(From a recent article in The Wall Street Journal)

The apartment industry often doesn’t improve until the job
market strengthens, and workers gain the confidence to drop
their roommate and get a place of their own or move out of their
parents’ basement.

But recent measures show that vacancy rates are falling and
confidence is rising in rental markets — specifically in
apartment buildings — despite only subtle improvements in the
nation’s employment picture.

“We certainly see the increase in rental demand in 2010, and
it’s been a little more, frankly, than most apartment experts
had anticipated,” said Mark Obrinsky, chief economist and vice
president of research for the National Multi Housing Council.

Demand for apartments has risen significantly this year, said
Greg Willett, vice president of research and analysis for MPF
Research, which analyzes apartment trends. “There’s no way to
look at these apartment numbers and not be impressed,” he said.

Obrinsky said even the slightest improvement in the economy
could be motivating some renters to sign an apartment lease. But
their attitudes probably have more to do with confidence in
their local economy than the national indicators being reported
in the media.

The homeownership rate fell to 66.9% in the second quarter
according to the Census Bureau, the lowest it has been since the
fourth quarter of 1999, and Obrinsky said it’s possible it will
continue to decline, at least for a while, as people doubt the
financial wisdom of buying a home or can’t get financing to buy.

“Going forward, the near‐term outlook for the apartment industry
is likely to be tied to the pace of job growth,” Obrinsky added.
“Over the longer term, positive demographic trends are likely to
keep the demand for apartments growing.”

Call RHAGP to make reservations: 503-254-4723

5:15p.m. Membership Orientation
5:30p.m. Getting Tenants to Recycle
6:00p.m. Meeting Starts

$26.00 per person

Sit Down Menu
Dinner Salad, Baby Red Potatoes, Chef’s Choice Vegetable, Chef’s Choice Dessert
And your Choice of:
Prime Rib
OR
Pacific Halibut w/Lemon Buerre Blanc
OR
Shiitake Mushroom Alfredo Pasta

We will have a silent auction as well as many door prizes and the money ticket drawing.

SPECIAL GUEST
Jon Gail – Portland Development Commission
Jon will be speaking on: Special Programs for Rental Housing Owners.
In this workshop RHAGP members will learn about the special programs and funds that are administered by the Portland Development Commission (PDC) and the Portland Housing Bureau (PHB). The PDC programs serve to help RHAGP members fix up their units through rehabilitation loan and grant programs. PHB also funds programs to help landlords by helping them market their vacant units, better prepare renters for being good renters and also to offer rental guarantees to landlords who rent to applicants who complete the Rent Well Tenant Education Program. All of these various programs are a good fit for RHAGP members who are looking to improve their investments, seeking to reduce their rental risks and to lower vacancy rate.

DIRECTIONS
From downtown Portland take I-84 E/US-30 E toward THE DALLES. Take the I-205 S exit 6, toward SALEM. Take the GLISAN ST./STARK ST. exit. Turn LEFT onto NE GLISAN ST. Turn LEFT onto NE 100TH AVE. to Gateway Elks.

From I-205 Northbound take the GLISAN ST. exit, EXIT 21A. Turn RIGHT onto NE GLISAN ST. Turn LEFT onto NE 100TH AVE. TO 711 NE 100TH AVE. to Gateway Elks.

From I-205 Southbound take the GLISAN ST. exit, EXIT 21A. Turn RIGHT onto NE GLISAN ST. Turn RIGHT onto NE 100TH AVE. TO 711 NE 100TH AVE. to Gateway Elks.

SEE YOU THERE!

INSTALLMENT SALE

Another alternative, the Installment Sale through a Land Sales Contract or Deed of Trust, should be considered because the taxes are spread out over 20 or 30 years making them much less painful.  An installment sale is basically when the existing owner carries back the balance for the buyer and the only cash he receives is the accepted down payment at the time of purchase.  For instance, the seller has a $500,000 apartment building and sells to the buyer for $100,000 down payment and receives monthly payments of $2916 for 30 years at 8% interest.  That could be a pretty good addition to your retirement fund.  The benefit of this method is that you continue to receive monthly payments of interest earned and a small amount of principle, which often gives you more spend-able income each month than you had before you sold, but you no longer have the problems and expenses of management and maintenance.  So your income from the property continues on with up to 30 years of monthly payments similar to before, but you have no more management responsibility.  Of course, the downside is you do pay capital gains on the down payment the first year and on the principle you receive each year, and taxes on the interest payments as received each year until paid. And, if the buyer refinances and pays you off, you owe the capital gain on the balance received at that time.

 DEFERRED SALES TRUST

 Deferred sales trusts (sometimes known as DSTs) can be used to defer capital gains taxes on some assets while still receiving payments and, thus, reaping the benefits of the sale. This can potentially be a viable option for investors looking to defer capital gains and estate taxes who are not interested in purchasing a replacement property through a 1031 Exchange, though it should be noted that some question the validity of deferred sales trusts.

