What type of loan do you need to get when doing a 1031 tax exchange?
To recap, if you sell an investment property, a 1031 tax exchange allows you to defer paying a capital gains tax on it as long as you use the funds to purchase another investment property. In other words, you can keep that money invested in the new property and watch it grow.
To qualify for this exchange, you need to be investing in a “like-kind” property, meaning it can’t be your residential home or a second home.
The type of loan you need for this exchange depends on how you hold title to the original property—do you own it in your own name or did you purchase it in the name of an LLC?
If you own it under your name, you can use a conventional loan. If it’s owned on behalf of an LLC, then you need to purchase your new property on behalf of that LLC, and you can’t use a regular residential loan—you need a commercial loan (a client of mine recently found this out the hard way).
It’s very important that you work with a knowledgeable agent when doing a 1031 tax exchange. If you’re thinking of doing a 1031 tax exchange and you need any assistance, don’t hesitate to give us a call.
As always, if you have any other real estate needs, feel free to reach out to us as well. We’d love to help you.
The Real Estate Experts work with a lot of investors, and Teresa Parker from Union Home Mortgage always does such a great job with them, so we thought it would be beneficial to bring her in to answer some loan-related questions for our investor clients.
So, is it better for a real estate investor to purchase a property with cash or with a loan?
Teresa typically recommends that clients review their options. A lender should be able to put something together that will show them the benefits of either utilizing a loan so they’re not depleting all of their liquidity, or buying with cash.
She uses a program that allows investors to clearly see the benefits of purchasing investment properties by using leveraging with a loan versus depleting all of their liquidity to buy a property. This tool can also show people their projected liquid net worth and total net worth over certain periods of time. It can look forward five, 10, or 15 years, and allows you to view a comprehensive analysis of how much better off you would have been if you’d purchased with a loan or with cash. It can also show you whether, if you leave your funds invested as they are, you’ll grow using that vehicle.
A house is going to appreciate at the same rate, regardless of whether it’s fully leveraged or whether it’s fully owned outright. Homes don’t appreciate any faster than what the market dictates. When an investor makes a cash-only purchase, they’re missing out on the opportunity to place those funds in an interest-bearing account, where they’ll grow.
So what are the biggest challenges Teresa faces when working with investors?
One of the issues Teresa has frequently seen, especially with newer investors, is their tendency to convince themselves that they can’t qualify to buy an investment property. While they make a very good income, have sufficient funds to support the down payment, and have the desire to become an investor, they just feel like they can’t qualify.
However, the lender should be able to show the investors ways that they can qualify for buying an investment property, as well as how to utilize and leverage some of the potential rents on the particular property they’re buying. That also helps them with their debt-to-income ratio. Is it better for an investor to purchase a property as an individual, an LLC, or a corporation?
Clients that Teresa works with are buying homes in their own names, whether that be a single-family, duplex, triplex, or quadruplex. Clients that buy using their own name will get regular preferred loan interest rates. If you buy an investment property in the name of an LLC, the loan will be in the name of the LLC. In that case, you’ll be looking for a commercial loan, which have different terms and rates associated with them. In a future video, we’ll address what happens when you buy a property individually and then want to assign it to a corporation.
If you’d like to contact Teresa for questions or information, she can be reached at (919) 697-2598 or at [email protected].
For my team’s part, we would love to know what kinds of questions you have for us. Reach out and let us know, and we’ll be sure to address them in future videos. We hope to hear from you soon!
Many investors think that the way to find the best investment properties is by using off-market sources (foreclosures, probate properties, etc.). The statistics, though, say something different.
Nationally, 83% of all investment properties are found in the MLS. On a local scale, in the last year, 310 investment deals with a 25% increase in value (or a purchase price with a 75% after-repair value) were found in the Triangle market using the MLS.
Knowing that, the Real Estate Experts team has partnered with Privy™, a company that provides software that allows you to find great investment deals within the MLS. Today I’m joined by Benson Juarez, the company’s director of operations and business development, to talk about how Privy™ was developed and how it can benefit you.
According to Benson, Privy™ was built as a way to help them with their own real estate investment clients. They were spending too much time behind their computers trying to find and analyze deals, and the process was becoming cumbersome. With Privy™ software at their fingertips, investors can analyze deals on their own timeline and not rely so heavily on their agent.
Starting at the 6:10 mark in the video above, you can see several examples of how their system works.
If you have any questions for Benson, you can call him at (844) 438-7748 or email him at [email protected].
Remember—finding and analyzing investment deals is an intensive process, so having an investor-friendly agent on your side is key no matter what your situation. As always, if you have any other real estate questions for me, feel free to call or email me. I’d love to help you.
When you’re relocating, many people assume this means they need to sell their home. Of course, you want the money your home is worth so you can pour it into your new home. But is this truly your only option? In some cases, there’s another option. Consider renting out your home!
Maybe you’ve had your house on the market for a while, but you haven’t gotten any bites. Maybe you need to move quickly, and you haven’t had time to market your house properly. Whatever your reasons or your situation, there are benefits to renting your home out.
Why you should consider renting your home out
We know real estate is a good way to make income, make investments, and boost your wealth. All three things sound pretty great, right?
