Aug 29, 2019 | Real Estate
A 1031 tax exchange is a legal way to defer paying capital gains when selling a property and then buying a “like-kind” property within the allowed period. The time limits allowed are 45 calendar days after the close of the sale of the first property to identify the like-kind property for acquisition and then close the purchase transaction to complete the 1031 exchange within 180 calendar days.
Like-Kind Property
The property’s broad characteristics determine if it is a like-kind property, not the quality of the asset. In real estate investing, there is a wide variety of things that qualify for like-kind exchanges. For example, vacant land is exchangeable for a commercial building, an industrial site, or a portfolio of residential rental properties.
Since all these properties are types of real estate investments made in commerce, they are like-kind properties. It is not permitted to make like-kind exchanges of property for personal use. The properties that qualify for 1031 exchanges are for investment purposes only. Investors need to hold them for at least two years for them to qualify. A 1031 exchange cannot be used to “flip” a property purchased and then resold more quickly.
Equal Or Greater Value
The property for the acquisition side of a 1031 deal must have a value that is equal to or greater than the property sold. There are three ways to identify the property with the sufficient combined value needed for the acquisition, which are:
- Identify up to three properties for the acquisition regardless of their individual values.
- Identify an unlimited amount of properties that have a combined value of up to 200% of the value of the property sold.
- Identify an unlimited amount of properties that exceed 200% of the value of the property sold as long as the acquisition equals 95% of the total value of the identified properties.
Reverse 1031 Exchange
In a reverse 1031 exchange, the property acquisition occurs first and then within 45 calendar days identify the property to sell as part of the 1031 exchange and complete the entire transaction in 180 calendar days.
1031 Exchange Intermediary
A qualified intermediary is necessary to complete a 1031 exchange. The intermediary holds the funds in a segregated escrow account from the sale of the first property and then uses those funds in the acquisition transaction of the identified property.
It is extremely important that the owner of the first property never has direct control over the proceeds from the sale. If the owner takes direct control of those funds, for even just a moment, this triggers a tax event and the capital gains taxes will be due.
Conclusion
A 1031 tax exchange is a very convenient way to defer paying capital gains tax. Use competent legal counsel for the transaction and an intermediary to hold the funds that has a perfect reputation for successfully working with this process.
If you are interested in buying a new property for personal or investment purposes, be sure to contact your trusted real estate professional.
Aug 28, 2019 | Market Outlook
Home price growth continued to slow in June according to Case-Shiller’s 20-City Home Price Index. 17 cities reported higher home prices in June, but three cities reported lower home prices month-to-month. Seattle, Washington was the only city to report lower home prices year-over-year in June.
Phoenix, Arizona Home Price Growth Highest in June
Phoenix, Arizona toppled Last Vegas, Nevada’s hold on first place for home price growth in June. According to Case-Shiller’s 20-City Home Price Index, home prices in Phoenix rose by 5.80 percent year-over-year in June. Las Vegas, Nevada followed closely with year-over-year home price growth of 5.50 percent. Tampa, Florida had the third highest rate of home price growth with a year-over-year reading of 4.70 percent.
Home prices also slowed nationally; Case-Shiller reported 3.10 percent growth as compared to May’s year-over-year pace of 3.30 percent growth in home prices.
Home Buyers Leaving High-Cost West Coast
Analysts pointed out that recent slowing in home price growth followed a long period of rapidly rising home prices and higher mortgage rates. This sidelined many buyers as cash buyers and investors competed for fewer available homes. First-time and moderate income buyers could not afford rapidly rising prices and mortgages. Stricter mortgage loan requirements put in place after the Great Recession made qualifying for home loans more difficult.
Homeowners may not be seeing top pricing, buyer competition and offers higher than their asking prices, but after the long and fast increase in home prices, many sellers stand to realize significant profits after years of gains. At the height of the housing recovery, cities on the west coast saw steep rises in home prices. Seattle, Washington, Portland, Oregon and San Francisco, California enjoyed rapid home price growth as buyers paid cash and outbid each other, but lagging home price growth suggests that sky-high home prices have peaked in the West.
Seattle, Washington was the first city to show a year-over-year drop in home prices. Low mortgage rates may encourage formerly sidelined home buyers to enter the housing market. Analysts said that the only obstacle to increasing home sales might be homeowners unwilling to sell as home prices ease. Consumer concerns over the economic impact of trade tariffs may delay decisions to buy a home as consumer costs continue to rise. Home builders share these concerns as the cost of imported building materials increases.
Aug 27, 2019 | Real Estate
Don’t panic, a looming recession may be good news for those wanting to sell their homes. The experts say this recession may happen in 2020, so there is still plenty of time to make plans for how to deal with a potential economic downturn.
In many parts of America, especially in popular cities, the real estate markets are super hot for sellers. Home sales are coming in at prices that are record highs. For sellers in these hot markets, it might be time to sell. For buyers, able to wait until next year, the prices may come down.
What The ‘Experts’ Say
A Pulsenomics survey of 100 real estate market experts says that the pressures on the economy, which are negative, are not coming from the housing market this time. In fact, the Federal Reserve announced it will not make any changes until 2021, so the financial market supporting home loans will be coasting along pretty much as it is now.
The damage to the U.S. economy is coming from the delayed effects of the tariffs. Whether one agrees or disagrees with the tariffs is not the issue. The tariff changes that already went into effect, will have an economic impact next year or the year after.
Economists use the analogy of observing a big, slow-moving tidal wave. Scientists can see it coming from miles away. If those potentially affected by the danger pay attention to the warnings soon enough, they may have a chance to get out of the way.
Half the experts see the tariffs having a significant impact in 2020. Most of the other half see it coming in 2021. Nobody thinks the recession will hit before the end of 2019.
