Everything You Need To Know About A 1031 Exchange

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1031 exchange do's and dont's

Everything You Need To Know About A 1031 Exchange

1031 Exchange – What is it and How Does it Work?

When you sell a real estate investment, you make capital gains, or at least that’s the hope. Those profits come at a price, though. You’ll owe taxes on the income, which depletes the money you earn.

There’s a way around it.

The 1031 exchange or like-kind exchange is a way around the tax issue. Not everyone qualifies and you must follow the instructions to the letter to make it work.

Here’s what you must know.

What is the 1031 Exchange?

You can do the 1031 exchange in one of two ways. A simultaneous 1031 exchange occurs when you sell a property and buy another on the same day. You transfer the profits from one property to another, never taking possession of the cash, which would trigger the tax liability.

A deferred 1031 exchange occurs when you sell a property, but don’t buy another property right away. To qualify, you must:

  • Within 45 days find another property to invest in and identify your intention by signing a contract and/or notifying an exchange facilitator of your intention. Telling your attorney or real estate agent doesn’t count.
  • Within 180 days of selling the first property or the tax due date including extensions for the tax year, whichever is first, complete the purchase of the second property.
  • Find a property that’s similar (or the same) as the property you sold.

Who Qualifies?

Real estate investors may qualify for the 1031 like-kind exchange. This includes individuals, partnerships, corporations, and LLCs. Anyone who operates as a business may qualify, but only properties you invest in, not live in, count.

What Properties Count?

The properties you ‘exchange’ must be similar, but not identical. For example, both properties must be real estate. You can’t exchange real estate property for a real estate trust, for example. It must be two properties.

As far as how alike they must be, differs. For example, you may sell land with a rental house for vacant land and it would count. As long as both properties are used in a business fashion, not for personal use, they may count.

Additionally, both properties must be within the United States. For example, you can’t sell one property here and buy another abroad and use the 1031 exchange.

1031 Exchange Helps Investors Avoid Capital Gains Taxes

If you’re an investor looking to keep your investments going, the 1031 exchange can help lower your tax liability. It takes careful planning and adhering to strict timelines to make it work. Using an exchange facilitator can help ensure you meet all deadlines so you can take advantage of the 1031 exchange.

Work with your tax advisor too, as this affects your taxes and what you will (or will not) owe. While you’ll pay taxes eventually on the capital gains you earn on real estate, it may not have to be right away if you continue investing after selling a property.

Jose Guevara
Lead Agent
424-209-7899
support@hometuity.com

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Top 5 Improvements That Increase Home Value

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Top 5 Improvements that Increase Home Value

Did you know that not every home improvement gives you a dollar-for-dollar return or even a ‘good’ return on your investment?

Knowing which home improvements matter and will give you a good return on your investment is important, especially if you’re thinking about selling your home soon.

Minor Kitchen Renovations

Renovating your kitchen doesn’t mean demolishing the entire kitchen rendering it useless for a week. Instead, the best return on your investment results from minor, yet helpful kitchen renovations. Many consider them giving your kitchen a ‘facelift’, such as:

  • A fresh coat of paint
  • Upgraded appliances
  • Refinishing the floors

These simple changes may provide as much as a 100% return on your investment.

Minor Bathroom Renovations

Minor bathroom renovations are just as profitable as minor kitchen renovations. In the bathroom, buyers are concerned about square footage, so don’t think you have to add in a soaker tub – if anything, opt for the walk-in shower and updated cabinets and countertops.

If your bathroom has any of the following issues, repair/replace them and you’ll see around a 75% ROI:

  • Replace cracked tiles
  • Update light fixtures
  • Update faucets
  • Replace/repair countertops
  • Refinish the floors

Update the Curb Appeal

It may not seem like much, but your curb appeal can increase your home’s value incredibly. Many sellers see well over a 100% return on their investment. Curb appeal is important because it’s the first thing buyers see.

