Why NOW is the Time to Do a 1031 Exchange

Many property owners see the values of their properties lower today than in the past few years and are reluctant to sell those properties at declined values. Some investors, however, see today as the time to attack the market.

Consider the past for a moment. A few years ago, an investor may have sold an investment property that he owned free and clear for $275,000. He could have taken that money, done a 1031 exchange real estate, and leveraged the proceeds into two properties worth $200,000 each. He would have needed additional funds in the amount of $125,000 to achieve this goal, which he would have contributed out of his own funds or, more than likely, borrowed. Once acquired, the investor may have rented those properties for $1,300/month each. The monthly cash flow after debt service may not have been strong, but the investor may have hoped for future appreciation.

What if the same investor had held on to his property instead? Today, that property would surely not be worth $275,000. If he were to sell that property today for $175,000, he could still purchase two properties at reduced values, most likely for cash. In addition, if the investor traded the properties in a 1031 exchange, almost all of the original proceeds could be used for the purchase of the new properties without offset for taxes. Although the amount of rent collected would likely be less than a few years ago, there is no debt service to pay. This is a substantial benefit to the investor, as he has pure positive cash flow.

Many investors are taking advantage of the market and setting up their financial futures. Have you spoken with your advisor and First American Exchange to set up yours? Also, if you’re looking for other opportunities to invest and take a more aggressive approach to invest for your future, you may wish to look at the stock market for companies that have the potential for future growth, such as looking to buy RKT shares for instance.

Thank you to Jim Ogan of First American Exchange for this article.

Jim Ogan
Business Development Manager
(503) 740-3453
Email Me

What is it like getting a loan these days? Are lenders lending?

1. They have money but do not need to lend money to make money! I am not qualified to speak with credibility about the financial markets or even the mortgage markets. However, what I understand from my reading, questioning, and our transactions, is that banks and institutional lenders are flush with cash. The Federal Reserve has been bloating them with money for over two years. The effect? They have money to loan, but do not HAVE to loan money to make money, particularly in the ‘risky’ housing market. The spread they receive from short-term money through the Federal Reserve satisfies their appetite for profits (which are high). If you have good credit and significant down payment money, you will get a loan (even jumbo money) at attractive terms. If you do not hit their sweet spot, forget it, or be prepared to be treated like a terrorist trying to destroy their lending industry!

2. Lenders have made transactions long and grueling! During our transactions banks now kill more transactions than inspections ever used to. Banks are making absurd demands and underwriters make assumptions about things they know nothing of. Their ‘conditions for funding’ (at the end when we should be closing) are absurd and impossible. Banks, particularly federally charted banks, completely ignore state laws and local customs making the process unpredictable, and dictate their demands with arrogance as if we all were the cause of all this mess rather than they were. It is safe to say that the insanity of the days when they would lend to everyone who could fog a mirror has been replaced by the madness of bureaucratic desk jockeys finding more and more reasons to kill a deal and so ‘protect the industry’.

3. I used to say that 30% of all transactions are challenging; today if feels like almost every transaction is difficult and saps years off of our lives every time we wrestle the bear. Expect difficulties whether you are selling or buying.

Randy McCreith, Principal Broker

Randy McCreith, Principal Broker

Bella Casa Real Estate Group
503-310-9147 Cell
randy@thebellacasagroup.com
www.TheBellaCasaGroup.com
 
The Marshall Building
207 NE 19th Street, Suite 100
McMinnville OR 97128
866-281-6653 Fax

Buy. Sell. Be Happy.

 

 

Published on: Mar 22, 2011

Yamhill County Home and Garden Show April 1-3, 2011

April 1-3, 2011!

This local, community home show will feature garden and landscaping ideas, home remodeling tips and home improvement displays from Yamhill County’s top local craftsmen. If you are considering hiring a contractor or doing the work yourself, this show is for you.

Visit www.yamhillhomeshow.com or email kaleb@wvpevents.com for more details!

Dates & Times

April 1st – 3rd, 2011
Friday: 3pm-8pm
Saturday: 10am – 8pm
Sunday: 10am -5pm

Admission

$2 for each adult. Children 16 years and under are free.
Bring a canned food item and receive 2 for 1 admission.
Free parking.

