I came across an article on msn.com this morning by a Business Week writer who is complaining about the $250,000 to $500,000 tax free gains policy the IRS provides when selling a residence. (If you aren't aware, you can sell you house and keep up to $250,000 of gains tax free if you are single, or up to $500,000 of gains if you are married. You must have lived in the property for 2 of the last 5 years to qualify for this.) Basically, he is saying this skews investments away from businesses and into real estate and encourages people to move every 2 years. His complaint is that other investments, such as stocks, are subject to a 15% capital gains tax and he doesn't see why selling a home should be any different. The article sounds like sour grapes from a stock investor.
The author states "The powerful lure of tax-free profit is one reason that home prices have risen at a nearly 7% annual rate, vs. about 4% for the stock market since 1997." Although he mentions it briefly, he dismisses all-time low interest rates as a major factor (perhaps the major factor) in the real estate boom and instead seems to think everyone is buying a new home every 2 years solely for the tax benefit. He also misses the boat in assuming it is owner-occupants (the only ones eligible for this tax break) who are driving up the housing market. What I believe is really happening is investors are buying houses for rentals, not to live in. Turning a profit on these investments is pretty easy, given low interest rates. That is what is inflating the price of a house.
Had he really understood real estate investing, rather than railing against the tax break on the sale of a primary residence, he would instead be railing against the tax advantages of the 1031 exchange, which allows investors to defer capital gains tax on income property indefinitely.
Finally, he states "As much as possible, the tax code shouldn't bias investment decisions." On the contrary, the tax code is expressly designed to bias investments toward what the government believes people should be investing in. Take, for example, all the tax benefits of owning a small business. The government wants businesses created so that more jobs can be made, jobs from which the government collects payroll taxes. The tax code encourages investment in real estate so that a healthy housing market is maintained and the government does not have to provide shelter for millions of people.
One Day Delay
I was planning on heading out to the property today to take some pictures and see how things looked, but I just got a call from Keith and will postpone that trip one day. All the cabinets are hung and today they are installing the doors. They are missing one drawer box, so Keith has to pick that up and get it installed. The panels for the sides of the cabinet are still not done, but they should be done and installed tomorrow. (Keith says they are just veneer that is cut to fit and glued on, so installation time is minimal.) They also realized they needed toekicks, so they've got to get those. In short, all that's left is the little stuff that was overlooked because the job was half done when Keith got it.
The yard guy called this morning and said he could get the yard done today. He was a bit put off when I told him no one would be at the house. He said I needed to be there to tell him exactly what needed to be done. I explained the yard is all rock and I just need all the weeds pulled. There is really nothing ambiguous about it. He said he'd call me again when he gets there. This was about 2.5 hours ago and I haven't heard back, so I'm wondering if he just blew me off.
I got the invoice for the tree trimming, so that should be done. I'll check tomorrow when I go out there before I pay it.
I ran comps again and, as Scott alluded to in the comments to my previous post, the increased holding time I have encountered has worked to my benefit. Using the same source, comps for the property went from an average of $99.94 / square foot in March to $102.65 / square foot in May to $112.20 today. That's an increase of $12.26 per square foot, which translates to an extra $16,600 for this house. Yeah, that pretty much covers my holdings costs of $160 a month!
The yard guy called this morning and said he could get the yard done today. He was a bit put off when I told him no one would be at the house. He said I needed to be there to tell him exactly what needed to be done. I explained the yard is all rock and I just need all the weeds pulled. There is really nothing ambiguous about it. He said he'd call me again when he gets there. This was about 2.5 hours ago and I haven't heard back, so I'm wondering if he just blew me off.
I got the invoice for the tree trimming, so that should be done. I'll check tomorrow when I go out there before I pay it.
I ran comps again and, as Scott alluded to in the comments to my previous post, the increased holding time I have encountered has worked to my benefit. Using the same source, comps for the property went from an average of $99.94 / square foot in March to $102.65 / square foot in May to $112.20 today. That's an increase of $12.26 per square foot, which translates to an extra $16,600 for this house. Yeah, that pretty much covers my holdings costs of $160 a month!
