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1031 Exchange: Deal Or No Deal

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Handwriting text writing Commercial Real Estate. Concept meaning Income Property Building or Land for Business Purpose

Is “deal or no deal” a popular refrain from a successful game show or is it the voice of real estate investors who are growing concerned about the potential repeal of Section 1031 of the Internal Revenue Code?  

A recent read of the Biden/Harris tax plan reveals a $4 trillion tax hike, and one of the considerations for funding this massive tax increase is a change of 1031 Exchanges. 

President Biden’s administration has proposed eliminating 1031 “like-kind” exchanges for investors with annual incomes of more than $400,000, as part of a plan to fund future government spending on childcare and elderly healthcare. 

1031 exchanges have been a part of the U.S. Internal Revenue Code since 1921. The law was originally passed by congress to stimulate economic growth. They allow real estate investors to defer capital-gains taxes when they sell properties by directing the proceeds into new investments, usually within a few months after the sale.  As written, the rule allows investors to perpetually roll over capital gains into successive replacement property purchases, effectively eliminating tax liabilities through estate planning. 

Throughout U.S. history, investors have relied on real estate as a means of generating both income and capital appreciation. Low investment returns and stock market volatility have converged to create enormous demand for income-producing real estate that is often used to fund future liabilities. 

Now, more than ever, investors are looking to their real estate holdings to diversify away from market risk and provide a steady stream of income during retirement. For many 1031 exchange investors, their real estate holdings make up the largest portion of their net worth and are a key pillar in retirement planning.     

Today individual investors and limited partnerships control more than $ 7 trillion in residential and commercial rental property. It’s estimated that one in four Baby Boomers own one or more investment property and annual 1031 exchange transaction volume exceeds $100 billion per year.  

Given forecasted economic and demographic trends (primarily driven by the Boomers), the question is not whether or not investors will be buying investment real estate but rather what types of properties will they buy. 

In light of potential policy changes and evolving tax reform, a possibly even bigger question is will commercial real estate investors be able to utilize 1031 tax deferred exchanges as a means of buying and selling properties in the future?  

If Section 1031 of the IRS code is reformed millions of small retail investors may stand to lose billions of dollars in property values. 

This is not the first time that attempts have been made to eliminate 1031 exchanges but so far it continues to survive threats of repeal because lawmakers generally understand its positive impact on the economy. 

As Brad Watt, CEO of Petra Capital told me, “eliminating exchange rules at a time when the economy is suffering from the coronavirus pandemic would deal a ‘one-two punch’ to real estate values. 1031 exchanges benefit the “everyday” man by allowing smaller and less capitalized real estate investors to increase their income and net worth by temporarily deferring tax on reinvested real estate sales proceeds.” 

Eliminating 1031 exchanges from the current tax code could have a profound negative impact on future real estate values and the economic prosperity of the many small investors who own investment property.    

For investors looking to sell their current investment property, there has historically been a long line of willing buyers. Investors have been eager to purchase stabilized income property with the added benefits of tax-sheltered income and the ability to protect future capital gains by utilizing 1031 exchange rules. 

Now with the twin-threat of coronavirus and looming tax reform, sellers and buyers of investment properties are beginning to recalibrate pricing and income expectations. A modification, or outright elimination of IRC section 1031, could potentially create a real estate recession that mirrors the impact of the Tax Reform Act of 1986. 

However, the impact this time around could be much worse as real estate is now considered the fourth asset class behind stocks, bonds and cash. 

Now, more than ever, investors are relying on the stability of their real estate holdings to hedge against an unstable and unpredictable economy. Adverse changes or elimination of 1031 exchanges would send a shockwave through the economy that would have irreversible consequences on existing investors and potentially eliminate trillions of value in future generational wealth transfer.

Meanwhile, perhaps in anticipation of the elimination or modification of 1031s, there has been a mad rush to get deals closed. Paul Getty, CEO of First Guardian Group, told me, “our phone is ringing off the hook.”

Getty’s firm sees more 1031 transactions as anyone; as he put it, “we have a front row seat.” In December 2020 his company saw a significant spike in 1031s. Mountain Dell Consulting, which tracks 1031 transactions, reported a 15% increase from first-quarter 2020 citing, “the market does not have enough supply for current demand.”

