No doubt. They're trying to feel scared of everyone else and safe with
them. But if you ignore the obvious bias, some facts are still there.

Thanks.

"kastnna" <kastnna[at]auburnalum.org> wrote in message
news:1168988441.590889.298000[at]51g2000cwl.googlegroups.com...
- quote -

Chris,

That article is a little bit of a spin story that probably has alterior
motives behind it.
Every industry has crooks, but that doesn't make fraud the norm.

A simplified exlanation is that 1031s allow people to sell a peice of
RE and buy another property without having to pay taxes on the gain in
the old propery's value. Key idea is "like-kind exchange." 1035s work
in a similar fashion when dealing with life insurance and annuities.

"TB" <borekfm[at]pacbell.net> wrote in message
news:trAqh.59190$qO4.24544[at]newssvr13.news.prodigy.net...
- quote -

http://www.expert1031.com/1031facts/...rej061604.html
makes this all sound rather scary.

My interest in this is academic. I have no property to swap. As this thread
is straying from financial planning, we probably should drop it. With your
recommendations on how to find relevant info, I can get all the information
I want elsewhere.

Thanks.

Chris Cowles wrote:
- quote -

Chris, while the original uses of 1031 were supposedly true swaps
(horse-for-horse, e.g.) that's extremely uncommon now. Instead it's
usually done through a third party that, in effect, creates a fictional
swap between the property you're disposing of and the property you're
acquiring. If you google "1031 intermediaries" you'll find out info.
The entire transaction is typically done using an intermediary, and an
attorney with expertise in this area. Lots of potential pitfalls, it's
not a DIY kind of thing.

-Tad

Are there 3rd party brokers that coordinate this kind of deal?

"joetaxpayer" <joetaxpayer[at]nospam.com> wrote in message
news:K42dnag2ofSi5TfYnZ2dnUVZ_sqdnZ2d[at]comcast.com...
- quote -

Chris Cowles wrote:
- quote -

The other buyer doesn't have to have the same motivation. For my
example, wanting to sell in NY and buy in Boston, I simply need to find
a NY buyer who is willing to go through the extra paperwork, by buying
the Boston property with the intent of swapping. That person can be a
first time buyer who just needs to be educated on why he's being asked
to do this. Best to read on irs.gov for the exact laws. I understand the
general rules/reason, but don't have all the fine print as noted in the
correction above.
JOE

"darerolo" <realwelth[at]yahoo.com> wrote in message
news:1168774692.811734.206990[at]s34g2000cwa.googlegroups.com...
- quote -

So the bottom line still is you have to have someone else who wants to do
the same thing, and finds your property suitable for that purpose?

Hi Joe,
That isn't quite correct,the new property must be identified within
45 days,and the deal consummated within 180 days,1031 is also
called a "Starker" exchange based on the name of the I.R.S. ruling that
created it.dale
joetaxpayer wrote:
- quote -

Chris Cowles wrote:

- quote -

A 1031 exchange must involve the exchange of one property for another. I
own a property in NY and want instead to own one in Boston. I may very
well find someone with the opposite goal, but if not, I can get a third
party involved, or have the buyer of my NY place instead be directed to
purchase the Boston one and swap. The multiple transactions much occur
within 45 days or the 1031 can be disallowed.
JOE

"Tad Borek" <borekfm[at]pacbell.net> wrote in message
news:zhAph.33107$Gr2.27439[at]newssvr21.news.prodigy.net...
- quote -


Does there have to be another party for such an exchange? Or is this simply
a financial characterization of selling one property and investing the
proceeds into another?
--
Chris Cowles
Gainesville, FL

kastnna wrote:
- quote -


Well really you might never own it outright. And you need to assess the
tax side of it to evaluate any property, it makes things much better.
Not that those duplexes aren't jacked too high, but after-tax they might
be doing fine. I'll try to summarize...

Rental property is depreciated over 27.5 years, creating a "non-cash"
expense that offsets rent. Your $200k unit, assuming 20% of that cost
for the land (which you don't depreciate), leaves 160/27.5 =
~$5,800 in depreciation expense annually. With this expense included, a
property may be cash-flow positive without having any taxable income --
it may even be a loss on paper. So that's a big tax benefit, you're
acting as if the property is becoming useless while it really may be
going up in value (even factoring in required maintenance & upkeep).

