Our primary areas of service are below. The rise in interest rates has hit Northwest Atlanta Hard in terms of numbers of sales with our total number of sales down 39.6% !
Prices are holding up well (although the year over year increase has declined from a 24%+ growth to about 7%.) The days of multiple offers and bidding wars are largely behind us as homes are selling for 97.9% of their asking price compared to 101.8% a year ago. On the flip side, many equity-rich homeowners who bought or refinanced during the past few years are not feeling compelled to sell, so new listings are down. Despite these factors, the number of homes for sale continues to increase about 50% (from 2217 last year to 3325 today.) The chart below shows that this decrease in sales is a national phenomenon.
All of these factors have already driven the median selling price down 10% from $502,532 in May to $452,056 last month. These price reductions are an incentive for some buyers to get back into the market. As mortgage rates fell nearly a full percent recently, many buyers raced to lock in a lower rate. Meanwhile, we know several new home builders who are sitting on inventory with substantial incentives for buyers who can close quickly.
If you’ve considered selling NOW MAY BE THE BEST TIME. Home price forecasts average at virtually no appreciation expected in 2023 with some experts calling for prices to drop.
Property Management Alert. Rental prices are dropping.
This may be seasonal as we often see the winter months command lower rents but our experience has been for the last four weeks that homes are sitting on the market longer and rental prices have dropped. We are estimating about a 4% decline over the past 5 months. ApartmentList is showing similar decreases with many areas losing up to 2% over the past month. Clicking the link takes you to a cool interactive graph towards the bottom.
With our shifting market – many wise investors are considering selling and conducting a 1031 Exchange to defer taxes on their gain – here are some does and dont’s
We are not qualified intermediaries or tax experts. However we have supported over 100 clients through their successful 1031 Tax Deferred Exchange. There are many details and nuances to consider whenever doing a 1031 exchange. We thought it might be helpful to address some of the most common do’s and don’ts that customers face in successfully executing and maximizing the tax benefits of a 1031 exchange.
Though you may be tempted in this market, please do not offer seller financing on the property you are selling if you are doing a 1031 Exchange. – Owner financing is also called an “installment sale note” and can cause tax issues. Because all gain must first be allocated to the note, you could lose most, if not all, of the tax benefit of a 1031.
Having 1031 language in your sales contract is advisable, but is not required. – Giving the buyer or seller the heads up that you will be doing a 1031 exchange on your side of the transaction leads to fewer surprises, but does not have to be included. Should you have the time and wherewithal to include it, here is the link to what we recommend you add to the contract: Sellers reserve the right to conduct a 1031 Exchange. Buyers agree to cooperate provided there is no additional expense liability or cost.
In a standard deferred 1031 exchange, you must sell what you have (called the “relinquished property”) before you acquire what you want ( known as the “replacement property”). However, if you find your dream replacement property before you sell your relinquished property, you may be able to still reap the benefits of a 1031 by doing a more expensive reverse exchange.
Basically, all investment real estate is “like-kind” with all other investment real estate (see the three disqualified uses discussed below). For example, you can sell land and buy multiple rental properties, sell a shopping center and buy a warehouse, or sell several rental houses and buy an apartment building or even vacant land. Many buy their intended retirement home and rent it out before moving into. Check with your tax advisor.
For a valid 1031 exchange, you do need to have a Qualified Intermediary (QI) involved at — or before — the relinquished closing. Once the sale is closed, it is too late. Many people are under the misunderstanding that they can close on the property they are selling and either have the closer hold the proceeds or hold the proceeds check themselves without depositing it, and still do a 1031. You cannot begin a 1031 after the property has closed, even if the proceeds have not been deposited. Plan in advance!
Buying a replacement property that costs less than the relinquished property will result in tax consequences. – To have no tax consequence and defer all gain, two criteria must be met: 1) the cost of the replacement property must equal or exceed that of the relinquished property, and 2) you must use all of the proceeds from the sale to purchase the replacement property.
You can keep some of the cash from the sale and just pay the tax on the portion that you keep.
Though the definition of like-kind is decently broad, you can’t do a 1031 exchange on properties that fall into one of the three following uses:
1) A property that is used as your primary residence; or
2) A property that is a personal-use second home that you do not rent out; or
3) A property that you acquire with the intent of “flipping” or developing it for sale (also commonly called “dealer inventory”.)
You can’t take title to the replacement property in a different tax name than the relinquished property. – If Megan Smith was the seller of the relinquished property, then Megan Smith must also be the buyer of the replacement property. She could also use a disregarded entity, such as a single member LLC. See the Same Taxpayer Rule.
You can’t close out your exchange bank account anytime your choose. – There are very specific rules that govern when any remaining proceeds or interest earned can be distributed. See Distribution of Exchange Proceeds.
You can’t extend the 45 day ID period or the 180 acquisition perios– Seriously. We recently had an attorney tell our client that these dates were flexible – THEY ARE NOT! The only exception occurs when you are considered an affected party in a Presidentially Declared natural disaster.
You may have less than 180 days to complete your exchange. – This is true. You will have 180 days to complete your exchange or until the date your tax return is due, whichever comes first. This situation occurs when your relinquished sale is towards the end of one tax year and your replacement purchase is in the next tax year.
You can’t buy replacement property from a related party. – Unless the related party is also doing a 1031.
You can’t change your ID letter after your 45 days have passed—-period. You cannot substitute or make changes. It is a firm rule.
Either using all the cash OR reinvesting all your profit does not defer all the taxable gain. It requires both! As stated above, you must buy property that costs the same or more than the property you sold, and use all of the cash. .
Most residential lenders will not make a loan to an entity – typically just to people. – This problem arises when you own the property you are selling in a 2-member LLC or Corporation, plan on buying residential rental replacement property, and need to borrow money for the acquisition. Few, if any lenders, will make a residential loan to an entity.
You can’t buy REIT stock as your replacement property.
You can’t sell or buy an LLC membership interest or partnership interest as part of your 1031. – Per Section 1031, these interests specifically do not qualify.
You can’t take out cash (i.e. do a partial exchange) without paying tax. – This means you cannot pull out the initial money you invested without triggering gain.