The 1031 exchange law is one of the most important tools in the toolkit for real estate investors and odds are good that there could be changes on the horizon.

Kim Lochridge, executive vice president at Engineered Tax Services told me that “the elimination of the 1031 exchange program would be absolutely detrimental to the real estate markets and industries.”

She added, “real estate folks are learning a current work around by selling and in the same year buying another property and using the bonus deprecation (from a cost segregation study) in order to offset the capital gains on the sale.”

That’s an interesting work around, however as she pointed out, “bonus deprecation begins to phase out in 2023 and is totally expired in 2027, so this would only be a short-term alternative solution.”

Decisions, decisions.

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Real Estate

Luxurious Mountain Living In 3 Markets For About $2.3 Million

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exterior and mountain view 312 North French Street BRECKENRIDGE, CO, USA

For some, there’s nothing better than to get away from it all; for others, even the idea of exploring the great outdoors may seem like more of a chore than a vacation. In this week’s look at luxury real estate around the world, I took a look at three properties in cities popular among outdoor enthusiasts that buck the notion that roughing it can’t be done in comfort and style.

From a high-end condominium overlooking Whitefish Lake in Montana to an updated Victorian home in downtown Breckenridge, here’s a look at what about $2.3 million buys right now in three mountain markets.

Breckenridge, Colorado | $2.38 million

Located about two blocks from Main Street on North French Street in Breckenridge, this updated Victorian-style home is steps away from the charming downtown area full of boutique shops, dining and spas. The area is also popular for its proximity to the BreckConnect Gondola, which lies about two blocks from the property.

Features: Fanciful trim and detailing on the exterior lend a whimsical touch to the home, which takes in sweeping mountain and tree-top views. Recently remodeled, the two-story home features a cozy living room with picture windows and a fireplace filling two walls. A dining room and a kitchen adjoin the living room space. The streamlined kitchen has been updated with new cabinetry, dark subway tile and a stone-topped breakfast bar for a more modern feel.

Other perks: The 2,236-square-foot floor plan has five bedrooms and 3.5 bathrooms that can accommodate up to 12 adults (15 total with children). One of the front-facing bedrooms opens to a balcony with mountain views. 

Represented by: Michele Hart, Slifer Smith & Frampton Real Estate


Truckee, California | $2.36 million

For those in the market for a more amenitized living situation, there’s Village Walk Skyline near the Northstar Village ski resort in Northern California’s Tahoe-Truckee area. Located at the peak of Northstar Village, the sustainably constructed residences offer curated living spaces with some of the most spectacular views in the area. A short walk to the village area is another reason why these luxury townhomes sold like hotcakes in 2020.

Features: Designed with simplicity in mind, homes feature large open spaces and soaring ceilings that give the roughly 3,000-square-foot interiors a voluminous feel. Large communal areas such as the chef’s kitchen and great room lie on the main level and open directly to a deck and outdoor dining patio. An expansive primary suite—one of four bedrooms—sits off the great room and has access to the deck.

Other perks: In addition to a junior suite and guest bedroom, a dedicated bunk room provides additional space for guests and children. The lower level has been configured with a central recreation room that leads out to decking with a spa.

Represented by: Taylor Carlton and JB Benna, Tahoe Mountain Realty


Whitefish, Montana | $2.3 million

The pristine waters of Whitefish Lake bring thousands of adventure-seekers to the area each year for boating, swimming, fishing and other popular lake activities. This modern condominium on the shore has a front-row seat of the action with three levels of decking that face the lakefront.

Features: Tailored for modern living, the four-bedroom, three-bathroom condo features a contemporary aesthetic with wide-plank wood floors, walls of glass and modern fixtures throughout. In the primary suite, the space expands to include a four-piece bathroom, a walk-in closet and a clean-burning bio-ethanol fireplace.

Other perks: An automated whole-house audio/video system makes controlling the lights, shades and entertainment a breeze. Pocketing doors in the main living area erases boundaries between indoor and outdoor spaces.

