I received a call today from the Title Company letting me know that the foreclosure I was buying had just closed escrow and had recorded in my name. This was a GMAC bank foreclosure purchase, and the process was quite smooth contrary to what you may have heard about buying bank owned properties. Escrow took about 4 weeks to close and there were no major hiccups to speak of.
This investment home is Approx. 3200 Sq.Ft., has 5 bedrooms, a den, loft, family room, dinning room, living room, 3 car garage, and kitchen with a pass through bar and Island. The original purchase price for this home in 2005 was $252,000. Over the course of just months, the home had reached an appraised value of over $350,000 as did most of the homes of comparable square footage in the neighborhood. Fast forward to today, the foreclosure purchase price was 50% less than the original purchase price. This was an incredible investment opportunity considering the home's previous values. Rental income should bring in Approx. $1,800 per month which is a R.O.I (return on investment) of 18% per year... not to mention the future appreciation value which will easily double in value during the next appreciation cycle . If the money used to purchase the home had been left in a Money Market account at today's interest rates, it would have had a return of Approx. $280 per month or $3,360 per year. That's a loss of $18,240 of potential income a year when compared to renting the home out.
Banks are simply liquidating homes at this point. You still have an opportunity to take advantage of today's foreclosure and short sale market. High returns and substantial appreciation value are yours for the taking. You just have to be proactive and realize that this is the time to invest in real estate if you want to maximize your R.O.I.
Thursday, October 1, 2009
Monday, August 24, 2009
Today's Real Estate - Modern Day Gold Rush
Today's real estate market is our modern-day Gold Rush. Instead of setting up camp along the banks of the river to stake one's claim to potential ounces of gold yet to be found, investors are lining up to stake their claims on the bounty of foreclosures and short sales being offered by banks. Throw in a few Trust Deed sales and well oiled auctions, and the picture is complete; a real estate Gold Rush of a magnitude we haven't seen in more than a decade.
This real estate Gold Rush, however, isn't without it's flaws. The system that pushes these properties through is quite clogged. Agents and investors can be found pulling their hair out at times due to the frustrations a clogged system can bring. Long escrows and underwriting procedures can delay any hopes for expediency in the process, but the rewards are worth it.
Cash is still king in this kind of market. In my blog post, The Cash Investor vs. The Leveraged Investor...Who Wins?, I write about why I prefer the cash investing strategy over the leveraged strategy. In my opinion, this moment in time proves my point. The system is so backed up that the last thing you want to do is wait for a bank to approve your loan so you can try to buy a discounted property. Cash offers are given PRIORITY in this kind of market, and the leveraged investor just doesn't stand a chance when an offer is on the table. Sellers (often the banks in today's market) want to be sure the deal will close, and cash buyers give them that sense of security they seek to make things happen.
I'm currently working on several more deals in the state of Arizona. I believe there are phenomenal deals to be had that have huge upside potential and when I say upside potential, I mean profits that exceed 100% of the initial investment. It's up to you to participate in this modern day Gold Rush. This is the kind of market that will produce real estate millionaires...will you be one?
This real estate Gold Rush, however, isn't without it's flaws. The system that pushes these properties through is quite clogged. Agents and investors can be found pulling their hair out at times due to the frustrations a clogged system can bring. Long escrows and underwriting procedures can delay any hopes for expediency in the process, but the rewards are worth it.
Cash is still king in this kind of market. In my blog post, The Cash Investor vs. The Leveraged Investor...Who Wins?, I write about why I prefer the cash investing strategy over the leveraged strategy. In my opinion, this moment in time proves my point. The system is so backed up that the last thing you want to do is wait for a bank to approve your loan so you can try to buy a discounted property. Cash offers are given PRIORITY in this kind of market, and the leveraged investor just doesn't stand a chance when an offer is on the table. Sellers (often the banks in today's market) want to be sure the deal will close, and cash buyers give them that sense of security they seek to make things happen.
