1031 Exchange: The Single Greatest Wealth Building Tool Available to Investors

Section 1031 of the Internal Revenue Code has been called the single greatest wealth building tool available to investors.  If you are unaware how Section 1031 of the IRC can magnify your returns and help you create wealth, read on:

An investor who purchases $100K worth of Microsoft stock in 2000 sells the stock today for $200K.  The investor yields a whopping 100% return, correct?  Well yes, but don’t forget that when tax time comes around, our Microsoft investor will owe the IRS and State Taxing Authority about $30K.  After taxes, the profits from the Microsoft investment plummets from $100K to $70K. Still not a bad return, but after taxes our Microsoft investor now has only a total of $170,000 to reinvest.

Now let’s contrast this with an investor who makes the same returns in the real estate market.  A property purchased for $100K, appreciates to $200K.  The investor earns the same $100% return.  The major difference however, is the investor can elect a 1031 Exchange and defer the capital gains taxes.  Doing so leaves the investor with a total of $200K to reinvest.

The effect taxes have over the long term are dramatic.  Below is a graphical illustration of two investors who conduct ten transactions, one investing in stocks and the other in real estate (and taking advantage of the 1031 Exchange).  If each of our investor earns a 20% return on each investment the long term results are as follows:

Notice the trend line for the real estate investor is much steeper and by the end of the tenth year, our real estate investor has done almost twice as well as the stock investor.  Remember, they are both yielding 20% returns every year.  The only difference is our real estate investor is not paying taxes. This is why Section 1031 of the Internal Revenue Code is one of the greatest wealth building tools available to investors.

If  you have any qustions about how Section 1031 can work for you, please don’t hesitate to contact us.

For more information on real estate, feel free to visit Scott Ivey at http://scottivey.net or on Facebook at http://on.fb.me/scott-ivey

Scott Ivey
Realtor, Connect Realty Associate #3015
(916) 899-4839 Direct
(888) 887-3528 Fax

Schedule time with me: meetme.so/scottivey

 

Disclaimer:  The purpose of my Blog and/or comments is to create discussion, clarity, and offer opinion on topical real estate issues, practices, opportunities and concerns, but it is not legal or financial advice.  An offer to represent is neither expressed nor implied. Information provided herein is limited and not intended to replace professional or legal advice. The information presented has not been reviewed by legal counsel and is not warranted nor guaranteed to be accurate. Information is subject to change or correction without notice. Consult an attorney before making any legal or financial decisions.

DRE # 01438657

Is that floor solid??

From the looks of this under-the-house support configuration, it may not survive even a modest earthquake.

This is pier and post construction. Building requirements call for a concrete footing poured in the ground with a concrete pier (shown in the photo background) placed in the wet concrete footing. Next a wood post is cut to fit between the top of the concrete pier and a floor support beam.

If the above pier-post configuration fails, it could affect the structural integrity of the building above… sloping floors, doors rubbing their frames, wall cracks, cracked windows, etc.

Remember… You don’t want surprises after moving into your new home. Always be sure to take advantage of a  an experienced, certified and insured home inspector.

In California, Home Inspection plays more than just a formal role in buying or selling a home. In earthquake country, it’s not about IF an earthquake will happen, but WHEN it will.

A home inspection can give you the insight you need on whether or not the home will withstand an earthquake or other natural or human disaster.

Whether your buying or selling, the knowledge and experience of a real estate agent can make all the difference. If you have any questions about real estate, the market or your current housing situation, feel free to contact me directly at 916-899-4839

Scott Ivey

www.scottivey.net

Is your Home Inspector Certified & Insured?

Home inspectors in California are not regulated, therefore licensing is not a requirement.  Only certifications are available in  California.  Further, insurance is not required because there is no licensing or regulatory oversight.

Do I have your attention?? 

You should use home inspectors that are certified by a recognized certification organization that requires members to earn continuing education credits. ASHI (American Society of Home Inspectors)  and CREIA (California Real Estate Inspection Association) are 2 highly recognized organizations in California.  ASHI requires 20 CEC’s to maintain membership and CREIA requires 30 CEC’s.  Both organizations require a proctored exam to establish membership. The pass rate on these exams is approximately 42%.

Keep in mind that there are other organizations available that offer certifications, however they may not have requirements like proctored testing and CEC’s.  Rumor has it, that these other organizations offer online testing that can be taken numerous times until the individual passes the test!