Another Update on Cabinets
Keith called me this morning to give me an update on the plans. At the time, he said the cabinets would be in today and the countertops were being installed in the afternoon. He said he would have to do some work on Monday - the cabinets the first guy made had no end panels, meaning the side that faced into the room was just raw wood. So Keith picked up some panels and took them to get them finished the same color as the cabinets. Those won't be ready until Monday and that's what he's got to install them.
This afternoon at 5 PM, he called to give me another update. Two-thirds of the upper cabinets are in and screwed together. They've still got one or two more to put up, which will be done on Monday. He hasn't heard yet on if the panels are finished, so if they aren't done by noon or so on Monday, he may have to come back on Tuesday. The countertops are all in and the sinks are installed. Keith also mentioned he picked up some lazy susans for the two corner cabinets, which did not have any.
So pretty good news so far. I also spoke with someone about clearing the weeds and they will be in the area on Tuesday to give me a quote for that. I'm hoping he can also get the job done on Tuesday, but if he can't, I'm going to go ahead and list the property anyway, assuming all the other stuff is done.
This afternoon at 5 PM, he called to give me another update. Two-thirds of the upper cabinets are in and screwed together. They've still got one or two more to put up, which will be done on Monday. He hasn't heard yet on if the panels are finished, so if they aren't done by noon or so on Monday, he may have to come back on Tuesday. The countertops are all in and the sinks are installed. Keith also mentioned he picked up some lazy susans for the two corner cabinets, which did not have any.
So pretty good news so far. I also spoke with someone about clearing the weeds and they will be in the area on Tuesday to give me a quote for that. I'm hoping he can also get the job done on Tuesday, but if he can't, I'm going to go ahead and list the property anyway, assuming all the other stuff is done.
Countertops Going In Friday
I spoke with Keith today and he tells me the countertops are in and will be installed on Friday! Keith suggested I ask if Corbin, the countertop guy, could install the sinks in the bathrooms. This is something of a sore point with me. Originally, Corbin said he likes to install sinks because he can pick up some extra money, but he would not be able to do it for me due to time constraints. This was back before we had to re-order the countertops, so he might have more time now. When I spoke with Keith last week, he indicated that Corbin told him he would install the sinks. Now, I’m supposed to ask again. Ugh. Anyway, I called Corbin and got his voicemail, so I left a message asking if he would be able to do it. Personally, Corbin strikes me as someone who does stuff only if he feels like it. This is twice now that I have talked to Keith and he has said “Oh, didn’t Corbin call you?” The difference between Keith and Corbin is striking.
Another Cashflow Day!
Yesterday, I received a check for almost $1,450 from another one of the foreclosure investing LLCs I am in. Over the past year, this LLC is returning about 31% and the annualized ROI for the 18 months I've been in it is around 22%. Not too bad. This money is being turned right around and reinvested with the same people. If you recall, my goal was to get into 6 of these ventures so that I will be receiving a check each month. This latest one, assuming I get in (and I haven't gotten confirmation yet), will make four.
In reading the first post I linked to above, I realized that my cashflow from the Indian casino has dried up. Apparently they discovered I was simply redeeming the $5 coupons and never playing, so they stopped sending me the newsletter. Either that or they stopped the newsletter for the summer, which might be possible since so many people leave town for the summer months. These "snowbirds," as we call them, are probably the casino's main target audience. Oh well. Easy come, easy go.
In reading the first post I linked to above, I realized that my cashflow from the Indian casino has dried up. Apparently they discovered I was simply redeeming the $5 coupons and never playing, so they stopped sending me the newsletter. Either that or they stopped the newsletter for the summer, which might be possible since so many people leave town for the summer months. These "snowbirds," as we call them, are probably the casino's main target audience. Oh well. Easy come, easy go.
