What Came First? The Chicken or the Egg?

This year I delivered over 100 Holiday Baskets to past clients. Just some mugs, hot chocolate and candy to give me an excuse to ring their bell and make sure my clients are all still alive, have kept up with their Tax Grievances and maybe they want to show me what they did with their home improvement projects this year. They seem genuinely happy to see me so I am on my fourth year playing Santa. It’s always fun to see someone whose life I have changed by working with them to sell a house or buy their first new home (or second). But the nicest part of it all is the engagements announcements, the new babies that were born during the course of the year or someone who is just ready to give birth! Better yet, maybe I’m the first to find out in secret that they are expecting! And then the client’s pained announcement….”This place is just too small! We need to start looking.” Hey it happens! It seemed perfect thing to say when buying their first home. “This is our Forever House.” Engagements, babies, more cars. more stuff. Their Mom’s bring all their stored childhood and high school memories and possessions out of their attic and basement and deposit it on your living room floors for you to “Go Through and Keep what you Want” without notice, “Dad and I were doing a little cleaning up and” ….so it goes! Hey it’s only fair, it’s your stuff and you thought it was important enough to store at Mom’s house so it must be important enough for you to store at your new place! How about, ” I asked her to marry me but she has a lot of clothes, handbags and the shoes! How can a girl have so many shoes?!” That’s the one I heard this week. Some other wants in a new house to list a few – A basement we can refinish into a playroom. Another bedroom to use as an office/ guest room now that the baby is using the second bedroom or maybe a garage for my new spouse’s car. And it goes on and on. “We have to start looking!” they seem to whine like I can sell their house and buy their dream home by tomorrow while looking to see if we can go home shopping before we list. Now I’m all for making money but this need they want me to fulfill is becoming harder with today’s market conditions. The business of buying and selling homes is starting earlier and earlier these days. Global Warming? Not really. It’s still cold out there but market conditions are driving this phenomenon. Business was always a little dead except for closings in December through February just three years ago. Now all the poor buyers who could not get a deal done on a home if their life depended on it in Spring through late Fall are out in full force. Many high producing agent are seeing an uptick of 100 to 500% of homes going into contract in the dead of Winter where there used to be no buyers or sellers in sight! With the lack of inventory, sellers are being trained by good listing agents to get on the market immediately so at least in March through June when their dream homes come on, the selling agent can make a fully approved offer with a straight face and not have to say, “We have something to sell.” That offer with a selling contingency almost never works. Part of a terrific offer is terrific terms which include; We are Ready , Willing and Able. This entails, we are about to close on our home or we are in contract or we have nothing to sell PLUS we are pre approved to buy your house. Otherwise you will not be considered for the purchase. Even if your offer is higher. A $490,000 offer with nothing to sell will always be accepted over a $500,000 with a house which has not even gone on the market place as of yet. Not everything sells immediately and there are pre sale preparations to be made before getting your home on the market which takes time if you want the highest sale price.

And the last plea to my “Want to go out and see whats out there so we know whether we can move” clients is that you moved once to your “Forever Home”, I’m sure I can create a bigger one for you with all the trimmings. The only thing you create by finding your 2nd “Forever Home” before you’ve sold the 1st “Forever Home’ is a lot of heartache! But what do I know? I’ve only bought and sold homes for over a hundred plus clients in the last 7 years.

i-love-this-house

Andra Rosiello Matera
917-750-9855
New York State Realtor
Charles Rutenberg Realty
Plainview, NY 11803

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Getting Ready for Spring Home Sales Now!

Buyers -The Fed has raised the rate for the first time in 2016. As per the Wall Street Journal “The Federal Reserve showed increasing optimism about the U.S. economy and signaled interest rates would rise at a faster pace than previously projected, as it unanimously approved its second rate increase in a decade.” As rates move higher, we are unable to afford as much home as was available to us just six months ago when the rates were as much as 1% lower whether FHA or Conventional. And it’s only on the move upward so there are not going to be any enticing 3.25% FHA rates no matter how fantastic our credit is.

And that’s not the end of the good news! The Fed is anticipating 3 more increases in 2017…..So if you were on the fence, you need to hop on down and find yourself a good ole piece of the American Dream! Owning a home is a fantastic tax exemption. Especially in the first 8 years of your mortgage term (assuming you are taking out a 30 year product) due to the fact that your payments are mostly interest in that first 8 years. Most of you can net as much as 15% more in your paycheck. So if you net $2000 a week in your paycheck, you will probably be looking at $2300 a week take home which means an additional $1200 a month! So why are you paying someone’s mortgage for that one bedroom at $1800 a month?! Home ownership is part of your Wealth Portfolio. If you plan on being relocated for your job, it’s time folks!

