1031 Tax-Deferred Property Exchange and Who Wouldn’t Want to Defer Taxes??!!

A 1031 Tax-deferred exchange is a real estate transaction involving the sale of one property with the tax on the capital gain deferred because ofthe qualified purchase of another like-kind property in exchange.  For 1031 exchange purposes, the term like-kind property is interpreted as any type of investment property, rather than property owned for personal use.  The 1031 exchange involves a purchase that must close within 180 days of the sale.  There is also a reverse 1031 exchange in which the sale occurs after the associated purchase.  Investors utilize the 1031 exchange to defer taxes by selling an investment property and using the profits to buy one or more new properties without immediate tax consequences.  Both real and personal property can be exchanged but they are not like-kind to one another.  Almost any property, whether real or personal, which is held for productive use in a trade or business or for investment, may qualify for a tax-deferred treatment under Section 1031.  You can exchange an investment property for any other qualified investment property.  In other words, you have a rental house which now has lots of equity accrued and you would like to sell and purchase two duplexes or sell a duplex and move-up to a small apartment building, etc.  As long as they are “like-kind”, it is allowable.  It’s a great way to continue utilizing both the equity in your investments and other people’s money to acquire wealth through real estate investments.  And, who doesn’t like the idea of deferring taxes?  The tax payer has 45 days from the sale of the original property to identify the new property and 180 days to close.  There are relatively strict rules on the procedures for a qualified tax-deferred exchange, so I use an experienced intermediary to make sure the process is seamless and my tax deferral is protected!  You do not have to use all the funds from the original sale in the exchange.  A tax payer/exchanger can choose to withhold funds or receive other property in an exchange, but it is considered “boot” and will be subject to federal and state taxes.  Anyone owning investment property with a market value greater than its adjusted basis should and could consider a 1031 exchange and I would definitely consult your accountant or CPA!  If you’d like a referral to tax-exchange specialist to further discuss options, please contact me. 

I have noticed that investment properties are “holding their own” in the Portland, Oregon real estate market.  Investors with good credit and/or cash are attempting to locate good rental properties.  Being a landlord is not for everyone but the rewards can be great.  If you think about it, you have someone else paying the mortgage, hopefully a bit of cash flow (and the promise of more over time), plus some appreciation (albeit slow in this market) and the opportunity to set up passive income for the future.  Real estate is also a very tangible investment, as you can drive by…touch and see it.  I love that!!! 

Getting a Loan in a Challenged Lending Market!

Okay….getting a mortgage is definitely not the “loosey-goosey” program it used to be.  You want a home or investment property and are afraid of the looming and blooming credit crunch?  Be not afraid!

• Mortgages are pretty straight-forward.  Not many options, so choices are simpler.  You have 30-year fixed, 15-year fixed, a few ARMs (adjustable rate mortgages) and occasionally another option.  But, the exotic loans of a few years ago are a thing of the past, so less confusion!
• Interest Rates are still VERY Low!  How long will they last?  I certainly don’t know.
• The new Good Faith Estimate guidelines (mostly) protect consumers.  But, the fact is they will protect the consumer from sleasy loan officers.  All fees are disclosed upfront and that amount must stay the same or you will be given up to 7 days to think about it!
• Tax Credit has been extended and EXPANDED!  The tax credit for first time home buyers has been extended till April 30th and the repeat home buyer tax credit has implemented.  See: http://bit.ly/ExpandedBuyerTaxCredit

Change is hard, but the new direction will be good news to the mortgage industry and the consumer!  Appraisers are under a lot of scrutiny, underwriting is a nightmare and if you get a loan you feel like you just got “vetted” for public office!  But, all this new direction in the mortgage and housing industry will ultimately make for a saner housing market…..someday!!!!!

How Bankruptcy Affects Mortgage Loans!

Credit guidelines for mortgage loans are quite fluid these days and continue to change with time.  This information is based on current rules!  The Portland, Oregon housing market has not been hit as hard as some areas of the country but our unemployment remains high.  I see lots of commercial space sitting empty.  Of course, that suggests that “bankruptcy happens” (among other things).