I'm currently working on several more deals in the state of Arizona. I believe there are phenomenal deals to be had that have huge upside potential and when I say upside potential, I mean profits that exceed 100% of the initial investment. It's up to you to participate in this modern day Gold Rush. This is the kind of market that will produce real estate millionaires...will you be one?
Saturday, July 25, 2009
High Investment Returns Blossom In Today's Market
Profits of 10% to 15% are becoming commonplace in today's investment rental market. Investors are gobbling up properties in the sub $100,000 market as fast as they can, putting them in a position to capitalize on fair market rents that command very lucrative returns.
Consider the following: Investment rental home purchased for $85,000 (In Arizona); fair market rent on rental home = $850 per month or $10,200 per year; total 12 month return on investment property = 12%. How many investments do you know of that are paying that kind of return? There are also tax benefits that come with rental properties like depreciation that can keep more of your profits out of the hands of Uncle Sam. And by the way, the cherry on the cake is the future appreciation of the property that could easily double in value during the next appreciation cycle. The name of the game has always been to buy low and sell high, but investors are riding out this correction period with decent returns from the rents their properties are bringing in.
Consider the following: Investment rental home purchased for $85,000 (In Arizona); fair market rent on rental home = $850 per month or $10,200 per year; total 12 month return on investment property = 12%. How many investments do you know of that are paying that kind of return? There are also tax benefits that come with rental properties like depreciation that can keep more of your profits out of the hands of Uncle Sam. And by the way, the cherry on the cake is the future appreciation of the property that could easily double in value during the next appreciation cycle. The name of the game has always been to buy low and sell high, but investors are riding out this correction period with decent returns from the rents their properties are bringing in.
Wednesday, July 8, 2009
2nd Year Anniversary
It has been 2 years, to the day, since my first Blog post. There have been a little over 4,750 site hits which is about a 40% increase in hits over the 1st year...not bad at all! I'd like to thank those of you who have written to me over the year. Keep the comments coming.
Sunday, May 31, 2009
First Court Eviction...Not As Bad As You'd Think
Well my friends, I finally had to file a Forcible Detainer (eviction) with the Justice court to rid myself of tenants who failed to pay their rent and wanted to remain in the home. I've never had to evict a tenant before and took great pride in that fact. You see, if you screen your tenants properly, eviction will be a rarity and not the norm. "What went wrong with these tenants?", you may be asking. Well, a big heart often makes for a big target and in this rare instance, I let my heart make the wrong decision of accepting these tenants instead of my usual method of using hard core numbers and prerequisites.
The tenants were in their late 50's early 60's and owned their own business. What struck me as unusual was their lack of reserves in their checking and savings account. They only had enough to cover 2 months rent if they had to stop working for whatever reason. This was a major red flag to me, but those close to me thought that their reserves were more in line with the average family than not, and thought that I was being a bit harsh when I was preparing to reject their application. The tenants promised they would not have a problem paying the rent, and that they were getting ready to start on a major contract that would bring their reserves up to 6 months worth of rent. They were so sure they would be fine, they entered into a lease with option to buy and paid a small non refundable lease option fee. Against my better judgment, I accepted their application and let them move in.
About 8 months into the lease, they were late on their rent. A few days later, they paid the rent plus the late fee. The following month, they were late again only this time they were 4 days late. This late paying behavior now became the norm and the delinquency in payment grew longer and longer to the point that I was now posting a "5 Day Notice" on the premises almost every month while waiting for payment. Then in May of this year, I was not paid the rent after serving the tenants with the procedural 5 Day Notice. After several attempts to rectify the delinquency with the tenants failed, it was clear to me what the next step would be...EVICTION!
Eviction can be a long, arduous, time consuming process depending on the state your property is located in. Certain states also tend to be somewhat biased on the side of the tenant. Arizona, where this eviction took place, is just the opposite. Arizona, in my opinion , is very pro-landlord and has a very expeditious procedure to evict non paying tenants. The process in Arizona is so fast, as a matter of fact, that it only takes about 17 days from start to finish to regain control of your property.
