Bankers Exchange Services

An article posted in the money section of MSN.com titled, “Could Your Bank be the Next to Fail?” caught my eye this week. The article summarized the recent seizure of IndyMac Bank by the FDIC and offered ways to protect yourself.

The author also noted it was difficult for the average consumer to do research on which banks may be in trouble. That is certainly true, but only because most consumers don’t know where to look.

The FDIC’s website is one of the best resources for this research. It’s surprisingly easy to navigate, and offers explanations of most of the terms and data shown.

One of the best data points to examine is the “Tier One Capital ratio.” Tier One Capital is the ratio used by regulators as an overall indicator of the financial well-being and stability of a bank. The higher the Tier One Ratio, the more likely a bank will be able to handle a greater-than-average withdrawal of deposits and/or problems with assets such as real estate loans.

In contrast, a lower Tier One Ratio is a strong indicator of trouble; in which case, the FDIC steps in. The regulators start to pay attention when banks Tier One Ratio slips below 6%.

Speaking of the FDIC stepping in…To many consumers, this seems to be a sign of complete disaster. Fortunately, thanks to the FDIC insurance, it’s not. However, one of the ways you can protect yourself against loss is to have a better understanding of how FDIC deposit insurance works before you open accounts.

The FDIC insures deposits of up to $100,000.00. Until recently, anyone wanting to deposit more than $100,000.00 and have it completely insured had to open individual accounts with several different banking institutions and/or utilize different account ownership types to achieve greater levels of insurance coverage.

While this is the safe approach, it is time consuming and can be tedious to have multiple banking relationships. At the present, banks like Bay Commercial Bank in Walnut Creek, California are a member of CDARS®, Certificate of Deposit Account Registry Service. Using the CDARS® service, you can access up to $30 million in FDIC protection on your CD investments. “One bank, one rate and one statement”. A single statement is sent out detailing all of the CD investments. As with most certificates of deposit, CDARS® offers various maturity options to choose from.

CDARS® is not right for everyone and not all banks offer the service. However, between FDIC deposit insurance and the newer CDARS®, most consumers can put aside concerns about losing funds on deposit in banks.

In closing, let’s go back to the excellent resources offered on the FDIC’s website. If you want to know how your bank is doing, if you want to know the earnings history, the capital base, information regarding the level of past due loans, the number of employees or other interesting characteristics, this site is for you. As lenders, we often say “know your borrower”; as clients, you may want to say ‘know your bank”. If after all your research efforts are exhausted and you still have questions, give the CEO of your bank a call (what a novel concept).

By: George Guarini, CEO Bay Commercial Bank (925) 476-1800

The eldest segment of an American generation affectionately known as the baby boomers, are now entering their retirement years. They are a generation of individuals born post World War II, between the years of 1944 and 1964. The baby Boomers encompass a population of approximately 78.2 million people as of July 2005. Real Estate is said to have been the investment of choice for this generation and now with a flat market that may continue to deflate, this semi-conservative group may have to re-think their investment choices. This becomes increasingly important due to the uncertainty of pension plans or social security seeing them to the end of their golden years.

In 2005 the IRS issued a revenue procedure (Rev Proc 2005-14) which allows for Sections §121 and §1031 of the Internal Revenue Code to be combined for maximum tax benefit. Section §121 allows homeowners to sell a primary residence every 2 years and exclude up to $500K, of the gain for a couple filing jointly, or $250K of the gain for an individual.. Section §1031 allows a person to sell investment real estate and defer the capital gains tax if the proceeds are traded into another investment property.

Combining these two sections together can potentially save investors (of any generation) hundreds of thousands of tax dollars. Here is how it works.