CHAPTER 7 BANKRUPTCY:

FHA FINANCING

HUD requires that a minimum of two years from the date of discharge has passed AND good credit has been re-established.  To get the best interest rate, lenders require a minimum qualifying FICO score of 660 or higher.

CONVENTIONAL FINANCING

The wait period is four years from the discharge date.  To get the best interest rate, you need a minimum qualifying FICO score of 720.

Both loan programs allow an exception to the wait period for cases with extenuating circumstances.  For example,  if the bankruptcy was the result of a job loss, medical bills due to no insurance, disability, etc.  If you qualify for the exception, the wait is one year for FHA and two years for Conventional.

Different rules apply for Chapter 13 AND for consumers who have more than one bankruptcy within seven years.

CHAPTER 13 BANKRUPTCY:

FHA FINANCING

The filing of the Chapter 13 bankruptcy must be approved by the court and the debtor must have been in repayment for at least 12 months.  The repayment history as established by the Chapter 13 must be satisfactory and a credit history must be re-established.  The new mortgage must be approved by the bankruptcy court.

CONVENTIONAL FINANCING

The filing of the Chapter 13 bankruptcy must be approved by the court and the debtor much have been in repayment for at least 24 months.  The payment history must be satisfactory and a credit history re-established.  The new mortgage must be approved by the bankruptcy court.

If the Chapter 13 filing is not approved by the courts (meaning it was dismissed), then the buyer would need to wait four years to obtain a convention loan or two years to obtain an FHA loan!

Profile of Home Buyers and Sellers!

NAR has recently released the 2009 Profile of Home Buyers and Sellers.  The report compiles the results of 9,138 surveys returned by buyers and sellers who sold or puchased a home between July 2008 and June 2009.  The surveys were sent to buyers and sellers based on deed transfers and other public records.  Here are some interesting highlights:

• 47% of all buyers were first time buyers.
• 62% of first time buyers reported that the primary reason for buying a home was the desire to be a homeowner, 35% of all buyers reported that as the number 1 reason.
• The median age of all buyers was 39, same as last year.
• The 2008 median income of buyers was $73,100. The median income of $61,600 among first-time buyers and $88,100 among repeat buyers.
• 83% of all first time buyers are under the age of 44.
• 62% of ALL buyers are under the age of 44.
• 63% of all buyers had not children under the age of 18 residing at home.
• 90% of all buyers used the Internet to search.
• 84% of buyers reported the photos to be the most useful information.
• The number one action taken after viewing a home online was to drive by or visit the home.
• 66% of buyers reported that they used a print ad to search, but between 84% to 90% (depending on the print medium) reported that those sources were “not useful”.
• 36% of buyers found the home they purchased through an agent, 36% found the home they purchased online, less than 3% found the home they purchased in a print ad.
• 78% of buyers purchase their home with an agent.
• 85% of sellers sold their home with an agent.
• 44% of buyers found their agent through a referral from a friend or family member.
• 40% of sellers found their agent through a referral from a friend or family member.
• 10% of buyers purchased a foreclosed property up from 3% in 2008.
• 39% of the mortgages were FHA loans.
• 87% of buyers viewed real estate as a good investment.
• 78% of home buyers purchased a detached single-family home.
• The median sales price of a home was $240,000 in the west.
• 78% of buyers considered commuting costs to be very or somewhat important in their decision.
• The typical home buyer searched for 12 weeks and saw 12 houses.

If you would like a copy of the entire report just let me know and I’d be happy to send you a link!  It’s a great reinforcement for what we have experienced locally in the Portland, Oregon real estate market!!  The internet and a dynamic web presence rules in real estate marketing.  Having as much information as quickly as possible is a definitely plus as more and more younger buyers enter the marketplace and older buyers realize the convenience of internet shopping.  As “smart-phones” continue to be more affordable and accessible, you will most likely see more utilization of instant web flyers sent to phones rather than paper flyers (makes good ecological sense as well).  It’s an exciting time in the world of real estate……stay tuned!!!

Goals for 2010! Procrastination is not your Friend!!

