Mike’s Real Estate Show

Chicago Good Deals from our Keller Williams “windy-city” connection: Jon Sterling
“I spent a long day last week scouting the neighborhood in Chicago’s Washington Park.  On April 14th, we learn if Washington Park will be the location of the 2016 Olympic Games.  From what I saw on my tour, I can say with confidence there is a tremendous opportunity for growth and development in that neighborhood.  There’s nothing like an infusion of hundreds of millions of dollars in improvements to a neighborhood, paid for by the city of Chicago.  Just ask the folks who own places around Millenium Park how their property values are doing!  If you’d like Washington Park market information, let me know and I’ll send it to you.

 
Investment Property of the week:
 
This is an unlisted three-unit building in Edgewater that’s ready for a condo conversion.  There was water damage in the building (estimated cost to repair $100,000), so that presents some upside potential for the right person.  There are two 3 bedroom/1 bathroom units and one 2 bedroom/1 bath unit.  The basement is unfinished and the plans for the condo conversion were for the 3/1 units to have a bathroom added to each one, and the 2/1 unit to be duplexed down to include the basement space and add a bedroom, bathroom(s), living room, and storage.  The owner doesn’t have the liquidity to finish the job himself.
 
The average sale price for 3 bedroom/2 bathroom condos in Edgewater in the past six months is $336,000.  The asking price for the building is $700,000, and I think it could be purchased for quite a bit less. 
 
Today’s article - It’s tax time:(Please, always consult your local tax expert for adivice on all manners regarding the IRS and tax planning)
The Federal Tax Code provides ways a property owner can dispose of, exchange or sell an appreciated property and receive tax benefits. Some alternatives are described below.
 
IRC Section 121 enables a homeowner to exclude capital gain taxes (up to $250,000 if filing as a single, and $500,000 if married and filing jointly) if living in the house as a primary residence for two of the last five years. Partial exemption is also available in certain unforeseen circumstances such as a move of more than 50 miles in employment, health or medical reasons, divorce or death.  Revenue Procedure 2004-51 also allows a property owner to convert a primary residence to a rental property, and later take advantage of both capital gain tax exclusion under §121 and tax deferral under §1031 by exchanging into a replacement property held for investment or for use in trade or business.
 
IRC Section 453 (Installment Sale) allows a property owner who sells a property on an installment basis to defer paying capital gain taxes to future tax years when installment payments are actually received. Essentially, the property owner provides “seller carryback financing” for the buyer and only pays capital gain taxes as the payments are received over time. A variation on this strategy is sometimes called the structured sale. In a structured sale, the seller carryback note that is held by the seller is assigned over to a high quality alternate obligor (often a financial services company or life insurance company with high insurance ratings) who then makes payments to the seller over time under the terms of the note.
 
IRC Section 721 provides tax deferral to investors who contribute their property into a partnership entity to the extent that the contributor receives an interest in the partnership. Certain investment strategies are designed to take advantage of §721 including an operating partnership (OP) created by a Real Estate Investment Trust (REIT) sometimes referred to as an “Umbrella Partnership” or UPREIT. In exchange for the property contributed to the UPREIT under §721, the investor receives units in the operating partnership (OP Units). The capital gain taxes remain deferred as long as the UPREIT holds the property and the investor holds the OP Units.
 
IRC Section 1031 allows a property owner to defer capital gain taxes on the sale of any property held for investment or use in a trade or business when exchanged for “like-kind” property to be held for investment or use in a trade or business.
 
IRC Section 1033 provides tax deferral on the conversion of property destroyed in a casualty event or that is taken by a governmental entity through condemnation. To the extent that the property owner reinvests the compensatory proceeds for the loss in property that is similar or related in purpose or use, §1033 permits the property owner to defer recognition of gain.
 
A Charitable Remainder Trust permits a property owner to contribute appreciated property to a Charitable Remainder Trust (CRT) for the benefit of a designated charity. The contributor (called a donor) receives a charitable tax deduction on the transfer of the property to the CRT.  Having acquired the donated property, the trustee of the CRT can sell the property (at no gain to the trust) and reinvests the proceeds in income producing investments. A CRT is usually designed to pay an annuity to the donor over the donor’s life or over the joint life of the donor and the donor’s spouse. Any value remaining in the CRT at the donor’s death passes to the charitable remainder beneficiary. There are many types of CRTS, a few of which include; A) charitable remainder annuity trust (CRAT) which pays a fixed dollar amount annually; B) charitable remainder unitrust which pays a fixed percentage of the trust’s assets annually; C) ch! aritable pooled income fund which is set up by the charity allowing many donors to contribute. Consult with your tax and/or legal advisor for more information on CRTs or any tax strategy.
 
 
 
One of my friends who is making a killing in Colorado foreclosures right now may be joining us at the end of April.  If you’d like to be placed on the list for the next workshop, send me a quick email.     
 
Call me at 866-563-8968 or email me to learn more about real estate investment opportunities across the country.
Jon Sterling
The Sterling Group
676 N. Michigan Avenue
Suite 3010
Chicago, IL  60611
866-563-8968