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Posts Tagged ‘investment property’

1031 Exchange

If you are an investor, you may be aware of the section 1031 exchange rule, and how it can be used to defer the capital gains taxes on the sale of an investment property, into a replacement property of equal or greater value. However, it is not possible to use 1031 exchange proceeds to pay off debt on property you already own, nor can you build improvements on land you already own in a 1031 exchange.One common pitfall for inexperienced investors is attempting to make improvements on land that they already own, but this does not qualify for 1031 status.

Ideally, you would take the money that was collected during the exchange and build to suit on the new land yourself, i.e., you get the built structure you want and purchase a replacement-property that is worth the same amount (or greater value).  So how can you do this?

One option, called, “the Poor Man’s Build to Suit”, is to ask the seller to make improvements to the property before closing. An investor, for example, sells an investment property worth 0,000 and intends to buy a replacement property worth the same (or greater).Although the vacant land she wants to buy is worth only ten-thousand dollars, which doesn’t fully qualify for a “like-kind” exchange, thus making an exchange impossible.

In this scenario, the investor would ask the replacement property seller to increase the sales price to 100 thousand dollars, and before closing, the seller will have to construct 90 thousand dollars worth of improvements to the property. In the end, she will be purchasing property of equal value (100 thousand dollars).

It might be difficult to find a seller who is willing to increase the price of the property – in order to make improvements to it before selling it to you.  Alternately, in our investors case, she can have her QI purchase the investment property on her behalf for k (using an LLC that the Qualified Intermediary owns outright) then construct the improvements to the property using the remaining funds from the exchange.

In other words, the QI holds the property during the construction process, and funds the improvements with the exchange monies. The investor will receive the property from the QI when the improvements are completed on the replacement property, thereby completing the exchange.

These are important things to consider when you are conducting a build to suite exchange. First of all, the one hundred and eighty day requirement allowed to complete a 1031 exchange, will not provide you with enough time for a “fancy” build to suit.  However, it should be enough time to rehabilitate or remodel an existing structure.

2nd, any updates made to the replacement property must be considered, “real-estate” to actually be part of a “like kind” exchange, i.e., real estate for real estate. Just dumping the building supplies on the location of your property won’t be enough, to constitute “real estate” those materials must be made a permanent part of the structure or affixed into the land.

Keep the foregoing in mind and you can avoid any pitfalls and get all of the tremendous tax benefits of a 1031 exchange that is build to suit.

It takes a good eye to spot solid Real estate investments. Due to the flexible nature of real estate investing there will nearly always be a lot available. Of course you can also encounter a lot of serious pitfalls. To be successful you must be able to spot good real estate investments.

Here are a few ways to spot good real estate investments:

* Make sure that the property will meet your personal needs - Some investors prefer to flip properties fast. Others prefer to hold onto them and build a portfolio. The requirements just for these two options are vastly different. Always know specifically what you hope for out of an investment before you buy. Then be sure that its characteristics will enable you to fulfill your wishes for it.

* Always keep your eyes open for rehab red flags - It is not atypical for a real estate investment to need some repairs. However, some repairs do not obviously appreciate the value. This is because buyers do not perceive their value. Sadly your property’s value may not climb on the market in response to the repair. “Invisible” rehab repairs like plumbing and HVAC fixes are necessary but seldom pay off. As a result, these can be red flags on a deal.

* • Pay attention to the market - Be aware that most real estate investing is possible in any economy. However, you have to make sure that the market that you buy in will allow you to succeed. For example, in order to successfully flip in a down market you need incredible deals. You also need to make sure that people are buying in the area where it is located. The viability of a deal will be largely determined by the local market.

Many people learn from their mistakes. However, real estate investing mistakes are bigger than other types of mistakes. As a result, it will pay off for you to be extremely careful. You must evaluate all real estate investments carefully before you ever take action.

It can be difficult to spot a good Real estate investment. There are nearly always more than you can handle available because of the flexible nature of real estate investing. Of course there are also serious pitfalls. Successful real estate investors can spot good real estate investments.

Here are a few ways to spot good real estate investments:

* • Make sure that the property meets your needs - Some investors like to flip properties. Others prefer portfolio building. Of course the requirements for these options are very different. Decide what you want to do with an investment before you buy. Then make sure that it meets the qualifications that will enable you to do as you wish.

* Keep an eye peeled so that you don’t miss rehab red flags - It is not unusual for a real estate investment to require some repairs. But some repairs are not worth the money. This is thanks to most buyers’ inability to perceive their value. As a result your property’s price may not climb in response to the repair. While you must repair plumbing and HVAC problems they may not result in a payoff. These types of repairs should be viewed as potential red flags.

