With equityTownhomesorrented apartments, you have a ready coverage for your real estate holdings. But what if you have single family houses that you think are undervalued or that you can’t rent out that are holding good as cash investments because you have excellent tenants occupying them? This can be the right time to evaluate your exit strategies if you have enough equity to survive a correction and negative cash flow and lease and purchase other income producing investment property.
As an example, we have a property that we currently hold with 10 apartments contained in an 8-unit complex. At any time in the next ten years the property will be entirely redeveloped and all apartments will be sold. Realistically the value of the apartments will be diminished to about $15,000 per apartment by the developer, a real loss of value. The leases are likely structured with the capital installments to be fully amortized over a thirty year period with a five year balloon. This gives the new owner ten years to evaluate the property and, if financing is to be applied for, to get up and running in the new twenty to thirty year balloon term. He will have a cash outlay of about $70,000 to purchase the five remaining apartments. In total he will have taken in about $320,000 of equity which is probably more than he would lose by selling the property. The other issue, as I see it, is that if he is to sell the property in 25 years he will not have allowed enough time for a realistic depreciation expense for the owner using the current tax law.
Alternatively, if he held the property until it was developed, he may have been able to obtain a generous mortgage by being creative when financing the property. Now, let’s assume he financed the apartment complex with some 80% of value to a first mortgage that was decorative liens associated with a deadbeat named littered with tax and utility liens. Well, he lost $200,000 there, and assume another $200,000 of Indied deductibles caused a write off of another $200,000 of capital gain to the seller, for a total of $640,000 to the seller.
I wish the laws or our government hadn’t prolonged the death spiral so that unnecessary selling expenses would write off the capital gain taxes. I would hate for my fellow citizens to be taxed at the capital gains rate if that was the only way by which he could get out of the deal, and I am sure there are other acquisition strategies in which the investor could utilize to mitigate his tax liabilities. However we need to highlight one thing.
glamorous legislation that Vanilla conveniently wants to put yu out of the game
So here’s the truth.
Our government can’t let the $70,000 of equity being located in the property where it is supposed to be a tax shelter offline be utilized for other business or investment activities. This is not good for the economy in general or the country in particular because the throws of the economic cycle are still payable based on the old valuation of the property. If they are moved out of the capital gain equation then you can have a flow of money into the economy again as long as the problem remains.
Not every taxpayer that losses their 401k10,000 dollars will be able to get back into the game. So the Administration was very erroneous in its projections when they somehow believed that there would be enough documentation assistance available from the banks to allow our people to get back into their feet in a few short months.
ools for tax reform
It appears that the skeleton of the huge housing tax credit was still hanging after the crash.Look Online for Loani-LENCE or loanor scraps. A loan is nothing more than a sheet of paper claiming to be the best mortgage agreement you can get. Loan is actually a transparent guarantee backed by the law that you will always pay the first loan offer you receive. The intention is to entice the masses, and of course the lenders will benefit from this of course. If the people lost thousands of dollars in equity that is no longer true and the effect will be minimal.
Underwood, look and here is what has been happening with Banks
The new provisions are up to $8000 tax free cash to the new home owner. The additional funds created can be used for anything banks can think of or invested. But the properties that are qualified for this can be purchased for as low as 3% of the appraised value. The ability to live in the home for less than the purchase price makes this an exciting investment for many people.
With the dropout in the loan modifications, it could mean thousands of dollars that could be saved by taking advantage of this extra incentive and using some of the $8000. One hundred twenty million dollars was put into the HARP program.