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1031 Exchange : Buy 3 Get 2 Rented

Real Estate Blog : Investment Property : Los Angeles : Manhattan Beach : Hermosa Beach : Redondo Beach : Palos Verdes : Torrance

Real Estate Blog : Residential Commercial Income Investment Property

1031 Exchange : Buy 3 Get 2 Rented - Living in 1 Unit, Renting out 2 Units

Internal Revenue Code Section 1031 exchanges allow real estate investors to defer capital gains taxes by exchanging their investment property for like-kind investment property. Internal Revenue Code Section 121 allows taxpayers a capital gain exemption on owner occupied property provided the property is the taxpayer’s primary residence and the owner has lived in the property for at least two out of the past 5 years.

What constitutes an investment property and what constitutes a personal residence becomes an important issue when a taxpayer owns multiple units at the same address. One such example is a triplex when the owner lives in one of the units as a personal residence and rents out the other units for investment.

Let’s examine a case study in which a recent client sold a triplex and was able to use the Homeowners exemption and the 1031 Exchange together on the sale.


  • A married taxpayer filing jointly owns a triplex.
  • Two of the units are 1,200 square feet and have been rented out for 5 years.
  • The taxpayer lives in the third unit, which is 1,500 square feet.
  • The taxpayer is contemplating selling the property for $1,000,000, which would generate a realized gain of $300,000.


Given the facts of this example, it appears as though the property qualifies as a partial personal residence and a partial qualifying 1031 Exchange property. Assuming this is true, how would the taxpayer allocate the sales price and gain between the investment and personal residence portions of the property? Authority on the issue requires the taxpayer to use the same method for allocating tax basis and amount realized on the sale. In addition, the taxpayer is required to use the same allocation method used when determining the depreciation deductions on the investment portion of the property.

In our case, let’s assume the taxpayer allocated for depreciation using the percentage of square footage the investment represented in proportion to the total square footage of the property. The investment portion of the property represents 2,400 square feet. The total square footage of the property is 3,900 square feet. Therefore the investment represents approximately 62% of the total square footage. The taxpayer uses the same method for determining the allocated sales price and gain on the sale. In our case, $620,000 of the sales price will be allocated to the investment (1,000,000 x 62%). The remainder of the sales price, $380,000, will be allocated to the personal residence unit. The amount of the gain is similarly allocated after taking into account depreciation recapture.

Assume that the taxpayer had taken 100,000 in depreciation on the investment over the 5 years of ownership. The $200,000 in gain not attributable to depreciation would be allocated 62% to the investment and 38% to the residence. The end result would be $224,000 allocated to the investment ($100,000 + $124,000) and the remaining $76,000 to the residence.

If the taxpayer has not taken depreciation on the investment portion of the property, they may allocate between the units in any reasonable manner. The most common methods of allocation include by unit, by square footage, by the quality of the interior improvements or by appraisal. For purposes of determining the adjusted basis of the investment, the taxpayer must impute depreciation and reduce the investment tax basis as if they had taken the deduction.

After the taxpayer determines how much of the sales price is allocable to the personal residence and the investment, they may use Section 121 and 1031 together to avoid paying taxes on their capital gains. Section 121 is a tax exemption so the capital gain is eliminated up to the maximum of $500,000 in our example. Section 1031 allows investors to defer paying tax on their capital gains provided certain requirements are met.

Shared By Leonard, Your 1031 Guy

Real Estate’s Bidding Wars Are Back

Pending-home sales in March hit their highest level since April 2010, spurring the return of real-estate bidding wars. Nick Timiraos reports on The News Hub. Photo: Peter Earl McCollough for The Wall Street Journal.

Why Property Managers Have Panic In Their Eyes – Forbes

Commercial real estate investment Los Angeles

While we already know technology is advancing mankind since the birth of the Internet, it is also making many industries become obsolete. A few of you may know my IT background, even 10+ years ago, we were already migrating everything to web base = aka Cloud computing in today’s term. In this article, commercial office space property managers panic due to less and less butts are on office chairs in the office. Yeah, seriously, who GO TO the office anymore. After all, why would anyone want to spend extra few hours a day driving to the office just to get the same or less things done while they could manage it at their HOME office.

