What is a 1031 Exchange?

Many people who sell an investment property believe that federal capital gains from that sale must always be handed over to the IRS. This is not always the case. IRS Code Section 1031 offers investors the opportunity to reinvest federal capital gains from a sale if you swap that property for another and it does not always have to be for like property either! Instead, as an investor, you could have that money work for you rather than end up in the hands of the IRS. Further, you do not have to sell your property for the exact same type of property either!

The 1031 Code indicates that no gains or losses will be recognized on the exchange of any type of business use or investment property for any other business use or investment property.

So what does this mean? How can this help you?

If you own a business or an investment property you should consider a 1031 exchange. You would be able to defer 100% of both federal and state capital gains tax. 1031 Exchanges in essence become interest-free loans; where the principal may increase through future exchanges allowing the Exchanger to never payback if the transactions are planned well. Along with the guidance of an experienced realtor, www.michaeltrustrealty.com this can be one of the most profitable ventures you will ever enter into.

Are you apprehensive about the 1031 Exchanges? Here are some interesting facts, which will make the decision easier.

1) At one time, exchanges were only done to switch like investment properties to the same person swapping for your own, but this is not the case anymore. In fact, you can sell your own property to someone who does not have a relationship with the person from whom they are purchasing the replacement property.

2) It is important to know that like-properties once met the same, condo for a condo, empty lot for an empty lot but that is also no longer the case. If you have invested your money in an empty lot but wish to exchange for an apartment building, this too is possible and again, no taxes would be paid for the sale of the vacant land when following the guidelines of the 1031 exchange. In fact, the owner of the empty lot can even sell that one lot and then purchase several others or just buy one and then sell others. Note, 1031 Exchanges only apply to investment properties and not residences.

3) Many believe only investors of large commercial properties can utilize 1031. One of the greatest features about a 1031 Exchange is that it applies to all investment properties, large and very small. 1031 Exchange works the same way for a corporation selling a large shopping mall as it would for an individual selling a single-family property used for rental or held for investment in a resort area.

4) Many believe 1031 Exchanges are very complicated and not worth investigating. Consider working with a qualified Realtor who can offer you professional advice and direction. 1031 Exchanges is a relatively smooth process and definitely worth considering but sound advice from an experienced Realtor is the key to profitability.

5) The Exchanger can acquire a replacement property with greater income potential. For example, raw land can be sold to acquire income-producing property or a larger or more ideally located property. A duplex rental property can be exchanged for a 4-family investment property offering greater income.

Should you wish to increase your buying flow due to greater cash flow, exchange investment or rental property for that with a greater income, acquire an investment property that is easier to finance, or should you have the need to relocate or the desire to increase your current business or investment space for a larger area, the 1031 Exchange can accomplish any or all of these goals.

Because a Realtor is generally not licensed nor qualified to provide legal and/or tax advice, the above statements should be verified with your own competent tax and/or legal advisor who has specific information about your particular situation. You should only rely on your own competent tax and/or legal advisor’s advice. Nothing noted above is tax and/or legal advice. The above information is general in nature and is for general informational purposes only.

Understanding Title Insurance

Understanding Title Insurance

Title to a property is a record detailing the owners of the property and rights associated with the ownership. Title typically shows a progression of ownership from the first owner to the current one. Title is a fairly simple concept, but when it goes wrong it is a nightmare. That is where title insurance comes in, and why it’s important to understanding title insurance.

Title Insurance

Title insurance guarantees that the title on a property is marketable when you purchase the home, condo, land, etc. You should always pay for title insurance. It typically costs a few hundred dollars and will save you a bundle if problems arise.

When you buy title insurance, a title insurance company researches the title for the property. The insurance company will look to see if the title is clear. Clear simply means that the seller is truly transferring title to you and no other person can claim ownership. While this sounds fairly simple, rest assured that title problems arise all of the time.

Title Problems

You might be wondering how you could possibly have title problems. Here are a few examples:

  1. Divorcing Couples Divorce is unpleasant and sometime very ugly. In particularly nasty situations, one spouse may attempt to sell a home without telling the other. To gain clear title, you need both spouses to sign off on the sale. If you dont, you are going to become a party of the divorce proceedings. Now, wouldnt that be fun?
  2. Estate Sales If you are purchasing a house as part of an estate sale, there can be real problems. The heirs may not be getting along and in an effort to get whats mine, may try to sell the residence without including all the heirs in the transaction. If you buy this home, you could end up involved in a lawsuit filed by an heir left out of the transaction.
  3. Ingress and Egress Issues Title to a property can have technical issues related to egress and ingress. Occasionally, one finds title to a property that is so messed up that the owner doesnt have the right to enter or leave the land because to do so would require crossing another persons property. In short, the property is landlocked and something must be worked out with the neighbors. Typically, a solution comes in the form of hard, cold cashlots of it.

These are just a few issues that can arise with title. With real estate, unique issues can arise all the time.

If you buy title insurance, you dont have to worry about problems with title. If a problem arises, you calmly pick up the phone and call the title insurance company. The insurance company will come up with a solution, even if it means paying you for bad title.

Mortgage Fraud Schemes & Characteristics

Mortgage fraud schemes are the intent to materially misrepresent or omit information on a mortgage loan application in order to obtain a loan or to obtain a larger loan that could have been obtained had the lender or borrower known the truth.

With today’s inherent complexity of real estate transactions, particularly those involving investors, offers ample opportunity to commit fraud.

Fannie Mae recently created a report that outlines common characteristics that accompany most fraud-for-profit schemes, and identifying them can be helpful in determining whether a loan is part of a larger fraud scheme. To view the report: http://bit.ly/2xFjTmp