Everett Area Real Estate Blog

At 1031 Exchange Coordinators, we are often asked the pros and cons of doing a 1031 exchange. Whenever I get this question, I have to frame the question in the context of the given current market. As such, given the context of the real estate, political, and banking markets as of right now – Fall 2010 – here are the Top 3 Pros and Cons of doing a 1031 exchange.

First, why you should be doing a 1031 exchange right now:

1. Real estate prices. With the real estate market being as down as it has been over the last few years, property values have gone down considerably. It can be argued that as much as the market was overvalued in 2006 and 2007, the market may well be just as undervalued now in 2010. This simple fact allows any person who can reasonably value property to get a great deal right now on property and exchange their poor performing investment property into a new property.
2. Interest rates. With interest rates lower today than they have ever been, right now really is a great time to take on new debt. It’s so cheap, that in getting into an undervalued property now, you will likely be making more than the loan’s interest rate.
3. Current tax laws. With the current tax laws set to sunset at the end of this year, there is a lot of uncertainty as to what will happen to many tax benefits – 1031 exchanges included. Knowing this, now may be one of the last times to be able to do a 1031 exchange. Don’t wait if you don’t have to!

Now, what are the 3 main reasons not to be doing a 1031 exchange right now?

1. Will you be able to obtain financing? As the mortgage industry has taken a beating for being too passé in its lending requirements previous to the economy slowdown, the industry is now much more stringent. More cash must be brought to the table, credit must be stronger, and cash reserves are more important to underwriters. Add to this heightened scrutiny the fact that 1031 exchange property will most likely need investment financing, which brings even greater scrutiny.
2. Low current tax rates. The government is looking at a whole host of scenarios in how it will tax Americans as the Bush tax cuts are set to end this year, but it is fairly certain that no matter what the government decides, tax rates are bound to go up for most taxpayers. Doing a partial exchange – the property purchased in the exchange is for less than the property sold and taxes are paid on the difference – may be wise as the taxes that must be paid out are likely to be at a lower rate in 2010 than in the future.
3. Better options than a 1031 exchange. There are investments in real estate that are taking advantage of the down market. Distressed owners who are willing to sell great properties at unusually low prices to get the properties off their books. Investors are seeing wonderful returns that overcome whatever taxes are due from getting out of a previously-exchanged property.

1031 exchanges have always been a great general investment for people. However, as is seen above, there are compelling reasons to not do an exchange, especially given the current market. Connect with us and we’d be more than happy to discuss your specific situation!

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Courtesy of Rob & Sandy Racz – Managing Broker, AB, CRS, GRI, ABR    Windermere Real Estate     Rob@EverettRealEstate.com

425.345.7229       www.EverettRealEstate.com

Investing in home: building a foundation for memories

by Tara Sharp

“Of course, thanks to the house, a great many of our memories are housed, and if the house is a bit elaborate, if it has a cellar and a garret, nooks and corridors, our memories have refuges that are all the more clearly delineated. All our lives we come back to them in our daydreams.”

Gaston Bachelard, the Poetics of Space

I have been following the news about the housing market pretty closely and am pretty disappointed with some of the articles declaring a case against homeownership. I couldn’t disagree more. If anything, I see the value of homeownership: responsible financial investment, social stability and community connection as more important than ever.

I was particularly moved by the story in the Seattle Times yesterday about the Lutz family in Ballard, a family with seven adopted siblings that are helping their parents move from their family home to a smaller condo now that their children have left the nest. Though their story is far from typical, it really resonates how home is the center of family life, a place where memories are created and how houses tell the stories of the lives we build while in their shelter.

Homes do that for people. They are the places where some of our most intimate stories unfold.

Finding and creating a home is an emotional, psychological, social and financial investment. There is a lot of energy involved in finding the place to envision the future, raise a family, and perhaps retire. There is no other investment as enjoyable as your own home. Investments in gold or stocks cannot compare to the feelings about a place where you collect memories, create spaces that reflect your ideals and develop to fit your needs over time.

Beyond the emotional ties to home, a number of studies have shown that home ownership has a great impact on feelings of personal autonomy, life satisfaction and increased investment in the community. The sense of satisfaction goes beyond the ability to paint walls whatever color we want, or make improvements to our homes on our own terms. It goes deeper by improving our sense of well being. Furthermore, when we have a stake in the community we live in, we participate more, making our neighborhoods safer and healthier for all members.

Not all the news about the housing market is negative, actually there are many great articles: “in defense of home ownership”, “ten reasons to buy a home “and “a dream house after all” to name a few. But regardless of where you stand on the housing market right now, we can all likely agree that there is no place like a home.

All of our experiences of home are unique. Please share your best memories of home.

Welcome

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Courtesy of Rob & Sandy Racz – Managing Broker, AB, CRS, GRI, ABR    Windermere Real Estate     Rob@EverettRealEstate.com

425.345.7229       www.EverettRealEstate.com