Sellers – The good and lukewarm news for you is if you want to sell, you better get off your fence as well. The people with real money are the college grads or people with middle class salaries such as teachers, policemen, firemen and health care workers to name a few. At the beginning of 2016, the sweet spot price point of $350,000 – $450,000 for a first time home buy was easily obtainable with rates between 3% – 4%. As rates click up, that large pool of buyers will now begin to choke on that 4% -5% rate planned for 2017. For example: Instead of being able to borrow perhaps that initial $300,000, new home buyers borrowing power will only afford them a principle of $280,000 at the new higher rates. This means the pool of buyers who can afford that $20,000 optimized price on your home will be slipping out of reach. I’m no fortune teller but there’s been no inventory for awhile. We’ve seen as much as a 20% increase since April of 2012 when the inventory took a downturn. People who need or want to go need to be proactive. It’s called “Cashing Out.” It’s time to get in touch with a capable full time agent who is going to optimize your selling price. Only time will tell but as I say, “Long Island is an aging community being taken over by the incoming young people. It’s time for another Exodus cause all us 20- 30 year home owners are not really digging these Long Island and Westchester Taxes.” And for Pete’s Sake – Don’t wait until March when 300 houses in your town come on the market. They’re your Competition!

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A New Look at a New Time for Real Estate

short hair

Look, Since last April of 2013, the real estate climate has been changing drastically for the better, leaving behind a very painful selling environment ranging from 2007 until early 2013. (that covers New York’s downstate collapse at least) I want to move forward with this blog talking about what is happening in my particular selling area of Long Island’s Nassau and Suffolk counties. Whether it be residential sales, commercial sales, investment discussions, what is happening with the short sale inventory in addition to the increasing  foreclosure inventory within the next six months. For my first blog entry this year I would like to congratulate a few of my buyers and sellers. To give you an idea, I closed  two things between January and February 2013 but this list brings my transactions to a whole new level;

Congratulations to;

The Scali’s on their contracts for our listing in Bethpage

The LaSpina’s first time home purchase in Islip

The Sieman’s on their sale of our listing in Huntington (investment property)

The Goldsmith’s on the purchase of my listing in Huntington (investment property)

The Pierini’s on the sale of our listing in North Babylon

The Campbell’s on the contracts of their first home buy in Brentwood

The Stuve’s on the contracts of their first home buy in Hauppauge

And last but not least, my sister Deborah on the contract of her first home buy : )

 

Does this give you an idea of what is happening out there? People are trying to capture a borrowing rate that is still historically low while homes inch up in price day by day. And the kicker of it all is that inventory is still terribly low leaving the buyers with crumbs to choose from. This by no means dictates a huge incline of price because most of the listings and sales were to first time home buyers. I am seeing budgets of mostly $2400 to $3600 monthly in this category.

 

Stay tuned…………

 

 

 

 

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So You Were Listening! So what is a 1031 Exchange?

What are the 1031 exchange rules?

The real property you sell and the real property you buy must both be held for productive use in a trade or business or for investment purposes and must be like-kind.

The proceeds from the sale must go through the hands of a qualified intermediary and not through your hands or the hands of one of your agents or else all the proceeds will become taxable.

All the cash proceeds from the original sale must be reinvested in the replacement property – any cash proceeds that you retain will be taxable.

The replacement property must be subject to an equal level or greater level of debt than the relinquished property or the buyer will either have to pay taxes on the amount of the decrease or have to put in additional cash funds to offset the lower level of debt in the replacement property.

1031 Timeline

Identification Period: Within 45 days of selling the relinquished property you must identify suitable replacement properties. This 45 day rule is very strict and is not extended should the 45th day fall on a Saturday, Sunday, or legal holiday.

Exchange Period: The replacement property must be received by the taxpayer within the “exchange period,” which ends within the earlier of . . . 180 days after the date on which the taxpayer transfers the property relinquished, or . . . the due date for the taxpayer tax return for the taxable year in which the transfer of the relinquished property occurs. This 180-day rule is very strict and is not extended if the 180th day should happen to fall on a Saturday, Sunday or legal holiday.

Replacement property identification

3-property rule: You may identify any three properties as possible replacements for your relinquished property. More than 95% of exchanges use the 3-property rule.

200% rule: You may identify any number of properties as possible replacements for your relinquished property as long as the aggregate value of those properties does not exceed 200% of the value of your relinquished property.

95% exemption: You may identify any number of properties as possible replacements for your relinquished property as long as you end up purchasing at least 95% of the aggregate value of all properties identified.

