-shelf retirement products available from Wall Street investment firms.

The combination of steady rental income streams, access to financing and leverage, potential capital gains and the possibility of keeping up with inflation make Real Estate IRAs an excellent addition to many of our clients’ retirement portfolios.

To learn more about Self-Directed IRAs and Real Estate IRAs, call American IRA at 866-7500-IRA (472), or visit www.AmericanIRA.com.

Real Estate IRAs Provide Real Diversification Against Struggling Stock Market

It has been a rough few months for most investors. But, owners of Real Estate IRAs have been doing pretty well.

The last week of March the Dow Jones Industrial Average plummeted 1400 points to reach a low for the year. The Dow fell 5.7 points and the S&P 500 fell 5.9 percent – the worst week for stocks in two years. The Nasdaq fell 6.5 percent that week. The S&P 500 is now 0.68 percent underwater for the year to date. The Dow is now 11.2 percent off its high.

Sure, that is not the end of the world – it is also up by more than 12 percent over the previous 12 months. Stocks have been exceptionally volatile lately. The U.S. stock market is also trading at over 27 times earnings which have been looking favorable. There is ample good news already figured into the stock market. One big earnings miss, or a disappointing jobs report could bring the whole thing down by a significant amount.

“The market has been priced for perfection … and that leaves the market vulnerable to surprises. In this case, it’s trade,” according to Baird analyst Bruce Bittles.

Stock Vulnerability Is Global

U.S. markets were not the only losers. Stocks lost money around the world – this time on fears of a potential trade war between the U.S. and China, sparked by talk of tariffs in Washington. China helped send shares plummeting by slapping retaliatory tariffs on more than 148 U.S. products, including steel pipes, pork, almonds and California wine.

In the above markets, diversifying into international stocks did not shelter investors from the pain.

Real Estate IRAs Outperforming

The investors who chose to diversify into Real Estate IRAs experienced a better outcome:  U.S. house prices jumped 7.3 percent in January compared to the same times last year, according to data from the Federal Housing Finance Agency. Prices were up more than 10 percent in the Mountain region. Prices had jumped 0.8 percent from December to January – the biggest monthly increase since February of 2017.

Real estate has been delivering a solid annual return – on an unleveraged basis – while still showing much less downside volatility. Over the past 12 months, all regions in the U.S. were up, with the weakest regional market – the West South-Central region (Oklahoma, Arkansas, Texas and Louisiana) increasing by 5.1 percent. Home prices in Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona and New Mexico saw double-digit increases.

The Potential Benefits of Leverage in Real Estate IRAs

Real estate investors are doing much better than even those numbers suggest. First, real estate is commonly leveraged. So, an investor in Colorado with a typical real estate portfolio gain of 10 percent for the gain but holding just 50 percent equity is getting close to 20 percent, minus costs of carry.

Furthermore, he or she is collecting rental income the whole time. In this case, the landlord can collect two rents for the price of one, thanks to leverage.

Leverage increases risks, in a down market, it can make things very dicey for the borrower. At the present, however, most real estate investors have been doing much better than stock market investors, with less stress (assuming good tenants)!

The last few months have been excellent for Real Estate IRA investors. The strategy has been working as intended: Real Estate IRAs provide meaningful diversification to portfolios otherwise heavy with stocks. They are delivering solid price appreciation. They are generating current rental income, so investors get paid to wait. And the income they generate has been steadily increasing. Rents have been rising in nearly 9 out of 10 cities, according to data from RentCafe, helping protect income-oriented investors against inflation.

Own Real Estate IRAs

We suggest nearly every American with significant retirement savings or investable assets consider including real estate, including Real Estate IRAs, in their portfolio.

Holding real estate in a Real Estate IRA, Solo 401(K) or SEP IRA can help shelter increasing income from taxes and generate free cash flow on a tax advantaged basis.

Investing in a Real Estate IRA is very easy: Call American IRA, LLC today at 866-7500-IRA (472). You may also download our exclusive guide to Real Estate IRA investing here.

We look forward to hearing from you.

Overseas Properties in a Real Estate IRA

Many of our clients are actively looking to diversify their retirement portfolios by using Self-Directed IRAs to invest in overseas assets. Often, this includes investing in foreign property using a Real Estate IRA.