I made the decision to file the Forcible Detainer Complaint and Summons myself rather than use an attorney. I found the process very clear and easy to understand and would not hesitate to represent myself in any future court hearings. All of the necessary court forms and instructions were on the county website which allowed you to fill the forms out and print them. The tenants did not show up to the hearing, and as a result of their no-show, a Default Judgment was awarded to me. The Default Judgment included all past due rent owed, late fees, court costs, and a 10% penalty per year until the tenants have paid the judgment in full.
I hope I never have to evict anyone else again in the future but as an investor / landlord, it comes with the territory. I will definitely not make the same mistake I made with these tenants during the screening phase again. Decisions have to be made using objective criteria and not with emotion. In my blog article titled, "Picking Good Tenants Requires Some Discipline", you will find the tools I've used to minimize the possibility of having to go through the process of evicting your tenants.
The tenants were in their late 50's early 60's and owned their own business. What struck me as unusual was their lack of reserves in their checking and savings account. They only had enough to cover 2 months rent if they had to stop working for whatever reason. This was a major red flag to me, but those close to me thought that their reserves were more in line with the average family than not, and thought that I was being a bit harsh when I was preparing to reject their application. The tenants promised they would not have a problem paying the rent, and that they were getting ready to start on a major contract that would bring their reserves up to 6 months worth of rent. They were so sure they would be fine, they entered into a lease with option to buy and paid a small non refundable lease option fee. Against my better judgment, I accepted their application and let them move in.
About 8 months into the lease, they were late on their rent. A few days later, they paid the rent plus the late fee. The following month, they were late again only this time they were 4 days late. This late paying behavior now became the norm and the delinquency in payment grew longer and longer to the point that I was now posting a "5 Day Notice" on the premises almost every month while waiting for payment. Then in May of this year, I was not paid the rent after serving the tenants with the procedural 5 Day Notice. After several attempts to rectify the delinquency with the tenants failed, it was clear to me what the next step would be...EVICTION!
Eviction can be a long, arduous, time consuming process depending on the state your property is located in. Certain states also tend to be somewhat biased on the side of the tenant. Arizona, where this eviction took place, is just the opposite. Arizona, in my opinion , is very pro-landlord and has a very expeditious procedure to evict non paying tenants. The process in Arizona is so fast, as a matter of fact, that it only takes about 17 days from start to finish to regain control of your property.
I made the decision to file the Forcible Detainer Complaint and Summons myself rather than use an attorney. I found the process very clear and easy to understand and would not hesitate to represent myself in any future court hearings. All of the necessary court forms and instructions were on the county website which allowed you to fill the forms out and print them. The tenants did not show up to the hearing, and as a result of their no-show, a Default Judgment was awarded to me. The Default Judgment included all past due rent owed, late fees, court costs, and a 10% penalty per year until the tenants have paid the judgment in full.
I hope I never have to evict anyone else again in the future but as an investor / landlord, it comes with the territory. I will definitely not make the same mistake I made with these tenants during the screening phase again. Decisions have to be made using objective criteria and not with emotion. In my blog article titled, "Picking Good Tenants Requires Some Discipline", you will find the tools I've used to minimize the possibility of having to go through the process of evicting your tenants.
Thursday, April 23, 2009
Investing Sentiment In Real Estate Is Changing Rapidly
I got a call the other night from a fellow investor friend of mine. He was calling from a very crowded Real Estate auction in the Tempe, AZ area. He seemed a bit frustrated as he relayed what was happening at the auction. According to him, just about every property he had an interest in was selling for 25% or more than the auction list price. As a result, he was basically shut out of the bidding and by the end of the night, he had left the auction with nothing. I've also had multiple conversations with Realtor friends who work in California and Arizona. In those conversations, it was clear to me that things were beginning to change in a price appreciation kind of way. Multiple offers on properties are making a come-back, and the days of making a low-ball offer are beginning to wane.
