Property owners considering “selling” their investment property may want to consider “trading” it in a 1031 exchange.
What Is It? In a 1031 exchange, a property owner “trades” a relinquished property for a “like-kind” replacement property while deferring the payment of federal income tax and some state tax on the transaction.
A 1031 exchange is tax-deferred - not tax-free. When a replacement property is ultimately sold (not as part of another exchange), the original deferred gain plus any additional gain realized since the purchase of a replacement property is subject to tax.
Like-Kind Property All real property is considered “like-kind” with other real property of the same nature and quality. Both a relinquished and a replacement property in a 1031 exchange must be held for investment purposes or for productive use in a business. A primary residence, second home or vacation home does not qualify for a 1031 exchange.
Some examples of qualified like-kind real property include:
- rental property
- office suite
- retail space
- vacant land
Benefits Some of the benefits of a 1031 exchange include:
- Postpone or potentially eliminate tax due on any gain in the sale of qualifying investment property.
- Acquire and dispose of property to reallocate your investment portfolio without paying tax on any gain.
- More money available to invest in another investment property. In effect, you receive an interest-free loan from the federal government in the amount you would have paid in tax on any gain.
Qualified Intermediary A Qualified Intermediary (QI) - an independent party who facilitates the exchange - is required to transact a 1031 exchange. The exchange ends the moment the taxpayer has actual or constructive receipt of sale proceeds of a relinquished property. The QI holds all sale proceeds until funds are needed to acquire a replacement property. The QI then delivers the funds directly to the closing agent.
Mar 22, 2011
Mar 17, 2011
All About Deeds
With a sharp increase in short sale, foreclosure and bank-owned property sales today, the transfer of title (ownership) in real estate from seller to buyer is less likely to be conveyed through the traditional Warranty deed and more likely to be conveyed through one of three other types of statutory deeds.
In the transfer of ownership from seller to buyer, there are varying levels of protection among the four types of statutory deeds. Starting with the deed that offers the most covenants and warranties and ending with the deed that offers the fewest covenants and warranties, the four types of statutory deeds are:
Warranty The seller forever covenants and warrants the title and provides every possible future guarantee to protect the buyer’s title. With a warranty deed, the seller is the rightful owner and has the right to transfer title; there are no outstanding claims on the property from lenders or other creditors using the property as collateral; and the property cannot be claimed by another party. This type of deed is commonly used in a traditional arms-length transaction between Joe Seller and Joe Buyer.
Bargain & Sale The seller does not covenant or warrant to defend the title against any future claim or attack. This type of deed is sufficient to convey all the title the seller has, but does little to protect the buyer from clouds or claims on the title. This type of deed is commonly used by court officials for property that has been seized from the property owner and held by force of law by the authorities.
Special Warranty The seller does not covenant or warrant the title in any manner except against acts by the seller or the seller’s rep. The seller guarantees that nothing has been done to encumber or cloud the title during their ownership. This type of deed is commonly used by major corporations in the sale of property.
Quitclaim The seller makes no covenants or warranties about the quality or extent of the title being conveyed. The seller does not warrant to defend the title or to transfer a valid interest. The buyer has no legal recourse if title problems surface at a later date or if a forgotten lien holder emerges from the woodwork. This type of deed is commonly used when a property owner dies and bequeaths their property to someone; when a property owner gets married/divorced and adds/removes the spouse's name to/from the title; or when property is transferred to a living trust.
In the transfer of ownership from seller to buyer, there are varying levels of protection among the four types of statutory deeds. Starting with the deed that offers the most covenants and warranties and ending with the deed that offers the fewest covenants and warranties, the four types of statutory deeds are:
Warranty The seller forever covenants and warrants the title and provides every possible future guarantee to protect the buyer’s title. With a warranty deed, the seller is the rightful owner and has the right to transfer title; there are no outstanding claims on the property from lenders or other creditors using the property as collateral; and the property cannot be claimed by another party. This type of deed is commonly used in a traditional arms-length transaction between Joe Seller and Joe Buyer.
Bargain & Sale The seller does not covenant or warrant to defend the title against any future claim or attack. This type of deed is sufficient to convey all the title the seller has, but does little to protect the buyer from clouds or claims on the title. This type of deed is commonly used by court officials for property that has been seized from the property owner and held by force of law by the authorities.
Special Warranty The seller does not covenant or warrant the title in any manner except against acts by the seller or the seller’s rep. The seller guarantees that nothing has been done to encumber or cloud the title during their ownership. This type of deed is commonly used by major corporations in the sale of property.