Summer 2019 – Selling Time
Home sales toward the end of summer are usually the strongest when compared to other times of the year. After returning from vacation, and before school starts, it is a popular time to look for a home when the weather is still nice outside.
Next Year 2020 – Buying Time
If a recession hits in 2020, then home sales prices may go down due to lowered demand. Again, this may be helpful for buyers who wait until next year to buy a home.
Conclusion
It is interesting to see that any possible recession will not be caused by the housing market this time. Real estate experts think that the housing market will price-in the effect of the recession up to one year ahead of when it hits.
If there are plans to sell a home, such as going into retirement and wanting to downsize or buy an RV for a happy retirement traveling, now may be an opportune time to consider selling.
If there are plans to buy a home and there is no rush, just take the time to work with your real estate agent to get a good deal and wait for a possible overall economic slowdown to get a better price. And be sure to contact your trusted home mortgage professional to discuss your financing options.
Aug 26, 2019 | Financial Reports
Last week’s economic news included readings from the National Association of Home Builders Housing Market Index and July readings on housing starts and building permits issued. Weekly readings on initial jobless claims and mortgage rates were also released.
NAHB: Home Builder Sentiment Remains High
According to the National Association of Home Builders, builder confidence in housing market conditions rose one point to an index reading of 66 for August. Housing Market Index readings showed that builder sentiment has held steady with readings of 64 to 66; any reading over 50 indicates positive builder sentiment.
Analysts said that despite strong readings for builder confidence in recent months, Commerce Department readings on housing starts and building permits issued did not reflect high builder confidence readings. Reports on housing starts and building permits issued fall one month behind the NAHB Housing Market Index.
Housing Starts Falter as Building Permits Increase
Commerce Department readings for July showed mixed results for housing starts and building permits issued as starts fell from June’s downwardly revised reading of 1.24 million starts to 1.19 million starts in July. Housing starts are calculated on a seasonally-adjusted annual basis.
July building permits rose from June’s reading of 1.232 million permits to 1.336 million permits issued. Analysts expected a reading of 1.287 million housing starts for July. This was the second consecutive positive reading for housing starts after a post-recession period of fewer starts.
While building permits for single-family homes traditionally outpace permits issued for multi-family housing, analysts noted that demand for multi-family housing developments is trending higher due to high prices for single-family homes.
Increasing costs for building materials, indications of global and domestic economic uncertainty and changing consumer priorities were cited as trends impacting housing starts.
Mortgage Rates Hold Near Record Low, New Jobless Claims Rise
Freddie Mac reported little change in mortgage rates last week; the average rate for 30-year fixed rate mortgages was unchanged at 3.60 percent. Rates for 15-year fixed rate mortgages averaged 3.07 percent and were two basis points higher.
The average rate for 5/1 adjustable rate mortgages fell one basis point to 3.35 percent. Discount points averaged 0.50 percent for fixed rate mortgages and 0.30 percent for 5/1 adjustable rate mortgages.
First-time jobless claims rose last week to 220,000 new claims filed as compared to the prior week’s reading of 211,000 new jobless claims filed. Analysts expected 212,000 claims to be filed last week. Nearly 6000 new jobless claims filed in California boosted last week’s reading for new claims.
The less volatile four-week rolling report on new jobless claims rose by 1000 claims to 213,750 new claims filed. New jobless claims hit their highest level in six weeks, but were lower than average.
Consumer sentiment concerning current economic conditions fell 6.20 points to an index reading of 92.1 according to the University of Michigan monthly survey of consumer confidence in the economy.
Concerns over trade wars and the Federal Reserve’s decision to lower its target interest rate range prompted consumer confidence to slip in August.
What‘s Ahead
This week’s scheduled economic news includes readings on sales of new and previously owned homes and minutes from the last meeting of the Federal Reserve’s Federal Open Market Committee. Weekly readings on mortgage rates and new jobless claims will also be released.
Aug 23, 2019 | Real Estate
Moving takes a certain amount of adjustment. Kids of all ages may need a little help getting used to the new environment. Help kids adjust to the move by keeping the following in mind.
Kids Are Resilient
Don’t overly worry about how your kids will adjust to the move. Kids are resilient. They tend to acclimate to new situations fairly quickly. It may even be that your kids get used to the move before you do!
Make Friends With Other Parents
You could facilitate your kids’ making new friends by making friends with parents of kids the same age as your child. To do this, attend any school functions and meetings that come up. Make a point of seeking out other parents and perhaps inviting them and their kids over to your house for lunch.
Add Bonuses To The Move
Help get your kids excited about the move by adding some bonuses they didn’t have before. Has your daughter always wanted to take ballerina lessons? Has your son always wanted to try horseback riding? Consider paying for some local lessons in your new area. This will incentivize your child and help them see how moving is a beginning, not an end.
Cut Them Some Slack
In the beginning, your child’s grades may slip at their new school. Be patient and allow them this period of adjustment until they get used to the new routines. Your child may also undergo some mood changes after the move. Let them know that you’re ready to listen whenever they want to talk about what they’re feeling about the move.
Help Them Fit In
Fitting in is very important for most kids. At their new school, kids will likely be into different things than at your child’s previous school. Even the trendy fashion may be different. Do what you can to help your child fit in with a few new outfits or a different style of shoes. Although you know how little material things matter in life, these things can make a huge difference in how comfortable your child feels as school.
Let Them Help
One reason kids feel afraid about moving is the lack of control. When you let kids help with the move, they regain some control. Let kids help with choosing new furnishings, packing belongings or other small tasks.
It’s likely that one reason you’re moving is for better opportunities for you and your children. Once your kids adjust to the move, you’ll be able to see for yourself how they are thriving in the new environment.
If you are in the market for a new home or interested in listing your current property, be sure to contact your trusted real estate professional.