Represented by: Jeff Raper, National Parks Realty


National Parks Realty, Slifer Smith & Frampton Real Estate and Tahoe Mountain Realty are exclusive members of Forbes Global Properties, a consumer marketplace and membership network of elite brokerages selling the world’s most luxurious homes.

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Real Estate

Here Are The Properties At Stake In The Gates Divorce

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Gates house

Bill and Melinda Gates’ divorce announcement is likely to spark one of the largest divisions of personal assets in history. Bill Gates is presently the world’s fourth-richest person, with a $130.5 billion fortune, stemming from his $25 billion stake in Microsoft, a host of publicly traded investments and a collection of ultra-luxury properties scattered across the U.S. 

The couple’s main home, a $131 million estate nicknamed Xanadu 2.0, spans 66,000 square feet and took seven years to build. It features a trampoline room, six kitchens and an artificial stream. Their other homes include a $43 million beachfront mansion in Del Mar, California and an equestrian estate in Wellington, Florida, which also counts billionaires Jeremy Jacobs, Michael Bloomberg and John Malone as owners. 

Easy to overlook is the huge portfolio of farmland. The couple are the largest private farmland owners in America, with 242,000 acres, according to The Land Report, with the biggest swaths in Louisiana (69,071 acres), Arkansas (47,927 acres) and Nebraska (20,588 acres). It is not presently clear how that land is being used.

They also own four private planes, a vast art collection and the Codex Leicester, a notebook filled with scientific writing by Leonardo da Vinci, which Bill bought for $30.8 million in 1994. 

On some level, it doesn’t matter how the couple plans to divide their assets. Together with Warren Buffett, in 2010 they cofounded the Giving Pledge—a promise by high-net-worth individuals to give away more than half of their wealth—and reportedly plan to leave $10 million to each of their children, devoting the rest to charitable causes.  

Already, they have given more than $35 billion worth of Microsoft stock to the Bill and Melinda Gates Foundation, the world’s largest private charity, which focuses much of its work on public health. Last May, for instance, the foundation said it would earmark $300 million to combat the Covid-19 pandemic. 

Below is a closer look at some of the couple’s real estate holdings. 

Medina, Washington

Located on Lake Washington, the home’s nickname, Xanadu 2.0, drew inspiration from the protagonist’s abode in Citizen Kane. With a reported seven bedrooms and more than 18 bathrooms, the house is designed to be energy efficient while also supporting an underwater sound system, screens powered by miles of fiber-optic cables, and a 2,100 square-foot private library. 

Del Mar, California

This six-bedroom home was designed by Ken Rochetti, and includes tons of deck space, a four-car garage, jacuzzi and glass tile pool. Spanning 5,800 square feet, the $43 million property is a landmark in Del Mar. It was last owned by Madeleine Pickens, who was previously married to billionaire T. Boone Pickens.

Indian Wells, California

The six-bedroom house was purchased in 1999 for $12.5 million and, at 13,000 square feet, is one of the couple’s more modest properties. One main appeal is its proximity to a golf course designed by Tom Fazio. Lee Iacocca reportedly lived nearby. 

Wellington, Florida

The Gates’ daughter Jennifer is well-known in equestrian circles, and there is plenty of space to ride on this 30-acre collection of properties in Wellington. The most recent addition came in 2019, a $21 million horse farm set on 7.7 acres. 

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These Are The 15 Most Popular Home Styles Across the U.S.

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Neutral colored ranch-style home is one of the most popular styles in the U.S.

No matter where you live, you’ll likely encounter a wide variety of architectural home styles just by driving through your neighborhood. From extravagant to quaint, homes across the U.S. hold their own unique beauty and characteristics just like the people who inhabit them.

So, what are the most popular home styles in the U.S.? From New York, NY to Portland, OR, you don’t have to be an architect to appreciate the range of stunning house styles available on the housing market. So whether you’re in the market for a new home or just love browsing homes on your favorite real estate app, check out the 15 most popular home styles in the United States right now.

What Are the Most Popular Home Styles?

1. Ranch-style homes

Dating back to 1932, the ranch-style home grew in popularity during the 1950s and 1960s, and is still popular today. The iconic ranch architecture is known for its simple, single-story floor plan, low-to-the-ground look, often with an open layout and occasional basement. This style of house typically has a smaller yard, attached garage, and a low-pitched roof. The ranch-style home often features large windows and sliding glass doors, encouraging an indoor-outdoor living style. A ranch can also be called a ‘rambler,’ depending on which region in the country you live in and local terminology. 

