Bankers Exchange Services

According to an article written by Cyril Moulle-Berteaux in The Wall Street Journal “The Housing Crisis is Over”. I for one was very happy to hear this news as I was starting to get discouraged by all the doom and gloom I hear every night on the news. According to this article we have reached the bottom of the housing market and the trend will now start to go up from here. As stated most people don’t realize we have been in a down market now for three years, the peak took place in July of 2005.

A lot of the data used to compile the information which is being fed to us through various media sources are based on income and interest rates being compared from the 1970’s and 80’s when put into today’s prospective are vastly askew. Back in 1981 mortgage interest rates were 18.5%. Currently a 30-year fixed-rate mortgage can be obtained for less than 6%.

Much of the analysis used to bring us this glimmer of hope has to do with new home starts. The inventory of new home completions is now just under new home sales. The decline in construction will likely continue through 2008. It is estimated that sometime in 2009 the inventory will reach a level significantly below new sales which will then have a direct effect on tightening home prices.
To say we are experiencing a crisis in our housing market with serious economic consequences that are still unfolding is a spot on analysis. The good news as Cyril so eloquently puts it “housing led us into this credit crisis and recession and is likely to lead us out. The process is underway, right now.”

For more information please contact our office at 877-989-1031

If you plan to sell your investment real estate but don’t feel that you have enough gain to warrant a 1031 tax deferred exchange then ask yourself the following question. When you bought your current investment property did you exchange into it? Remember that your adjusted cost basis transferred into the currently owned property if you acquired it in a 1031 exchange. This could mean a big tax hit even if the current property hasn’t appreciated or has dipped in value since acquiring it in the exchange.

Sometimes people confuse the amount of equity they have in a property with the amount of gain. You can have very little equity in a property because you refinanced it and took cash out, and/or there was an overall drop in value, but can still have significant gain to pay taxes on.

Gain is calculated by taking the price that you paid for the property when you acquired it and adding the cost of any capital improvements you made to the property, and then subtracting out depreciation. If you exchanged into the property, you will also subtract out the amount of deferred gain from the previous exchange. This will give you roughly what your adjusted cost basis is. It is the difference between this adjusted cost basis figure and your current contract sales price (less expense of sale costs*) that will determine your capital gains tax. It is possible to have a significant gain in a property with little or no equity.

The purpose of a 1031 exchange is to defer Federal, and in most cases state, depreciation recapture and capital gain income tax liabilities.

As always, check with your tax advisor to determine whether or not a 1031 tax deferred exchange is necessary or appropriate for your situation. If you decide that you need to go forward with a 1031 exchange, please contact Bankers Exchange Services and ask to speak with one of our highly qualified exchange specialists.

* Expense of sale costs would include items such as real estate commissions, transfer tax, settlement fees, etc.

For questions please contact Bankers Exchange Services at (877) 989-1031

If you are planning to sell your investment property and reinvest in other investment property then you should consider a 1031 tax deferred exchange. People that own rental and investment property have many reasons for wanting to sell it. They may own a single family home with a good rental history and significant appreciation and decide that they would like to move up and acquire an apartment building as part of a wealth building strategy. Or they may have relocated their personal residence and now find that it is difficult to manage a rental property in a different geographic location. Some people, particularly retirees, find that they no longer want to be landlords and exchange out of their investment property and reinvest in Tenant in Common structured transactions which are fully managed for them and qualify for 1031 exchange treatment.

The following is an example of a rental townhouse that the owners bought 10 years ago:

Original Purchase Price $199,000.00
Plus: Capital Improvements $100,000.00
Less: Accumulated Depreciation $30,000.00
Total Net Adjusted Basis $269,000.00

New contract sales price $450,000.00
Less: Net Adjusted Basis $269,000.00
Less: Selling expenses $31,500.00
Total Capital Gain $149,500.00

Depreciation Recapture @ 25% $7,500.00
Federal Capital Gains @ 15% $22,425.00
State Capital Gains (CA) @ 9% $13,455.00
TOTAL TAXES DUE $43,380.00

Contract Sales price $450,000.00
Less Cost of Sale (commission, etc.) $31,500.00
Less Loan Payoff $139,000.00
Proceeds from Sale $279,500.00
Less taxes due on Capital Gain $43,380.00
Net Proceeds after taxes $236,120.00

The above example illustrates, that this owner would benefit from doing an exchange since it is their intent to buy another piece of investment property and an exchange would allow the seller to defer the payment of the $43,380.00 in taxes and would increase the amount of proceeds to $279,500.00. This in turn allows for a larger down payment and increased buying power on the new investment property.

In order to fully defer the capital gains taxes when doing an exchange you will need to:

1. Buy replacement property that is equal or greater in value than the property being sold
2. Use all of your exchange equity to acquire the replacement property
3. Obtain a loan on the new property that is equal or greater than the loan balance on the property being sold

There are many variables that may be unique to your situation so always check with your tax advisor to determine whether or not a 1031 tax deferred exchange is necessary or appropriate. If you decide that you need to go forward with a 1031 exchange, please contact Bankers Exchange Services and ask to speak with one of our highly qualified exchange specialists.

Please contact Bankers Exchange Services directly with any questions - (877) 989-1031

This past Thursday, I was waiting for an appointment and saw a headline on the front page of a newspaper stating that California existing home sales in April were up over 30% from March.  Although the sales were still lower than their level one year ago, it was the first postive sign we’ve seen in the housing market in quite some time.

Everyone has a different opinion about where the “bottom” might be in the real estate market.  Personally, I believe the market will be soft for quite a while and the bottom might come in late 2009 or early 2010.  But in the end, nobody can tell the future.  One thing is for certain: there is a growing amount of pent up demand sitting on the sidelines and as soon as they see a reason to get back into the market, there will be a surge of activity.  April is a case in point.

Comparing house prices today with those of 2005, there is no question values are more attractive.  In some areas, it’s actually possible to buy an investment property and be cash-positive right from day one.  That hasn’t been possible in California for a while.  So whether we have hit the bottom or not, this is still a great time to look at real estate.  There are a lot of deals out there!

Bankers Exchange Services specializes in 1031 Exchanges and if you have any questions about your own particular circumstances, click on the Contact tab and send us an email.  We’d love to hear from you and would be happy to answer any of your questions.

For more information please contact us at (877) 989-1031

With the real estate market in what seems like a downward spiral the need for doing a 1031 Exchange may seem less necessary. Recent events in the 1031 industry have made investors more leery of entering into an exchange transaction. There are many factors to consider when contemplating an exchange. The first thing to do is seek the advice of a tax professional; the second is to check with a financial planner to ensure your investment portfolio is not to heavily weighted in any one type of investment. Once an investor feels confident that a 1031 Exchange is the correct investment strategy they must find an accommodator they can trust with their funds.

Questions to ask a potential Qualified Intermediary: Are they bonded? Do they carry errors and omissions insurance? Do they segregate exchange funds into separate trust accounts that are federally insured? If the answer to all of these questions is YES that is a good indication you will be dealing with a reputable industry professional.

For help with any of the aforementioned topics or any other exchange related questions give Bankers Exchange Services a call, we have several extremely qualified individuals on staff that would be more than happy to walk you through an exchange transaction from beginning to end. We always want our clients to feel at ease when doing an exchange. Client satisfaction is our number one priority.

For more information please contact Bankers Exchange Services at (877) 989-1031