A married couple whom we will call John & Suzy Investor own 2 pieces of property. One is a rental property and the other is their primary residence. John and Suzy own their primary residence free and clear and its current value is $500K. Their rental property is valued at $250K. They sell their personal residence and take their IRS Section §121 exemption and pocket the $500K tax free. They then convert their rental house into their primary residence and live there for 2 years. After 2 years they decide to sell their current primary residence (formerly their rental) which since they have lived there has appreciated in value and is now worth $500K. In a two year time frame they have sold two pieces of real estate and walked away with $1million in tax free money. Now, let’s say John and Suzy’s residence has tripled in value in this same 2 year period and is now worth $750K. They could take their $500K Section §121 exemption and defer the additional $250K gain by utilizing a 1031 tax deferred exchange and buy another investment/rental property, and use the 2 out of 5 year rule. If a property has been a primary residence any 2 years out of the previous 5 (they need not be consecutive years) both IRS Sections can be combined for maximum tax benefit.

The above is just one of many ways in which to combine these two IRS Sections in order to maximize tax benefits. Click here for a detailed explanation of Rev. Proc. 2005-14. For more information on how to get the most tax savings on your real estate investments give us a call at (877) 989-1031. Bankers Exchange Services headquartered in Walnut Creek, CA specializes in 1031 tax deferred exchanges.

When I select a qualified intermediary to handle my 1031 tax deferred exchange, what safeguards can I take to insure that my money will be safe in their hands? The answer to this question is an important one since your investment property equity can be a substantial part of your overall wealth. Most qualified intermediaries are reputable, honest and ethical, but like all businesses it only takes one or two making newspaper headlines to cast doubt on an entire industry.

Some of the questions that you ask a qualified intermediary before you make your choice should include the following:

1. Will my money be placed in a segregated account rather than a pooled account with other exchanger’s money? You want your funds placed in a separate account which is FDIC insured up to the legal limit per depositor rather than a pooled account which will contain all the combined funds from all of the exchange clients. You will want a separate account set up using your taxpayer ID number.

2. Does the QI carry a Fidelity Bond and E&O insurance? A fidelity bond helps cover the loss a QI may suffer due to a dishonest act by one of its Employees. Errors & Omission or professional liability insurance protects against claims that something was handled incorrectly. In both cases these types of insurance policies will go a long way in enabling the QI to have the resources to protect your money.

3. What kind of internal processes and audit controls does the QI have in place? Will you receive an account statement or have access to an online account? Bankers Exchange Services is wholly owned by Bay Commercial Bank with branches in the East Bay and Southern California. Because we are bank owned we fall under the very strict regulations that govern our bank.

4. What is the technical ability of the staff employed by the QI? You want to work with someone who can answer your questions in a clear and concise way and explain the process simply. Bankers Exchange Services has highly trained professionals to assist you, including two certified exchange specialists® and an advisory attorney on staff. With the help of your tax advisor we can guide you effortlessly through the process and save you thousands of tax dollars.

Remember there is no substitute for effective tax planning! We at Bankers Exchange Services are committed to helping you achieve your wealth building goals. If you have any questions or would like to discuss any aspect of a 1031 exchange give us a call at (877) 989-1031.

Welcome to the July 9, 2008 edition of 1031 exchange.

KCLau presents Do you have the assets to pay for your liabilities? posted at KCLau’s Money Tips, saying, “An article on whether you hav enuff assets to pay off liabilities and how to create assets.”

Ed Pudol presents Adsense Alternative posted at Adsense success tips and guides.

mortgage/financing

imarketing4s presents Foreclosures: Tips and Warnings | LoanHunt.com posted at LoanHunt.com.

tax implicatgions

Investing Angel presents The 2008 Election And The Stock Market » Free Stock Market Investing Tips posted at Stock Tips, saying, “Your investment decisions right now may largely depend on who
you think will win the 2008 election.”

transaction tips

Heather Johnson presents 5 Ways to Save Money on Your Summer Energy Bill posted at American Consumer News.

That concludes this edition. Submit your blog article to the next edition of 1031 exchange using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

Thank you for visiting my 1031 Exchange Carnival.  If you are currently working on an exchange please contact Erica O’Leary at Bankers Exchange Services for more information.

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