Many people have heard about a 1031 exchange, but aren't quite sure what it is, or how it works. I hope to shed some light on the subject. Important to note is that there is a tax exemption on the sale of your primary residence, and while a 1031 exchange can be applied to any property, it's most commonly applied to investment properties, where the owners tax burden is not protected by a primary residence status.

The basic principle of doing a 1031 exchange, forward or reverse, is to defer the taxes on the sale of the house that you own (relinquished property). In a forward 1031 exchange, the seller of a house transfers the proceeds from the sale of his house directly into an account with a 1031 exchange company. Note the proceeds are not realized by the seller, they go directly into an account at the exchange company. The seller then has 45 days to identify a new property (replacement property), and 180 days to close on it. The seller can identify upto three replacement properties, as not every escrow is successful, and the seller has the specified time in which to close on one of the identified properties. The seller can choose to identify more than 3 properties, but if he chooses to do so, the total value of the identified properties can not exceed two hundred percent of the sales price of the relinquished property. So, by doing the forward 1031 exchange, the seller defers the taxes due on the relinquished property, identifies a replacement property, and closes on it in a specified time period. A forward exchange will cost roughly $600.00.

In a reverse 1031 exchange, the owner of a property (relinquished property) can go about acquiring a new property (replacement property) before the the relinquished property is sold. In this case, the seller deeds the exchange company title to the relinquished property, which is held in a Limited Liability Company (LLC) at the exchange company. The owner goes about acquiring the replacement property in the regular fashion, with cash, or some cash and a mortgage, and can begin enjoying his new property. From the time the reverse exchange is established, the owner has 180 days to sell the relinquished property. When the relinquished property is sold, the proceeds from that sale are credited towards the acquisition of the replacement property, and the seller of the relinquished property is credited that amount. If for whatever reason, the relinquished property doesn't sell within the 180 days, the exchange company deeds the title back to the owner. In this case, the owner is not entitled to any refund of the roughly $ 4000.00 cost of setting up the reverse 1031 exchange.

If you have any questions about this post, please contact me by email: SA7@PeterSlate.com or by phone: 808 276 4017.

Thank you for reading my blog.

Aloha,

Peter Slate R(S)
Haiku Properties

Labels: Forward and Reverse 1031 exchange

The Vancouver Sun picked up on an article I wrote about Canadian arrivals on Maui, and since the article published, I've had a great response, with many inquiries into Maui Real Estate, especially ocean view condos.

Looking through the Canadian visitor arrivals for the first quarter of 2008, I arrived at the conclusion ..... Canadians are King ! The following figures are published by Hawaii's Department of Business Economic Development and Tourism (DBEDT). Below is a summary of Canadian visitors to Maui, and to the Hawaii Islands in general for the first quarter of 2008.

14 737 Canadian visitors arrived on Maui in January 08, up 38 % from the 10 654 Canadian arrivals in January 07. Canadian travel to the Hawaiian Islands for Jan. 08 was up 27%, with a daily average census of 20 500 visitors.

15 453 Canadian visitors arrived on Maui in February 08, up 68 % from the 9 156 Canadian arrivals in February 07. Canadian travel to the Hawaiian Islands for Feb. 08 was up 31%, with a daily average census of 21 168 visitors.

17 114 Canadian visitors arrived on Maui in March 08, up 23 % from the 13 862 Canadian arrivals in March 07. Canadian travel to the Hawaiian Islands for March. 08 was up 16%, with a daily average census of 18 877 visitors.

Thank you Canadians ! and thank you for reading my blog.

Aloha,

Peter Slate R(S)
Haiku Properties

Labels: Canadians are King

Imagine your dream home on this spectacular view lot in a very upscale, gated community, Maluhia Country Ranches. This 2.954 acre lot offers incredible views of Haleakala, Maui's North Shore and Kahului Town. A 20 minute drive from Maluhia Country Ranches gets you to the airport and Kahului's town center. Private, secure and spacious, this Maluhia Country Ranches lot is being offered at $ 549 500. For more information, please contact Peter Slate R(S) Haiku Properties Tel- 808 276 4017.

Thank you and Aloha !

Labels: Land

It's easy to understand why high net worth people gravitate towards resort areas such as Wailea and Kapalua. Given the manicured golf courses, and the presence of large, high end hotels to help secure the value of their investments, this clientele finds their comfort zone in these areas. However, with new development adding to the traffic congestion and living density, buyers are looking past the typical resort areas, and toward other options ..... and there's plenty to see !