A well-kept exterior often means the interior is in good condition too. Poor curb appeal turns buyers away. To update your curb appeal, all it takes is:

  • Manicuring the lawn and landscaping
  • Replacing dead/ugly bushes or trees
  • Adding a few flowers
  • Cleaning the siding/painting it if necessary

Paint your House

It’s amazing what a fresh coat of paint can do to a house. This is especially important if you painted in colors that may be more of a personal preference than well-liked.

Stick with neutral colors and paint the entire level. A neutral white or tan color will open things up and make your house look more welcoming to buyers. Painting doesn’t cost much but you’ll see well over a 100% return on your investment.

Repair/Replace Flooring

Flooring is a focal point in the house. If your flooring isn’t ‘pretty’ or needs repairs, it could take away from the home’s value.

If you can repair it, go for it. Otherwise, consider an affordable and neutral flooring option that opens things up and really makes the house feel ‘new.’ It’s amazing what a new floor can do. Like paint, flooring can provide a return that’s well over 100%.

Choose your Home Improvements Wisely

While you should fix up what you want on your house, if you’re doing it for value, focus on the home improvements that provide a decent return on your investment. Why throw money out the window when it won’t affect buyers? If you’re moving within the next few years, these are great improvements to keep in mind to make the most of your investment.

 

Jose Guevara
Lead Agent
424-209-7899
support@hometuity.com

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First-Time Homebuyer Mistakes to Avoid

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First-Time Homebuyer Mistakes to Avoid

Buying your first home is one of the most exciting decisions you’ll make in your life! It comes with a lot of responsibility, but a lot of excitement too. Before you jump in and buy your first home, know the most common first-time homebuyer mistakes people make.

 

Not Getting Pre-Approved

The pre-approval is like your ticket to homes for sale. Sellers want that piece of paper that says ‘yes, they are approved to get financing.’ Getting pre-approved is easy and it makes sellers much more willing to consider your bid.

What to do: Find a lender and get pre-approved. Get quotes from a few lenders (three is a good number) to find the best offer. CLICK HERE FOR OUR HOME LOAN QUALIFIER

 

Spending too Much on a Home

It’s tempting to want the very best (and we want that for you too) but buying more than you can afford only creates financial problems. Just because a bank says you qualify for a certain amount doesn’t mean you have to spend that much.

What to do: Before you buy a home, play with the numbers. See how a mortgage payment fits into your budget. Don’t be afraid to borrow less than you qualify for.

 

Not Leaving Money in your Savings Account

Putting everything you have down on a home leaves you without a cushion. What happens when the A/C breaks or there’s a plumbing leak? When you own a home, you’re responsible for the maintenance and repairs. It’s an eye-opener when that first repair hits.

What to do: Leave some money in your savings account as a buffer, especially if you can’t contribute to your savings for a while after buying a home.

 

Ruining your Credit before you Close

Lenders pull your credit a couple of times during the loan process. They pull it during the pre-approval process, sometimes again during underwriting (if more than 60 days pass from the pre-approval date) and again before closing. If you hurt your credit score during this time, you could lose your approval.

What to do: Keep your credit as stable as possible. Keep paying your bills on time, don’t apply for new credit, and don’t use your credit cards.

 

Making Large Deposits in your Bank Account before Closing

Lenders source every deposit on your bank statement. They track where the money originated to ensure you didn’t borrow it. If you suddenly have large deposits on your bank account, it could delay underwriting and even cause you to lose your loan.

What to do: If you have large deposits, wait until they are in your account for at least 2 months before applying for a mortgage. Lenders consider funds in your account for 2 months ‘seasoned’ and they usually don’t source them then.

 

 

The more time you spend preparing for your first home purchase, the easier the process goes. Finding a home is the fun part, but qualifying for financing and finalizing the transaction requires careful planning and avoiding the top mistakes first-time homebuyers make.

 

Jose Guevara
Lead Agent
424-209-7899
support@hometuity.com

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Selling Your House As-Is, What it Means for the Buyer

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Selling Your House As-Is

If you want to sell your home without doing any repairs, you’re looking at an ‘as-is’ sale. While it may seem more convenient at the time, it’s important to know what it means for the buyer and what it does to your chances of selling the home.

