23
Jul
By First Rate Financial Group
Real Estate

What Is A 1031 Tax Exchange?

What Is A 1031 Tax ExchangeA 1031 tax exchange is a legal way to defer paying capital gains when selling a property and then buying a “like-kind” property within the allowed period. The time limits allowed are 45 calendar days after the close of the sale of the first property to identify the like-kind property for acquisition and then close the purchase transaction to complete the 1031 exchange within 180 calendar days.

Like-Kind Property

The property’s broad characteristics determine if it is a like-kind property, not the quality of the asset. In real estate investing, there is a wide variety of things that qualify for like-kind exchanges. For example, vacant land is exchangeable for a commercial building, an industrial site, or a portfolio of residential rental properties.

Since all these properties are types of real estate investments made in commerce, they are like-kind properties. It is not permitted to make like-kind exchanges of property for personal use. The properties that qualify for 1031 exchanges are for investment purposes only. Investors need to hold them for at least two years for them to qualify. A 1031 exchange cannot be used to “flip” a property purchased and then resold more quickly.

Equal Or Greater Value

The property for the acquisition side of a 1031 deal must have a value that is equal to or greater than the property sold. There are three ways to identify the property with the sufficient combined value needed for the acquisition, which are:

  1. Identify up to three properties for the acquisition regardless of their individual values.
  2. Identify an unlimited amount of properties that have a combined value of up to 200% of the value of the property sold.
  3. Identify an unlimited amount of properties that exceed 200% of the value of the property sold as long as the acquisition equals 95% of the total value of the identified properties.

Reverse 1031 Exchange

In a reverse 1031 exchange, the property acquisition occurs first and then within 45 calendar days identify the property to sell as part of the 1031 exchange and complete the entire transaction in 180 calendar days.

1031 Exchange Intermediary

A qualified intermediary is necessary to complete a 1031 exchange. The intermediary holds the funds in a segregated escrow account from the sale of the first property and then uses those funds in the acquisition transaction of the identified property.

It is extremely important that the owner of the first property never has direct control over the proceeds from the sale. If the owner takes direct control of those funds, for even just a moment, this triggers a tax event and the capital gains taxes will be due.

Conclusion

A 1031 tax exchange is a very convenient way to defer paying capital gains tax. Use competent legal counsel for the transaction and an intermediary to hold the funds that has a perfect reputation for successfully working with this process.

If you are interested in buying a new property for personal or investment purposes, or in refinancing your current property, be sure to contact your trusted home mortgage professional.

19
Jul
By First Rate Financial Group
Real Estate

5 Important Benefits Of Downsizing Your Home

5 Important Benefits Of Downsizing Your HomeAfter the children are all grown and moved out, the family home often feels excessively large and empty. If you’re in this stage of life, you may be wondering if you should downsize like so many others, or stay put. Downsizing may be the best option, depending on your lifestyle.

Here are five benefits of downsizing for you to consider.

1. Less Clutter

When you move into a smaller home, you’ll have the opportunity to get rid of many possessions that you no longer need. Whether it’s sporting goods or knick knacks, you’ll be able to either sell the items, give them away to kids and grandkids or donate them to a charitable organization. Your new home won’t have as much space, so this decluttering process is almost mandatory.

2. Lower Utility Bills

A smaller home means lower energy usage and lower utility bills. It’s likely that you’ll have fewer lights on the rooms, less square footage to heat and cool. You may also incur less water usage, since you may have fewer bathrooms and less lawn to irrigate. So, not only will you likely have a lower mortgage payment when you downsize, it will probably also take less money to run the home.

3. More Free Time

A smaller home means that it will likely take less time to maintain, too. There’s less to clean inside and a smaller house to maintain on the exterior of the home. This equates to much more time for you to do the things that you want to do instead of the things that you have to do.

4. Easier To Get Around

Downsizing usually makes it easier to get around the home. Many people who downsize opt for a single-floor home rather than a two-story home, so they can avoid having stairs in the home. Living on one floor is often easier as people age and climbing stairs becomes more cumbersome. 

5. More Sustainable Living

A smaller home means a smaller carbon footprint. For people who are earth-conscious, a smaller home affords the chance to play their part in helping by living a more environmentally sustainable life. 

Remember, downsizing doesn’t mean living with less. For many people who have already downsized, the process has infused their life with more opportunities to live a fuller existence by getting rid of space and possessions they didn’t really need anymore. 

If you are in the market for a new home or interested in refinancing your current property, be sure to contact your trusted home mortgage professional.

 

18
Jul
By First Rate Financial Group
Real Estate

The Incredible Value Of A Business Mentor

The Incredible Value Of A Business MentorIf someone says that they are a “self-made” success who did it all completely by themselves with no help from anyone, they are probably stretching the truth. Success never usually happens in a vacuum. The definition of success is that something is recognized and respected by others. 

Honest business people recognize and appreciate the help that they received from others. They know it was a big part of what made them able to achieve success. Clever people, when they are just starting out in something new, find a mentor. A mentor is a person who is willing to help a new person trying something for the first time.

Why Would Someone Want To Be A Mentor?

If you ask a mentor why are they a mentor, you are very likely to hear a story about how they were helped by another person when they were just starting out. Mentoring is a powerful way to give back. It is rewarding on both sides of the relationship of being a mentor and a mentee. It is so rewarding because both people learn something about themselves by sharing information and experiences with another person.

Mentoring Is Best When It’s A Balanced Relationship

In a healthy mentor/mentee relationship there is a nice give and take that is balanced. The mentor may know much more than the mentee about a subject matter of mutual interest. However, a mentor does not necessarily know everything. A mentee may also have unique experiences to share that the mentor knows nothing about.

Mentorship Is Different From Internship

Having a mentor is different from an internship. Both are meant to be a learning experience, but having a mentor is more about sharing knowledge that includes life skills, whereas an internship is usually limited to job skills.

For example, it is perfectly reasonable to ask your mentor questions like:

  • How did you deal with setbacks?
  • Did you have self-doubt?
  • What kept you from giving up?

The Rules Of Mentorship

There are no specific rules in mentorship. It’s a unique relationship each time based on individual circumstances. The relationship can be as formal or as informal as you like. If the relationship feels strained or uncomfortable for either party, it is time to break it off. The period of a mentor/mentee relationship may come and go; however, sage advice lasts a lifetime.

Finding A Mentor

Many choose a mentor from someone that they already know. One way to meet a mentor is to volunteer for service work in your community. Many times you can make valuable contacts with successful people who are also giving their time and expertise to these projects.

There are also formal mentor programs such as one offered by the Small Business Association. It is called the SCORE program and the services are free.

SCORE is a good program for aspiring entrepreneurs. It can help, if you do not know of anyone who is the kind of mentor you need. Seeking out help through the SBA puts you in touch with an experienced businessperson who is a part of their volunteer mentoring program.

Real Estate Agents Can Be Great Mentors Too

If you are interested in learning about investing in real estate in your local community, a great place to start a mentoring relationship is with a professional real estate agent.  Real estate professionals are well versed in the local market and can answer questions and guide you through your transactions to avoid major pitfalls. The best real estate agents can also find special opportunities to bring to investors that they are mentoring and help make your real estate investments more profitable.

Summary

Dale Carnegie wrote his classic self-help book How to Win Friends and Influence People in the 1930s. Carnegie was a great business mentor. He recommends that if you want to be a success in a particular area of life, be around people who are already successful in that area and copy what they do. That advice is still good, even almost ninety years later.

If you are in the market for a new home or interested in refinancing your current property, be sure to contact your trusted home mortgage professional.