Location

McMinnville Community Center
600 NE Evans Street, McMinnville, Oregon 97128

 

Portland Metro Market Conditions

Randy McCreith, Principal Broker

March 21, 2011

View the full Portland Metro Market Conditions Report with all graphs.

This monthly market analysis is a commentary and commentators have much more latitude than pure journalists. With that in mind, I want to give a quick update on the numbers in the monthly report and then comment on other market conditions beyond the numbers. Regardless of the cable channel you watch for news and commentary, half the people cheer in agreement and half the people jeer at the ‘liar’. I expect no better treatment!

The Numbers…

Improved closed sales and pending sales in February confirm we did have a good start to this year. Looking in the first chart of pending sales, you will see that we are tracking a bit better than 2009, but worse than 2010 which was artificially improved by the tax credit. Inventory is lower than the past years (good for sellers) but this seems to be caused by seller reluctance to list their homes, rather than by the rate of sales (not as positive).

Our average sales price and median price is down between 8-10% from a year ago. Definitively now, our prices in the Portland metropolitan area on average are where they were in 2004 (this is amazing). The good and the bad! This seems to well illustrate a continuing condition where we get encouraging and discouraging information mixed. Sales numbers may be improving but values continue to drop. We long for the days when the good news becomes predictable and a trend.

I often get asked about market conditions beyond sales statistics. Stay tuned for upcoming posts about the three most common questions I receive and my usual responses.
Randy McCreith, Principal Broker

Bella Casa Real Estate Group
503-310-9147 Cell
randy@thebellacasagroup.com
Bella Casa Blog
207 NE 19th Street, Suite 100
McMinnville OR 97128
866-281-6653 Fax

Mortgage Rates as of March 17, 2011

Mortgage Rates

The following conforming rates and APR(s) are based on an 80% loan to value, owner occupied purchase with a loan amount of $150,000, a 30 day lock, a 1% loan fee, payment including reserves, and with no discount fees. Rates are subject to change without notice.  As a comparison a .125% difference in rate for a $200,000 loan is $15.44 per month

Conventional Rates (up to $417,000 & Credit score of 740+)

30 Year 4.75%   (4.989% APR)
15 year 4.125% (4.370% APR)

Government rates (FHA 3.5% down – Credit scores above 680)

FHA 4.50% (4.619% APR)
VA 30 Yr 4.750% (4.993% APR)
USDA 30 yr   4.875% (5.119% APR)
FHA loan limits now to $271,050– Quad Cty – Mult, Wash, Clack and Yamhill*

Mortgage Updates

100% USDA – Even though we might refer not to use 100% financing this is as safe of an option as there is – except VA.  This loan is available in any town in Oregon with a population of under 25,000.

Go to http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do to see if your listing is eligible for 100% financing.

CREDIT SCORES – This is still a big issue. Most FHA, VA, and USDA lenders now require a 640 credit score or above.  The Conventional lenders want an even higher score.  So it is more important than ever for borrowers to be pre-approved and credit reports pulled.

Naida Paris
Valley Mortgage Group at
Willamette Valley Bank
Cell 503.550.6556
Office 503.538.1072
Fax 503.538.6682
naida.paris@wvbk.com
www.wvbk.com/naidaparis

Cleaning Rain Gutters

Article by HouseLogic.com
By: Pat Curry
Published: October 8, 2010

Clean gutters to protect your siding and landscape plantings, and prevent thousands of dollars of damage to your foundation.

How often to clean gutters

First and foremost, it is important to know the importance of a gutter system in the house. If you do not have it installed, Lynchburg gutters specialists (or experts in your area) can be contacted. Now to our topic of concern, we should clean gutters at least once a year-twice a year if there are overhanging trees. Also, cleaning clogged gutters after big storms is important. Clogs often occur where downspouts join the gutter system-check these areas closely. Get in touch with local experts for a free gutter inspection.

How to clean gutters

  • Wear a shirt with long sleeves. Wear rubber gloves.
  • Have a good extendable ladder a vailable. Standoff stabilizers (ladder “horns”) are ideal to keep the ladder from damaging the gutter. Oh, that might not even be mandatory! You can clean gutters without a ladder too!
  • Use a small plastic scoop to remove gunk. Buy a gutter scoop from the hardware store ($25) or try a child’s sand shovel.
  • Spare your lawn by dumping the stuff onto a plastic tarp.
  • After you’ve cleared the muck, flush the gutters and downspouts with a garden hose-also a great way to spot any leaks.