Quitclaim The seller makes no covenants or warranties about the quality or extent of the title being conveyed. The seller does not warrant to defend the title or to transfer a valid interest. The buyer has no legal recourse if title problems surface at a later date or if a forgotten lien holder emerges from the woodwork. This type of deed is commonly used when a property owner dies and bequeaths their property to someone; when a property owner gets married/divorced and adds/removes the spouse's name to/from the title; or when property is transferred to a living trust.
Mar 11, 2011
What's a Lockbox?
Today more then ever, it is critical for a seller to accommodate every showing request no matter the date, time or circumstance. To assist in this, the use of a lockbox - a small, hollow metal box that holds home keys and is securely attached to the front doorknob - is a great tool for a seller while their home is on the market.
By using a lockbox, there is no need for a seller to be home, for the listing agent to attend or for the buyer’s agent to pick up a key at the office. The home key is already located in a secure location at the home for the buyer’s agent to access.
A buyer wants a showing. Their agent wants a hassle-free, smooth showing. The use of a lockbox accomplishes both of these things. Showings are scheduled by the buyer’s agent at the convenience of the buyer, so a showing could take place on a Wed morning, a Fri afternoon or a Sun evening. A lockbox makes all of these showings possible.
There are two lockbox styles commonly used in the Orlando market.
Electronic An electronic lockbox provides a reliable, automated system for home access while a home is on the market. Any time an electronic lockbox is accessed by an agent using their “e-key” and pin number, their name, member ID, and the date and time is electronically recorded. An agent’s e-key is deactivated every 24 hours and requires a daily download of showing activity to be reactivated. A detailed record of all showings can be retrieved online at any time.
The electronic lockbox most commonly used in the Orlando market is the Supra iBox. Orlando Regional Realtor Association (ORRA) distributes and manages all iBox lockboxes and e-keys in the Orlando market. ORRA distributes iBox lockboxes and e-keys only to licensed Florida agents/brokers who are members of ORRA. An iBox and e-key are costly for an agent to obtain.
An iBox can only be accessed 9am to 9pm every day of the week. An iBox automatically locks out access for all other times. If an agent attempts to access an iBox at 7am, the iBox will register the attempted access and give the agent a “rejection” error message on their e-key.
Manual The Shurlok and GE KeySafe are the most popular manual lockbox styles used by Orlando realtors today. The listing agent self-selects an access code before securely attaching a manual lockbox to the front doorknob. The listing agent will then provide the access code to authorized agents for scheduled showings.
Manual lockboxes are helpful for providing easy access to other professionals involved in a real estate transaction such as home inspectors or repair personnel who are unable to access an iBox (these folks don’t have an e-key).
A manual lockbox is inexpensive and can be purchased by anyone at Lowe’s or Home Depot. This style of lockbox is also commonly used by FSBOs.
By using a lockbox, there is no need for a seller to be home, for the listing agent to attend or for the buyer’s agent to pick up a key at the office. The home key is already located in a secure location at the home for the buyer’s agent to access.
A buyer wants a showing. Their agent wants a hassle-free, smooth showing. The use of a lockbox accomplishes both of these things. Showings are scheduled by the buyer’s agent at the convenience of the buyer, so a showing could take place on a Wed morning, a Fri afternoon or a Sun evening. A lockbox makes all of these showings possible.
There are two lockbox styles commonly used in the Orlando market.
Electronic An electronic lockbox provides a reliable, automated system for home access while a home is on the market. Any time an electronic lockbox is accessed by an agent using their “e-key” and pin number, their name, member ID, and the date and time is electronically recorded. An agent’s e-key is deactivated every 24 hours and requires a daily download of showing activity to be reactivated. A detailed record of all showings can be retrieved online at any time.
The electronic lockbox most commonly used in the Orlando market is the Supra iBox. Orlando Regional Realtor Association (ORRA) distributes and manages all iBox lockboxes and e-keys in the Orlando market. ORRA distributes iBox lockboxes and e-keys only to licensed Florida agents/brokers who are members of ORRA. An iBox and e-key are costly for an agent to obtain.
An iBox can only be accessed 9am to 9pm every day of the week. An iBox automatically locks out access for all other times. If an agent attempts to access an iBox at 7am, the iBox will register the attempted access and give the agent a “rejection” error message on their e-key.
Manual The Shurlok and GE KeySafe are the most popular manual lockbox styles used by Orlando realtors today. The listing agent self-selects an access code before securely attaching a manual lockbox to the front doorknob. The listing agent will then provide the access code to authorized agents for scheduled showings.
Manual lockboxes are helpful for providing easy access to other professionals involved in a real estate transaction such as home inspectors or repair personnel who are unable to access an iBox (these folks don’t have an e-key).