 

What Does it Mean to Sell a Home As-Is?

Before you sell a home as-is, it helps to know what that means. No home is perfect, so not every home is an as-is sale. Common issues that make it an as-is sale include:

 

  • Foundation cracks
  • Mold in the home
  • Leaky roof
  • Termite damage
  • Plumbing issues
  • Electrical issues
  • Title issues

 

If your home has any of these issues (or other major issues) and you don’t want to fix them, it’s an as-is deal. Here’s what it means for the buyer.

 

Buyers Want a Deal

Buyers won’t pay the true market value for a home sold as-is. Instead, they want a below market value knowing they will need to make repairs to fix up the home. Many buyers of as-is homes are investors who fix and flip homes, but not always.

 

Buyers May Have a Harder Time Securing Financing

If a buyer needs financing, they may have trouble getting approved. Most buyers of as-is properties are cash buyers, meaning they don’t have to worry about a lender or loan approval. Sometimes, though, if the issues aren’t ‘serious’ the home may pass an appraisal and traditional lending is still an option.

 

Buyers Want a Disclosure Report

You must disclose that you’re selling the home as-is in the listing, but that’s not all. They’ll want you to disclose everything that’s wrong with the home before they buy it. This helps them make a decision and protects you from the buyers backing out after signing the contract, especially if they have an inspection contingency on it.

 

Buyers Will Negotiate

If you want to arm yourself with the right information, have your home inspected before you put it on the market. This does two things:

 

  • Tells you what is wrong with the home before you list it
  • Gives you time to get quotes from contractors so you know the accurate price of repairs

 

When buyers negotiate, you’ll be more informed. You’ll know exactly how much potential repairs would cost so you know which offers are legit and which are lowballing you when you receive offers.

 

Should you Sell your Home As-Is?

Every seller is different. Think about your reasons for selling your home without repairing it. Are you in a hurry? Do you not have the funds? Do you just not want to be bothered?

 

I can help you decide if selling your home without repairing it is the right choice. We’ll discuss your options, find out how much your home may cost to improve, if the issues aren’t too extensive, and determine what you might lose if you skip the repairs and sell the home as it stands.

 

Jose Guevara
Lead Agent
424-209-7899
support@hometuity.com

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10 Home Inspection Issues Red Flags

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Most homebuyers realize that they can’t expect a perfect home inspection report when buying a resale home. Cosmetic flaws and minor repairs are easily managed and shouldn’t be deal breakers. That said, there are some issues that are more serious and should give the buyer pause if not addressed adequately.

1. Leaky and Rundown Roofing

Watch for signs of current or past water damage.

2. Poor Drainage

Drainage issues can cause serious damage to the home foundation, siding, and basements.

3. Foundation Issues

Signs of foundation problems can include cracks around doors and windows or uneven floors. Foundation problems can cost thousands of dollars to correct.

4. Plumbing Problems

Major plumbing issues should be considered carefully and further explored.

5. Pest Infestations

Termites and other wood-eating pests can cause extensive damage that can be hard to find and costly to repair.

6. Mold

That “musty” smell could be due to hidden mold and further investigation should be taken as mold can be dangerous to the health of the family. Depending on the type of mold, it can be very difficult to remove entirely.

7. Faulty Heating System

A malfunctioning furnace can be a fire hazard.

8. Electrical Wiring

Faulty wiring can cost thousands of dollars to repair.

9. Structural Damage

Sagging joists, rafters, and door jambs can be evidence of larger issues.

10.Deferred Maintenance

A home in poor condition could be hiding more serious issues due to chronic neglect.

*Homebuyers should be alert to these issues and know the costs to repair before concluding the sale. Home sellers should address these issues before putting the home up for sale to ensure they get the best possible sales price.

 

Jose Guevara
Lead Agent
424-209-7899
support@hometuity.com

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