Looking locally, ranch-style homes currently have the highest sale-to-list ratio in a handful of cities,  meaning this style of house is more likely to sell above the list price. These cities include Portland, OR, Phoenix, AZ, Chicago, IL, San Francisco, CA, and San Diego, CA. Each of these cities favor the rambler, with a current sale-to-list ratio of over 100%.

2. Craftsman-style homes

Two-story red brick colored craftsman home with greenery

The beloved craftsman style home became increasingly popular in the 1900s by architect and furniture designer Gustav Stickley, and has remained popular throughout the 21st century. This staple for American Architecture adds charm to any neighborhood with its exterior features, including shingles, low-pitched roofs, and covered front porches. Craftsman homes also feature recognizable interior details such as thick trim, prominent ceiling beams, and built-in shelving and seating.

Craftsman homes are a desirable home style all across the U.S., but they are often sold above list price in Oakland, CA, Seattle, WA, Atlanta, GA, and Portland, OR.

4. Contemporary-style homes

A two story white contemporary-style home with black garage and trim

Contemporary architecture is often used interchangeably when describing modern style architecture. A wide range of recently built homes are built with Contemporary-style architecture. These homes have inventive designs and simple forms without elaborate ornamentation or detail. They usually have geometric lines, large windows and doors to bring in light, and open floor plans. They often incorporate sustainable and eco-friendly building materials, textures, and components, exposed roof beams, and flat or low-pitched roofs. 

Contemporary-style homes see the highest sale-to-list ratio in Oakland, CA, Denver, CO, Phoenix, AZ, San Francisco, CA, San Diego, CA, Chicago, IL, and Atlanta, GA.

5. Modern-style homes

Single-story modern home with pool is one of the most popular home styles

Emerging in the 1920s to embrace minimalism and reject the more ornate home styles, modern house styles typically include progressive elements such as asymmetrical exteriors, flat roofs, and integrated outdoor spaces. Many modern interiors also feature minimal molding and trim, neutral color palettes, and metal accents.

You’ll find the highest sale-to-list ratio in Denver, CO.

6. Cape Cod-style homes

Single-story white cape-cod home with large lawn and front porch

With roots dating back to 1675, the quaint and charming Cape Cod-style homes are reminiscent of the classic American cottage style. This type of home design migrated from England to the United States, maintaining its symmetrical design and central chimney. Cape Cod-style homes feature a steep roof to keep snow from accumulating, dormer windows for added light, wood siding and shutters to keep the heat in, and hardwood floors for comfort and practicality. 

This style of house is prevalent in the northeastern part of the United States, commonly found in the New England region.

7. Colonial-style homes

Two story, brick colonial style homes with dark blue shutters

Dating back to 1876, East Coast architecture has maintained its allure in many parts of the United States. These classic homes are known for their old-world charm, decorative doorways, and symmetrical window placement. Many colonial-style homes will have two or three stories, fireplaces, and brick or wood exteriors.

Colonial-style homes are similar to the Cape Cod-style home because of their symmetry and side-gabled roofs, but Cape Cod-style homes are typically one story rather than two or three. Colonial-style homes can be found in the northeastern part of the United States.

8. Tudor-style homes

Neutral colored tudor style home with path to the front door

Originating in the 15th century during the reign of the House of Tudor, this style of house is fairly easy to identify with its unique features. Tudor-style homes typically have a combination of brick, stone, or stucco exterior and decorative half-timbering on the second story to create the well-known striped exterior. They also feature a steeply-pitched roof, cross gables, and tall, narrow windows. Today, Tudor-style homes are prominent in the Northeast and Midwest regions of the United States.

9. Cottage-style homes

two story cottage style home painted blue with an arched doorway

Inspired by the medieval styles of the English countryside, American architects designed the cozy cottage-style houses during the 1920s and 30s. This style of house typically has a steep, thatched roof, arched doorways, shuttered windows, and a warm storybook character bringing to life old-world charm.

