Month: November 2019

In the USA, the IRS office treats investors far more sensibly and fair than in many other countries – above all much more fair than in Europe.

Imagine the following scenario: You buy a property, remodel it a little and sell it for a profit. You invest this amount again in another property, repeat the same procedure and do not pay taxes again.  There is no limit to how often you can repeat this. And in fact: you never pay any taxes. Fantastic – isn’t it?

How much does my money buy? Find out for free right HERE

And everything is completely legal, you ask yourself? Absolutely! A dream state for European investors. While in Europe every profit has to be taxed, in the USA there is a legal possibility to prevent this. It is called: 1031 Exchange

In overall, that’s how it works:

If you sell your first property at a profit, the profit remains in a trust company. You may not use this profit for any other purpose. Now you have a certain amount of time to acquire another property. A small catch: this object must have at least the same or a higher purchase price than the sum of the preceding object and everything must go in a firmly regulated period over the stage.

Can everyone do this?

Yes: regardless of the immigration status, any person or company can take advantage of this tax advantage. Here is the catch: if a foreigner makes a profit in the USA (no matter with which investment), their worldwide income will be subject to taxation in their home country.

How much does my money buy? Find out for free right HERE

Too bad… Is it?

Not at all: Remember: Officially you are not making a profit yet. It’s tax-deferred and therefore there is no need to mention it in your income statement.   

You can also purchase the property in the name of a company.  Complicated – complex – expensive? Absolutely not. Starting and running a company in the USA is much easier than you know it from Europe. No constant calls, letters or other harassment from the IRS. The annual tax return is a joke. Income minus expenses result in either a profit or a loss. Annual total costs for a company: Approx. $500 which are of course also tax-deductible. If you wish, I can manage this company for you. You can find more about this topic in my blog about companies in the USA. 

Of course, there are a few more little things to consider that go far beyond the scope of this block. Nevertheless, I would like to address the basic questions here so that you can decide whether such an investment is suitable for you.

How much does my money buy? Find out for free right HERE

The term 1031 Exchange is defined under section 1031 of the IRS Code. (1) To put it simply, this strategy allows an investor to “defer” paying capital gains taxes on an investment property when it is sold, as long as another “like-kind property” is purchased with the profit gained by the sale of the first property.  It, therefore, allows a real estate investor to shift the focus of their investing without incurring tax liability. 

Normally when you sell an investment property, you are obligated to pay capital gains tax – if you made a profit. Now you can make a killing using this powerful strategy.

There are 7 primary 1031 Exchange rules. These include: (1) like-kind property, (2) investment or business purposes only, (3) greater or equal value, (4) must not receive “boot,” (5) same taxpayer, (6) 45-day identification window, (6) 180-day purchase window.

1: What are like kind properties?

It means, that the original and replacement property must be of “the same nature or character. In easy terms: you can’t exchange farming equipment for an apartment building, because they’re not the same asset. In terms of real estate, you can exchange almost any type of property, as long as it’s not personal property.

How much does my money buy? Find out for free right HERE

2. Investment or Business Property Only

In other words, you can’t swap one primary residence for another. But after you made a profit with a few swaps, you can purchase your private residence with the money. Now – of course, you finally have to pay your taxes. But imagine the leverage you had while not handing a good portion of your profit back to the IRS every time and instead of using it to gain more. What great leverage!!

3. Greater or Equal Value

the IRS requires the net market value and equity of the property purchased must be the same as, or greater than the property sold. Otherwise, you will not be able to defer 100% of the tax.

4. Must Not Receive “Boot”

In other words, you can carry out a partial 1031 exchange, in which the new property is of lesser value, or this transaction will not be 100% tax free. The difference is called “Boot,” which is the amount you will have to pay capital gains taxes on.  But it’s completely okay, and often used when a seller wants to make some cash, and is willing to pay some taxes to do so

5. Same Tax Payer

The tax return, and name appearing on the title of the property being sold, must be the same as the tax return and title holder that buys the new property. There are a few exceptions to this rule, but it would go to deep to explain in this publication.

6. The 45 day identification window

The property owner has 45 calendar days, after closing of the first property, to identify up to three potential properties of like-kind. This can be really difficult because the deals still need to make sense from a cash perspective

How much does my money buy? Find out for free right HERE

7. the 180 day purchase window

It’s necessary that the replacement property be received and the exchange completed no later than 180 days after the sale of the exchanged property OR the due date of the income tax return (with extensions) for the tax year in which the relinquished property was sold, whichever is earlier.

