Las Vegas Real Estate,1031 Exchange 

Multi Unit Property-FHA Reverse Mortgage

An Investment Idea A Lot Of People Have Never Heard of...

Here's a real estate investment idea that's so new that a lot of people have never even heard of it: Buying multi-unit property with an FHA reverse mortgage -- living in one unit, renting out the others, and NEVER paying a dime in monthly principal or interest costs.  That's right, FHA permits seniors 62 years and older to purchase residential real estate using a reverse mortgage. Until recently, reverse mortgages insured by FHA were only available on homes already owned and occupied by eligible borrowers. But since the spring of 2008, the agency has offered a new twist: You can go out and buy a house -- a duplex, tri-plex, or quadruplex -- using a reverse mortgage.

Consider this real-life example:

A married couple in their mid sixties is planning to downsize.  They're selling  their California property for about $995,000  They're now looking at a four-plex, with the idea of living in one unit, and renting out the other three units for about $1,200 - $1,300 a month each.  The four-plex would have sold for about $1.2M at the peak of the boom; the buyers are getting an excellent price for the property today.

How could they do all this and never make a mortgage payment?

Here's how:
To qualify for FHA's new “home purchase” reverse loan, they'll take a portion of the sale proceeds from their previous home and make a 35 percent down payment on the four-plex.

Then they move into the unit they've chosen for their own personal use, and rent out the other three units in the building for a combined $3,600 a month -- a rent roll that is realistic and attainable under current market conditions.

Since it's a reverse mortgage, the couple never will have to make a principal or interest payment. Of course they will have to pay their local property taxes and insurance, and maintain the property in good condition.


But bottom line, they've got positive cash flow every month that they can use for living expenses. And with any luck, they'll own an appreciating asset that may be worth more in later years.

Plus, when and if they choose, they can refinance the property, pay off the reverse mortgage debt, move out and convert the unit into all-rental so the entire building is investment property, eligible for a 1031 tax-deferred exchange.

As with all reverse mortgages, before plunging into a strategy like this, get solid financial and estate planning advice from an experienced professional.
Please let us know if there is anything we can do for you.

A 1031 Exchange, otherwise known as a tax deferred exchange is a simple strategy and method for selling one property, that's qualified, and then proceeding with an acquisition of another like kind property (also qualified) within a specific time frame...

The logistics and process of selling a property and then buying another property are practically identical to any standardized sale and buying situation, a "1031 exchange" is unique because the entire transaction is treated as an exchange and not just as a simple sale. It is this difference between "exchanging" and not simply buying and selling which, in the end, allows the taxpayer(s) to qualify for a deferred gain treatment. So to say it in simple terms, sales are taxable with the IRS and 1031 exchanges are not. US CODE: Title 26, 1031. Exchange of Property Held for Productive Use or Investment

NNN (Triple Net Lease) properties are suitable replacement properties for your 1031 exchange.Due to the fact that exchanging, a property, represents an IRS-recognized approach to the deferral of capital gain taxes, it is very important for you to understand the components involved and the actual intent underlying such a tax deferred transaction. It is within the Section 1031 of the Internal Revenue Code that we can find the appropriate tax code necessary for a successful exchange. We would like to point out that it is within the Like-Kind Exchange Regulations, issued by the US Department of the Treasury, that we find the specific interpretation of the IRS and the generally accepted standards of practice, rules and compliance for completing a successful qualifying transaction.  It is very important to note that the Regulations are not just simply the law, but a reflection of the interpretation of the (Section 1031) by the IRS.

Why 1031 Exchange?

Any Real Estate property owner or investor of Real Estate, should consider an exchange when he/she expects to acquire a replacement "like kind" property subsequent to the sale of his existing investment property. Anything otherwise would necessitate the payment of a capital gain tax, which can exceed 20-30%, depending on the federal and state tax rates of your given state. To make it easy to understand, when purchasing a replacement property (without the benefit of a 1031 exchange) your buying power is reduced to the point, that it only represents 70-80% of what it did previously (before the exchange and payment of taxes). Below is a look at the basic concept, which can apply to all 1031 exchanges. From the sale of a relinquished real estate property, we should understand this concept so that we can completely defer the realized capital gain taxes. The two major rules to follow are:

1.  The total purchase price of the replacement "like kind" property must be equal to, or greater than the total net sales price of the relinquished, real estate, property.

2.  Federation of Exchange Accommodators (FEA) All the equity received from the sale, of the relinquished real estate property, must be used to acquire the replacement, "like kind" property.

The extent that either of these rules (above) are violated will determine the tax liability accrued to the person executing the Exchange. In any case which the replacement property purchase price is less, there will be a tax responsibility incurred. To the extent that not all equity is moved from the relinquished to the replacement property, there will be tax. This is not to say that the (1031) exchange will not qualify for these reasons. Keep in mind, partial exchanges do in fact, qualify for a partial tax-deferral treatment. This simply means that the amount, of the difference (if any), will be taxed as a boot or "non-like-kind" real estate property.

1031 Tax Deferred Exchange THE 1031 Exchange Rule

A property transaction can only qualify for a deferred tax exchange if it follows the 1031 exchange rule laid down in the US tax code and the treasury regulations.

The foundation of 1031 exchange rule by the IRS is that the properties involved in the transaction must be "Like Kind" and Both properties must be held for a productive purpose in business or trade, as an investment.

The 1031 exchange rule also lays down a guideline for the proceeds of the sale. The proceeds from the sale must go through the hands of a "qualified intermediary" (QI) and not through your hands or the hands of one of your agents or else all the proceeds will become taxable. The entire cash or monetary proceeds from the original sale has to be reinvested towards acquiring the new real estate property. Any cash proceeds retained from the sale are taxable.

1031 Exchanges - The second fundamental rule is that the 1031 exchange requires that the replacement property must be subject to an equal or greater level of debt than the property sold or as a result the buyer will be forced to pay the tax on the amount of decrease. If not he/she will have to put in additional cash to offset the low debt amount on the newly acquired property.

1031 Exchange Rules and Time Lines:

There are 2 time lines that anybody going for a 1031 property exchange or (NNN) should abide by and know.

The Identification Period: This is the crucial period during which the party selling a property must identify other replacement properties that he proposes or wishes to buy. It is not uncommon to select more than one property. This period is scheduled as exactly 45 days from the day of selling the relinquished property. This 45 days time line must be followed under any and all circumstances and is not extendable in any way, even if the 45th day falls on a Saturday, Sunday or legal US holiday.

The Exchange Period: This is the period within which a person who has sold the relinquished property must receive the replacement property. It is referred to as the Exchange Period under 1031 exchange (IRS) rule. This period ends at exactly 180 days after the date on which the person transfers the property relinquished or the due date for the person's tax return for that taxable year in which the transfer of the relinquished property has occurred, whichever situation is earlier. Now according to the 1031 exchange (IRS) rule, the 180 day time line has to be adhered to under all circumstances and is not extendable in any situation, even if the 180th day falls on a Saturday, Sunday or legal (US) holiday. 

If you'd like for me to get to know you better or if you have questions regarding buying or selling in today's real estate market, schedule a complimentary telephone conference.  I welcome the opportunity to be of service.

Oh, by the way, if you have any friends or family who are thinking of making a move and would benefit from our service, I would love to talk to them.  Just give me a call with their name and number and I would be happy to follow up and take excellent care of them.
 

Contact 702-677-8796

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