Is it legal to purchase overseas property in an IRA? 

Yes, since the birth of IRAs in 1974, it has been legal to purchase and own overseas property using Real Estate IRAs. You can buy and sell properties, collect rent, and do anything you can do with domestic real estate in an IRA, provided you observe all the rules concerning prohibited transactions.

Can I take out a mortgage or borrow money to buy an overseas property for my Real Estate IRA

Yes, you can. You can borrow from any willing lender who is not a prohibited counter-party. Prohibited counterparts include yourself, your spouse, your children or grandchildren or those of your spouse, your parents and grandparents or those of your spouse, or any entities any of these people control.

If you do take out a mortgage, it must be on a non-recourse basis. That is, you cannot sign a personal guarantee for the loan. Any collateral for the loan must come from within the IRA itself.

You should also be aware of any local laws and regulations that may affect mortgages in the country in which you are investing. Most other countries will not recognize your IRA as a legal entity.

How can I purchase an overseas property using a Real Estate IRA

To buy property for a Real Estate IRA, you need to establish an account with a custodian or administrator that will support self-directed/real estate transactions ahead of time. You cannot buy the property yourself, thinking that you can transfer it into your Real Estate IRA later. That would essentially be causing the IRA to purchase the property from yourself, and that constitutes a prohibited transaction.

Instead, set up an account in advance with American IRA, LLC, and fund it. In most cases, clients fund their Real Estate IRAs using rollovers from existing IRA accounts. You can also contribute up to $5,500 in new money per year to a Traditional or Roth IRA. If you are over age 50, you can contribute another $1,000 in catch-up contributions.

If you want to make larger contributions, and you have a business or self-employed income, you may consider setting up a small-business retirement plan like a SEP IRA or a Solo 401(k).

Set up a trust or local entity in the host country. 

Most countries do not recognize IRAs as a separate legal entity. That means that while you may have limited liability protection in the United States, you will not have any in the property’s host country. If a tenant sues you in local courts, they could go after you personally, and possibly seize other assets you own within the country.

Consider having a local attorney help you set up a limited liability entity that will help you limit your liability, just as you would set up a corporation or LLC within the United States to protect your personal assets if someone should sue the business.

Purchase the property. 

Again, it is best not to try to handle the transaction yourself, directly. Instead, send all necessary documentation and instructions to American IRA, LLC, to purchase the property on your behalf, using funds within your funded Self-Directed IRA account. Verify the purchase was completed correctly.

Note, the property cannot be titled in your name directly. The title has to go to your IRA, or to the entity within the IRA, with your IRA listed as the owner.

Disqualified parties may not reside in the Real Estate IRA property. 

Unless you are ready to withdraw the entire property from the IRA, and pay taxes on the transaction, you, nor any disqualified person to your IRA can physically stay in the property; even if market rent is paid.  You cannot use an IRA to own your own vacation home overseas. If the IRS finds out, they could force you to take the entire value of the account as a distribution, costing thousands in taxes, penalties and legal bills.

Study: Fair Sailing Ahead for Real Estate IRAs

Real Estate IRAs have had a very nice run over the past several years. And 2018 looks like another positive year for real estate overall. The Urban Land Institute’s 2018 Real Estate Trends Report predicts a smooth year of appreciation for real estate assets in or out of Real Estate IRAs.

Some of the highlights from the report:

A “sudden drop” in the housing market is unlikely. Real estate utilization rates are going up as millennial’s begin to gain traction in the housing market.

A “soft landing” is more likely to cap the current expansionary cycle than a real estate recession. The economic cycle has surely not been repealed, but there are no major economic trends that currently threaten real estate as an asset class in the United States. Part of the reason for the soft landing prediction is the modest to slow pace of the recovery. Real estate more or less kept pace with overall economic expansion, which means real estate prices did not get so far ahead of fundamentals and price supports as they did during the sunup to the 2008 mortgage crisis.  We are not seeing the late-cycle optimism that characterizes asset bubbles – at least in real estate.

Real estate is also getting a boost from the strong economy as well as a booming stock market. Granted, the stock market could take a nasty correction tomorrow – one important reason why we recommend using Self-Directed IRAs to help diversify your portfolio away from stocks. But the strong job market looks more permanent, as companies do not like to to through the expense of hiring people whom they are not confident will stay on board for a good while.

