Now’s the time to “Move Up”…?
I got a Newsletter from Leonard Spoto of Asset Exchange Company that I thought I’d share with you.
If you’d like more information regarding 1031 tax deferred exchanges, then check them out here and down load articles that will probably answer most of your questions.
What follows is a part of their most recent “newsletter”. I hope you find this useful and informative.
Trading Up in Today’s Market
Many of our clients are taking advantage of the turmoil in the real estate market by trading up. The theory is simple: a declining market favors investors who are trading up because the higher the property value, the greater the decline in real dollars assuming both properties are declining at the same rate.
There are also a lot more buyers who can come to the table with a 20% down payment on a $500K property than a $1MM property. Bernard P., a recent Asset Exchange Company client acquired his first commercial building after selling a $550K rental property in South San Francisco. Asked the motivation for his trade his answer was simple “there are great deals out there right now on the big stuff and we had plenty of interested buyers for our sale property. The time was right to trade up.”
Trading up with a 1031 Exchange also allows you to keep all of your money working for you. Taxes on the sale of an investment property can be as high as 1/3 of your total gain. But by entering into a 1031 Exchange before the close of escrow on the sale property, those taxes can be deferred (and possibly avoided altogether) allowing investors to get maximum value out of their real estate transactions.
Real Estate – An Hedge Against Inflation
Depending on which economist you read you may be inclined to believe that the US is headed towards an inflationary economy. The theory is that because the Fed and it’s counterparts around the world have been printing money to combat the global recession, inflation is a natural consequence. If you buy into this argument, you may want to consider investing in real estate as a hedge against inflation.
With real estate, if you have a low-rate, 30-year, fixed mortgage, your note will become a thing of beauty as prices rise:
– Your property value will rise
– Your rental income will rise
– Your mortgage payment will remain fixed
– You will repay the loan with cheaper dollars
There is plenty of disagreement, of course, among top economists regarding inflation. Some argue that with unemployment figures at a 26 year peak and plenty of idle factory space, rising prices in the near term is not a concern.
Real estate investors need to remember however, that a hedge against inflation is just one of the many benefits of investing in real estate. Frequent readers of this newsletter will note that we often discuss the numerous tax advantages to owning real estate including:
– Ability to depreciate real estate hence reducing (or eliminating) your reportable taxable income from the property
– Ability to write off expenses
– The mortgage interest deduction
– The ability to sell real estate and either avoid and/or defer the payment of capital gains taxes
One thing for certain is that plenty of opportunistic investors are finding value in today’s real estate market.
Contact Leonard for more information regarding your 1031 exchange at Leonard_Spoto@mail.vresp.com and tell him Ed Favinger sent you.
Make it a great day…!