I personally will stay out of a few segments of commercial real estate including office building, small retail space, stand alone retail (unless you already find a tenant for it) due to the current economic instability. However, we are hunting for multi-family apartment buildings that cashflow. After all, food and shelters are our basic needs. And I am very proud to help my investors, clients, and myself to be one of the contributors to today’s economy by providing quality affordable housing.

Read full Article:
Why Property Managers Have Panic In Their Eyes – Forbes.

Bill would encourage foreigners to buy U.S. homes

A house in San Marino, where median home prices have risen -- largely because of Asian home buyers and investors -- even as real estate values in the region have declined. (Gary Friedman, Los Angeles Times / January 27, 2011)

Article from L.A. Time. This could be a help of our depressed market. Somebody is ought to pump some real money into this economy, not the artificial money from Bernanke.

By Jim Puzzanghera and Lauren Beale, Los Angeles Times
October 20, 2011, 7:00 p.m.

Reporting from Washington and Los Angeles— American consumers and the federal government haven’t been able to bail out the sinking U.S. real estate market. Now wealthy Chinese, Canadians and other foreign buyers could get their chance.

Two U.S. senators have introduced a bill that would allow foreigners who spend at least $500,000 on residential property to obtain visas allowing them to live in the United States.

The plan could be a boon to California, which has become a popular real estate market for foreigners, particularly those from China.

Nationwide, residential sales to foreigners and recent immigrants totaled $82 billion in the 12-month period ended March 31, up from $66 billion the previous year, according to the National Assn. of Realtors. California accounted for 12% of those sales, second only to Florida.

“Overall, Los Angeles is the perfect place for investors,” said YanYan Zhang, an agent with Rodeo Realty in Beverly Hills, who travels to China several times a year to meet potential clients.

Sandra Miller, a broker at Engel & Volkers in Santa Monica, an international real estate firm that caters to foreign clients, said about 10% of the luxury market now is composed of foreign investors. She estimated that offering them U.S. visas would triple that figure, as well as help sales elsewhere.

“California, Florida, New York, Colorado, Hawaii and Texas — those states will see a huge increase in demand,” she said. “The whole Westside would certainly benefit.”

The bipartisan proposal, part of a package that also would make it easier for international tourists to visit the U.S., is similar to an existing program that puts foreigners on a fast track to a green card if they invest at least $500,000 in an American business that creates at least 10 jobs.

“Many people want to come and live in the United States,” said Sen. Charles Schumer (D-N.Y.), who introduced the legislation Thursday along with Sen. Mike Lee (R-Utah). “They will be here spending money and paying taxes, and the most important thing is they’ll sop up the extra supply of homes we have right now compared to demand, and that’s what’s dragging our economy down.”

The legislation would create a new homeowner visa that would be renewable every three years, but the proposal would not put them on a path to citizenship. To be eligible, a person would have to buy a primary residence of at least $250,000 and spend a total of $500,000 on residential real estate. The other properties could be rented.

The program would come with several restrictions.

The purchase would have to be in cash, with no mortgage or home equity loan allowed. And the property would have to be bought for more than its most recent appraised value, Schumer said.

The buyer would have to live in the home for at least 180 days each year, which would require paying U.S. income taxes on any foreign earnings. Buyers would no longer be eligible for the temporary visa if the property were sold.

The buyer would be able to bring a spouse and minor children to live in the U.S. but would need to apply for a work visa to hold a job. Neither the buyer nor dependents would be eligible to receive Medicaid, Medicare or Social Security benefits.

“The bill does not limit people from being productive,” Schumer said. “It simply prevents them from coming here and taking jobs that otherwise would go to Americans.”

Billionaire investor Warren Buffett and others have advocated boosting the U.S. economy by attracting foreign investment.

The Visa Improvements to Stimulate International Tourism to the United States of America Act, or VISIT-USA Act, aims to do that by also making several other changes to visa policies.

Among them are allowing Chinese tourists to receive a five-year visa that permits multiple visits. They now must apply for a new visa every year. Canadians would be allowed to stay in the U.S. for more than 180 days without having to obtain a visa.