It appears to me, that the signs of changing sentiment are just about everywhere you look. People are slowly but surely coming off the side-lines with the belief that the market has reached a bottom. This is a crucial part of any plateau and future appreciation cycle. When fear in real estate investing begins to go away due to changing psychology in the potential profit expectation, you can believe with certainty there will be a resulting effect that reduces the available inventory of homes as investors and soon to be homeowners start making purchases in mass.
Low interest rates are still available and will definitely help contribute to reducing inventory, but I do think their days are numbered. I still believe, as I mentioned in an earlier blog , that mortgage interest rates have the potential of reaching 18% as they did in October of 1981. I also believe this probable rise in rates may hasten the next appreciation cycle as home buyers scramble to buy before the rates reach double digits. We are already seeing credit card companies engage in the practice of raising rates, so I don't think my prediction of 18% mortgage rates is too far off the track. Time will tell, but I think all of the fore mentioned points in this blog show the tide is beginning to turn and that's a good thing for home values.
It appears to me, that the signs of changing sentiment are just about everywhere you look. People are slowly but surely coming off the side-lines with the belief that the market has reached a bottom. This is a crucial part of any plateau and future appreciation cycle. When fear in real estate investing begins to go away due to changing psychology in the potential profit expectation, you can believe with certainty there will be a resulting effect that reduces the available inventory of homes as investors and soon to be homeowners start making purchases in mass.
Low interest rates are still available and will definitely help contribute to reducing inventory, but I do think their days are numbered. I still believe, as I mentioned in an earlier blog , that mortgage interest rates have the potential of reaching 18% as they did in October of 1981. I also believe this probable rise in rates may hasten the next appreciation cycle as home buyers scramble to buy before the rates reach double digits. We are already seeing credit card companies engage in the practice of raising rates, so I don't think my prediction of 18% mortgage rates is too far off the track. Time will tell, but I think all of the fore mentioned points in this blog show the tide is beginning to turn and that's a good thing for home values.
Sunday, March 29, 2009
California Home Sales Up 83 Percent
According to the California Association of Realtors, California home sales were up 83% in February 2009 over the previous year. Statewide sales numbers in CA hit 620,410 in February. According to C.A.R. president James Liptak, “Home sales in California continue to be considerably stronger than the nationwide sales figures...The market will continue to register large, but diminishing year-to-year percentage gains in the coming months, as current sales are compared against the extremely low numbers that prevailed during the early months of the credit crunch.”
In February 2009, the state's unsold inventory index was 6.5 months, compared to 15.3 months in February 2008. It took a median of 51.5 days to sell a SFR home in February, compared to 69.3 days in February 2008. The inventory index tells you how many months it would take to deplete the current inventory. A 3 month inventory index signals an appreciation cycle, so we can conclude at the very least, we are in a plateau phase with a hint of appreciation brewing in the not so distant future.
Investors know the signs of a turning market. If you are new to investing, know that the window of opportunity is slowly closing on deals of up to 70% off of 2005 list prices. Make your offers now because the unsold inventory index is slowly but surely shrinking.
In February 2009, the state's unsold inventory index was 6.5 months, compared to 15.3 months in February 2008. It took a median of 51.5 days to sell a SFR home in February, compared to 69.3 days in February 2008. The inventory index tells you how many months it would take to deplete the current inventory. A 3 month inventory index signals an appreciation cycle, so we can conclude at the very least, we are in a plateau phase with a hint of appreciation brewing in the not so distant future.
Investors know the signs of a turning market. If you are new to investing, know that the window of opportunity is slowly closing on deals of up to 70% off of 2005 list prices. Make your offers now because the unsold inventory index is slowly but surely shrinking.