Those earning below $100k get a tax benefit from "loss" rentals, because
they can use up to $25k of these losses to offset other income -
dividends, interest, salary, etc. Those earning between $100k & $150k
get a partial benefit (there's a phase-out in this income range).
Keeping in mind that depreciation is a non-cash cost, meaning the "loss"
may be a fiction from a cash-flow perspective, this can reduce the true
ownership cost for the rental.

Those earning over $150k can't do this, but the losses are carried
forward to offset passive income in future years. There are some
benefits to owning multiple rentals if you are in that situation.

The other tax benefit (and a biggie) is Code Sec. 1031 which addresses
"like-kind exchanges". Sec 1031 lets you avoid recognizing taxable gain
when you exchange property for other property, instead of selling it
outright. It can't be used for stocks or mutual funds, but it can be
used for rental properties. The application of this is to "lever up"
your investment periodically. Take your $200k property on which you put
$60k down (70% financed). Imagine it goes up in value to $250k. Instead
of selling and paying tax on those gains, you could do a 1031 exchange
into another property. If it is also 70% financed, now you have $110k in
equity, so it's a 110/.3 = $367k property and the rents (hopefully) are
that much higher. And you now take depreciation on $367k so your taxable
income might not budge much despite the higher cash flow.

Repeat, repeat, etc...and you gradually spool up ever-larger rentals and
higher rental income, while depreciation and 1031 protect you from much
of the tax. Then, you die, and it all gets step-up of cost basis, so
those gains are never taxed. Add all these tax gifts together and you
can describe how some very large multi-generational wealth was created
in the US! This could explain why the numbers don't work for a new buyer
of those duplexes...perhaps some of the collegetown slumlords are 40
years into their 1031 exchanges, and they own a bunch of them.

That said, I think a lot of recent rental-property activity has been
among people that don't know 1031 from the I-10. Even with these tax
aspects figured in the numbers on your local duplexes might not make
sense. And of course, plenty of people buy rental properties with more
modest goals, such as having a paid-off rental that provides income
during retirement.

-Tad

<cwester75[at]gmail.com> wrote in message
news:1168461176.132891.106580[at]77g2000hsv.googlegroups.com...

- quote -

Financing certainly is important, and paying close attention to mortgage
interest rates, for one thing, can make a big difference. I am surprised
that this item doesn't enter into peoples' calculations more than it does.
Compare, say, a fixed rate of 6.25 with 6.00. That small difference in
mortgage rates can mount up to a huge difference in cost over a period of 20
or 30 years. It is well known that a relatively small difference in the
expense ratio of mutual funds has a huge effect on gains over a long period.
It is the same with mortgage interest rates.

So while buyers put much effort into negotiating the purchase price, whether
the washer and dryer or the drapes will be included, and other small
matters, they will often take the first mortgage their bank offers without
question and feel lucky to get it. Shopping around for the best financing
can make a big difference in overall gain.

In my opinion, you are tracking well on the metrics of the deal. The
cash flow tax shelter isn't what it used to be bit is still part of the
equation. Appreciation will be a big part of your total return. With
that said, you will make your money on the deal on your purchase and
finance decisions. Buying value with positive leverage - that is, your
return on equity should be greater than your weighted cost of capital
[debt + equity (think opportunity cost)].

Just my thoughts,

Chris


Don wrote:
- quote -

Hi,

You are all right in some ways.The thing not being looked at is,that
R.E. is an inefficient market.Two houses side by side often sell for
different prices even when they are close to identical.The difference
is the motivation of the seller and your ability to capitalize on this
and negotiate a good deal.The Value play is the focus of many savvy
investors.We gain value by solving problems,like
foreclosure,divorce,estate,etc.Don't focus so much on the
property(except for the run-down houses)look to assisting the seller to
solve their problems.
If you help enough people with their problems,you will get what you
want.dale astnna wrote:
- quote -

"kastnna" <kastnna[at]auburnalum.org> wrote in message
news:1168320109.517657.38610[at]38g2000cwa.googlegroups.com...

- quote -

When you invest in stocks and mutual funds, the money you have saved to get
started has a good chance of growing over the years. When you invest in real
estate, the money you have saved PLUS the money you borrow from the bank to
get started has a good chance of growing. You have to pay back the mortgage
money you have borrowed, but not the amount it has grown.