10. Mediterranean-style homes

Mediterranean style home is mot popular in California and Florida

Mediterranean-style homes are suitable for warmer climates, which is why this style of house became prevalent in Southern California during the 1920s and 1930s. Influenced by the architecture of countries in the Mediterranean region, they often have low-pitched red tile roofs, vaulted ceilings, arched doors and windows, and a stucco or adobe exterior. The floor plan is typically U-shaped, creating a central courtyard for a garden or fountain. Today, this style of house remains popular in California and Florida.

11. Farmhouse-style homes

Two story white farmhouse-style home with a large lawn and black trim

The farmhouse was designed back in the early 1700s, built as housing for farmers and all about practicality. Modern farmhouses still exhibit many of the same features that the original design included, like large, wraparound front porches, clapboard siding, large fireplaces, wood floors, eat-in kitchens, and oversized kitchen sinks. 

12. Mid-Century modern-style homes

Neutral colored mid century modern home with triangle-shaped entry and wood fence

Mid-century modern style is part of the modernism movement and dates back to post-World War II, and remained popular throughout the 1970s. A mid-century modern design is characterized by minimalism, clean lines, and floor-to-ceiling windows. You’ll often see open layouts, and a mix of natural and manufactured materials for the interior elements like wood, stone, steel, and plastic.

Mid-century modern style homes are most popular in Oakland, CA, Denver, CO, San Francisco, CA, and Seattle, WA, with a sale-to-list ratio as high as 131.5% in Oakland.

13. Victorian-style homes

Two-story, pink victorian style home with white trim and round tower

Victorian-style homes were first seen during the Victorian Era from around 1860 to 1900. This house style is best described as a colorful dollhouse with romantic and distinctive features. Victorian-style homes have elaborate detailing in just about every part of the home, from the intricate wood trim, ornate staircases, stained glass, and decorative woodwork. They have steep gabled roofs, a front-facing gable, patterned shingles, bay windows, a round tower, and a front porch.

Victorian-style homes remain popular in Boston, MA and San Francisco, CA, with a sale-to-list ratio of 98.5% and 101.1%, respectively. 

15. Townhouse

four story brick townhouse

Originating in Europe and eventually migrating to the United States, townhomes are most commonly found across cities in the United States. With the convenience of spacious layouts, townhomes offer more amenities than the condo styles and are lower maintenance than most residential homes. They’re typically two or three-story homes, usually sharing one or two walls with adjacent properties, and a rooftop deck to enjoy sprawling views.

Home styles with the highest sale-to-list ratio in the largest 12 US metros:

Metro Home Style Sale-to-list ratio % active listings
Phoenix, AZ Ranch 102.3% 4.0%
Contemporary 101.8% 2.0%
Atlanta, GA Craftsman 100% 1.9%
Ranch 99.9% 2.0%
New Construction 101.9% 3.0%
Portland, OR Ranch 105.4% 2.2%
New Construction 103.5% 11.2%
Craftsman 101.5% 2.0%
Oakland, CA Mid Century Modern 131.5% 1.2%
Craftsman 128.4% 2.2%
Contemporary 112.5% 4.4%
Boston, MA Victorian 98.5% 1.0%
Craftsman 99.1% 1.0%
Penthouse Unit 103.3% 1.0%
Chicago, IL Raised Ranch/Ranch 100.2% 1.0%
Contemporary 99.1% 1.3%
Elevator Building 99.0% 1.0%
Denver, CO Contemporary 101.5% 7.9%
Mid Century Modern 105.1% 1.0%
Modern Architecture 103% 1.1%
San Francisco, CA Mid Century Modern 122.8% 1.0%
Contemporary 102.6% 6.5%
Ranch 104.7% 2.4%
Seattle, WA Mid Century Modern 110.9% 1.0%
Craftsman 108% 3.9%
New Construction 105.4% 28.0%
San Diego, CA Ranch 102.5% 2.3%
Contemporary 100.7% 3.3%
New Construction 101.2.% 1.2%

 

*Per home trends listing data on Redfin.com, as of May 2021 

Individual results may vary. This is not intended as a substitute for the services of a licensed real estate agent, or licensed and bonded home services professional or appraiser.

 

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