Friday, March 6, 2009
Enormous Wealth Will Be Generated By Investors Who Buy In This Market
Between foreclosure auctions and short sales, some homes are being sold for no more than the cost of a typical luxury car. Some AZ Home builders are even advertising newly built homes for as low as $70,000. The huge drop in home values presents a unique opportunity for investors to make a lot of money. Unfortunately, everyone will not be able to participate in this wealth building moment in time due to a variety of reasons including bad credit, job loss, bankruptcy, or the lack of savings for a down payment.
Investors who have kept a generous cash position in their portfolios will be in a great position to take advantage of current real estate prices. I've had several conversations with fellow investors wanting to know if I'm buying now and whether or not it's a good idea to add to their current inventory of properties. My reply has been, "How can you not buy at these prices?". Opportunities to buy real estate come and go but opportunities to save up to 60% on real estate are rare. In future years, investors will look back on 2008 -2009 as one of the greatest buying opportunities they've ever experienced. Real Estate profits reaching 200% - 500% of the purchase price will be the norm as we approach the top of the next appreciation cycle. Risks in real estate investments taken now will be greatly rewarded over the next decade, and I believe the profits will exponentially out pace the stock market and retirement accounts that have seen massive losses.
Investors who have kept a generous cash position in their portfolios will be in a great position to take advantage of current real estate prices. I've had several conversations with fellow investors wanting to know if I'm buying now and whether or not it's a good idea to add to their current inventory of properties. My reply has been, "How can you not buy at these prices?". Opportunities to buy real estate come and go but opportunities to save up to 60% on real estate are rare. In future years, investors will look back on 2008 -2009 as one of the greatest buying opportunities they've ever experienced. Real Estate profits reaching 200% - 500% of the purchase price will be the norm as we approach the top of the next appreciation cycle. Risks in real estate investments taken now will be greatly rewarded over the next decade, and I believe the profits will exponentially out pace the stock market and retirement accounts that have seen massive losses.
Monday, February 9, 2009
Walking Away From Your Mortgage May Be One Of The Biggest Mistakes You'll Ever Make
While out-and-about, I'm hearing more and more conversations about real estate than I've ever heard before. Whether at the gym or standing in line at the grocery store, real estate appears to be the topic of choice. The recurring themes are centered around property values, neighborhood foreclosures, and who's going through a Short Sale. Those kinds of conversations are innocent enough, but there is a far more insidious kind of conversation that takes place that gets me a little hot under the collar every time it comes up. Many people talk about walking away from their mortgages even though they can afford them and even though they had not planned on selling their homes anytime soon. They somehow feel they have been financially screwed, and the resolve will come in the form of abandonment of their responsibilities.
Ignorance, defined as the lack of knowledge or education, as it pertains to real estate is running rampant through all classes of people. There is a huge difference between buying a home to live and raise your family in and buying an investment property to flip and make a buck off of. Unfortunately, many homeowners have blurred these reasons to buy a home which has contributed to their pretense of losing money. If everyone who could afford their mortgage would spend as much time researching real estate cycles and trends as they do coming up with all the reasons they should shun their financial commitments, they might find that their time line to live in their home is long enough to see the next appreciation cycle which will reward them handsomely with increased equity.
On July 5, 2008, I authored a Blog post (on this site) titled, "Real Estate Cycle Trends Can Be Your Friend". In my post, I detailed the increase of the median home price from 1960 through 2006. The median price of a home based on year was as follows: In 1960 $15,000; 1979- $50,000; 1987- $75,000; 1997- $100,000; 2000- $125,000; 2002- $150,000; 2004- $175,000; 2005- $200,000, and in 2006- $230,000. In between many of these median price increases were corrections that gave back a percentage of the appreciation gain, but that correction has always leveled off and made way for higher highs in the following appreciation cycle. The only irregularity to today's real estate cycle is that the correction cycle and plateau of property values will be approximately 4 years in length instead of 2. The reason for the extended correction cycle is because we're coming off of one of the longest appreciation cycles in history. Because we benefited from 45 year lows in interest rates, the normal 5 year appreciation cycle was replaced with an unprecedented 10 year appreciation cycle. Anyone buying into the 6th - 10th year of this past appreciation cycle was playing with fire because the chance of buying at the top (which you never want to do) grew with each and every year beyond the 5th year. If you were buying in late 2005 thinking you were going to see a huge profit in a few months to a year, you my friend didn't do your due diligence when it came to researching real estate trends and cycles. On the other hand, if you bought a home to live in and raise your family in and bought a home you could comfortably afford (meaning you didn't lie on your mortgage application), and you plan on living in your home for 7 to 10 years which is the national average, you my friend will do OK and will probably make a profit on the sale of your home after weathering the storm.