Cost of a professional gutter cleaning

If climbing ladders is not your cup of tea, you can hire someone from the likes of Gutter Cleaning BIrmingham or similar companies in your area to do the job for you. It might cost you somewhere between $50 and $250, depending on the size and height of your house, as well as the company you choose.

Gutter covers

Interested in an ounce of prevention? You can slow clogging by installing gutter covers in the form of mesh screens, clip-on grates, or porous foam. However, the cost can be more than the gutters themselves and covers need regular maintenance to keep them clear. Expect to pay $6 to $8 per running foot for gutter covers, installed.

Serial remodeler Pat Curry is a former senior editor at BUILDER, the official magazine of the National Association of Home Builders, and a frequent contributor to real estate and home-building publications.

The Contractor Bond: When a Handshake Isn’t Enough Assurance

Article by HouseLogic.com
By: Nancy Mandell
Published: February 24, 2011

“Word is bond,” the saying goes, but with home improvements, the contractor bond should be in writing. Though you may have gone through the relevant processes to ensure that you are hiring the best contractor for the job, from somewhere like multi-m-contracting.com, for example, it is always a good idea to get your agreements and everything else that may need speaking about down in writing to ensure that they can adhere to what they have set out to achieve. In fact, doing this may just be the best thing that you ever decide to do.

What is a contractor bond?

When a contracting company tells you it’s bonded, that means it’s purchased a product, typically from insurance or bond companies, called a “surety bond.” This is a three-part agreement between:

  • You, as the customer, called the “obligee.”
  • Your contractor, called the “principal.”
  • The surety company that issues the bond.

The surety bond is a guarantee that contractors will offer certain services to you, as outlined in the work contract, and if they don’t, you can report the problems to the surety company and get a cash payment.

Different kinds of contractor bonds

Surety bonds have wide application in the business world, but only a few types are relevant when dealing with home improvements contractors:

  • Performance and completion bonds. These ensure the work will be performed and completed to your satisfaction, as outlined in the contract. As attorney Jack Harari of Weidenbaum and Harari in New York says, if the contractor bungles the job, just walks away from a half-finished job, or even goes belly-up right in the middle, you’re covered. Insist on these bonds for any building jobs.
  • Payment bonds. These protect you against claims from subcontractors. If the contractor you hired to build a garage doesn’t pay the supplier who sold him the cinder blocks, the supplier will have recourse against the contractor. Why should you even care? Because a stiffed subcontractor could come after you, even if there wasn’t a direct contract with you. These bonds are only necessary if your contractor is making major outlays to other suppliers and contractors.
  • License and permit bonds. If state authorities require licenses or permits to do business, they may require contractors to purchase these bonds. Provisions may vary from one location to another.

It can be comforting to know that a license automatically means a bond, but don’t assume that these bonds will be enough: They may not have a high enough financial ceiling to cover your job, and they might not include a payment bond for subcontractors.

Read the bond’s fine print

Since each bond’s provisions may vary, you have to sweat the details:

  • Before any contractors start work, find out who has bonded them and exactly what for. Does the contractor bond specifically cover what is outlined in your contract? Can they show you a “certification” providing they have the bond?
  • If bonding comes with a state or local license, make sure the contractor’s license is up-to-date. Your town or county may have an online list of local contractors who are licensed, and the builders themselves should have proof.
  • Never assume, says Wayne B. Heicklen, Co-Chair of the Real Estate Group at New York law firm Pryor Cashman. He advises you to read the financial details of the bond so you know what you’re going to get and under what circumstances.
  • Don’t skimp! It’s true that premiums for bonds are expensive and as a result, a bonded contractor may charge 1% to 3% more for a project than an unbonded one. But if you go with an unbonded contractor to save a few bucks, you may regret it later. The unbonded contractor may have been unable to get a bond because of past mistakes, just as a driver with multiple moving violations would have trouble getting car insurance from a reputed insurance company (click here for an example).

Nancy R. Mandell is a New Jersey-based financial writer who has worked for On Wall Street and Wealth Manager magazines. A longtime home owner, she has had to work with her share of contractors over the years.

