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Old 02-13-2007, 01:51 PM
 
184 posts, read 1,212,421 times
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Quote:
Originally Posted by Randy Henderson View Post
Be careful on the flipping of homes. First of all, lenders are making it very difficult unless you are using a lot of your own money. Most No and LOW downpayment mortgages require that you live in the home as a primary residence, or that you keep the home a certain time period before selling without penalty. Those rules are set specifically to discourage investors from using those programs.
Correct me if I am wrong....but didn't I read that if you don't hold the house for a certain period of time you have some pretty hefty capital gains taxes, also?
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Old 02-13-2007, 02:25 PM
 
1,174 posts, read 6,944,865 times
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Quote:
didn't I read that if you don't hold the house for a certain period of time you have some pretty hefty capital gains taxes
There's a variety of issues that come into play when you're dealing with income property. If you run it as a business, you can offset profits against expenses and depreciation of business assets. The remainder is current income that would be taxed, if any remains after the deductions.

Another tool is to use the 1031 tax free exchange to defer any profit. You just pick up a like property to replace the other one. No taxes are due until the chain of properties are finally sold.

The tax benefit you're thinking about has to do with your primary residence. It's the 2 years out of 5 years that you need to occupy an owned property to take advantage of the $250,000 of profit not subject to taxation (for 1 person). Basically, you can buy a new home every two years, roll over new profits of $250,000 each time, occupy them as your primary residence for the two years, and avoid paying any taxes on the profit. BTW, if it's a husband and wife who own the property together, the amount not subject to taxation increases to $500,000. The issue is to find real estate that can increase that much in just two years, every two years. If anyone knows where that is, please tell me.

I need to say that I'm not a tax advisor or attorney, so don't take my word as gospel. Be sure to check into thngs for yourself. These observations are just based on my personal experience with rental properties over the years.

Last edited by garth; 02-13-2007 at 02:34 PM..
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Old 02-13-2007, 03:55 PM
 
Location: Ozark, MO
100 posts, read 494,406 times
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The beauty of a 1031 exchange is this:

Lets say you buy a $40,000 house in California in the 50's, and sell it last year for $1,000,000. Uh, oh, you have $960,000 in Capital Gains. You arent keen on handing the IRS $96,000. So you do a 1031 exchange. You move to Missouri, buy a $1,000,000 house, and sink in the whole million in that you got in California. (Actualy you have to do that, in fact, you aren't even allowed to touch the money, it is held by the attorneys).

So now you have a million dollar property with no mortgage, but a million dollar capital gain on it. You can do that as many times as you want, piling the accumulated gain onto the next house - you can eventually end up with a home with a larger gain on it that the house is worth!

Why in the world would you do that?

Cause when you die, the heirs get the property gain free. No cap gain at all - it just disappears.

The downside, of course, is that you can't touch that money, you have to sink it into the other property. However, there is no law that says you cant go get a mortgage after you close. The interest will never be as much as the cap gain would have been - and the interest on the mortgage is tax deductible.

Is this a great country or what?
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Old 02-13-2007, 04:55 PM
 
184 posts, read 1,212,421 times
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Thank you. Lets check my understanding--
If I was going to flip the house (while avoiding the big capital gains tax) it needs to be my primary residence to get the 1031 exchange ...and if I do it as just an investor flipping houses in 60 days (like they do on television) while living elsewhere then I can expect to pay the higher capital gains tax?
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Old 02-13-2007, 06:02 PM
 
1,174 posts, read 6,944,865 times
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No, it doesn't have to be your primary residence. A 1031 exchange needs to be like kind for like kind. Let's say you have a residential rental property, a little 1500 sq foot single family home. It's one you do not live in. It's rented out to another family.

On that property, you can do a 1031 to another rental residential property and defer any capital gains. However, you probably can't do the 1031 from the residential rental to a commercial office building. Even though it generates income for you, it's not like kind for like kind.

Unless Randy can think of a way that a commercial property can be substituted for a residential property, that's how I understand the 1031 issue. I never desired to get involved in commercial properties so the problem didn't arise. I prefered to stay with SFH rentals in decent neighborhoods. It worked for me.

