Exchanges can have a lot to “like”

Like-kind exchanges, or in IRS talk “IRC Section 1031” is an investors dream come true. 

Whenever you have an investment that has gone up in value from the time you bought it to the time you sell it you pay a capital gain tax on the profit. Unless you choose to defer that gain by using the “1031 like-kind exchange rule” IRC Section 1031 allows you to defer the gain on an investment by using the money gained to buy another similar property. This is not a tax free exchange – but it does put off paying that tax until a later date.

Both personal and real property can qualify for an exchange. However, the rules for personal exchanges are far more strict.  To accomplish a Section 1031 exchange, there must be an exchange of properties.  The simplest type of Section 1031 exchange is a simultaneous swap of one property for another. This is usually done with the help of an intermediary who knows all the rules required by the IRS. Most importantly the timelines; From the time you sell the one property you have 45 days to identify an exchange property and 180 days to complete the purchase. Meanwhile, you cannot take any of the gain or it becomes a taxable event. It is possible to take some cash and invest the rest – just know that you will pay tax on whatever you take out of the exchange and don’t take that cash before the exchange is complete or the whole deal can be blown!

It may sound somewhat complicated but believe me, this has been one of the best investor vehicles for deferring the dreaded capital gains tax. I am not a tax consultant – thank goodness, but if this sounds interesting to you, I can put you in touch with a very experienced intermediary and/or tax consultant that together we can walk you through the whole process from beginning to end.

The Santa Cruz County Housing Market Update

Not too much has changed in the last few months regarding our housing market. We have been experiencing a low inventory of single family homes for sale for over three years now. A small change is that fewer homes are selling from year to year. Over 2,000 in 2012 and fewer than 1,900 in 2014.

The median price has climbed, but that is relative to which price range homes are selling in. If you take a look at the graph below you can see that homes in the $200k- $600k price range dominated in 2012, while by 2014 the $600k- $800k homes are the major players. The over $1Mil homes sales has almost doubled in the last 2 years. Either there are no more homes to sell in the lower price ranges, OR those lower priced homes have experienced a push in their prices due to the lack of inventory.  I strongly believe it is the later of these two scenarios.

Santa Cruz County SFR sales

We have been experiencing multiple offer situations for a long time now. It’s almost common place, especially if a home is priced right and prepared well for the market. The buyer pool has been strengthened by the lowering of interest rates and the building economic confidence. Being so close to Silicon Valley does affect our market. The prices and demand “over the hill” has increased to cause an overflow into the Santa Cruz area; this is for buyers looking for their primary residences as well as a second or vacation home.

The “seller’s market” has remained healthy. The most popular homes are those that are prepared well for sale. The single level homes are well loved especially by the aging group of baby boomers. Properties with a second unit are also attracting a lot of attention due to the versatility it offers; extra rental income or living space for family or friends.

All in all, I expect 2015 to be a busy year. It’s a good time to buy a home (lower interest rates and stronger salaries) – but it is also a good time to sell a home (see above.)  That being said we will see what I have to report come mid-summer.

What's worth more to you, Trulia or Family Dollar Store?

I find it very interesting and a little bit ironic that Zillow is buying Trulia for $3.5 Billion and The Dollar Store is buying Family Dollar for $8.5 Billion. How can it be that a dollar store is worth more than twice that of an online housing search engine?

Putting it in this perspective, there seems to be more value in cheap, everyday goods rather than free, useless information. The business world is getting it right!

In my opinion, Zillow and Trulia have always been parasites sucking the blood from the real estate industry. They only exist to make money from the advertisers on the site, many of which are real estate agents. These are the same agents that give their listing information to these sites, for free, so that these sites can then turn around and charge the real estate agents for advertising on their own listings! Talk about a scam! 

These same sites then use unsubstantiated information to tell unsuspecting (and yes, somewhat gullible) individuals what their house is worth. Are these the same people that believe everything they read on the internet? I think there is a good possibility.

Ok – if you live in a brand new, cookie cutter development, then maybe Zillow will get your home value right, or close. But if you are like most people, and live in a unique home that maybe has had some remodeling, or has been around for more than 5 years, the “zestimate” will be bogus. It’s simply an algorithm based on what homes nearby have sold for. It doesn’t look at, what we call in the real estate business, the amenities. Is there a busy street nearby, a park, a school, are the floors or countertops upgraded, have the bathrooms been remodeled, etc., etc.? I think you might get the idea. Every home is unique and these amenities will either add or subtract from the value. 

A “zestimate” is easy, however. You don’t have to talk to anyone and suddenly you are an expert and know all about home values. Bull. It’s just information. Knowing what to do with the information is the wisdom an experienced and professional REALTOR® brings to the table. Don’t be fooled (or be a fool) and believe everything you read on the internet. Some of it is just not true.

Penny pinchers unite! That cheap merchandise is getting you more for your money than the free useless information. But being penny wise and pound foolish still puts you on the short end of the stick.