* Watch the market. - You can do just about any type of real estate investing regardless of the economy, But the market where you buy must be right for the type of investing. For example, down-market flips have to be exceptional deals. You also have to make sure that there is a buyer’s market in your area. A local market plays a major role in a deal’s viability.

People like to learn from their mistakes. However, a real estate investing mistake can be a big problem. Diligence will always pay off for you. You need to carefully evaluate all real estate investments before taking action.

Investing in investment properties have always been a powerful way to make investors into millionaires.  No other investment in the world has been as powerful as real estate especially investments such as Dallas investment property .Texas is a place of fortunes that is good for Dallas.Texas has done a good job of attracting large corporations and industry from the start.Dallas real estate has benefited from its thriving economy and oil discoveries that has brought in billions of dallars to the state of Texas which has indirectly benefited the real estate within Dallas.If you are an investor that is looking to buy property while the market it weak you should check out investment property in Dallas. 

The best way to invest long term into Dallas investment properties is through income property.  To over simplify how to do this is to “buy low, sell high”.This is the holy grail of rules.  However, like I said it’s an oversimplified statement; might as well say, “when golfing, just make a hole in one every time and you’ll always win”.If you obtain properties you want to buy low and sell high and a great time to do this is when value in the market have been lowered by market conditions . In a more stable market condition the investor can purchase at low prices but the deals don’t come so easy.In a struggling economy (and if people need to sell) people must sell at lower prices because there is more inventory than there are buyers.  This means when the market comes back the investor that bought low has a gain, hence the phrase “buy low sell high”.  So the moral of the story is that in a depressed market, deals are all over the place.  You still have to search around a little but the search is easier.Right now the deals are abondant in real estate but I still like to look harder for the even better buys .The best time to do this is now as most investors are scared of the market and are not buying, once the buyers enter the market again prices will most definately rise; as the saying goes, “supply and demand”.  Right now supply is way too much for demand, which is until investors begin to buy again.When this time arrives the investors ready to make money would have acquired property months if not years ago and are holding while you wait for the market to rise again . 

Dallas remains a profitable region to hold real estate. The lone star state was late to see the struggle of the economy that began in 4th quarter of 2008 and 1st quarter 2009 .Deals begin to reveal them selves as the price of their property begins to fall .  Dallas has always been a promising city for fortunes through big business and corporations and through real estate investing.

1031 Exchange

So you are finally ready to sell your old investment or business property and invest in something new. But you definitely do not want to have to share your profits with the IRS, who is no doubt going to want to their cut.

There’s a way to prevent that from happening. Investors can thank the IRS for Section 1031 because it provides an out for real estate investors, property investors, and business owners by allowing them to defer their capitial gains taxes indefinitely by purchasing a property that’s similar to the one they are giving up. 1031 tax exchange laws do not recognize the need to pay capital gains taxes as long as you sell your property (used for investment, trade or business) and use the proceeds to reinvest in a another property or equal or greater value.

The Benefits of the 1031 Exchange Law:

A) The property owners are able to eliminate taxes they would otherwise have to pay from selling their property.

B) Eliminating the taxes keeps more money in the investor’s account and makes it possible for them to keep investing in more property.

Section 1031 laws do NOT include: Bonds, Loans, Stocks Partnership Interest, Personal Residences, Certificates of Trust

…It’s good to know that Section 1031 states that you can defer your capital gains taxes as long as you purchase a property that is similar to the relinquished property. You can actually sell your property and use the money you make to invest in, and buy, a property that is akin to your relinquished one.

In order to qualify for a 1031 Tax Exchange you must make sure of the following:

A) The net sale price of the property you are buying must be equal or greater than to that of the property you were giving up.

B) The proceeds from the investment property you are relinquishing, absolutely must be used to buy the new property you want.

C) Now the investment property you replace your old property with must be like-kind. For example if your old property was used for business then the one you are purchasing must be used for the same.

You can begin exchanging your property as long as you have made sure that the requirements are met.

1. You must first choose a qualified intermediary to manage and facilitate your 1031 exchange for you.

2. Before you sell your investment property, be sure to let the buyer know that you are using a tax deferred exchange.

3. Within 45 days or less identify your replacement property.

4. Then it is necessary to claim your replacement property within 180 days.

The process of the 1031 tax exchange can sometimes be long, and so a useful quality to possess is patience – but in the long run you will benefit financially from it.