Time To Sell? What About the Taxes?

If you have ever owned property you are familiar with the day that always comes when you think it is time to sell. Then you start thinking about all the appreciation and what you could do with that cash. As you get more excited you know that you will pay some taxes...but it is all at the 5%-15% capital gains rate...right? Sorry Charley...NOT right! In an outright sale of real estate where you have taken depreciation annually (and why would you not?), portions of the gain may be taxed at a rate as high as 25 percent! This occurs because the federal tax code states that a gain on property that is equal to or above the depeciation taken during the life of the ownership, can be taxed at a maximum rate of 25%! Depending on the amount of the appreciation of your property, this can create quite an unexpected tax consequence.

So, as an owner, trying to figure out what to do to not give up a quarter of your gain, you seek other options. The good news is there are other options. The bad news is that they require you to defer getting your hands on all of that cash you are dreaming about....at least by selling th eproperty. There are other ways to get to the cash and we will disucss that later. For now, my next few posts will be on property exchanges and how they can be used to defer and/or avoid this taxation.

Refinancing Looks To Pick Up...These Are The Reasons Why!!

It has been almost 12 months since 30 year fixed rates were this low! As of this morning I am actually able to find 30 year fixed rate mortgages (FRM's) for 5.75% and no points!! The high end of the rates I am finding are at 6.3%. For most of this year these rates have been 100 to 150 basis points (1%-1.5%) higher. It used to be that the old rule of thumb was to look at refinancing anytime you can save 2% in your interest rate or you plan on staying in the new mortgage for two years (to cover your costs of the refi). These rates are making it look possibly favorable to see mortgage lenders looking at a much improved business in 2007!

If you now are in an adjustable rate mortgage (ARM) that you have had for even just a year, you could be paying at least 8.5 percent, up from 7 percent a year ago. These rates are based on the Wall Street Journal Prime Rate to which many ARMs and equity loans are attached.
Depending on the terms of your ARM-shorter adjustment periods or different indexes, your rate may even be higher. Therefore, the reasons to convert to a FRM are stacking up quickly!

Comparing fixed rate mortgages is always easy...you just have to consider the cost of the refinance and decide how long it takes to allow the monthly savings to pay back your costs of refinancing. For example, a $100,000 mortgage refinance might cost 1.5 points, or $1500. Lets say your monthly principal and interest are at 7.5% so your payment is $699 per month. If you can drop the rate to 6.0%, the monthly payment is reduced to $600 per month. If it costs 1.5 points to complete this refinance ($1500), then just consider if you anticipate living in the home-and being satisfied with the new mortgage-for a period to exceed 15 months. If so, everything else being equal, proceed with the refinance.

The other side of the coin is if you have an adjustable rate mortgage (ARM) and your payment has been creeping up. If you have some equity, and the payments are starting to create some pain, you can refinance (no matter what your situation may be on the term) and ask your lender to roll the costs of the refinance into your mortgage balance. Considering, a $1000 increase in your mortgage will cost less than $7 per month, and the reduction of interest in the example above created a $100 savings, you can also create some financial relief by sliding into a fixed rate today.

Refinancing is a tremendous potential financial tool when rates are moving in such a way as to improve your current situation. A real mortgage pro can help you sort out your options. Don't let anybody tell you there are any set of rules...for each family and their unique circumstances, their are options. Get some professional help today.

Let me know if you need to talk to a mortgage professional and I can get you pointed in the right direction.

Slow Home Sales Cause New Creative Options!

The following article is from the Indianapolis Star..November 5, 2006. It provides some additional verification that the housing market, in particular new construction, has significantly slowed in the Central Indiana market.

Buyers' market forces sellers, builders to offer free TVs, cash and other extras
By Madhusmita Bora
November 4, 2006
Sukhdeep Singh, 21, recently landed in Indianapolis, looking for an affordable home.
He found that and more.

The California resident was offered a brand-new refrigerator, part of his real estate agent's commission and an 18 percent discount off the price of a brand-new home.

"The house is good, and the deal is great," Singh said.

And he's seriously considering it, he said.

A slowing market for new and existing homes has agents, builders and sellers doling out lucrative extras. Incentives include money, furniture, new roofs, free basements and flat-screen TVs. Some are even offering as much as $25,000 on referrals that end in a sale.
"I would say that the extent to which incentives are being offered is at an all-time high," said Edward D. Hackett, division president for Centex Homes in Indianapolis.

This week, the National Association of Realtors launched a nationwide newspaper campaign, urging buyers to dig into their pockets and buy that dream house. Sellers such as Elizabeth Faris, Indianapolis, are bracing themselves for lower prices. Three weeks ago, Faris and her husband, James, put their ranch-style home on Michigan Road up for sale. They installed a new roof and painted the house. So far, they've had lookers but no takers. "Each week we are knocking down the price a certain amount to sell it faster," Faris said.

That's increasingly common.

In September, the median existing-home price nationwide dipped 2.5 percent from the previous year, according to the National Association of Realtors. The price of new homes slid 9.7 percent, the biggest skid in 35 years. In the Indianapolis area, new-home prices fell 0.2 percent in August, the most recent data available. The median sale price for an existing home dropped 2.3 percent. "It's a buyers' market, and people are looking for deep discounts," said Beenu Sikand, a Realtor with Century 21 Diversified, who's giving away 51 percent of her commission to clients. "Last year I sold at least 20 homes a month; in October, I sold four."

Builders are taking note. Year-to-date building permits plummeted 22 percent in the nine-county metro area. "I don't believe we've seen a double-digit decrease like this in the last five years," said Rachel Daeger, a spokeswoman for the Builders Association of Greater Indianapolis.

Meanwhile, they're turning to bigger incentives to sell existing homes. At Centex, they are offering discounts on options and base price. At Ryland Homes, they are knocking as much as 40 percent off prices.

And buyers are taking the bait, said Daeger. In October, traffic in the Parade of Homes, a biannual home showcasing event, was significantly higher than it was in the spring, she said.
"I think consumers are finally realizing it is a good time to buy," Daeger said. "It makes us very hopeful."

BUYERS SEEING DEALS
Buyers have more bargaining power in the home market.

What builders are offering• Cash incentives.• Upgrades.• Down-payment assistance.
What Realtors are offering• Commission rebates.• Money for referrals.
What sellers are offering• Lower asking prices.• More significant repairs.• Closing-cost assistance