Like-Kind Property

In a 1031 Like-Kind exchange you can exchange any real property for any other real property within the United States or its possessions if said properties are held for productive use in trade or business or for investment purposes. Examples of 1031 like-kind exchange property include apartments, commercial, condos, duplexes, raw land and rental homes*. As used in IRC 1031(a), the words “like-kind” mean similar in nature or character, notwithstanding differences in grade or quality. One kind of class of property may not, under that section, be exchanged for property of a different kind or class. Examples of qualified 1031 like-kind properties and like-kind exchanges:

  • apartment building for farm/ranch
  • office building for hotel
  • raw land for retail space
  • unimproved property for commercial property
  • airplane for airplane

Examples of non like-kind properties include primary residences, stocks and bonds, notes, partnership interests, developed lots held primarily for sale and property to be resold immediately after initial purchase or completion of improvements.

* Qualification for Section 1031 exchanges depends upon the extent of personal use.

1031 exchange formats

 

  • Simultaneous
    – Two-party swap
    – Alderson exchange
  • Delayed exchange (most common)
    – Safe Harbor
  • Multiple sales/acquisitions
  • Reverse exchange
  • Improvement exchange

History of 1031 exchange

1918 – First income tax law
1921 – Section 202 of Internal Revenue Code states that gain or loss not recognized on exchanges of like-kind property
1924 – Non like-kind exchanges excluded from Section 202
1928 – Code section changed to Section 112(b)(1)
1954 – Section 1031 enacted
1975 – Starker exchange; Tax court approves delayed exchange
1977 – Tax court reverses prior ruling, invalidating delayed exchanges
1979 – 9th Circuit reverses, reinstating initial ruling and creating delayed exchange
1984 – Congress amends Section 1031; 45 day identification period and 180 day exchange period and partnerships excluded
1991 – Regulations 1.1031 passed
2002 – Revenue Procedure 2002-22 issued by IRS; 15 points to clarify TIC interests

The role of the Qualified Intermediary (QI)

The QI is a 1031 exchange Intermediary or entity that can legally hold funds to facilitate a 1031 exchange. To be qualified, the 1031 exchange intermediary must not be relative or agent of the exchanging party. As an exception, a real estate agent may serve as a 1031 exchange intermediary if the current transaction is the only instance in which the agent has represented the exchanging party over the past two years.

The use of a Qualified 1031 Exchange Intermediary is essential to completing a successful 1031 exchange process. The QI performs several important functions in the 1031 exchange process including creating the exchange of properties, holding the 1031 exchange proceeds and preparing the legal documents.

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Spring Has Sprung For Real Estate Investments

Even with the snow outside, I have taken a few new listings this week. I’d like to talk about the newly renovated property my husband from J & C Contractor’s worked on  for the past two months since this Blog is about making money on REO’s in a down real estate market.  The property is an almost finished product one of my clients bought through me  on speculation.  He wanted to rent  the 2 apartments in the home  with an income of about $3000.  The deal was closed in late November of 2010. My husband Joe had to get involved with the renovaation two weeks before Christmas after my client’s goons just made a mess out of the place.  These are the facts;

My client purchased the property in November  as a bank owned asset,  or REO  for 115K and cash and put in about 50k in fixin’s. That may seem like a good amount for an investor but the truth is, not only is the house very large but  after the purchase of the property, we found out the house was zoned for 2  family by permit.  The comparative sales in the area told us the house could be sold relatively quickly for 259K to 269K.  Why fight the rental market and be a landlord at that point?  Let’s make our 80-100K and get another property through a 1031 exchange  (to hold off the tax man) after closing and work another deal. This time with a 2 month turnaround fixing up a one family purchased at about 100K, fixed up with 30K and sold for 179K – 199K.  Well that’s the plan at least.

The sign went on the lawn last week and even with sub freezing weather and snow the calls are starting to come in. Will update you on the activity and how much my client will walk away with.

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Definitions for the New Coming Investor

Upside Down – When the value of your house is not the same or  less than what you paid for it. Worse yet, if  you went with an FHA loan type  (3.5% down or did a seller’s concession) you may have no equity at all!  This is commonly referred to in the industry as “Upside Down”.