Insurance is also not a requirement in California.  E & O and general liability insurance is available for home inspectors from a variety of carriers.  Limits vary from $300,000 to $1,000,000.  The bottom line is if the home inspector is not covered neither are you!

There are only two reasons that a home inspector is not covered. He / she chooses not to carry insurance, or they have been canceled by the insurance company for numerous claims.

When purchasing a home, it is always a good idea to get a full home inspection from one that is certified by either ASHI and / or CREIA and insured.

If you have any questions on this or any real estate matter, feel free to give me a call.

Scott Ivey Real Estate @ 916-899-4839

Yesterday was a sensory overload for rate watchers. Lenders repriced for the worse. Then they repriced for the worse again. And again. One lender recalled rate sheets five times! I am not kidding. 5 TIMES!! That is a lot of repricing for the worse. Repricing for the worse = higher mortgage rates. http://ow.ly/3w38l

Forgiveness of Debt Income

Short Sale Agent, Scott Ivey, answers one of the first questions a potential short sale seller asks. “I heard of something called “forgiveness of debt income and that it is taxable. How does that work?” they ask.

The following article is my personal opinion only. I recommend that you consult with a competent legal or tax professional before moving forward with a short sale.

In most cases the answer is that a short sale will usually not cause you to owe income tax.

It used to be that you owed income tax on any forgiveness of debt.

When a lender decides to forgive all or a portion of a borrower’s debt, the forgiven amount is considered as income for the borrower and is liable to be taxed.

Here are the following ways you can qualify to short sale a property without any tax liability.

Short Sale of a Primary Residence. The Mortgage Forgiveness Debt Relief Act of 2007 (and it’s extension in the 2008 Federal Bailout) now allows you to short sale a primary residence without any tax liability.

Today when a homeowner short sales a primary residence, they can file a simple form and the forgiven debt is no longer taxable.

The amount of forgiven mortgage debt allowed to be excluded from income tax is limited to $2 million per year.

Short Sale of a Non-Primary Residence: If the property you are selling is not a primary residence, then you may be eligible for tax relief if you are considered insolvent.

I don’t know the exact guidelines, but insolvent is usually considered when your total gross debts are more than your total gross assets. I’m sure a good tax professional can give you more information.

Click here to view the IRS’s website about the Mortgage Forgiveness Debt Relief Act and Debt Cancellation.

Click here to view the article on the IRS’s Website: Mortgage Workouts Now Tax-Free for Many Homeowners.

Thinking about a short sale? I can help you short sale your property and never pay the bank another penny. Send me an e-mail at scott@scottivey.net. I will contact you for a free consultation.

When we talk, I will explain how the process works in detail and answer any questions you may have. Or, if you prefer, you can call me at (916) 899-4839

 

Scott Ivey specializes in loan modification assistance and short sales in Roseville CA and surrounding areas, including Sacramento, Rocklin, Lincoln, El Dorado Hills. Roseville Loan Modification Help, Roseville Short Sales. Roseville Short Sale Agent. Short Sale Agent. Roseville CA Short Sales. Roseville Real Estate. Short Sale Process. Short Sale Approval. Short Sale Company.

 

This is not intended as legal, technical, or tax advice. Please speak with a licensed professional before making any decision. Information is deemed reliable but not guaranteed as of the date of writing. The views expressed here are Scott Ivey’s personal views and do not reflect the views of any affiliated broker or broker’s. This information is provided as a courtesy to our viewers to help them make informed decisions.

Hey Friends, if you have a moment, please check out my new page @ http://ping.fm/ohECt I hope you “LIKE IT”

Mortgage Rates Up Considerably

Mortgage rates took a big jump last week on prospects of stronger economic growth, sending 30-year loans to their highest rates since early May. Average interest rates on both 30-year and 15-year fixed-rate mortgages rose by approximately two-tenths of a percentage point, according to figures released this morning by the Mortgage Bankers Association. Interest rates on the 30-year loan rose to 4.84 percent, up from 4.66 percent the week before, while the average on 15-year loans was up to 4.21 percent, up from 3.98 percent previously.

Treasury rates increased last week following news that lower tax rates could be extended for another two years, Mortgage rates reached their highest level in more than six months. For more information on Treasury rates please see my earlier post on the Bond Index here

Not surprisingly, with rates up more than half a percentage point over the past month, refinance activity has declined sharply.

But don’t worry, rates are still very low. If you are considering refinancing or purchasing, give us a call.

