A 1031 Exchange is a Powerful Tax Strategy

A 1031 Exchange is a powerful tax-deferment strategy used by some of the most financially successful investors to defer taxes1031 Tax Exchange when selling investment/commercial property.  This effective strategy is also known as a “Starker Exchange”, named for the first tax case that allowed the exchange, or a “Like Kind Exchange”, referring to the type of change that occurs.  This tax-efficient way of preserving capital that is invested in real estate is appropriately named a 1031 Exchange, after Section 1031 of the IRS code.

Section 1031 of the Internal Revenue Code provides an exception that allows the deferment of payments of capital gains taxes when a business or investment property is sold, if the reinvestment of the proceeds is reinvested in a similar property through a like-kind exchange.  To put it simply, a 1031 exchange allows an investor to “defer” paying capital gains taxes on an investment property when it is sold, as long another “like-kind property” is purchased with the profit gained by the sale of the first property.  An investor will eventually cash out and pay taxes, but in the meantime, Section 1031 allows an investor to trade properties without incurring a sudden tax obligation. Continue reading

Crowdfunding Your Real Estate Purchase

Real Estate has historically generated 9.6%+ returns with less volatility than the stock market. Unfortunately, since real estate Crowdfunding Your Real estate purchaseis typically expensive, ordinary investors have been left out of enjoying these profits.

Have you ever considered crowdfunding your real estate purchase?  Crowdfunding may be a term you don’t recognize.  Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the internet.

Crowdfunding has become something of a buzzword among investors, and it’s been particularly well received in the real estate sector. Though it is still relatively new, real estate crowdfunding is rapidly reshaping the way individuals find and invest in properties.

We live in a world of new technologies, a place where things that once seemed impossible are now considered the norm. Uber, Amazon, Airbnb and many others have completely changed the way people buy and sell goods and services. A Gofundme campaign, which is a form of crowdfunding, can be set up in minutes to get you to go visit faraway places, buy a new toy, help out a friend in need, or support a great cause.

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Owning vs Renting

Thinking about purchasing your first home? Right now is the to buy! The interest rates on home are historically low, which gives you more flexibility with your budget. When interest rates increase, it causes your monthly payments to increase, preventing you from buying a larger or more luxurious home compared to when interest rates are lower.

Let’s take some things into consideration. If you are renting a new place, typically to move in you need first months rent, a security deposit which is usually at the very least one months rent, application fees, security deposits, and if you have pets either a pet deposit or even a monthly pet rent! When it comes down to it, that is a lot of fees, some non refundable other are, but that is a huge chunk of money to put down on something you don’t own.

One of the main hinderances from purchasing a home is the dreaded down payment. But wait! Currently there are down payment assistance and loan programs for qualified buyers that only require 3% down along with closing costs. Once, you’re in your new home you’ll be paying around the same amount monthly as renting, and often time it is even less!

Our advise would be to come sit down with one of our trained professionals to hash out all the available options. Our broker, Echo Farrell recently got a young school teacher into her first home with only 0.5% down! Call us today!

Market Conditions

With all the new incentives to become a home owner, the housing market has been on the rise showing signs of stability. Recently, foreclosures have fallen back to the pre-housing bust levels. In February, 303 houses were foreclosed on, which was the lowest monthly level since Dec. 2006 with 211 foreclosures. By early 2007 the prices of homes began to fall and in December of 2009, the foreclosures were at an all time high of 5,000 a month in the Phoenix metro area.
Now, some are worried that this could potentially lead the housing bubble to pop, but according to a professional analyst from ASU it is unlikely to happen. Giant institutional investors have purchased a large number of homes that were turned into rentals in the Phoenix area around 2011. The worry is what would happen if they decided to unload these properties all at once? That could cause a flood in the market but with a very low vacancy rate on rentals, the investors have no reason to sell because they aren’t losing any money. Overall the housing market seems to be looking up, and with the increasing amount of jobs, especially in the tech field, will only cause the market to get better and better.

Reduced Mortgage Insurance Premiums

Earlier this year President Obama visited Arizona with a plan that will help more people the ability to afford homes by reducing mortgage insurance premiums. His plan is to cut the premiums in half for most first-time home buyers along with other existing home owners making owning a home more affordable for hundreds to thousands of people. The current premium sit at 1.35%.

This plan will will save the average buyer $900 a year on FHA mortgages. Mike Orr a real estate analyst with the W.P. Carey School of Business at ASU said that the market is slowly improving, and that this reduction of premiums is step in the right direction. With the rate reduction Obama went on to advise against buying something that is out of your price range, since these rates are for responsible buyers.

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