The most common like-kind exchange types include the simultaneous, delayed, reverse, and construction or improvement exchange

1: Simultaneous Exchange

A simultaneous exchange occurs when the replacement property and relinquished property close on the same day. As the name suggests, these closings occur in a simultaneous fashion. Here the exchange must happen simultaneously because any delay will most likely result in paying taxes.  Yes, it happens, but most common we see the

2: Delayed 1031 Exchange

It occurs when you sell ( relinquish ) the original property before you acquire a  replacement property. Once a buyer is secured, you ( the seller ) must hire a third-party Exchange Intermediary to initiate the sale of the relinquished property and hold the proceeds from the sale in a binding trust for up to 180 days while you look for a like-kind property.

For this, you need a middleman who holds the cash after you “sell” your property and uses it to “buy” the replacement property for you. This three-party exchange is treated as a swap.”

However, the exchange rules require that both the purchase price and the new loan amount be the same or higher on the replacement property.

For example: if you are selling a $500.000 property that had a $350,000 loan, then you would have to buy $500.000 or more of replacement property with $350,000 or more leverage.

For this you have a maximum of 45 days to identify the replacement property and 180 days to complete the sale of this property. In addition to the numerous tax benefits, this extended timeframe is one of the reasons that the delayed exchange is so popular

How much does my money buy? Find out for free right HERE

3: “Reverse Exchange”

Simply said, you buy first and you pay later. It’s tricky because it only works in cash deals. Not many banks offer loans for reverse exchanges. AND: A failure to close on the relinquished property during the established 180 day period that the acquired property is parked will result in a forfeit of the exchange. Therefore it doesn’t happen too often in our area.

4: But we sometimes see the “Construction  / Improvement 1031 Exchange

Here the taxpayer can use the tax-deferred dollars to enhance the replacement property while it is placed in the hands of a qualified intermediary for the remainder of the 180 day period.

In addition, there are 3 requirements the taxpayer must meet in order to defer all of the gains and instead use it as part of the construction or improvement exchange.

1. The entire exchange equity must be spent on completed improvements or as down payment by the 180th day.
2. The taxpayer must receive “substantially the same property” that they identified by the 45th day.
3. The replacement property must be equal or greater in value when it is deeded back to the taxpayer. The improvements must be in place before the taxpayer can take the title back from the qualified intermediary

1031 Exchange Rules, A Recap

It sounds kind of easy, but you should not do it all by yourself. Transactions like these are delicate and you should be sure they withstand further examination by the IRS. Therefore, we urge you to hire professionals who are familiar with these procedures. There are many rules and qualification requirements that you must comply with in order to perform a successful exchange. To sum things up, the biggest advantage of using this strategy is that you can avoid having to pay capital gains taxes on the sale of an investment property. 

How much does my money buy? Find out for free right HERE

As a real estate professional since over 35 years, I can help you with the sale of any existing property and the purchase of a fitting replacement. I will work with licensed professionals for the 1031 exchange so you can be sure everything works out. But in order to gain from this, you have to make the 1st step and purchase your 1st. property. For this take a peek on my website. Go to the “Homebuyer” link and choose from either option. I give you free access to our local MLS and you can search like a pro with no obligation at all.  

Therefore, if you are interested in an investment that does not involve tax payments, please do not hesitate to contact me for further information.

We have plenty of statistics showing us if a vacation home still is a good investment. I.e. let’s take a look at the Tourist tax received by Lee County over the last 12 months:

This is a look by the end of September and therefore right before the season kicks in again: We had the highest income taxes paid since 2012 in the month of September. Take a deeper look at more statistics and numbers at https://www.leeclerk.org/records/statistics That looks promising.  Even all the months before, we had higher income taxes than in previous years. Although, the numbers only went up slightly to a little over 42 Million because there is another issue: Not everyone is honest and reports their rental income. Therefore the numbers aren’t’ 100% correct. But take a look:

But as usual, here comes the “it depends”

In this case, it depends on what kind of home you offer for rent. As always “Demand” and “Supply” regulate the market. And what I’ve ALWAYS said to all my buyers was confirmed again: The bigger the home, the more often you can rent it. In this particular case “Size” matters…… But the size is about the number of bedrooms.  ( What did you think…:-) ? Look at the numbers:

At the beginning of November there were:

• 744 homes for rent with 3 bedrooms
• From them 408 offered a pool
• 351 are offered as vacation homes
• Only 254 homes are offered for rent with 4 bedrooms or more
• From them, only 149 offer a pool and only
• 125 are offered as vacation rentals

This means we got about 65% fewer homes with 4 bedrooms or more for rent.  I rest my case: Demand and supply always work. Although I have to agree by far not all vacation homes are listed in the local MLS. But I did the same check on the usual websites where customers look for vacation homes. The numbers are pretty much the same. 

