Lon Walters Team
Offering Sedona real estate, luxury homes, condos, and bed and breakfasts.
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Developer Bets on Condos in Anacostia
In the condominium boom sweeping the District, developers are scrambling to build still more one- and two-bedroom units with granite countertops and stainless-steel appliances.
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Tax Info When Selling A Property
Q DEAR BOB: If I sell an investment property I have owned for less than a year, can I take advantage of tax rule 1031 and trade up to another higher value property without paying capital gains tax on my profit?
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The What, Why, And How Of Real Estate Leverage
Leverage is a way to acquire real estate that is worth more than the asset or equity of the investor to increase wealth. The investor usually leverages his asset or equity thru a mortgage. The return on investment of real estate significantly increases the wealth of the investor.

Real Estate appreciates in value over time. In fact, the real estate doubles every four or five years. With assumption of two percent inflation, the real estate appreciates four to seven percent every year. Thereby, the investor receives four to seven percent return of investment per year. And, the real estate tends to be a stable as an investment on the long run.

For example, the investor has $150,000 as an asset or equity. He looks for way to leverage $150,000. He can purchase a home for $150,000. With a seven percent appreciation, the home appreciates to $160,500 ($150,000 original value + [$150,000 home value * 7 percent]) after a year. The return of investment equals $10,500.

Now, he looks at another scenario. If he purchases a home that is worth $600,000 with $150,000 as down payment, the return of investment drastically rises to the roof. With a seven percent appreciation, the home appreciates to $642,000 ($600,000 original value + [$600,000 * 7 percent]) after a year. The return of investment equals $42,500.

There are risk involve too. Before any investor to proceed with $600,000 home purchase, he needs to evaluate the affordability and gross income. Mortgage Lenders measure up the gross income to Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS). The GDS means a certain percentage of gross income must not exceed the mortgage payment, while the TDS means a certain percentage of gross income must not exceed mortgage payment, home expenses, and total debt. As a general rule, the mortgage payment must not exceed forty percent of gross income. At the end, it all depends on the mortgage lender.

At this time, the investors still take advantage of two monster mortgage tax deduction from Internal Revenue Service (IRS). First, the discount points which are paid upfront to lower the mortgage payment can be deducted on income tax return. Another, the mortgage interests which are paid for every mortgage payment can be deducted on income tax return as well. Mortgage Lender sends a form which tells how much mortgage interest for the year. Consult with your trusted tax advisor and current tax laws for more information.

Leverage works best with real estate property that appreciates. The history of the neighborhood and property type gives the possible future outcome of home values. The home improvements also add values to the property. The installation of carport, renovation of kitchen, construction of rooms, and conversion to hardwood floor provide the best return of investment among home improvements. The economy of the region also delivers clues how the real estate will carry on the next few years. During the strong economy, there are more home buyers. As the demand for home increases, the home values increase as well.

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Centex Home Equity Becomes Nationstar Centex Home Equity, Dallas, has been renamed Nationstar Mortgage LLC to mark the completion of the unit's sale to Fortress Investment Group by Centex Corp. Click here for more.
Origination News Jul 16 2006 2:44PM GMT
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The Power Of Real Estate Exchange
The Section 1031 Exchange of Internal Revenue Service (IRS), also known as Starker Exchange or Tax-Deferred Exchange, clearly states that there are no gains and losses incur on exchange of like-kind property. Without gains or losses, the exchange of property defers the tax. Like-kind property means same nature or character. And, the property for exchange must be used for business or investment purpose in order to qualify.

The qualified property includes apartments, rental houses, retail properties, commercial, raw land, office buildings, industrial, and ranches. The non-qualified property includes personal residences, dealer properties, partnerships interests, inventory, stocks, bonds, notes, securities, indebtedness, and other properties.

IRS also permits to mix and match the nature or character property. For example, you can trade an apartment for rental house. And, IRS gives the owner of the property forty days to produce a list of possible trades, and one hundred eighty days to complete the exchange of property.

The owner can also exchange two, three, or more property for one property. The general rule is the replacement property exceeds or matches the value and debt of the property being exchanged. For example, a raw land which is worth $600,000 can be exchange for $300,000 rental houses, and $300,000 retail properties.

There are a number of reasons to exchange a property. The common reasons for exchange are rebuilding equity, moving investment location, upgrading size, reducing maintenance expenses, and maximizing the appreciation.

First, the owner proceeds with the regular sale of property. After the completion of purchase and sale agreement, the owner takes the agreement and notifies of 1031 exchange to closing agent. Then, the Qualified Intermediary (QI) who handles the exchange gets the information to closing agent, and sets up the proper papers for exchange. Within forty days, the owner writes and gives a list of replacement property to the QI. In one hundred eighty days, the owner signs the completion of purchase and sale agreement with 1031 Exchange Clause of the replacement property. Finally, the QI contacts the closing agent on replacement property to complete the 1031 Exchange.

The Real Estate Exchange effectively and efficiently reduces the tax. Failing to meet the requirement, the owner pays a hefty tax on capital gains. The QI makes sure that the owner qualifies for the exchange. Most QI composes a team of CPA and Attorney.

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