For my money it’s the 1031 tax-deferred exchange. The 1031 allows owners of investment property to exchange certain types of property and may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due. In essence you can sell (exchange) your rental condo in Arizona and buy a duplex in San Diego. The catch is the properties must be “like-kind” which means the properties must be investment property. It does not matter if one is a single family home and the other is a 4 unit building. Like-kind simply means property held for investment.
Now, there are many rules to follow, which I will cover in my next post, but I want to show you the real benefits of a 1031 exchange. Here are the 5 main reasons to exchange, courtesy of Asset Preservation.
- PRESERVATION OF EQUITY
A properly structured exchange provides real estate investors with the opportunity
to defer 100% of both Federal and State capital gain taxes. This essentially equals an interest-free, no-term loan on taxes due until the property is sold for cash! Often the capital gain taxes are deferred indefinitely because many investors continue to exchange from one property to the next, dramatically increasing the value of their real estate investments with each exchange!
Many investors exchange from a property where they have a high equity position, or one that is “free and clear”, into a much more valuable property. A larger property produces more cash flow and provides greater depreciation benefits,
which therefore increase the investors’ return on their investment.
Exchangers have a number of opportunities for diversification through exchanges. One option is to diversify into another geographic region, such as exchanging out of one apartment building in Denver, Colorado, for two additional
apartments – one in Los Angeles, California, and the other in Dallas, Texas. Another diversification alternative is acquiring a different property type, such as exchanging from several residential units to a small retail strip center.
- MANAGEMENT RELIEF
Some investors accumulate several single family rentals over the years. The ongoing maintenance and management of what can be a far-reaching group of properties can be lessened by exchanging these properties for one property better
suited to on-site maintenance and management. Exchanging into a single apartment complex with a resident manager is a good example of this strategy.
- ESTATE PLANNING
Sometimes a number of family members inherit one large property and disagree about what they want to do with it. Some want to continue holding the investment and some desire to sell it immediately for cash. By exchanging from one
large property into several smaller properties, an investor can designate that, after their death, each heir will receive a different property, which they can either hold or sell.
Stay tuned for the next post relating to the 1031 exchange where I will cover the anatomy of the exchange and also share a case study.
I’m excited to announce, and be a part of, the re-branding of my company. The name changes reflects the diversified and growing company Carrington Holding Company has become. For more check this out.
4513. 7277. 6248. These numbers represent the following for the San Diego county real estate market, according to the SANDICOR Multiple Listing Service: Homes sold since Nov. 30 2012. Homes currently for sale. Homes currently under contract. Can you guess which is which? More on this later.
Over the past few years our market has been fueled by investors, cash transactions, short sales and foreclosures. Interest rates are still WAY LOW, prices are on the upswing, and first time buyers are actively engaged in the process of finding and buying a home. What’s missing? NEW INVENTORY! Where have all the sellers gone?
Shadow inventory has been hanging over our heads for a couple of years now. At some point we will see some of that hit the market in some form or fashion. But what I’m wondering why, when past cycles showed different patterns, are more homeowners not looking to take advantage of current market conditions to move up, out, or pick up an investment property? After all we are talking about homeowners who seemed to have done things the right way. Take a look at this San Diego market report: Atlantic & Pacific Real Estate Exec Summary [SF]_CA_SAN DIEGO
Check out the gray box at the top right of the report. This is the Market Action Index and it indicates who the market favors, buyers or sellers. You’ll notice it currently favors sellers. Now, suppose you are thinking about moving up into a larger home. Based on the data, you have a very favorable opportunity to win at both sides of the deal. You bring inventory to the market which is desperately needed, especially at the entry to mid level price points, and that creates a frenzy whereby buyers will compete hard for your property and there is a great chance a bidding war ensues. On the buy side, since you might be moving up and into a price point where there is more inventory and less competition, you will have some fantastic choices to consider and know you will get a great deal. If you are downsizing, maybe you are in a position to pay cash or have a larger down payment that makes your offer more attractive if competing with other buyers.
With all the competition out there looking to buy, how do you set yourself up to be a winning bidder? One way is to work with an agent that has access to all the inventory…like Atlantic & Pacific Real Estate agents do. Hey Jason, “What do you mean all the inventory?” Well like all agents we have the multiple listing service or MLS. But because we represent several banks and loan servicers (like our parent company Carrington) our agents also have access to pre-listed homes that are not yet on the active market. Options are always good, right? If you’d like more information on this just contact me and I will put you in touch with a Realtor that can help you.
Now to answer the question. There are 4513 homes currently for sale. 7277 homes currently under contract. 6248 homes sold since Nov. 30, 2012. And most importantly, don’t limit your options to what most agents think is the only option! Dig deeper and see the big picture.