A manual lockbox is inexpensive and can be purchased by anyone at Lowe’s or Home Depot. This style of lockbox is also commonly used by FSBOs.
Mar 6, 2011
What Are Doc Stamps?
Doc stamps are excise taxes imposed by Florida law on the transfer of ownership or interest in a real estate transaction. Doc stamps are one of the most expensive closing cost items for both a buyer and a seller. Doc stamps are paid one time at the time of closing and can be seen on lines 1200 to 1206 of the closing statement (also known as “the HUD”).
The rates for doc stamps are as follows:
- Deed $0.70 per $100 of purchase price; customarily paid by seller
- Mortgage $0.35 per $100 of mortgage; customarily paid by buyer
- Intangible Tax $0.002 per $1 of mortgage; customarily paid by buyer
Example: $400,000 purchase price; $300,000 mortgage
- Deed $400,000 / $100 = 4,000 taxable increments x $0.70 = $2,800 customarily paid by seller
- Mortgage $300,000 / $100 = 3,000 taxable increments x $.035 = $1,050 customarily paid by buyer
- Intangible Tax $300,000 x $0.002 = $600 customarily paid by buyer
The rates for doc stamps are as follows:
- Deed $0.70 per $100 of purchase price; customarily paid by seller
- Mortgage $0.35 per $100 of mortgage; customarily paid by buyer
- Intangible Tax $0.002 per $1 of mortgage; customarily paid by buyer
Example: $400,000 purchase price; $300,000 mortgage
- Deed $400,000 / $100 = 4,000 taxable increments x $0.70 = $2,800 customarily paid by seller
- Mortgage $300,000 / $100 = 3,000 taxable increments x $.035 = $1,050 customarily paid by buyer
- Intangible Tax $300,000 x $0.002 = $600 customarily paid by buyer
Mar 1, 2011
Ideal Time to Sell: Holidays
Fresh in to 2011, I am reminded of an odd experience I had working with a buyer over a 'holiday' weekend.
I worked with an out-of-state buyer on Superbowl Sunday. They had a tight time frame, their checkbook and a pre-approval letter - they were there to buy. I attempted to schedule eight showings several days in advance. Still, five of eight sellers denied the showing request because “we are having a Superbowl party”. The buyer saw three of the homes on their list and made a full price offer on one of them the following morning.
There is an incorrect assumption that buyers don’t house hunt during the holidays; this could not be further from the truth. “Buyers take time off, too” and “everyone leaves town for such-and-such holiday” are seller misconceptions. In reality, any extended weekend - national holidays, federal holidays and school closings – is an ideal time to sell your home.
Buyers Have Time & Energy A ready, willing and able buyer wants to house hunt when they have the time and energy for it. A serious buyer will plan an outing with their agent well in advance. These buyers come armed with a good agent, their checkbook and a pre-approval letter. Isn’t this exactly the kind of buyer you’re looking for?
Minimal Competition There is a limited number of homes available for showing – and therefore, minimal competition - during the holidays. A majority of sellers “close up shop” during the holidays. Some sellers go out of town and choose to deny showings while they are away. And other sellers remain home, but choose to deny showings because they are at home with their families and don’t want to deal with the inconvenience of showings.
The upcoming 2011 holidays will afford many buyers an extended weekend to house hunt and potentially buy your home - let them in!
I worked with an out-of-state buyer on Superbowl Sunday. They had a tight time frame, their checkbook and a pre-approval letter - they were there to buy. I attempted to schedule eight showings several days in advance. Still, five of eight sellers denied the showing request because “we are having a Superbowl party”. The buyer saw three of the homes on their list and made a full price offer on one of them the following morning.
There is an incorrect assumption that buyers don’t house hunt during the holidays; this could not be further from the truth. “Buyers take time off, too” and “everyone leaves town for such-and-such holiday” are seller misconceptions. In reality, any extended weekend - national holidays, federal holidays and school closings – is an ideal time to sell your home.
Buyers Have Time & Energy A ready, willing and able buyer wants to house hunt when they have the time and energy for it. A serious buyer will plan an outing with their agent well in advance. These buyers come armed with a good agent, their checkbook and a pre-approval letter. Isn’t this exactly the kind of buyer you’re looking for?
Minimal Competition There is a limited number of homes available for showing – and therefore, minimal competition - during the holidays. A majority of sellers “close up shop” during the holidays. Some sellers go out of town and choose to deny showings while they are away. And other sellers remain home, but choose to deny showings because they are at home with their families and don’t want to deal with the inconvenience of showings.
The upcoming 2011 holidays will afford many buyers an extended weekend to house hunt and potentially buy your home - let them in!
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