Your personal home can be handled differently. As long as you lived in it for 2 years, out of the last 5, either consecutive or in total, up to $250K profit is tax free. If it's owned by a husband and wife, up to 500K is tax free. You can keep doing that for any and all subsequent properties that you live in as long as you were in them for 2 of the previous 5 years.

That should be clear as mud, right?

Last edited by garth; 02-13-2007 at 06:11 PM..
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Old 02-13-2007, 07:19 PM
 
Location: Ozark, MO
100 posts, read 494,406 times
Reputation: 98
Quote:
Originally Posted by garth View Post
No, it doesn't have to be your primary residence. A 1031 exchange needs to be like kind for like kind. Let's say you have a residential rental property, a little 1500 sq foot single family home. It's one you do not live in. It's rented out to another family.

On that property, you can do a 1031 to another rental residential property and defer any capital gains. However, you probably can't do the 1031 from the residential rental to a commercial office building. Even though it generates income for you, it's not like kind for like kind.

Unless Randy can think of a way that a commercial property can be substituted for a residential property, that's how I understand the 1031 issue. I never desired to get involved in commercial properties so the problem didn't arise. I prefered to stay with SFH rentals in decent neighborhoods. It worked for me.

Your personal home can be handled differently. As long as you lived in it for 2 years, out of the last 5, either consecutive or in total, up to $250K profit is tax free. If it's owned by a husband and wife, up to 500K is tax free. You can keep doing that for any and all subsequent properties that you live in as long as you were in them for 2 of the previous 5 years.

That should be clear as mud, right?

That's correct regarding personal residence. You can't do it with commercial as far as I know. Besides, if are flipping and making over 500k every 2 years, I need to talk to you about being your partner.
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Old 02-13-2007, 09:06 PM
 
1,174 posts, read 6,944,865 times
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Yeah, if anyone knows where I can make 500K on a short term real estate transaction, please tell me . . . but be sure to PM it so we don't let everyone know.
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Old 02-14-2007, 12:56 PM
 
184 posts, read 1,212,421 times
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Default Re: Dishonest and unethical realtors in Springfield, MO

On the website of one "Team" they make it look like all of the listings on the MLs that you access from their site belong to them. (You click on it and even though it is the Springfield MLS it has their banner .

They do have 4 "featured" listings (their own that have been on there for several months and I notice the prices are dropping since they aren't selling) but they say right there on the home page that their listings average Days on Market: 29 and their list price to sale price ratio: 99.09%

If you can't trust people in the little things they can't be trusted in the big things.

Now, with all that being said....I decided to check out by googling Randy Henderson's name to see what his site looked like and I didn't see anything that appeared to be a bunch of hooey. He even says right on the home page that here are his listings and then he has where you can search for homes using the MLS but he has right on there "This isn't just my listings, or just my company listings - this is public access to the entire multiple listing service". (That may be a small thing but I like that kind of honesty!!!!)
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Old 02-14-2007, 07:53 PM
 
Location: Ozark, MO
100 posts, read 494,406 times
Reputation: 98
Thanks for the kind words.

Actally, the setup we have is an agreement between all companies to share listing information through something called IDX (Internet Data Exchange). Basically it means that we can all put a portal to the MLS on our website, and the only person that it displays to contact is the agent with the site. We all have to agree not to cheat (include my yard sign and phone number in the picture of the home, or write "Call Randy for a private showing" in the remarks, for example). If you look at my site, you will see "Courtesy of Murney Associates" or something similar after the listing - that is who has it listed. But if you click on contact info, you get me.
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Old 02-15-2007, 09:47 AM
 
Location: 55 Miles East of Sanity :D
791 posts, read 1,820,155 times
Reputation: 817
Thumbs up Credit due...

Quote:
Originally Posted by Shyandretiring

(That may be a small thing but I like that kind of honesty!!!!)
So do I !!!

I did the same search you did, and knew exactly what you were referring to. It impresses me when business people are forthcoming with information that others may hope goes unnoticed.

^^^^^5 (high 5) Randy
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