Archive for May, 2014

Retire in your 1031 exchange home

Tuesday, May 20th, 2014

Here is a true story that happens all of the time. My friend bought a rental house 25 years ago as an investment for $80,000. Over the years he kept it rented and any repairs needed came from the rental income. Plus, as with any real estate investment, he was able to use depreciation each year to reduce the Federal Income tax he paid. Five years ago he sold the property for $200,000 and because of depreciation, the cost basis was close to zero. So, ordinarily he would have to pay capital gains tax on the entire $200,000 (over $30,000 in tax). However, with the help and advice of his CPA, he decided to use the IRS deferred exchange (IRC section 1031), known as a ‘1031 exchange’ to defer the tax owed. This allows you to sell, then buy a ‘like-kind property’ to defer the tax. In this case, he found a property in a retirement city (which happens to be on a few of the retirement lists in my last blog). He bought the new property for $300,000 to rent out for over three years, which is required. He made $40,000 of improvements to make the property beautiful and this amount was written off as an expense of the investment (further lowering his income tax).  Now at age 67, he has moved into the property as his primary residence. No tax is due until the property is sold. He plans to live there the rest of his life. I’ve mentioned this story to a few people and their response was ‘who comes up with these complicated rules and to what advantage’. There are a lot of income tax benefits to owning real estate, this is just one of them.

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The Best Place to Retire

Wednesday, May 14th, 2014

It depends on which list you agree with. I continually see lists of the ‘Best Places to Retire’. There will be 10,000 people per day for the next twenty years turning 65 years old. These 75 million baby boomers will be retiring and make the choice, either move to a retirement area or stay put. For those planning to move, here are a few lists to consider: US News magazineFORBES magazineAARPCNN Huffington Post, etc. Some observations as I look at all of the lists is they seem to have different cities. Rarely do I find the same city on each list. Second, not all are in warmer climates or the lowest tax states. Also, try to move quickly past the pop up/flashy ad’s (you don’t see that on FSBO.com). One thing I highly recommend to those selling a property is to find the list that has your city and make sure each prospective buyer is aware of the list. As a seller you need to use all positive information you can find to make your home the most appealing.

Retire

Cash is making a comeback

Thursday, May 8th, 2014

Just when you thought ‘institutional investors’ (people or companies that have purchased at least 10 properties in a calendar year) appear to be gradually pulling out of the housing market, new data shows that 43% of all residential sales the 1st quarter of 2014 were cash sales. Yes, well, these institutional investors have pulled back, buying 5% of all houses in the1st quarter, down each quarter for the past year. Who then is buying with cash? It’s the international buyer. From Europe to China, homes are being sold for cash. I remember a few years ago reading an article about the value of the Russian ruble (their currency) and how it was dropping dramatically. In an interview, a Russian lady said “I went out and paid cash for a Buick because I know I will still have something in 5 years from now”. If your countries economy is weak and your currency is dropping, USA properties appear to be a safe haven. Look at property values in London, Tokyo, Beijing, etc and you can easily see that USA properties look very cheap.  Major metro areas where over half of all property sales were done in cash included Miami, New York, Columbia, S.C., Memphis, Detroit, Atlanta and Las Vegas. While many experts are surprised by these numbers, we think until the economies of the world improve you will keep seeing foreign cash buying real estate. We have blogged many times in the past few years how foreign buyers of US Treasuries have helped keep interest rates low, now with more cash available they are buying real estate.

Guest Blogger: Tips on Renting Your Property as a FSBO

Thursday, May 1st, 2014

For many home owners, it is not financially feasible to keep a house vacant while attempting to sell. As a result, many for-sale-by-owners (FSBO) opt to rent the property while simultaneously listing the property for sale. If you decide to take this route, frequent communication with both potential buyers and renters is critical throughout the process.

First and foremost, make sure to check and understand any local tenant-landlord regulations that may be in place. These will vary from area to area, so it is important to make sure you aren’t violating any rules. When it comes to this type of process, it certainly doesn’t hurt to ask for help.

Next, make sure you clearly communicate your plans with any prospective tenants and buyers. Renters may not like the idea of moving out shortly after moving in if the home is sold and buyers may not want to deal with tenants that are already in place. While many real estate experts suggest leaving the house vacant while it is on the market, the financial burden of doing so must be weighed by the seller against the potential rental.

If you do rent the home prior to selling, consider working with a tenant screening service like MyRental.com. Then, make sure all arrangements are clearly communicated. You may even want to talk to your new tenant about an “option to buy.” As a FSBO, this gives you flexibility to work through the selling process if a tenant expresses interest in the property but is unable to arrange for a sufficient down payment.

If the tenant is not interested in purchasing the home, it is important to make them feel comfortable with the selling process that will take place while they are renting. For example, the tenant may feel anxious about a potential buyer touring the home when they are not there. Discuss this process with your tenant and make sure they are aware that realtors may be entering the home without your or their presence.

Also make sure to keep tenants current on any activity planned at the property such as painting or repair work; and when conducting this activity make sure arrangements are made to protect their personal belongings. Since the home will need to be kept tidy all the time, consider offering to pay for a cleaning service or carpet cleaning to help get the home ready to show. This can take some pressure off the tenant and at the same time build some good will.

While a little tricky, renting a property while simultaneously listing it for sale can be done. Remember that the most important step is to be upfront with all parties involved in the process.

MyRental.com is a service of CoreLogic®, the leading tenant screening services used by the multifamily housing industry. Developed for the needs of smaller landlords, individual owner-investors, and residential property owners, MyRental.com provides all of the same vital and cost effective resident screening services used by some of the largest residential real estate investment companies and property managers.