But there are other factors that decide if you get more bookings. Here is my conclusion about renting vacation homes for the last 15 years:

• 3 bedroom homes get fewer bookings as homes with 4 or more bedrooms
• 3 bedroom homes on any kind of waterfront get more bookings than 3 br off water homes
• Homes with a bigger pool area get more bookings than homes with a small and boring pool area
• Homeowners allowing kids and bigger groups to rent get more bookings
• Homeowners who allow pets get a LOT more bookings as owners who deny pets
• And the most bookings by far get homes offering a big pool area, at least 4 bedrooms, located on any kind of waterfront and who allow bigger groups and pets. Period!

Do I hear a few complaints? Like pets are dirty and require a higher cleaning fee and the more people the more damages occur? All wrong. I rent homes since 2004 and until now I only had damages when renting to kids, but NEVER when renting to tenants traveling with pets. The opposite is true: Travelers with pets take great care of the homes. We had guests where we could not find anything to clean after they had rented a home for 4 weeks with 4 HUUUGE dogs. It was spotless. This happens often.

Pet owners don’t have the same amount of homes to choose from. Most owners are still concerned about the rumor of damages and hairs from the pets they might find. Crap. These tenants are happy to find a home and they have no problem to pay a higher cleaning fee and deposit – just in case. And they usually come back year after year. I have one home that’s already booked for March 2022!! They own 2 dogs.

I still hear some nagging: Yes, bigger homes are usually a little more expensive. I agree. But what sense does it make to save a few 10K and then sit on all these expenses cause nobody wants to rent the home? Tenants are supposed to pay your mortgage and expenses – right? I have one particular home that is ONLY rented during the season and sits empty for the rest of the year. And no: It’s not ugly – the opposite is true: It’s a lovely 3 bedroom off-water home in a good location. And this home has a lot of competition all facing the same problem: They badly need more tenants to cover for all the expenses such a home usually requires. The only solution they all come up with is to lower the rent. My suggestion: Don’t do it. It’s a bad idea. You often get what you pay for. In this case, you are attracting the wrong crowd. Teenagers traveling in big groups aren’t used to treat your investment with the necessary love and care. We’ve seen it. There are better ways to deal with this. I.e:

• Look for a home without a pool
• Bild the pool yourself and build it a little bigger and less boring
• Waterfront attracts people: But even waterfront homes without access to the open ocean rent pretty well

Tenants spending time in Florida come for the outdoor adventure.  That’s why a bigger pool area is what they are looking for. In addition: Don’t forget that when you offer your home for rent, customers decide if they klick your tiny little photo. If this photo shows a sexy pool area, then your chances have just increased by a huge percentage you might get a booking.  If your property isn’t going to be clicked then no booking is guaranteed. Your home must have something that’s different from other comparable homes.

And why do people mostly place the pool alongside the house? It’s the same price to put it straight away from the house facing the canal/waterfront. And adding an invisible edge is the kicker for no extra charge.

A nice kitchen and bathrooms also attract customers, but it’s usually tougher to get them to klick your home if you show a nice picture of your bathroom. But of course, once they are on your side, it sure helps.

How many days per year are homes usually rented?

In order to cover your expenses ( taxes, insurance, pool, lawn, property management, and repairs ) the rule of thumb is, you need to rent a home about 100 days per year to break even.  If you aren’t planning to use your home during the season ( January – April ) then renting 100 days is no problem at all. Snowbirds using their home during this time must try a little harder to reach this goal. I’m always desperately looking for more homes to rent, cause overall each home we manage rents about 150 days/year. The 4 bedroom homes rent up to 300 days per year.

This takes care of the WHAT – now let’s talk about the WHERE:

If you consider the above tips, you are already in good shape to attract vacation guests. If you intend to look for properties on the East coast of Florida, then there is no big difference all along the costs starting in Miami all the way up to Jacksonville. Homes rent easy. One important rule: If you plan or need to rent your home to cover your expenses, avoid gated communities at all costs. I’ve personally seen owners with a nice home being denied to rent their home from one day to the other because the HOA said so. Not much you can do about it.  And it can happen in any HOA. So just don’t go there.