 Trusts are legal relationships in which a person or entity—a trustee—is given ownership of an asset by the trustor. In exchange, the trustee manages the asset on behalf of a beneficiary. Trusts can provide a stable flow of funds to the beneficiary, either a third party or the trustor him- or herself.

 Title is transferred to the trustee who then sells the property and puts the money into trust. The trustee and beneficiary create an installment contract in which terms of the size and frequency of the payments to the beneficiary are specified. Taxes are not due until the beneficiary begins receiving payments and are then due on a per payment basis. Because of this, the money has a greater chance of appreciating than a sale that is directly taxed, according to Estate Planning Team, an organization of financial advisors focused on estate management.

 The IRS has recently asked some questions about the exact method the trust is run and how accounting is handled. Investors interested in creating a deferred sales trust would be wise to consult with qualified legal counsel in order to ensure that everything is completed legally. There are many companies advertising deferred sales trusts on the Internet, but approaching a lawyer first is the safest course of action to avoid stiff penalties later on if the trust is not conducted in a legitimate manner.

 STRUCTURED SALE

 A Structured Sale is a new twist on the traditional installment sale that enables both the seller and buyer of appreciated assets to take advantage of tax, safety, and/or financial benefits that traditional sales methods don’t offer. This method was developed by in 2005 and is becoming a sought after method for tax deferral when selling a business or real estate.

 An Installment Sale is basically the sale of an appreciated asset where at least 1 payment is to be received in the year(s) after the year that the sale occurs. Installment Sales allow the seller to defer gain to the year that payment is received. This is a powerful tool that helps sellers to defer capital gains tax rather than having to pay the entire tax in the year of sale. One huge drawback to the traditional Installment Sale is that the seller takes on the risk that the buyer will not fulfill the payment agreement or the property value will decrease.

 The Structured Sale, however, transfers the buyer’s obligation to pay to a third party assignment company who in turn purchases an annuity from a Fortune 100 U.S. insurance company. The seller is the sole beneficiary of the Fortune 100 guaranteed annuity. This gives the seller the peace of mind that the payments will be made each and every time no matter what the buyer does. In addition, the seller does not claim constructive receipt on the income, which enables them to defer their capital gains taxes to future years.

 Even if the buyer “trashes” the business or property you will be protected and still receive each and every payment, on time – every time!

In addition to this, the seller can defer capital gains taxes, receive a guaranteed rate of return, along with several other unique benefits.

             Another benefit is that a Structured Sale can be bailout if 1031 fails and it can be written into the 1031 paperwork so that it does not use up one of the buyer’s three choices, but can be a fallback if none of the choices can be completed.

 CASH OUT AND PAY TAXES

 This option is pretty self explanatory! If you can’t use one of the previously discussed alternatives, then sometimes you have to bite the bullet and pay some taxes and then enjoy spending the remaining cash for anything you want….

Feel free to contact me if you have questions and to leave comment(s) below if you want. Also visit my website for many other interesting articles and information on investing.   www.prore.net

The Charitable Remainder Trust is another way to sell your investment property without paying capital gains taxes. Read on and see if it might fit your needs…

CHARITABLE REMAINDER TRUST

 The Charitable Remainder Trust (CRT) might not be familiar to as many of you as the 1031 Tax Deferred Exchange, but it is another excellent way to eliminate taxes and get a tax deduction at the same time.  If you have accumulated several assets and are at a time in your life that you are doing some estate planning, you should look seriously at the CRT.  Some benefits are: you can leave a legacy by donating a charitable gift that lasts for generations; guarantee your heirs a larger inheritance, tax free; eliminate capital gains tax; receive income on 100% of your asset value, not 60%-72% after-tax value; get a large current income tax deduction on the donation; eliminate the 37%-55% inheritance tax by keeping your total estate value under the $2,600,000 estate tax exemption limit; and, you can possibly be your own trustee, remaining in control.

To oversimplify how this works, you transfer your property into a trust, set up with help of a charitable organization (your favorite college, church, charity, etc.), the trust then sells the property, and invests the proceeds to pay you annuity payments for your lifetime or other agreeable time period.  You also get a considerable tax deduction for the donation that can be spread over several years, thereby eliminating or minimizing some regular income taxes.  The “remainder” of the asset at the end of the term goes to the charity for its benefit.  To get the full benefits from the IRS, you must adhere to set guidelines that determine its application.  This is somewhat complicated to calculate but there are many organizations that will work with you to set up this type of program and provide a free analysis of the many options and have their legal staff do all the paperwork in return for your donation.

Now wait a minute, you say — you might be a philanthropist, but what about your heirs—they don’t get anything, because you would be giving the entire asset to charity.  You will be happy to know that you can also provide for them and guarantee that your heirs are covered by using a portion of the income from the CRT to pay for life insurance owned by a life insurance trust.  The proceeds from that insurance pass tax-free to the heirs, replacing the value of the assets contributed to the trust. 