Now some people will say that leverage works both ways, and that it
magnifies losses as well as gains. I don't think it is quite the same.
Generally real estate does not go through frequent swings of gains and
losses like stocks. In most areas of the country there are usually short
periods of fast growth mixed with longer periods of no growth. Abrupt
decline in value does not happen as often. Of course there are exceptions,
but by and large the chances of big losses are greater in stocks than in
real estate.

Thanks all.
That's kind of the impression I got when looking at the math. I am
guessing the biggest benefit is that you are slowly developing an asset
that will one day be owned outright (and hopefully very valuable) that
was largely paid for by others.

Another question: Does having an existing martgage on rental property
affect your ability to get a mortgage for a new home (the mortgage is a
large liability afterall)?

One could argue that the rental property poses no additional financial
burden on the owner because it is paid for with revenue generated from
the property, and therefore would not effect the owners ability to pay
the residential note.

I agree with Bucky. It is very hard to have income-producing properties
in real life examples. I own 3 hourses - 2 apartments and 1 landed
properties. Out of these 3 properties that I invested only 1 apartment
confirmed is making money. This is due to the fact that the place
around that area is the *hot* area for foreign visitors. As for the
other apartment that I have, the value has been constant for 6 years
(no capital gains at all) and I'm paying my loan interest every year.
What a sad story. I just bought another landed properties last year,
hopefully it can make some profits.

I play a very conservative game in real estate so the chances I lost is
lower. This is what I do. I will only buy a house if I have enough cash
to buy the house. Assuming the house $300K, I will have $100K down
payment and take the $100K loan from bank and finally invest the
difference (which is $100K) in other investment (e.g. stock, mutual
funds and etc.) to make sure the investment that I invest are higher
than the bank's interest. Does this make sense?

Here is my personal blog to track my real estate investment. You
guys may want to have a look if you guys are interested.

http://financialindependent.blogspot.../Real%20Estate


Bucky wrote:
- quote -

kastnna wrote:
- quote -

I've never been able to translate the textbooks' examples of
income-producing properties to actual real life examples. Seems like
most of the time it's break-even to negative cash flow, and you need to
rely on capital appreciation for gains.

kastnna wrote:

- quote -

On rental property, the interest rate is usually a bit higher than owner
occupied, so 6% or a bit higher is the current rate, $1000 is the
interest only expense.
Interest - $12K
Property tax - $3k (?)
Insurance - $1500 or so.
Snow/Lawn/yr - $2000
Repairs - $4000

Tot - $22.5K
Rent - $18K-$21.6K

There's no tax because there's no profit. In theory, the above works for
some if you consider. My costs may be a bit high. The property
depreciation provides a tax write-off and helps the cash flow. If the
above numbers are interest only, and zero down payment, the owner gets
all the appreciation, and potential for increased rents. Even claiming
low appreciation, say 3%, jump ahead 5 years. The property is up $30K,
and the rent has jumped nearly $3,000/yr.

The numbers you present are not a clear good or bad deal. What is the
property tax on the house? Is there a cost for snow/grass? I guess at
$4K repairs given how college kids can beat a place up,
dishwasher/fridge, etc. have lower life than in your home. Carpet
replaced every 3-5 years compared to mine, 10 years old and looks new.
JOE

Hey guys,
I have not had much experience with income producing real estate in my
short career and I would like to know some of the benefits or maybe
inside advantages that I am overlooking.

Here's an extremely common scenario where I live:
A duplex (3 people in each half) can be purchased for $200K. Thats
about $1000 a month mortgage using a 30yr fixed. The average TOTAL rent
is about $1500 - $1800 monthly. That's $500 - $800 income BEFORE
property taxes, insurance, maintenance and upkeep, tax on profits, and
any other expense I am not thinking of.

Of course you get to deduct the mortgage interest and build equity in
the property, but is that it??? After expenses it seems like the profit
is almost non-existant.

We have neighborhoods of hundreds and hundreds of duplexes that fit
this scenario where I live. Oh yeah, and they are all filled with
destructive college students.

Basic economics suggests that I must be overlooking something or the
practice wouldn't be engaged in so frequently.

thanks