AAOA Blog

Second homes must be designated an ‘investment’ to reap tax benefits

by Tom Kelly, Inman News

Mention the term “second home” to a dozen people and half will probably tell you that it is also an “investment home.” That’s because many second homes are actually investment properties that owners rent out a majority of the year. Others see a second home for family only, maybe a place for close friends, but not renters.

The Internal Revenue Service would like you to choose, especially before you plan to sell it.

The subject came up recently over spring break when friends were getting ready to sell a golf-course property via a tax-deferred exchange and buy another home that was in a quieter neighborhood and away from the busy entry leading to their present development.
(more…)

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Measure to help bring stability to home values and accelerate sale of vacant properties

In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan today announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties.

“As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers,” said Donovan.

With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.

“This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed,” Donovan said.

In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

“FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties,” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.

In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.

The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD’s website.

See more Real Estate Financing.

American Apartment Owners Association offers discounts on products and services for landlords related to your rental housing investment, including rental forms, tenant debt collection, tenant background checks, insurance and financing.  Find out more at www.joinaaoa.org.

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Tell Me About My Money…

That The Intermediary Holds During an Exchange

by Ken Tharp, Iowa Equity Exchange

As a Qualified Intermediary, Iowa Equity Exchange has the very specific role of guiding the investor through a §1031 exchange. We inform the investor of exchange requirements, produce the necessary exchange documents, provide the critical time monitoring procedures required, and manage the investor’s funds while in our possession.

First let’s discuss the earnings that your account generates while it is in the care of the intermediary.

Did you know that many intermediary services earn the majority of their income from the interest that your account generates for them while they hold it!?

By paying their clients little or no interest on their funds, they pocket the lion’s share of the earnings from your money.

We do not believe that is fair or reasonable.  (more…)

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by Ken Tharp, Iowa Equity Exchange

As a Qualified Intermediary, Iowa Equity Exchange has the very specific role of guiding the investor through a §1031 exchange. We inform the investor of exchange requirements, produce the necessary exchange documents, provide the critical time monitoring procedures required, and manage the investor’s funds while in our possession.

Reverse exchanges are gaining in popularity, but they are often misunderstood and they can be confusing. Let’s investigate the basics of this exchange structure.

Sometimes a situation arises in which an investor or property owner wants to purchase a property but wishes to sell a property that he or she already owns to provide the funds needed to purchase the new property. If the old property sells prior to closing on the new property, the investor can employ a standard Section 1031 exchange to defer capital gain taxes on the sale.

But what if the investor needs to close on the new property before the old one can close, or perhaps before it is even on the market?  (more…)

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