Tahoe Donner Real Estate Sales Information – January

Today, January 4, 2010, there are 82 homes available in Tahoe Donner. Furthermore, 67 of the homes offered for sale are standard sales, 15 of the available homes are offered as short sales and no REO’s, (Bank owned properties). Also, 7 single family homes are currently in escrow or pending sale, (another 9 homes are active contingent). Moreover, pending sales range in price from $249,900 to $1,399,900.

Some perspective to Tahoe Donner market conditions: Tahoe Donner had a total of 225 homes close escrow in 2009 compared to 2008 in which 193 sales were consummated.

Home site sales continue to disappoint with 31 home sites available, currently 2 home sites are in escrow or pending sale and only 8 home sites closed escrow in 2009. Currently, the pricing for available home sites run from a low of $85,000 to a high of $475,000.

Tenant-in-Common/ Fractional Interest Exchanges

Completing a §1031 exchange with Tenant-in-Common interest ownership in a property, also known as co-ownership of real estate, allows investors not only to defer their capital gains taxes, but also to “upgrade” their investment real estate into larger properties.

IRS Revenue Procedure 2002-22, issued in April of 2002, is a development in the real estate industry that has many property investors excited. The clamor is due to a product that allows a small-time investor to acquire an interest in a large residential or commercial property, such as an apartment building or shopping center. Purchasing one of these “prime” properties was a luxury previously available only to developers and large conglomerates such as Real Estate Investment Trusts. Known as Tenant-in- Common (“TIC”) or Undivided Fractional Interest (“UFI”) property, it is quickly becoming a popular alternative to owning single-family rental property. Combined with an Internal Revenue Code Section 1031 (“IRC §1031”) tax-deferred exchange, this might be an option for those individuals wishing to escape the burdens of the real estate management business in favor of owning an interest in a high-grade property without all the typical administrative responsibilities. The IRS has finally established that tenancy-in-common ownership is eligible for nonrecognition treatment provided it is structured properly, such as by using a Qualified Intermediary.

TIC ownership is not a new concept. Property owners have been holding interests in real estate as tenants-in-common for well over one hundred years. Derived from English common law, a tenancy in common interest is a specific, undivided interest in a property with other co-owners. It is through this common ownership principle that the TIC industry was formed. Why is IRS Revenue Procedure 2002-22 (the “Procedure”) so important? For the years preceding its enactment, taxpayers exchanging into TIC products were concerned the IRS might rule that they were actually receiving an interest in a partnership. This would be a disastrous result since the Tax Code prohibits an exchange of partnership interests. An exchange for a TIC property that has IRS pre-approval or, at the very least, conforms to structure as stated in the Procedure, would now most likely ensure a valid exchange.

With the advent of the TIC industry, as bolstered by the Procedure, many property owners are now attempting to exchange their income and investment properties for fractional interests offered by TIC sponsors. Unfortunately, not every TIC offering will be structured properly to qualify under the Procedure and fewer still will actually be pre-approved by the IRS. Careful scrutiny of a prospective TIC arrangement and guidance of tax counsel must be used to ensure the viability of a fractional interest exchange.

This material is provided for informational purposes only and is not to be construed as tax advice. The reader is strongly advised to speak with a tax consultant before attempting to employ any of the concepts stated herin.

Do’s & Don’ts of Home Selling!

An energetic real estate agent can have your home on the market in a day. However, to provide the kind of marketing exposure you need to sell in today’s market takes a little longer, unless your home is photo-ready when you list. Ideally, you should start planning for your home sale months before you want your home to be on the market. First, call me to represent you! Then, we’ll create a game plan together for the premarketing phase of the process.

We should walk through your home, I’ll give you feedback on work, decluttering, and rearranging that needs to be done before the house is photographed for advertising and shown to prospective buyers.

Preferably, your home should not be submitted to the multiple listing service (MLS) or home-sale Internet sites without photos. Studies have shown that many buyers don’t consider a listing that doesn’t have photos.

Some sellers have presale inspections done to find out if repairs should be made before the property goes on the market. This wasn’t as important several years ago when buyers were enthusiastic about the prospect of making money in the residential real estate market. Now buyers are much more cautious, and property condition is a critical variable.

Prioritized, the most critical repairs and enhancements should be done before the listing hits the MLS. Make sure buyers receive copies of proposals and paid invoices for work you did to your home so they know which items in your presale inspection reports have been repaired.

Most sellers wait until the last minute to get their house ready for sale. It can be very stressful trying to get all the work done in a short time frame. Doing work gradually over time is a saner approach. Sadly, most homes never look as good as they do when they’re sold.

THE CLOSING: Now is a good time to have work done. A lot of contractors are looking for work. You might receive more competitive bids and be able to have the work done when you want.

Short Sale Information

Short sales, where the lender agrees to take less than amount due to them, have tended to sell for less than similar homes in the area. One reason for this is that short-sale listings usually don’t look as good as the competition. Another reason is that short sales require lender approval.

Last year, lenders often took three to six months to respond to a short-sale offer. If the response was no, the buyer was out looking for another home after having wasted a lot of time. Many buyers who expected short sales to be good deals shied away from them altogether after having a few bad experiences.