Another appreciation cycle will come, and when it does, it will exceed the price values of the former cycle. The question you need to ask yourself is, "will I be a homeowner getting to enjoy the ride to the next value peak or will I be renting an apartment while the home I walked away from makes someone else a sizable profit?". You see, if you ruin your credit, you probably won't get the opportunity to participate in the next housing boom. Don't make ignorant decisions that can affect the rest of your life, especially when it's preventable. If you like your home and can afford it, don't worry about it's current "on paper value" because it's value can change on a dime as soon as home value perception turns optimistic. The population is growing exponentially and thousands of young, new homeowners are entering the home buying market everyday. The current inventory of homes will diminish over time and when it does, hold on, because the market will be poised to take off like a rocket. Don't believe me?...take another look at those median home prices again and ask yourself how that happened decade after decade with the same economic and unemployment stress' we have today.
Ignorance, defined as the lack of knowledge or education, as it pertains to real estate is running rampant through all classes of people. There is a huge difference between buying a home to live and raise your family in and buying an investment property to flip and make a buck off of. Unfortunately, many homeowners have blurred these reasons to buy a home which has contributed to their pretense of losing money. If everyone who could afford their mortgage would spend as much time researching real estate cycles and trends as they do coming up with all the reasons they should shun their financial commitments, they might find that their time line to live in their home is long enough to see the next appreciation cycle which will reward them handsomely with increased equity.
On July 5, 2008, I authored a Blog post (on this site) titled, "Real Estate Cycle Trends Can Be Your Friend". In my post, I detailed the increase of the median home price from 1960 through 2006. The median price of a home based on year was as follows: In 1960 $15,000; 1979- $50,000; 1987- $75,000; 1997- $100,000; 2000- $125,000; 2002- $150,000; 2004- $175,000; 2005- $200,000, and in 2006- $230,000. In between many of these median price increases were corrections that gave back a percentage of the appreciation gain, but that correction has always leveled off and made way for higher highs in the following appreciation cycle. The only irregularity to today's real estate cycle is that the correction cycle and plateau of property values will be approximately 4 years in length instead of 2. The reason for the extended correction cycle is because we're coming off of one of the longest appreciation cycles in history. Because we benefited from 45 year lows in interest rates, the normal 5 year appreciation cycle was replaced with an unprecedented 10 year appreciation cycle. Anyone buying into the 6th - 10th year of this past appreciation cycle was playing with fire because the chance of buying at the top (which you never want to do) grew with each and every year beyond the 5th year. If you were buying in late 2005 thinking you were going to see a huge profit in a few months to a year, you my friend didn't do your due diligence when it came to researching real estate trends and cycles. On the other hand, if you bought a home to live in and raise your family in and bought a home you could comfortably afford (meaning you didn't lie on your mortgage application), and you plan on living in your home for 7 to 10 years which is the national average, you my friend will do OK and will probably make a profit on the sale of your home after weathering the storm.