In summary, the Charitable Remainder Trust is a flexible financial planning strategy which can allow taxpayers to reduce estate taxes, eliminate capital gains, claim an income tax deduction, benefit charities instead of the IRS, and leave an inheritance, too.  Will this alternative fit your situation and your unique estate planning variables?  Only you and your tax and legal counsel can answer that.  Representatives from some charitable foundations will be happy to meet with you in advance to help you decide if this is a feasible alternative for you.

…………………..Contiued on the next post…. Come back to get the rest!

EXIT STRATEGIES:  HOW TO SELL YOUR PROPERTY WITHOUT PAYING CAPITAL GAINS TAXES!!!

Have you been in the hands-on landlord business too long? Are you burned out and wanting to downsize but are afraid of the market and also don’t want to pay the huge amount of taxes you might have to pay if you sell? Or are you in the land-lording business and you have found out that you really don’t like it?

 Are you thinking about retirement? Do you have fears/concerns about retiring?

You have to worry about health care costs – daily headlines are enough to give anyone an ulcer worrying about what to do or worrying about what is going to be done to us!  A lot of people worry about out-living their savings/income. Currently there are 76,000 people age 100 or older. It is estimated that by the year 2029 there will be 2,000,000 people over the age of 100!

You worry about market risks. Has your 401k become a 201k? Hopefully, you don’t own any real estate investments that have disappeared or turned upside-down.

 There are techniques to change your situation, some getting you into a different property and some allowing you to get out altogether. Let’s talk about some of these techniques. Remember there is risk in any type of investment, including real estate, so be sure to factor the risk in as a part of your planning and your exit strategy.

1031 EXCHANGE

 The 1031 exchange is well known by most investors as a way of deferring taxes and exchanging up to larger investment properties to build long-term wealth. Did you know you could use the 1031 to help with an exit/retirement strategy too?  It is possible to exchange into types of investment properties that require very little management or hands-on time on the owners part. Here are some examples:

 TIC

Setting up a 1031 exchange to defer your taxes and exchanging into a Tenant-In-Common (TIC) investment has the advantage of getting into a passive investment which normally provides a good return on investment. Typically, a TIC is the fractional ownership of a percentage of a larger institutional quality investment that is managed by an experienced professional management company, thereby eliminating most of the downsides of owning investment property. All that is required is the ‘coupon clipping’ of depositing a monthly check. Some investors have found this to be a very good investment where you get all the advantages of owning real estate without all of the disadvantages. However, you still should stay on your toes and be active in communicating and checking regularly to make sure the investment is performing like it should and being run according to the original plan.

 SINGLE TENANT NNN

Exchanging into a Single-Tenant Triple Net (NNN) property is another alternative. An example of this type of property is a Burger King or Walgreens or a Family Dollar store where it is a single tenant and the tenant takes care of everything on the property including taxes, insurance, and maintenance which is what the (NNN) designates. This type of property generally has a 10-20 year lease with the tenant so there are no lease changes or negotiation for some time that the buyer has to worry about. There have been several RHAGP members who have executed this kind of exchange and have gotten out of negative cash-flow apartments here and gotten into a single tenant NNN property (even in another state) where they had a good positive cash-flow with a passive ownership. They might drive by the property once a year or so. Again, you have to evaluate thoroughly and make sure this meets your exit strategy and long term goals.

             CONVERSION TO A RESIDENCE

This method, which uses a loophole in the current tax feature that allows a $500,000 tax exclusion, ($250,000 each, husband and wife) on the sale of a personal residence.  As most of you know, you no longer have to pay taxes on the gain (up to $500,000) when you sell your home.  This feature can be used advantageously when you are getting to a stage in life, when you would like to be relieved of some of the responsibilities of real estate investment and sell without paying taxes or at least limit the taxes at the time of sale. 

What this entails is exchanging into a ”rental” house that you would want to live in later.  For instance, say you have a 4-plex you sell for $300,000.  You buy a nice home near a golf course in Scottsdale, Arizona.  You rent it out (or attempt to rent it) for a period of time.  You then sell your house you live in now (of which, all the proceeds are usually tax free).  You then move into the “rental” house and live in it at least two years but you have to own it for five years, and then you have the option of selling it and keeping the proceeds from it with no tax!

  All the rules of a 1031 exchange have to be met when doing this conversion process such as buying equal or greater value and carrying equal or greater debt in the new property or there might be partial tax consequences.  I have been told by tax professionals that the property you exchange into does not even have to be rented because, who is to say that you can’t just buy property for holding for long term investment, since over the last 50 years real estate has appreciated an average of 6%-9% per year.  New IRS regs say you probably need to hold it as an investment for two years before moving into to prove to the IRS that it was purchased as an investment.  If you acquire a property in a 1031 exchange and then convert it to your primary residence, you must own the property at least five years. For consideration as a residence, you have to have lived in the property at least two out of the last five years. Please be aware that IRS regulations are subject to change by the IRS at any time.

………. to be continued with next post… See you then.