Subsequently, the Obama administration put pressure on lenders to do more short sales and fewer foreclosures. Now a process that was laborious is much easier to navigate.

Before you put your house on the market, contact your lender or lenders to let them know you can no longer afford to keep the house and you will be selling it. Also tell your lender that due to the decline in property values in your area, you may not be able to sell for enough to pay off the mortgage.

Lenders usually won’t work on a short sale until there is an accepted offer on the property. But doing a little ground work with your lender(s) can assist the process. Find out how long it will take them to process a short sale. This kind of information will be important to a prospective buyer. If buyers know they can expect a response from the lender in 30 to 45 days and not four to six months, they’ll be more inclined to make an offer.

Try to work out a loan modification with your lender before you put your house on the market. If your lender agrees to lower the loan amount, your listing will be more attractive to buyers because the lender won’t have to take as large a shortfall in order to approve the sale.

Most lenders won’t allow credits from seller to buyer in a short-sale transaction. It’s a good idea to have presale inspections done before you put your house on the market. The more information a buyer has about the property before an offer is made the better the chance that you won’t end up in a situation where the buyer discovers defects that weren’t previously disclosed and wants credits as compensation.

In most cases, it’s worthwhile to make your house look as good as possible before putting it on the market. This will bring you a higher price, which reduces the amount you are short. This will make it easier for the lender to approve the sale.

You’ll need broad marketing exposure to attract a wide range of buyers. It’s important to hire an agent who is willing to put the time and effort in both marketing your property and dealing with your lenders. Your agent should be a good communicator who will keep all of the parties informed about the status of the sale.

It’s important to consult with your attorney and accountant to review any documents that the lender requires before closing the transaction. Some lenders will require the seller to pay back the amount that the seller is short. A seller does not need to agree, but this could cause the transaction to fall apart.

You could owe tax on the amount of money the lender forgave, though the Internal Revenue Service does offer tax relief for those who lose their homes through foreclosure or short sales between 2007 and 2012.

It takes a lot of patience with him and perseverance to get through a short-sale transaction. However, a short sale might negatively impact your credit for two to three years; it would be five to seven years if you let the property go to foreclosure.

THE CLOSING: If possible, try to negotiate with the lender to salvage your good credit.

1031 Exchange

Many investors are taking advantage of the like-kind exchange, which is authorized under Section 1031 of the Internal Revenue Code. These exchanges are commonly referred to as “Starker” exchanges.

But if you own a vacation home, there has been a lot of confusion as to whether that property qualifies for the exchange.

Effective March 10, 2008, we now have what is known as a “safe harbor” for these vacation-home exchanges.

In order to have a valid Starker exchange, only investment properties can be swapped with other investment properties. There are other tax benefits for homes used as the principal residence, such as the ability to shelter up to $500,000 of the profit you have made (if you are single or file a separate tax return, this exclusion is limited to $250,000 of gain.)

According to Revenue Procedure 2008-16, the property must be a house, apartment, condominium or similar improvement that “provides basic living accommodations including sleeping space, bathroom and cooking facilities.” This can include mobile homes and boats.

A safe harbor simply means that if you follow the guidelines promulgated by the IRS, your tax return will not be challenged.

To qualify the relinquished vacation or second home for the exchange, it must have been owned by the taxpayer for at least 24 months immediately before the exchange. (The IRS refers to this as the “qualifying use period.”)

And in addition, for each of the two years within the qualifying use period, the taxpayer must have rented the property at a fair rental for at least 14 days. Furthermore, the taxpayer cannot have used it personally for the greater of 14 days or 10 percent of the number of days during each 12-month period that the property is rented at a fair rental.

Sounds confusing, but it is the law. The IRS does not want taxpayers to claim that their property is “investment” when in fact they take their families to the beach for the entire summer.

You can, of course, periodically go to your second home to inspect it, and make any necessary repairs. However, if that use exceeds the use restrictions described above, you will not be able to do a Starker exchange. Confirm this with your own accountant.

What about the replacement property? Here, the same rules apply. If you swap one property for another, you must rent it out for at least two years or the exchange will fail.

If you follow the rules, a 1031 exchange is a very valuable tool. For example, if you purchased your investment property for $200,000 and sold it for $400,000, you would in most cases have to pay the IRS $30,000, in addition to any state or local tax. However, if this property were sold in connection with a Starker exchange, and you obtained another investment property worth at least $400,000, you would not have to pay any capital gains tax. Instead, the basis of the old property would be transferred to the new one; you would have to pay the tax only when you ultimately sold the replacement property and did not engage in yet another 1031 exchange.

But you must understand that a 1031 is not a “tax free” process; it simply defers the time when you have to pay the capital gains tax.

And even if you follow the vacation rules outlined in the recent Revenue Procedure, you still have to comply with the general requirements of a like-kind exchange. You should consult your tax and legal advisors about your specific situation.

The rules are complex, and must be followed religiously. A successful 1031 exchange is a valuable tool for investors, but any misstep will cause you to have to pay the capital gains tax you are trying to defer. Please query your tax advisor and attorney before you get started!