Hey! Welcome to a New Year AND a New Decade! It seems to insinuate a lot of pressure to make resolutions and accomplish new things.  If you live anywhere near the “here and now”, every day actually offers the promise of resolutions realized or not.  I’m always pondering my goals, I do write them down and I actually have to be careful how I frame them as I’m so naturally “hard-wired” for goal-setting and so “type-A” about keeping them!  I say this because life is a “flow” and resiliency and flexibility are paramount to success.  However, I digress!  Any time you set a goal, you have to be looking around the corner for “procrastination” to rear its ugly head!  And, I can promise you that “procrastination is not your friend”.  Not ever!  End of story!  If there’s something you want to do, something you want to accomplish………do not give “procrastination” a ride to anywhere. 

If you’re still considering your “New Year/New Decade” resolutions, I would think these are at least categories to include:

• Family.  It all starts with family.
• Health.  Without health, the rest of your list doesn’t matter.
• Friends.  They’re your “family” not by blood.
• Finances.  You may not care about money, but everytime I go to buy groceries, they make me pay with money???
• Personal Development.  This a core element of a fully realized human being, we just have to keep trying.
• Business Plan.  If you’re in business, you need one. If you’re not, you’re dependent on other businesses you frequent having one.
• Philanthropy.  Once you’ve reached the level of providing for yourself and your family, giving back is essential for fulfillment.
• Love.  YES!!!!!!!!!!!!!
• Education.  We just need to keep learning new things.
• Spirituality.  We need to feel like we leave this earth making a difference (size does not matter).
• Exit Plan.  When, where, how and why will we retire?  What is our legacy?

Lots to think about and some time to do it!  Just don’t let “procrastination” keep you from any one of these.  I promise you “that guy” ain’t your friend.  Just do it!  Happy New Year! 

Health, wealth, peace, love, joy…………..jj

House Hunters Still Busy with the Holidays!!

Lockbox Activity Dips Again

Potential House Hunters Still Busy With Holidays

When comparing the week of December 14-20 with the week prior, the number of times an RMLS subscriber (could be a Realtor or appraiser) opened a lockbox decreased 2% in Washington state and 7.2% in Oregon.
  

Washington

Oregon 

More Changes Coming in the Mortgage Industry! An FYI for Portland, OR Buyers & Sellers!

Again, more changes coming in the mortgage industry!  This time it involves “Good Faith Estimates” for potential buyers.  In order to compare “apples to apples” you must compare a combination of elements when interviewing Mortgage Brokers to partner with you on your next real estate transaction.  One of the first is to speak with other friends or trusted advisors (such as your Real Estate Broker) to get the names of mortgage brokers they have found reliable and referred.  The 2nd step has always been to ask for a “Good Faith Estimate” or GFE.  A GFE has always been a list of closing costs to acquire the loan plus the most appropriate interest rate available from the lenders available to that Broker and, finally, the monthly PITI (principal, interest, taxes, insurance).  Beginning January 1st, 2010 we will see some changes in the industry.  Now a GFE will be more akin to a “Truth-in-Lending” document that was formerly provided during the loan process and, again, with the closing papers.  Truth-in-lending gave you the APR or annual percentage rate (the full cost of the loan including closing costs) and the total of your payments over the life of the loan (never a pretty sight).  Now GFEs will look more like truth-in-lending and the other information, such as closing costs and PITI will be in a summary sheet provided by each mortgage brokerage house.  Another big change is the new requirement for getting a GFE from a mortgage broker or lender and that will include pulling a credit report.  Thus, receiving this document will take a bit more time!

Other changes include that the “Owners Title Policy” (usually a seller paid cost) will show up on the buyer’s GFE (and will be very confusing for buyers…just know to subtract that amount, but it must now be disclosed). Also, the escrow officer in charge of preparing the documents for signing and recording must now compare the original GFE to the final HUD closing document to make sure they are in line.