If you are looking to spend your money on the Eastcoast,  I can’t help you with my free MLS access.  It does not cover this area. You have to find a local Realtor, or you can take a peek at Zillow, Realtor.org or Redfin. But only to get an idea. I’ve covered these websites with all their pros and cons in another Blog. They should only be used to get an overall idea.

If your supply of money isn’t endless, you will soon find out how much more you can buy for your buck on the Westcoast.  Cape Coral has the least HOA’s and the most request for vacation homes, while Lehigh has even less HOA’s but a  lot less demand. It’s hard to cover your 100 days in Lehigh although you get by far the most for your money. Upscaled homes still much cheaper than on the East coast, can be found in Fort Myers Beach, Estero and all the way south to Naples.   

What’s holding you back?

Why don’t you take a look at what kind of homes with these criteria are available right now? The easiest way to do this with no obligation and nobody bothering you or tracking your internet search is to go on my website. Click Homebuyers and choose for either option.

Call or email me for any help you might need. I hope this has given you and idea if vacation homes are an investment. For most of my owners, the investment is only a secondary issue.   It’s nice if all expenses are paid by renting the home. Even nicer if there is a decent surplus at the end of each year, but most important for all my owners is the fun factor for themselves.  If tenants love your home, then so will you. And if the rental income covers for all your expenses PLUS your own trips to tr home, then we got a winner.  Don’t worry about earning money with the home:  That’s what the market is for. Keep the home a few years – enjoy it and then sell it for a profit. What else can you ask for? Investment with a fun factor built-in. Great.

Are you in the market to purchase a property? How do you want to get started?  Does it bother you if your phone starts ringing off the hook just because you took a sneak peek?  Do you like to sometimes receive more than 20 calls from Real Estate agents during a short period of time, or do you just want to take a peek and decide yourself, when and if you want to hire help? Is there a better way?  

Rumor has it, Zillow is attracting real estate agents and brokers to their website and since they joined with Trulia, they seem to control about 70%  of online real estate searches.

In overall the big 3, Zillow ( founded 2006 ) , Realtor.com ( founded 1995 ) and Redfin ( founded 2004 ) are the main sources for nearly all buyers in the beginning. At least they take a peek to get a good first opinion. So they think!!

What buyers often are unaware of is the fact, that these websites exist to extract contact information. YOUR information!! These websites are to create leads for Realtors which in return leads to more revenue for the owner of these websites. What a great model – for them! Fact: Have you ever noticed the weird advertising days and weeks later after when you visit other websites? You have been tracked!! Even if your contact info are relatively safe, your general idea is not. You did look for properties. Now for the next few weeks, you get blasted with links and ads about it. In addition, the system is designed to lead to problems for both parties, because there is also a lot of false advertising, delays, and inaccurate data.

Founded back in 1995, Realtor.com is the grandfather of the whole online real estate industry. It’s the official site of the National Association of REALTORS. So you think their data should be accurate and up to date? They say, their data get updated every 15 to 30 minutes.  WRONG: Reality shows it takes about seven days for a home listed on the MLS to appear

Although most MLS’ give permission to these portals to republish their data, the MLS system is very hard to access.  There is no public API to just pull the data, and they restrict membership and access to real estate brokers and their agents.  This means a person selling his own home cannot put a listing for the home directly into an MLS.  This is the reason the data is never complete.

There is also the issue of false information on these sites:  Based on the above-mentioned delay factor, many homes are long sold while they still show “Active” on Zillow and Co. Not very helpful. I remember an email from one of my customers asking me for information about a property she saw on Zillow. After looking it up on our MLS it said “Sold” 4 weeks ago. Since it takes Title Companies a few weeks to close, these data showed wrong information for about 8 weeks.

Next: Take a look at the Agent listed on each property: You would think this is the “listing agent” or the “seller’s agent.” Wrong. It’s usually attached to a paying Realtor client of Zillow. Someone who is looking for leads. Someone looking for people like you. This is one of many Realtors receiving this lead and who will call you right after you enter your contact info. In my opinion, this is taking advantage of people and misleading advertising. OK: If this doesn’t bother you, then you are fine. Most people aren’t.  Most of my customers appreciate to only hear from me.

But what if you simply want to get an idea of the value of properties in your area? Theses free  “Zestimates ” on Zillow look tempting. Ooooh yes, they do, but it would even be better if they are more accurate.  Google Zillow’s CEO, sold his own home in Seattle for 40% less than the Zestimate.  Zestimate showed 1,75 Million – sales prices was only 1,05 Million.  You had to look fast for it on Zillow’s website, cause only days later the value showed a lower Zestimate. The good thing about computers is, the data is never lost. Google has the facts. Look it up.