The report also identified a stubborn shortage of housing supply that will continue to boost real estate for some time to come. Even high real estate appreciation and price levels is not leading directly to new supply in some Real Estate IRA markets. The study identified these markets as experiencing high price appreciation but very low supply expansion:

  • Washington, D.C.
  • Brooklyn
  • Orange County
  • San Francisco
  • San Jose
  • Miami
  • Fort Lauderdale
  • Seattle
  • Portland, OR
  • Inland Empire, CA
  • San Francisco

 

The Institute also recommends that investors focus more on rental income than price appreciation at this point in the cycle. Many markets are comparatively mature, as investors have bid up prices to match expected rental revenues. Some areas may be fully priced. But as long as employment remains strong, rental income should be steady and reliable, for the most part. Concentrate on cash flow and careful asset management.

One opportunity for a Real Estate IRA investment is senior housing. As of 2016, there were 49.4 million U.S. residents aged 65 or older, or about 15 percent of total population. By 2030, that figure is projected to grow to 75.5 million, or 21 percent of the population, according to the U.S. Census Bureau.

Yes, an individual landlord can devote some or all of a real estate portfolio to homes or condominiums that may have appeal for older Americans. Another way to play it would be to invest in private equity or private debt placements or REITs that focus on senior housing development.

The Case for Real Estate In Your Real Estate IRA

It was a nasty crash, but it was eight years ago. Since then, real estate asset prices have been relentlessly marching upward. While nothing is ever certain when it comes to investment, there are indications that the real estate bull market still has room to run – and that’s good news for Real Estate IRA investors.

Yes, the Federal Reserve has been gradually increasing interest rates. But that hasn’t helped bond yields as much as it probably should: Interest rates on CDs, money markets and shorter-term bonds are still much lower than historic averages, while interest rates on mortgages remain quite low compared to rent yields in most markets, combined with the potential price appreciation upside of real estate investing. Again, Real Estate IRA owners know that while there is obviously no certainty that real estate prices will continue to rise, assets are likely to continue to flow into real estate from weak-yielding bond markets as long as yields from traditional income-producing assets common to retirement accounts remains low.

Meanwhile, though the stock market seems very high at current levels, corporate bonds have been very highly correlated to stocks in recent years, giving investors very little reason to accept the meager yields available in them. This, again, tends to drive assets to alternative asset classes, including real estate – boosting prices in the aggregate.

The wealthiest investors and institutions are quite aware of this, and they are increasing their allocation to real estate in their own portfolios. A recent survey by Tiger 21 found that wealthy investors have an all-time record high (since they began tracking it in 2007) of 33 percent of their portfolios committed to real estate, including a Real Estate IRA.

The allocation to real estate and a Real Estate IRA comes at the expense of hedge fund exposure and equities. So the much-followed “smart money” appears already to be cutting back on their exposure to the stock market in favor of alternative assets.

Hedge fund allocation is at a record low of 4 percent, with hedge fund managers in the proverbial dog house as the traditional “two-and-twenty” compensation proves unwieldy in a low interest rate environment: Two percent fees takes up half the yield when interest rates are at 4 percent! And that pushes hedge funds further and further out on the risk curve.

Meanwhile, real estate continues to outperform, with REITs (real estate investment trusts) returning an average of 7.91 percent per year over the long term. Leveraged, those who own real estate directly using a self-directed IRA can potentially do much better – though leverage increases risks as well.

Here in the Southeast, real the real estate market is humming along, with South Carolina real estate experiencing a full-on boom. Vacancy rates have plummeted while new construction is racing to meet demand. Commercial vacancy rates in Lowcountry areas is below 10 percent, thanks to a local unemployment rate of just 3.8 percent in the area. Upstate South Carolina is experiencing a job boom, as well, with BMW leading the way, and attracting more job creation in its wake.

“The commercial real estate market in South Carolina is in exceptionally good shape,” said Mark Vitner, senior economist for Wells Fargo of Charlotte.

But experts are saying that prices here in the southeast have not caught up with the economic reality. Property can still be had at a very reasonable price for Real Estate IRA investors.

“We haven’t seen property values skyrocket because we haven’t seen as much foreign capital come into the state to overheat the market,” he said.

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