Another appreciation cycle will come, and when it does, it will exceed the price values of the former cycle. The question you need to ask yourself is, "will I be a homeowner getting to enjoy the ride to the next value peak or will I be renting an apartment while the home I walked away from makes someone else a sizable profit?". You see, if you ruin your credit, you probably won't get the opportunity to participate in the next housing boom. Don't make ignorant decisions that can affect the rest of your life, especially when it's preventable. If you like your home and can afford it, don't worry about it's current "on paper value" because it's value can change on a dime as soon as home value perception turns optimistic. The population is growing exponentially and thousands of young, new homeowners are entering the home buying market everyday. The current inventory of homes will diminish over time and when it does, hold on, because the market will be poised to take off like a rocket. Don't believe me?...take another look at those median home prices again and ask yourself how that happened decade after decade with the same economic and unemployment stress' we have today.
Thursday, January 22, 2009
New IRS Tax Rules Will Have Negative Tax Consequences For Investors
With the housing slump being as bad as it is, you would think our government would try to provide incentives for investors and buyers of second homes to help reduce the massive inventory of homes. Instead, new IRS rules are making it less tax friendly to profit from the sale of a second home or rental property. As of January 1, 2009, due to a provision of the Housing Assistance Act of 2008, owners of 2 or more properties will reap far less profit when selling their second home or investment property. As it was before, and as it stands now, owners may still sell their primary residences and not pay any capital gains on up to $250,000 of profit (if single) or $500,000 of profit (if married) if they have lived in their home for 2 of the last 5 years before the sale. This is known as the Primary Home Sale Exclusion. The old rules would allow you to sell your primary residence tax free up to the fore mentioned limits and move into your second home or investment property (for 2 years) making it your new primary residence which when sold, would allow the same tax benefits your previous primary residence offered. Technically, under the old rules, you could move into each investment property you own for a period of 2 years per property and sell them at a profit of up to the 250k & 500k profit limits without paying a dollar in capital gains. Sadly, those days are over.
As of January 1, 2009, second homes and investment properties that you later move into and convert to a primary residence will now be subject to capital gains tax on the percentage of time the house was owned by you but wasn't considered your primary residence. For example, if you owned a second home or rental property for 10 years and you converted it to a primary residence during the last 5 years of the 10 year ownership and you sell the home at a $100,000 profit, you will now have to pay capital gains on 50% of the profit since half the time you owned it, it wasn't your primary residence. Example 2: You owned the rental property for 10 years but only lived in it the last 2 years. You would have to pay capital gains on 80% of the the profit since it was your primary residence only 20% of the time you owned it before selling it.
Why is the government doing this you might ask. It's simple...MONEY! The old rules kept millions of dollars out of the hands of the U.S. Treasury every time an investment property or second home was converted into a primary residence for 2 years and then sold. This new rule is estimated to put Approx. 1 1/2 billion in the hands of the treasury over the next 10 years according to the Senate Finance Committee.
Do you think this new IRS rule will help or hurt the housing market? Post your comment by clicking on the link at the bottom of this blog post.
As of January 1, 2009, second homes and investment properties that you later move into and convert to a primary residence will now be subject to capital gains tax on the percentage of time the house was owned by you but wasn't considered your primary residence. For example, if you owned a second home or rental property for 10 years and you converted it to a primary residence during the last 5 years of the 10 year ownership and you sell the home at a $100,000 profit, you will now have to pay capital gains on 50% of the profit since half the time you owned it, it wasn't your primary residence. Example 2: You owned the rental property for 10 years but only lived in it the last 2 years. You would have to pay capital gains on 80% of the the profit since it was your primary residence only 20% of the time you owned it before selling it.
Why is the government doing this you might ask. It's simple...MONEY! The old rules kept millions of dollars out of the hands of the U.S. Treasury every time an investment property or second home was converted into a primary residence for 2 years and then sold. This new rule is estimated to put Approx. 1 1/2 billion in the hands of the treasury over the next 10 years according to the Senate Finance Committee.
Do you think this new IRS rule will help or hurt the housing market? Post your comment by clicking on the link at the bottom of this blog post.
Subscribe to:
Posts (Atom)