 

Although many are trying to weather  this huge economic turndown in our history that have caused the values of homes to plummet from 20-50% , if the perfect storm is brewing for these “upsidedown” homeowners, it can sometimes culminate into a form of sale commonly referred to as the;

Short Sale – When a mortgagee of property finds himself in the position of not being able for one reason or another to make the payments to the bank or mortgage holder. This is usually due to the hard economic times the country is going through in the last few years  (job losses, cuts in pay, not enough business for small business owners to name a few) Other reasons are the subprime mortgage fiasco where applicants  who were not qualified for the amounts of money they borrowed got loans anyway. To make matters worse, some of those loans were adjustable so to add insult to injury, either you couldn’t afford the adjustment or, hard economic times plus the adjustments upward were just an out an out recipe for disaster.  So what happens to these people? Instead of losing their homes, the bank can field offers for the home that has now been put on the market and can possibly accept one of these offers, leaving the home owner with no cash equity to take away from the sale and perhaps a small $1,500 moving stipend.

The pros of the shortsale

A. Your credit is not destroyed completely and you may have a shorter time to repair your score.

The cons of the shortsale

A. No equity to leave your sale with so where will you go with no money? Most people’s wealth is tied into their home ownership. Do you think this could be trouble? If they had money to walk away with, do you think they would have paid their mortgage in the first place?

B. No rewards – just a lot of paperwork. The burden of proof that you deserve to be able to take less money for your home is on the homeowner who is probably depressed, befuddled and frightened out of their minds. Never mind the fact there must be letters of hardship, bank letters, tax returns etc. etc. provided to the bank so they can decide within 3 months to sometimes over a years time if they are taking the “short” offer. And that is if the buyer waits around long enough. Having personal experience with this, I had to throw up my hands on a second home I had after receiving an offer $20,000. less than what we owed. The bank waited so long that the buyers walked away. What a dissappointment for all concerned.  And this was a house which was not a neccessity! What about the homeowner whoo has no where to go without any money in their pocket even for an apartment. You need credit for an apartment plus first and last months rent and a commission if working with an agent.

C. The shortsale in my opinion is not where an investor should put his money. The price of the short sale is based on comparable sales on recent non distressed sales in the neighborhood minus any work that absolutely needs to be done to the home. So if the home next door is for sale for a fair market value  (because remember fair market value is the most one individual is willing to pay for that property at any given point in time)  should a buyer bid on the non distressed house that can go to contract immediately?  Or should they deal with the bank and hope that the the beurocracy can make up their minds within a 3 month period. I have met more first time homeowners who absolutely will not look at short sales because of  still feeling the sting of a home they absolutely fell in love with in short sale status. And after a long wait and losing the purchase, the purchaser no longer chooses to go this route.  And legitimately so. These rates are not going to stay this way forever! 

BPO – Broker’s Price Opinion – Banks sub contract broker’s out to do an in depth analysis on the value of  a fiscally troubled  home headed towards the short sale process.  This is the value of comparable sales in the area minus contractor costs.  It is the number a bank depends on in a short sale so you can see that it is not a profitable deal for the investor when it is a price set by comparison. Why buy something that has a set value that you can get in thirty days somewhere else. Perhaps on the same block!

The ASSET, REO or FORECLOSURE – Well this is what I’m talking about. After all short sale proceedings have failed and the occupants have been evicted from their home, it is now a “Bank Owned Asset” which is a foreclosed property. In the real estate industry, these properties are  commonly referred to as REO’s. These REO’s are a perfect opportunity for investors as they tend to go for far less than they are worth and if you have cash you tend to be more in the cat bird seat as they say. Wether for a “flip sale” or use as a rental, the REO can be a fine opportunity to make up to 5-15% on your dollar yearly which is more than any other bank in this country is paying on your dollar!  More to come tommorrow on the pros of REO’s as there are not many cons! …..Some but not many.

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So you want to make money in a down real estate market?

 

We are now welcoming in 2011. In the past few weeks I have noticed that real estate agents representing investors are no longer faced with competition from the listing agents as was the case in all of 2009 and most of 2010. As a matter of fact, I notice a lot of new players (listing brokers) at the table who are offering 2.5% – 3% up front and are not even showing their own listings.  They are actually just a vehicle for the banks to do the uploading of offers and all the pain in the neck paperwork we as agents all dread so much. I can almosty guarantee that these agents are just working on the sheer volume of it all which gives a fair chance for other agents to work with their cash investors. This is GREAT NEWS for the agent who is running their investors all around town and for the investor who can now deal with one intelligent agent who answers the phone when beckoned.

I am working with three different sets of very wise investors at the moment – not only because they chose me, (God Bless their souls) but because I have an extensive backround in design and construction costs which makes it easy for us to decide if asking price is Great , OK or just plain Out of the Question!  If they win the bid, (which can happen anywhere from a day to a week) they can choose to fix it themselves or work with my penny wise husband who can whip an investment property into shape within the month for a flip or just a rental income.  More to come on these advantages for the cash investor………

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