Published on: Mar 18, 2011

1031 Basics: What Not to Do in a 1031 Exchange

Although tax deferred exchanges under Section 1031 have become quite common, most people outside of the exchange industry are not familiar with the legal requirements surrounding a successful tax deferred exchange. A 1031 exchange can benefit you if you are a real estate investor, but it is important to know the rules surrounding it. Certain strict timelines apply in every 1031 exchange, including: (i) a 45 day “identification period” and (ii) a 180 day exchange period. Each of the foregoing time periods commences on the sale or transfer of relinquished property. Starting then, the taxpayer must deliver a written identification letter to a qualified intermediary or other party to the transaction that describes the property sought to be acquired as replacement property in the exchange. The taxpayer must actually receive the replacement property identified in the exchange no later than the earlier of the 180th calendar day following the transfer of the relinquished property or the due date for the exchanger’s tax return, including extensions. There is a lot more nuance to the rules, but if you want to learn more, click on What Not to Do In a 1031 Exchange.

Don Leadroot, Esq.
NW Representative
Direct: 503-819-2663
don@apiexchange.com
2020 SW Fourth Ave., Suite 190
Portland, OR 97201

Foreclosure Levels Fall

Despite claims by banks that they are ramping up repossessions again and refiling foreclosure documents, the numbers don’t appear to prove that. According to RealtyTrac, which tracks national foreclosure statistics, foreclosure filings fell 14% from January to February. They also declined 27% on a year-over-year basis.  That is the largest annual drop since 2005 when the housing crisis began.

This is providing yet another layer of stability in the national housing market along with recently reported higher than expected Existing Home Sales and lower than expected inventory levels which combined with rates that are very attractive – could combine to make a very nice purchase season this Spring/Summer.

What Happened to Rates Last Week?

Mortgage backed securities (MBS) gained +14 basis points from Monday’s open to Friday’s close which helped to move mortgage rates down slightly. Mortgage Backed Securities sold off early in the week on the strength of the Wholesale Inventories report but rebounded on some decent demand for our 10 year and 30 year Treasuries.

Bella Casa Brokers Receive Grand Tour of A-dec Facility in Newberg

On Monday March 14th, a large group of Bella Casa brokers received the grand tour of A-dec in Newberg, which is an eminently successful dental manufacturing company with world-wide markets. We were graciously guided by Ralph Osburn, IS Technology Manager for A-Dec, who is also the husband of Bella Casa broker Roberta Osburn.

The following article was written by Bella Casa broker Grace Allen Harding:

As a group of our Bella Casa Real Estate brokers met at the appointed time and place early Monday morning, the first of many questions was directed to our tour guide.  “Is it normal to feel an anxiety attack about now?”  Though we all smiled with a common understanding, our guide continued with his detailed description of the three dental suites on display.  Yes, we were embarking on a tour of A-dec in Newberg, Oregon.

We learned that the letters represent Austin Dental Equipment Company.  A-dec has a long and rich history in our local community.  In the early days a Quonset hut somewhere else in Newberg housed this fledgling business.  Today this company’s campus sits on about 20 acres, has 12 buildings depending on how you see it, 600,000 square feet of manufacturing and employs approximately 1,000 people.  As we stepped from building to building we noted a wall of family photos that looked much like home.  That might be because the average tenure of an employee is 14 years.   Though this company has now grown to include A-dec UK and A-dec Australia, all the manufacturing happens in Newberg.  And that’s a lot of manufacturing as we were told they did approximately 240 million in sales in 2010.  As a vertically integrated operation, they take raw material and fabricate parts to get a finished product.  They now have an estimated 50% of the domestic market share.

So as I now reminisce over the dental chairs I’ve embraced through the years, I have a newfound respect for the saliva ejector.  Someone with an engineering background by the name of Austin saw a need and invented and patented that suction tube the dental assistant sticks in my mouth.  Who would have thought that’s how this all started?

Grace Allen Harding, Principal Broker
ABR, GRI, ePRO
(503) 550-1299 cell
www.graceallen.com
Email: grace-5@comcast.net

Bella Casa Real Estate Group
207 E. 19th Street
McMinnville, Oregon 97128