Welcome to 2013! I always wonder why people say the year the way they do. Do you say 20-13 or two thousand and thirteen? I look at it like this, we didn’t say one thousand nine hundred and ninety-nine, right? It was 19-99 and it should be 20-13! OK off the soap box.
So this year we are expecting big things in the real estate and housing market. We saw some marked improvements in sales and price increases, and a flurry of home-buying activity, especially in the 4th quarter. The government made some strides in avoiding the so-called “fiscal cliff”…kind of…I guess, and with the low interest rates, cost of money, and lack of inventory 2013 is shaping up to be an interesting year for real estate.
2012 was also a big year for me personally. After launching SmartRealty Solutions and spending the past few years specializing in listing and selling foreclosures and working with investors buying at auctions, I made the decision in August to join Atlantic & Pacific Real Estate (APRE), as the San Diego Regional Broker. APRE is an awesome brokerage that is on the cutting edge of real estate. In fact we were created to work with the most sophisticated and serious real estate clients…institutional sellers and investors. I think consumers are ready for a serious real estate firm and APRE fills the bill. We are also proud to be part of the Carrington family of companies who are all dedicated to serving anyone interested in the residential market. If interested you can learn more about Atlantic & Pacific Real Estate here. The leadership and vision at APRE is world-class and in my 20 years of practicing real estate I have never been part of a more dedicated, professional, and consumer driven company. I am so excited for 2013 and the opportunities we have in front us in this great business. I look forward to connecting with you and feel free to reach out with any real estate questions you have. Here’s to a great year!
According to the U-T San Diego, Wells Fargo will be meeting with troubled homeowners today to offer guidance to those facing foreclosure. The workshop will run from 9 a.m. to 7 p.m. at the San Diego Convention Center’s Hall E, 111 West Harbor Drive in the downtown area.
The article states, “This will be the first of three free workshops in Southern California hosted by Wells Fargo this quarter. They will be open to customers of Wells Fargo Home Mortgage, Wells Fargo Financial, Wachovia Mortgage and Wells Fargo Home Equity. Wells Fargo invited 9,000-plus customers from San Diego and Southwest Riverside counties to attend the first one.”
A second workshop will be held in Ontario on February 14-15 at the Convention Center. Wells Fargo officials recommend registering but walk-ins are OK. To register call (800) 405-8067 or visit wfhmevents.com/leadingthewayhome.
Working with investors gives you the opportunity to dive into the numbers. And while I’m no accountant, I certainly understand the basics of buy low and sell high. I also understand market stats and the role they play in tracking trends, etc. Recently there has been a lot of talk about publishing MLS data in a public forum, that’s another post for another day. That said the MLS is n important source for what is going on in the market place. I want to look at some data we track and share with investors to help them compare investment opportunities.
In terms of data we track four areas: Active, Pending, Contingent, and Sold MLS listings. Within each of those categories we look at the number of properties in each category, number of days on market, average sale price, and list to sale price ratio. Knowing these numbers allows us to compare traditional transactions with opportunities at trustee auction.
Let’s look at some recent data pulled from Sandicor MLS in San Diego. Currently there are 9300 Active single family properties for sale in San Diego County. The average days on market is 101, and the average list price is $808,000. Pending homes, those under contract and in escrow, show 3900 homes with an average list price of $426,000 and on the market for an average of 73 days. Contingent homes, aka short sales, show 3400 homes at an average list price of $325,000 and on the market for 140 days. OK, so what does this all mean? Notice how the prices and days on market change based on status? Short sales are on the market longer and sell for less. Safe to assume we all know that. But did you really know to what extreme these numbers fluctuate? More importantly, can you see how sharing this type of information can help your clients make better decisions? Investing in real estate is like solving a puzzle. It can be frustrating and risky, but it sure feels good when you get all the pieces in the right place.
On the surface you can see that nearly half the properties under contract are short sales. But when you look deeper you realize that a good portion of the pending units were at one time contingent. The contingent status is specifically for short sales and is used when a buyer and seller have agreed to terms, but the bank has not yet approved the sale. We found that nearly 40% of the pending homes were contingent. So the reality is that perhaps 70% of all homes under contract are short sales.
In speaking with an agent this week that does a lot of short sales, he estimated that short sales actually sell at about 90% of market value. We already saw above that they take longer to close, and sell for about $100,000 less than traditional sales. What about trustee auction properties? Well, here is where our very unscientific poll comes into play. And I say unscientific because these numbers represent our personal experiences at auction over a 3 day period. I am tracking on a larger scale and will write a follow-up to this in the near future. Here’s what we found and the big benefit to buying at trustee sale: Properties sold at 77% of market value! How would you like to put 13% more in your pocket just for showing up? There are risks, but they are calculated and minimized when you work with a Smart Company that has a successful track record in this arena. Stay tuned for more.