Here comes the solution:

Zillow has the advantage to give buyers access to properties all over the US.  If you in the market to purchase multiple properties in multiple different areas than Zillow and friends are a great way to start your search. But leave it to this. A start. Try to avoid to hand out your information or your phone will ring off the hook with an unwanted solicitation from Realtors. If you know what you want, you should hire a  local Realtor.

ONE Realtor – but which one?

The basic training for all Realtors is the same. We go to school, take a few tests and we show up for our regular license renewal every 2 years.  And all Realtors have access to the same properties. No excuse. It all comes down to experience and personal liking. Me being in this industry for 35 years says all about my experience – I hope!! If you like me, is completely up to you 🙂 My German roots and my bilingualism often make it easy to deal with both worlds: The European standards and wishes and the tough rules of the real estate industry.

Remember: In Florida buyer aren’t supposed to pay for real estate services. You can hire a local real estate professional who will represent you throughout the whole process. This will not cost you a dime. In addition to professional help, you get the peace of mind, that each Realtor is insured. In case something goes wrong you are safe.

This is how to get started:

On my website, you find the Homebuyer link. There are 2 ways to start your search: One way even gives you the opportunity to search completely anonymous.  The 2^nd choice is to enter your search criteria and personal data in order to receive constant updates if any new listings pop up. Automatically.

The best at the end:

Either way: You get a live connection to our local MLS for free and I promise not to call you unless you ask me. You get all the information about the properties live. The results also include data about neighborhoods, schools, points of interest and demographics.

Pros Zillow:

• free
• listings from all over the US
• Quick and easy to handle

Cons Zillow:

• Price estimates not accurate
• listings often not up to date
• lot’s of unsolicited phone call’s from Realtors
• Zillow sells buyers information
• tracking of your browsing habits

Pros our website:

• no unsolicited phone calls
• live access to the local MLS
• automated updates whenever a new listing matches your criteria
• automated updates for prices changes on properties you like
• no charge
• full and absolutely free access to me and all my resources
• no tracking of your browser habits
• Only Cons: you can only look up LOCAL listings and the system needs info in order to work and get results

How can you make sure you aren’t paying too much with my system?

The only way to find out the value of a property is to look up comparable properties that have been sold in the past. Let me do it for you or do it yourself. Your choice. But give it a try. It’s interesting, it’s fun, easy and it’s free. I’m looking forward to meeting with you soon.

The answer to this question must be split: I subtly notice an increased building volume, especially in apartments in multi-family houses, and I also wonder whether this can go well for a long time to come. In such cases, facts help to find the truth about the market.

Important:

The first thing to do is to establish how many properties are currently being offered for sale on the market and how many have actually been sold in recent months. Thanks to the completely open MLS system, every broker can check and confirm these facts himself. Release 10 October 2019

For single-family houses, it takes an average of 4 – 5 months for the entire stock to be sold at current demand. In Cape Coral it is only 3.4 months and on the islands, it takes much longer. It is similar to apartments. Also here Cape Coral is ahead again. Only in Lehigh, it goes still faster to sell the only small stock. This is not a reliable value, as really only very few apartments are offered in Lehigh.

For Europeans, single-family houses in the water are of particular interest. The facts are quite clear: Cape Coral and Lehigh are far away from the islands. This is mainly due to the much higher prices for waterfront properties in Naples and Marco Island.

Restriction:

Only completed properties are included in this list. Especially in Fort Myers many new apartments are being built. Most of them should be finished during the high season and sold to “Snowbirds”. I myself know approx. 1,000 dwellings in the foreseeable future into the market to come. If the number of the sales should remain the same, then a supply of approx. 10 months results. This is a value that gives a reason for concern. Since freehold flats for the holidays letting hardly come into question and often unreasonable high additional costs have those not to the tenants to be passed on are, is not to be counted on an intensified purchase of these objects by Europeans.

My conclusion:

FOR NOW it does not look like the market is correcting considering these facts. The problem of condominiums remains to be observed and their sale to be awaited. Who therefore waits for a price collapse in order to be able to enter favorably, must practice itself in patience. If you consider to puchase or to invest, a personal consultation makes sense in order to shed light on the advantages and disadvantages of this strategy in detail and according to your specifications.