Some people use the equity they’ve built in one house and use it against their next. Buying a house is an incredibly large expense, so it makes sense you might want to use what you’ve built in one house to pay for the next. The option of investment stands, though. You can turn your home into an investment property, reaping the benefits of the added income renting the home brings along.
Turning your home into an investment property surely has some benefits.
The benefits of renting your home out
For starters, you may be able to get better interest rates for your mortgage. You can try talking with several mortgage lenders to find one who will work with you in your individual situation and help you make a financially responsible decide with your property.
You also have the knowledge of potential renters because you’ve lived in the area for a while. At least, for some period of time. You know to market your property, you know it’s strengths and weaknesses, and you can help your favorite real estate professional get to know the property better, too.
Because you’re living in the home before you move (for most situations), you have a chance to fix the property while you’re still living there. Repairs, updates, and new appliances are some issues you can tackle. However, if
you wait until the property is rented out, it’s entirely possible more expensive repairs can be written off with the help of whoever your financial consultant may be.
So, you’re thinking of renting out your home?
Welcome to Club Landlord. There’s work involved here which doesn’t involve extra income. Instead it involves some challenges like finding tenants, finding good contractors, late payments, and more. Maintenance can be difficult, especially when you’re not around to witness the scenes or situations requiring maintenance. Not to mention, there is a financial cost associated with owning a rental property.
There are times when your property will be vacant. There are times when your property will be damaged, or otherwise. One way to seal the deal on an effective and less stressful rental is to find a property management company.
The good news is that a property management company would have your back. At Real Estate Experts, we offer property management services that would fit your every maintenance, property service, and management your rental needs.
At Real Estate Experts, you pay zero lease-up fee, which means we don’t get paid until you do. Once your property is leased, we charge at the bottom end of the spectrum, just 8% of the rent. And that’s our only fee, ever. Not only do we provide some of the cheapest rates, but I also feel confident telling you that we provide the best service you can get.
Have you tuned into ABC, TLC, or HGTV and found yourself lost in the world of house flipping, renovations, and updates? It’s an exciting idea! You can tackle projects that update your home into the house of your dreams. You can add value to your property. Alternatively, you can spruce up a fixer-upper and set that house on the market for profit!
By definition, flipping a house is the process of rehabbing the property, and then selling the home for a second time within a 12-month period. House flipping for profit involves the investment model of buying, selling, and the “rehabbing” of houses for profit. Hopefully, for a quick profit! Even though house flipping is neither easy nor for the faint of heart, the practice of flipping houses is on the rise in the Triangle.
In 2016 alone, 1,202 house flips or house flip transactions were recorded in the Triangle. That’s a 6% year-over-year increase! What’s more? According to a report run by ATTOM Data Solutions, almost 5% of all home sales in the Triangle are actually house flipping transactions. So, where are the profits to be made in our local real estate market?
Most Profitable ZIP Codes in the Triangle
ATTom Data Solution’s report showed there are several ZIP codes in the Triangle with 20 or more home flipping sales in 2016. In fact, there are 26 zipcodes in the Triangle where house flipping transactions were 20, or more. Of all of those house flipping transactions in 2016, the median price originally paid for a home was $144,870, with a median flip price of $218,892. The profit? It’s close to a gross profit of $74,000. On average, flipped homes spent 188 days on the market.
However, there were two ZIP codes in the Triangle left out of the ATTom Data Solution’s report on house flipping because their flip totals were less than 20 units. Don’t let that fool you, though. Their profitability reaches farther than other ZIP codes in the Triangle. Let’s take a look.
Where Are the Profits?
The ZIP code 27601 happens to be the most profitable of all Triangle ZIP codes and regions, with an average of 244% return on investment for the total of 15 house flip transactions in 2016. Which is to say, an average of $207,500 as a gross profit per transaction. That’s not all this ZIP code had to offer, too. 27601 had the highest percentages of house flipping transactions, with 10.2% of all home sales in the ZIP code in 2016 classifying as a house flip. 27601 encompasses the majority of downtown Raleigh.
Next up, and also not included on the master list of 26 house flipping ZIP codes in the Triangle, is the 27608 ZIP code. The return on investment in this area hit an average of 165% on the mere 10 house flipping transactions recorded in 2016. Crazy, right? That’s not all; the average gross profit in this area hit $396,250. 27608 encompasses neighborhoods inside the belt line, and also just north of downtown in Cameron Village.
27601 and 27608 aren’t the only profitable house flipping ZIP codes in the Triangle area. Here are the top ten most profitable ZIP codes in the Triangle:
27701 in Durham
27707 in Durham
27703 in Durham
27597 in Zebulon
27704 in Durham
27603 in Raleigh
27712 in Durham
27615 in Raleigh
27705 in Durham
27609 in Raleigh
Interested in Flipping Houses?
A trusted real estate professional can help you navigate the house flipping process, if it’s what you decide you’d like to do. At Real Estate Experts, we have many years of local experience. We can help you choose a location, find a property, and execute the house flipping process.
We commit to providing our clients the best experience buying or selling homes. We want the process to be smooth for everyone involved. If you’re interested in buying or selling a home in the Triangle area, give us a call anytime at 919-813-6449or send us an email to [email protected].