Schumer and Lee have lined up support from the U.S. Chamber of Commerce, the U.S. Travel Assn. and the American Hotel & Lodging Assn. Schumer said he was working to get the backing of the Obama administration, which received the bill’s details Thursday.

“For too long, we have created barriers, and too many hoops and hurdles, which act to deter visitors from other countries coming to the United States to spend their money and create jobs,” said Chamber of Commerce President Thomas Donohue. “This is a loss we can ill afford in today’s economy.”

Robert Toll, executive chairman of Toll Brothers Inc., a Pennsylvania builder of luxury homes, joined Schumer on a conference call with reporters to back the foreign home-buyer proposal. He said it was no different from tax breaks designed to attract businesses.

Lee described it as a free-market way to boost demand in the real estate market after “big-government programs have failed to work.”
Copyright © 2011, Los Angeles Times

California gets the Crown : Hottest Neighborhoods for Foreclosure Searches

Top 10 hottest neighborhoods for foreclosure searches

California took the Crown on 5 out of 10.

1) Bullard, Fresno, California
2) Sylmar, Los Angeles, California
3) Sherman Oaks, Los Angeles, California
4) Roosevelt, Fresno, California
5) North Scottsdale, Scottsdale, Ariz
6) Mclane, Fresno, California
7) Summerlin North, Las Vegas, Nevada
8) Enterprise, Las Vegas, Nevada
9) Camelback East, Phoenix, Arizona
10) Corpus Christi, Texas

Click to See Full Article:

The Game of Monopoly

The Rules from The Game of Monopoly:

“The Bank never ‘goes broke’. If the Bank runs out of money, the Banker may issue as much more as may be needed by writing on any ordinary paper.”

Water-Conserving Plumbing Fixtures Requirement

Another new disclosure law in CA: Seller to disclose if their property has Water conserving plumbing fixtures which include low-flow toilets, shower heads, and faucets. Some cities already have similar ordinances in place. If you are planning on selling or buying a residence, don’t forget to check the bathrooms.

California Real Estate new law in 2012

Water Conserving Plumbing Fixtures Requirement

Sellers Disclosing Water-Conserving Plumbing Fixtures: C.A.R. successfully sponsored a new law, effective January 1, 2012, revising the Transfer Disclosure Statement (TDS) to include a checkbox in Section A for the seller to disclose whether the property has water-conserving plumbing fixtures. The revised TDS also clarifies at the end of Section B that, by January 1, 2017, a single-family residence built on or before January 1, 1994 must generally be equipped with water-conserving plumbing fixtures. If, however, that single-family home is altered or improved on or after January 1, 2014, the water-conserving plumbing fixtures must be a condition of final permit approval. Water-conserving plumbing fixtures are low-flow toilets, shower heads, and faucets under section 1101.3 of the California Civil Code. C.A.R. intends to release a revised TDS form in November 2011 to comply with this law. Senate Bill 837.

DENIED!! Home Buyers Rejection Rate High

The title for this NY Times post is “Triggers for Rejection” – about 2 millions wanna be home owners got rejected on the loan process due to various reasons.

Here’s a few tips and remedies to improve your chance to get approval:

1) Insufficient income – Remedy : buy a house that you can afford (do not guess the numbers) – talk to a mortgage lender BEFORE you go shopping for a house. Find a competent loan agent and real estate agent who can help you close the deal.
2) Cloudy financial picture – Remedy : if you have something to hide – don’t even try! Most underwriters nowadays are very savvy and they are required to be diligent. Don’t complicate things – keep it simple!! Provide everything they ask for – nothing more, nothing less. However, they will usually want more.
3) Poor credit – Remedy : this might need long term healing process. There are credit repair agents claimed to be able to ‘erase’ all the bad things on your report. I have no seen anything that really works – most of them are scams. They even made it to national TV. If you need to take a while to repair what you need to repair, that might be the case. Or find a loan that is less credit driven, i.e. FHA loan.
4) Low appraisal – Remedy : depends on your market condition, this might become an advantage to re-negotiate with the seller. Unless you must absolutely buy the house with extra money down, re-negotiate down the price is the best remedy. Challenging the appraisal is a long haul battle.
5) Property problems – Remedy : unless you know what you are doing, sometime walking away is a good thing.
6) Information mix-ups – Remedy : check your own credit regularly, like every 6-12 months. This will help you stay on top of what is happening in your credit report. There are many Joe Smith in your area, so you don’t want to be someone else that you are not. Also in case you find errors in your report, you can start corrections and disputes before you even start the loan process.

Many of these problems could be avoid if you plan ahead. So you improve your chance of getting the loan funded.

CLICK HERE to read The Full Article

For those who LOVE or HATE Robert Kiyosaki….

Robert Kiyosaki - Rich Dad Poor Dad

A Reply to a Blog Post:
I hope you are all speaking from your ‘own’ experience because what I am about to tell you is my own experience and I have DONE it.

I read Rich Dad Pool Dad in year 2001 – the lowest point of my life. I got laid off from my job on my birthday, my 401k went out the window along with my job, my relationship was cancerous (talking about the wrong partner), I downsized 2 times coz I can’t afford to pay my rent. Rich Dad Poor Dad is an introduction of my awakening. The concept is real. I looked at all the ‘Stuff – aka Dudads’ that I had, they don’t do S%*# for me… all I had was liabilities. I ventured into many things, life was turning around in 2004 and then I met my husband. We went to a couple of live event featuring The Kiyosakis. I was intrigued by what he has to say. His message is different from many other real estate ‘gurus’. His message is Financial Education and his game is Cash Flow (not only his board game but his game in life). In 2006, my husband and I took up Rich Dad Coaching which cost $4500. At the moment, we were living pay check by pay check due to many personal issues in life. But we manage to pay for that…. which is THE BEST $4500 I ever spent. For some twist of faith, although we were eager to test our wings in the investing game, we didn’t make any real estate purchase (both investment and personal resident). In contrary, we sold all the real estate holdings that we had at the highest possible price. If anyone must say, we are lucky but I believe we improved our luck coz we made an educated guess.

I spent the last 10 years studying real estate, Robert Kiyosaki’s Philosophy and other successful people’s thoeries, Robert Kiyosaki’s model is by far the best that I came across. Again, his name of the game is Cash Flow. Remember we spent $4500 on Rich Dad Coaching program. We just bought our fist apartment building this year. We made our coaching tuition back within 30 days. And this apartment building will keep feeding us thousands of dollars each month for the rest of our lives or if we want to sell. The problem for me is, I am already bored and ready for the next project. But this time, the project will be 10 times bigger and worth millions more. The latest technique that Kiyosaki and his team are teaching is ‘the infinite’ return model and that’s what I am working on.

I know it’s very difficult for many people to see and understand, but the opportunity is in your mind, not your eyes. We were taught by our society ‘go out to get a job’ and ‘climb the corporate ladder’. I only had worked for one corporation and that’s the one who fired me on my birthday. However, that’ the best birthday I ever had – it changed my life and change the way I see everything. I would never be working on a multi-million dollar real estate acquisition if I have stayed in the corporate world and worked for somebody. I would never be a proud housing provider today if I have not studied Robert Kiyosaki and his philosophy. In fact, my husband and I will be joining the Kiyosaki and his team on a cruise next year to learn and hang out. Yup, it’s a huge price tag for a cruise – about $10K but it’s a small investment for my education. The best part of all is our apartment pays for it, and I am confident that I will make every dollar back at no time.

I am not suggesting that you should spend thousands on anything or anyone, but choose who you are getting advises from wisely. If you have a poor people’s mentality, you will likely stay poor. One note of caution, Robert Kiyosaki at one point has partner with Russ Whitney and that was a huge mistake because Russ Whitney is not an educator. His seminar is nothing but up-sell. His upsell starts from day one all the way til the end of the classes. You will not likely learn much from Russ Whitney’s course.

EnRich your life, that’s the only one you got.

Don’t Get Scammed! Real Estate Mail Fraud Scam.

Don’t Get Scammed! Real Estate Mail Fraud Scam.

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