Maui's Kula, Keokea and Ulupalakua areas are the exact opposite of your Wailea / Kapalua resort area, and until recently lacked the large scale marketing and awareness necessary to bring peoples attention to a particular area. Coming online shortly is a 1800 acre development in Lower Kula which will be heavily marketed and promoted by one of the biggest real estate brokerage firms in the world. Given the attention that will come with such a large scale development, and the promise of the long awaited highway that will connect Kula and Kihei with a 20 minute commute, I looked at some of the houses available on the Kula / Keokea market that would benefit from large scale marketing. The results were surprising! I found that what was once considered sleepy old "Upcountry" was, in fact, now, a very high end area, with very desirable Gentleman's estates ! Take for example this 4000 sqft, "Hamptons" style house on almost 4 acres in Keokea, or this incredible 5000 sqft plus house on 8.6 acres complete with pool and exquisite library built in Omaopio Ridge. The most recent Kula mansion on the market boasts over 7100 sqft of living area, a pool, a tennis court, a separate 958 sqft cottage, and every upgrade imaginable !

With all the marketing and roadways aimed at connecting Kula, Keokea and Ulupalakua with the high end resorts, it's my prediction that more and more high net worth people will begin to realize the true value of Maui's Upcountry Gentleman's estate. Click on this Kula, Keokea, Ulupalakua link to see a complete list of incredibly beautiful homes.

Should you have any questions, please leave a comment, or call me directly on 808 276 4017. Thank you for reading my blog.

Aloha !

This incredible piece of Makena property is up for sale, but few understand its full potential.

With the current agricultural (Ag) zoning, and leaving the lot lines as they are, the property could be developed into five main houses and three 1000 sqft cottages. Total acquisition $ 26.5MM for the land, plus a $ 30MM (estimated) build out of all the house and cottages, totals $ 56.5MM. Total gross form the sale of the house and cottages would come in anywhere between $90 MM - 100MM (based on current comps), which allows significant profit margin. Expected permitting and build out to take 5-6 years to complete. With water meters and power available on all four lots, a buyer would be able to start planning right away. An SMA (Special Management Area) is required as part of the building permit condition.

To expand on the development possibilities: If the current Ag zoning were changed to match the Rural zoning called for in the General Plan, the owner would be able to subdivide the total property into fourteen, one acre lots, with the possibility to build a main house and a cottage on each lot. The down side being additional fire protection (water) would need to be brought to the property, a major SMA, and sub-division final approval, would need to be completed before any construction could start. With fourteen new lots, an affordable housing component would need to addressed. The upside being an even higher profit margin.

Another option would be four families who acquire this 4 lot, 14.15 acre, magical Makena property, each take a lot, and build their dream homes with ultimate privacy and space!

Click this Wailea Makena Real Estate link for a complete list of luxury properties in the Wailea / Makena area.

Thank you for reading my blog. If you have any questions, please leave a comment, or call me on 808 276 4017. I look forward to speaking with you soon.

Aloha !

2008 started with stock markets plummeting around the world. This distracted many people from the ongoing credit crises, and brought about fear and a panic sell off, which resulted in huge losses over only a few days trading.

In the Campaign debates there is much reference to what can be done to keep homeowners in their homes, and who is most likely to achieve it. As many homeowners, feeling poor from the loss of equity in their homes, and the loss of asset value in the stock market, sit and watch all this going on around them, they have begun to ponder: how did I get here ?

With home prices falling in almost all parts of the country over the last eighteen months, in some places double digit declines, here comes the the next question: Was my realtor negligent, or did he/she fail in their fiduciary responsibilities when representing the value, or the future value of a home ? If so, what can I do about it ?

Well, articles like these are seen more frequently, and if there is ever a conviction, then realtors, watch out, and be very careful of what you say !

Stay tuned ......

There has been so much attention given to the sub-prime mortgage mess, crumbling lenders, falling real estate prices, and rapidly increasing foreclosure, its no surprise that buyer sentiment is dazed ..... confused, and buyers are possibly more than a little freaked out! I've heard seasoned real estate agents say the next cycle won't start until 2009. I disagree.

The Countrywide bomb exploded last week, with Bank of America diving on top of it just before it was too late. In the same way JPMorgan will come to the rescue of Washington Mutual, the time has come for the big banks to bail out those in need. Federal regulators are not going to stop these mergers, as there is simply too much at stake. There is no longer any need to speculate on the extent of the Sub-prime mess ... it went all the way to the top ! with Countrywide having to merge with Bank of America to stay afloat ! How much damage was there along the way ? 218 banks and lending institutions (50 000 jobs) have gone out of business in the last 15 months !! Yeah, I'd say there was some damage.

Looking forward, the Bush Administration is discussing a stimulus package, Federal Reserve Chairman, Mr. Bernanke, has assured the Nation (and the World) that the Federal Reserve will do whatever is necessary to maintain liquidity in the banking system, and the Feds are on the verge of dropping interest rates again. Fantastic ! The stock market is all over the map, which is another indicator that real estate may come back into favor sooner rather than later.

My disagreement with above mentioned realtor's is that the there is now consolidation in banking, investment groups have already taken their write-downs, and while prices will remain soft for some time, there is more incentive for buyers to put pen to paper. You gota remember, opportunity is constant.

Time will tell, stay tuned.