This show reveals some real life stories of lost opportunities. This show pinpoints the flawed strategy of paying your home off so that when you sell it you can use the money to invest. The time to invest is now not when your home is paid off. Learn how to begin investing now and don’t lose any more opportunities.
Archive for May, 2007
In this show we educate on ROI or return on investment. We explain what it is and the importance of it in a real estate transaction. Many are unaware of what their return is on their home investment. So what is the truth? Find out in this enlightening show!
Sandy Botkin 5-16-07 - Like Kind Exchange Rules Explained: Play Now | Play in Popup | Download (273)
Below are the Show Highlights, click the more button to continue reading. You may also download the PDF of the highlights at the bottom of the page.
Host: Patrick Allman, President, Strategic Equity
Guest: Sandy Botkin , Founder, Tax Reduction Institute
Mortgage Planners offer more than a loan
They offer strategies for maximizing wealth while minimizing taxes. One way to minimize capital gains taxes on investment properties is to sell on
installment. This allows you to defer the tax over a long period of time and earn interest on the money.
Another popular strategy is like-kind exchanges or 1031 transactions. This allows you to avoid taxes if you use the proceeds from one sale to buy other properties. That seems straightforward enough, however, homeowner have been the victims of some widespread confusion about the program.
Myths about like-kind exchanges: You must have one simultaneous exchange—“a complete transaction.” that is, you have to find someone who is willing to trade your property for something else.
• Exchanges are expensive and only for large property owners.
• You will get audited if you do an exchange.
• You have to buy the same kind of property.
• If you live on part of property (such as an apartment complex), you cannot do a like-kind exchange.
Truths/facts about like-kind exchanges:
• They are easy to arrange.
• It is a way to avoid 100 percent of the tax.
• You get to use the IRS’s money (that you would have paid in tax) to buy another property.
• The properties you give up and receive must be investment real estate or real estate you use in your business.
• Personal-use real estate, such as your home does not qualify for the exchange. You cannot exchange your principal residence for another
principal residence.
• You can exchange your investment property with someone’s primary residence, but you must then use that property for investment purposes.
• You must make the exchange as if you are going to sell the old property and buy the new property.
Overview:
In a like-kind exchange, you cannot exchange property for jewelry or stocks. It must be real estate. Generally, all real property is like-kind to other real property. For example, an apartment building exchanged for a number of single family homes you are going to rent out qualifies as a like kind exchange. As does an apartment complex for an office condo or a building for land.
Four players are involved in a like-kind exchange:
• You.
• The buyer for your existing property.
• The seller of the property you want to acquire.
• The agent or lawyer—the intermediary who holds the property and the proceeds until you buy the other property/properties.
The intermediary cannot be someone who has been your employee in the past two years, or your investment banker or broker, attorney, accountant,
or real estate agent. Work with an independent company, such as a title insurance company, escrow company or trust services.
Deferred like-kind exchanges are when you sell your property for cash. However, the cash needs to go into an escrow account. You then instruct your intermediary to buy other properties with that cash within a certain time frame.
Two catches here:
• Within 45 days of the original sale of your property, you must identify the property you want to trade/buy. It’s beneficial to look around for a
property to buy before you sell your old property.
• Within 180 days of the sale of your property, you have to have the new property transferred to you. If you have any net cash on the deal, it must all go back into the property or you will pay tax. The debt you give up should be the same as the debt you are incurring on the property. If you are giving up more debt than you are assuming, the difference is considered “boot”— the old Treasure Island term “booty.”
If cash is coming your way, you can require the exchange buyer to make improvements for the same amount. You want the debt you’re giving up to be
the same as the amount you are assuming. Therefore, there will be no boot.
Benefits of this transaction include:
• Zero tax when you get rid of the old property.
• IRS lets you keep your tax money working for you while you own the replacement property.
• You avoid recapture of depreciation when you do a like kind exchange.
• You might get more depreciation deductions (if you trade for a bigger property, that increases your depreciation).
• You can turn nondepreciable property into depreciable property (i.e. trading land for buildings).
Important rules:
• You may not trade property located outside the U.S.
• You can do a like-kind exchange with a relative, but the relative cannot sell the property within two years.
• If you get into naming the replacement property (which must be done within 45 days), you may name up to three properties during this 45-
day period as long as the total value of all the named properties does not exceed twice the value of the property you relinquished.
01
May
Craig Walsh
Summit County is 1 1/2 hours west of Denver, in the Colorado Rocky Mountains one of its most famous towns is Breckenridge, which includes a superior ski resort.
Craig studied architecture at USC and taught skiing at Mammoth Mountain, California, where he started his real estate career. Summit County is a much more affordable alternative to many of the best ski resorts in North America. Craig’s average sales price is right around $300,000 and second homes comprise about 80% of their total market.
ASSISTANTS/TEAM
Craig has seven licensed agents (including himself) on the team. He is responsible for lead generation and his salespeople, Listing and Buying agents, take advantage of that opportunity.
Additionally, there are four administrative staff members; front desk, Marketing Specialist (assistant to the Listing Specialist), Closing Specialist (handles all of the details once a property is put under contract) and an Assistant Buyer’s Specialist who takes the
leads from the web and “incubates” those leads.
SYSTEMS
Craig is a huge fan of Top Producer 7i. He likes the idea that this version of Top Producer is web-based because it eliminates the risk of data loss from a hard drive crash.
Craig observes that they have “Action Plans” (activity series) in Top Producer for everything from processing contracts and marketing plans to following up with current listings and buyers. These activities automatically populate his daily to-do list, so he doesn’t need to be thinking about it.
MARKETING
Currently, Craig has five websites. He is in the process of investing approximately $10,000 in a new site that will produce six leads every day.
Most of Craig’s buyers come to his site through internet searches so his team is trained to respond quickly. “Response time AND knowledge of the market is critical,” says Craig. “They will talk to other Realtors because of their searches and they need a personal relationship with a Realtor to bring the transaction - and the various parties - together at the negotiating table.”
Craig uses caricatures of himself and his team members on all their marketing materials. He has found that this helps them stand out and significantly differentiates them in the market. The Walsh Team database currently has over 3,000 people in it. Craig feels that as long as the database is segmented and searchable, the size of it doesn’t matter.
KEY ELEMENTS OF SUCCESS
Treat Buyers and Sellers differently. Craig makes a huge distinction between working with buyers and sellers. Buyers want to know that you have listened to them, know what they want and care about them, their needs and preferences. Sellers care about the production and likelihood for success.
Demonstrate effectiveness and productivity. To facilitate educating prospective buyers and sellers, Craig has created a highly visual presentation of the capabilities of the Walsh Team. They secure 90% of the listings they pursue.