New Mortgage Guidelines

As anticipated, Bank of America – with over $2 trillion (that’s trillion with a “t”) in servicing, has restarted foreclosure sales, giving attorneys the go-ahead in 16,000 cases this month on vacant and non-owner-occupied properties. The bank has said about one-third of properties are vacant when a foreclosure sale occurs – that is a lot of vacancies! Bank of America previously announced that it had begun resubmitting affidavits in 102,000 cases in 23 states, including South Carolina, where judges sign off on foreclosures. Based on judges’ rulings, the sales are now proceeding.

Chase correspondents were told that with Fannie decommissioning DU 8.0 over the weekend, no re-submissions will be permitted. “Loan case files created in DU version 8.1 prior to December 11, 2010 will be able to re-submit to DU version 8.1. All new submissions on or after December 11, 2010 will require the new version DU 8.2. No set delivery cutoff date for loans submitted to DU version 8.0 has been established.”

SunTrust changed its Secondary Financing guidelines to allow for prepayment penalty fees up to $500.00. Starting last Friday new guidelines will be implemented for its agency and non-Agency loan programs including agency, agency affordable, agency plus, SunTrust’s Key Loan Program, and Portfolio Affordable Housing. SunTrust’s Jumbo Solution Second Mortgage product description was “revised to remove the note requiring a 5% reduction to the TLTV on transactions for condominium properties. The 5% reduction is already factored into the TLTV chart for condominiums.”

AmTrust notified its brokers of its new maximum extension and maximum lock days, along with providing a series of updates to its seller guides. These included criteria impacting “Additional Assets/Reserves Required, Verbal Verification of Employment, Salary and/or Commission Income with Less Than 25% of Total Income Used for Qualifying, U.S. Citizen Working Abroad, Revolving Debts Calculated in Debt-to-Income Ratio, Foreclosure Credit Policy, Preforeclosure Sale or Short Sale, Personal Gift, Employer’s Assistance, Down Payment Requirements, Age of Documents, and Self Employed Borrowers.”

CitiMortgage sent its correspondent clients news of a new program (LP for agency jumbo loans), along with a series of credit policy updates. These included adjustments/clarifications to Citi’s policies on at-closing principal curtailments, credit inquiries, DU 8.2, LTV’s of 95.01-97%, flexible source of funds, verbal VOE timelines, ineligible source of funds, addressing large deposits (I’d like someone to address a large deposit to me!), gifts/grants from non-profits, etc. The bulletin should be read for details – I can’t do the 7 pages justice.

Last week Wells Fargo broker clients learned about changes to Wells’ policies on the reverse mortgage file flow, how “More Veterans are Exempt from the VA Funding Fee (The borrower is exempt from the VA Funding Fee), Changes to Waiting Periods to Re-establish Credit After Chapter 13 Bankruptcy, Change in the Amount of Revolving Debt to Include in Debt-to-Income (DTI) Ratios, Change to Cash Reserve Requirements for 2-4 Unit Primary Homes, and Change to Acceptable Source of Funds for the Fannie Mae HomePath Program.”

If you would like a personal review if your mortgage or if you are considering refinancing or purchasing a new home, feel free to give me a call for a mortgage review.

Winter Alert!!!

Looks like we can expect two feet of snow!!!!

 

Ten Year Treasury and why should I care??

What is the Ten Year Treasury?

An index marked by the ticker “TNX” and is published by the Federal Reserve Board based on the average yield of a range of Treasury securities, all adjusted to the equivalent of a 10-year maturity. Yields on Treasury securities at constant maturity are determined by the U.S. Treasury from the daily yield curve. That is based on the closing market-bid yields on actively traded Treasury securities in the over-the-counter market.

How it’s used:

This figure is used as a reference point to establish the price of other securities such as corporate bonds. Treasury securities are considered risk-free since they are backed by the U.S. government. This figure, and an added margin based upon the risk involved, is used in pricing various debt securities.

Why do we care?

Because the Ten Year Treasury is influenced by the bond market and it is the most widely used indicator as to where money is moving in the markets.  As money flows into the bond market the TNX goes down,  a money leaves the bond market, the TNX goes up. The better the bond market, interest rates will drop. When the bond market is suffering, interest rates will rise.

The treasurey is a leading indictort that you will want to keep an eye on if you are considering buying or refinanceing.

Here is a typical TNX chart: