|Real Estate Information|
Will a 1031 Property Exchange Solve Your Problems?
If your problem is listed below, a 1031 exchange may or may not be your solution.
1. Are you a landlord that doesn't want to manage property anymore?
2. Do you want to sell your investment property, but don't want to pay huge amounts of Capital Gains Tax?
3. Is your current income property not producing enough income?
4. Do you have a low adjusted basis and not much debt on your rental?
5. Is your credit rating less than perfect?
If you answered yes to any of the above 5 questions, a traditional 1031 property exchange into another like-kind property might just put you right back to square one!
Let's address each of the 5 problems one at a time.
1. If you exchange your current property for another of equal or greater value you still are faced with the same landlord/tenant problems that you currently have. Sure, you could hire a property manager, but why is it that you currently don't have one?
2. A 1031 property exchange into a like-kind property does defer the payment of Capital Gains tax if you carry over all your equity and at least the same amount of debt. However, since your new property costs you at least as much as you sold the last for, your property taxes will most likely increase. The cost of your new investment has probably just gone up.
3. If your positive cash flow is currently nothing to write home about, your new property will have to justify higher rents, be located in an area with lower property tax, or have fewer maintenance costs. Otherwise, the chances of additional passive income are very slim.
4. Your adjusted basis will carry over as is to the new property, so you will receive the same depreciation benefits as on the prior property, unless you pay more for your exchanged property. Most likely a wash.
5. A poor credit score may result in a higher interest rate or poorer terms on your new mortgage, assuming you don't own your current property free and clear. Again, this translates into higher ownership costs. You will also pay two sets of closing costs in the transaction.
One more thing to consider is the time it may take to sell your current property, find a replacement property and secure all funding. This must be done within the 1031 specific time frames. Think of the times that escrows have fallen through and loans have dragged on forever and sometimes never closed at all.
Considering your dilemma and possible pros and cons, will a 1031 property exchange put you farther ahead, further behind, or at best put you right back in the same boat you are in now?
If the answer to the last question was not "farther ahead", let me suggest that you look into a 1031 exchange that has a slightly different twist.
It's called a 1031 exchange into a tenant in common property. This might just put you in the "farther ahead" category and solve many of your problems. Instead of exchanging into another solely owned investment property, you will get a fractional proportionate share of an A grade commercial property. You will have a deeded interest equal to your share of ownership (your exchange amount).
If done properly:
1. You will no longer be responsible for the property management
2. All capital gains will be deferred.
3. You can get a contractual monthly income from the equity transferred (usually 6-7%)
4. Your carryover basis is the same, but you can acquire extra non- recourse debt without qualifying and receive a higher interest deduction on your monthly income, thus making it less taxable.
5. The debt you acquire with the TIC (assuming your debt/equity ratio is within the accepted guidelines does not require you to obtain a mortgage or pay it down. This is called non-recourse debt. Your credit score does not become a factor, and the closing can be done in a matter of days, not weeks or months.
Now, ask your self again. Would a 1031 exchange into a tenant in common solve your problems? If the answer is "yes", what are you waiting for?
The Costs of Transforming Your Home into a Buyers Dream House
Turning your house into the home of a buyer's dreams doesn't have to cost a great deal of money. In fact, armed with some paint and the determination to work hard, most home sellers usually need to invest only about $500 to spruce up their homes for a quick sale.
Buying and Selling Real Estate in Florida
Florida is known as the "Sun Shine" state, and the reason is clear. People move to Florida for many reasons, but most that move there stay there.
Making Money In Real Estate - 10 Ways
Making money in real estate is an endless topic that includes all the various types of real estate investments. There is land, apartment buildings, homes, commercial buildings and more.
New or Old House?
A lot of buyers think that a new house is the way to go but it's important to have some knowledge of quality and of the builder. New paint, carpet, doors, windows and cabinets are a quick and easy sell.
Budgeting Your Log Home - Creating a Checklist
If you've read my first article, BUDGETING YOUR LOG HOME: Where do you start?, you've got a very basic overview of the process. However, there are still a number of questions I'd like to address.
Where is Florida Investment Property
Florida Investment Property - Why Investing is a Wise Decision There are many reasons to purchase investment property in Florida, the foremost being value appreciation. Property values generally rise while debt decreases; making real estate purchases a good investment.
Purchasing Land: What To Look For
It doesn't take long to realize that finding the right piece of property is the most important aspect of new home construction. In a development, restrictions and easements have already been sorted out, but if you are looking for a stand-alone piece of vacant land, you're on your own.
Real Estate Investing Skill Acquisition
Real estate investing is not in any list of high school electives. You can't get an accredited degree in real estate investing.
Real Estate Professional in the Palm of Your Hand
GETTING THE MOST FOR THE LEASE-TRACKING YOUR REAL ESTATEIf you own rentals and/or investment properties, you know that you have to keep track of your portfolio, maintenance profiles, property managers, and related financial matters. There are a multitude of programs for the Palm-Pilot system to keep up with lease dates, lease expirations, and rent due dates.
Get Rich With Mobile Homes
Does the myth that mobile homes depreciate in value keep you from investing in them? Well, they do lose value in a park, on a rented lot. Mobile homes with real estate, however, are an entirely different investment.
Refinancing Your Home Loan? When Should You Refinance Your Home?
If you have a current mortgage and are unhappy with the interest rate or the amount of the monthly payments, it is possible to refinance your home and eliminate your problems. But before you call your lender, there are some questions that you should ask yourself in order to determine whether or not it's the right time for refinancing your mortgage loan.
Condo Hotel Trends - A Look at the Big Picture in Vacation Home Ownership
Condo hotels are one of the hottest products in today's real estate market. New properties are cropping up in different parts of the country and new buyers are entering the market daily.
Working With Your Real Estate Attorney
Purchasing or selling a home will probably be one of your largest and most important financial transactions. Before signing a contract to purchase or sell a home, both buyer and seller should consult an attorney to assure that the real estate transaction will be handled legally and professionally.
Selling Your House - $100,000 Pets
Is your pet worth $100,000? It may be if you don't make accommodations for it when selling your home.A Hundred Thousand Dollar Pet?A house I'd seen with a potential buyer in an attractive neighborhood built around two lakes sold for $100,000 less than was typical for the neighborhood.
Buying Rental Property - Avoid Sellers Tricks
Be careful when buying rental property. We stayed at a motel for a week one winter.
Buying a Home in Westminster
The city of Westminster is centrally located in the Denver metropolitan area. Its easy access to amenities in both Denver and Boulder really coax investors into buying a home in Westminster.
FSBO - How to Prepare Your House to Sell
Did you hear that? Prices of houses in Phoenix have been jumping 5% each month for 2005 according to market experts! Some even predict that the price of housing could jump an additional 10% for the upcoming year. The shortage of houses for sales and the still relatively low interest prices are causing the price of homes not just here in Phoenix but nationwide to escalate.
Avoid The Traps Of Finance
Most consumers are told where to get their mortgage because few people personally know and trust a mortgage or loan officer or correspondent (the same thing). It used to be agents would take their buyers out to find the house they wanted, then to their favorite mortgage company.
Real Estate Investing - Maximum Leveraging of Your Money
At this moment, you have access to some amount of money, from the extremes of only pocket change to the reserves of Bill Gates or Warren Buffet.Suppose you want to invest your funds into some vehicle that will multiply the return.
How Do I Implement The Lease Purchase Plan?
Well, as we have discussed in previous newsletters first you have to set up goals for yourself, both long term and short term. Don't forget these goals define how your business is run.
|home | site map|