Just know that you will want to compare both the GFE and the summary to get a true picture of which loan would fit your needs.  This is simply another example of the pendulum swinging (and, perhaps, occasionally “over-swinging”) to compensate for the former “loosey-goosey” lending practices that helped propel us into this new era of real estate.  Sighhhhhhhhhhhhhhhhhhhhhhh!  However, the good news is these new regulations will force marginal Mortgage Brokers to stay the course on fees.

“It’s Hard out There for a Mortgage Broker”!

It’s a difficult time in the money-lending business and Portland Mortgage Brokers are not escaping!  Man, I would not want to be in the business of trying to get loans approved right now.  As if the real estate market needed MORE challenges, getting $$$ has become much more difficult.  It started with condos and new regulations and has filtered throughout the lending world and impacts all property types.  FHA paperwork has become amazingly more redundant and conventional financing demanding higher credit scores and/or more money down.  As a buyer and self-employed small business owner, it has always been a trying process for me.  So, I feel your pain.  It almost becomes a full-time job getting all the reports, paperwork, verifications, letters of explanation and notes from your dead great-great-grandmother.  It’s a wonder we don’t all lose our existing employment while trying to comply with the almost daily requests for additional information.  Well, “it is what it is” for awhile I suspect.  This is the pendulum swinging way too far the other way to compensate for years of “loosey-goosey” lending practices.  I would definitely rely on your Real Estate Broker or the referral of a trusted friend or family member to connect with a reliable Mortgage Broker.  Otherwise, a little patience, understanding and resiliency will help get us through the process.  I often compare the loan and escrow process to childbirth, the memory fades and we have that second child (or get that next loan).  It’s all good!

Portland Metro Monthly Real Estate Stats…Come and Get ‘Em!

The very best to you and yours this holiday season. I hope you are enjoying the magic that also comes at this time of year. We officially start the beginning of winter next week, but that means the days will start lengthening again. I think the Portland real estate market is also reaching the end of a long dark period, and I look forward to a new and brighter year for 2010. The tax incentive for home buyers has been expanded to include certain current or repeat homeowners, so if I can be of service, please contact me at 503-709-0802 or jj@janeesejackson.com.

FAQ’s on Repeat Tax Credit:  http://bit.ly/RepeatBuyerTaxCredit

FAQ’s on 1st Time Buyer Credit:  http://bit.ly/Original1stTimeBuyerCredit

Sales activity in the Portland area increased in November compared to the same month in 2008.  Closed sales were up an amazing 72.4% and pending sales rose 7%. New listings dropped 7%. Year to date pending sales were up 2.6% although closed sales were behind last year’s total by 4.1% (my guess is the number of short-sales that fail to close). Y-T-D listings decreased 19.9%.

The monthly inventory rose just slightly to 7.1 months from the previous month (which is typical for the holiday season), which means it would take approximately 7.1 months to sell the 12,697 active listings. The average price for is down 12.9% and the median sale price declined 11.1% compared to the previous 12 months in the Portland area Metro market.

 As always, information is very neighborhood specific, so contact me for info about your area!

Track your ‘hood or find your new home or investment on this site by signing up for daily listings!  You are enjoying www.fabulousportland.com

Season’s Greetings!!

Buy the Least You Can Buy and Still Be Happy!

It seems like an obvious statement, but whether it’s buying your first home or your move-up or move-down home in Portland, Oregon or elsewhere, deciding how much to spend on a home is often stressful.  Many times it is dictated by how much a mortgage institution will lend you but often buyers have the conundrum of being allowed to borrow much more than they need.  I have maintained since the beginnings of my real estate career in 1985 that it is less a matter of what you can afford and, rather, should be a matter of what you really need (both practically and aesthetically).  There is no “right or wrong” answer to this real estate question as it is entirely a personal decision based on personal circumstances!  There are different needs based on the stage of your life:  single, single w/roommates, newly married, starting a family, family growth and empty nesters.  Often, buyers purchase based on the “fantasy” of what their life is or might be and I always think it is much more prudent to determine your “real life” and make your choices.  Remember, there are plenty of other ways to make real estate investments, like rental properties to plan for passive income in retirement or real estate properties to buy and hold or refurbish!  It probably applies to all things, but in real estate I believe you should buy the least you can buy and still be happy!!!