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Kids Will Not Make You Happy But Land Will

By: Mark Podolsky | May 24, 2011

I just read an interesting article on how kids actually make parents less happy on cnn.com here. I have three kids and I fully agree with the statement children don’t make you happier.  Does working a thankless 18 hour job a day make you happy?  Of course not…  The question shouldn’t be do children make you happier the real question is do children foster your growth as a human being and without question they force you to grow in ways you’d probably wouldn’t ever experience if not for having them…

Land on the other hand will not talk back, cost you over $100,000 in college tuition or bring home a kid that completely goes against all of your values.  Land will increase in value as children simply cost more money as they grow older…

With land you have complete control over your investment.  You can improve it, use it, build on it or if you just want to cash out simply sell it.  Try doing any of these with children and at best you will get labeled an overly intrusive parent and at worst child protective services will want to know why you’re selling your kid on eBay!

The best part of owning land is that one day when you are no longer on this Earth you will have as your legacy that land to pass down to your children.  Yes, those children will receive this gift that will always last even though they never really fully appreciated the sacrifices you made to feed, clothe, educate and guide them into becoming independent responsible adults.

Am I less happy raising these three little monsters?  Of course!  I’m miserable, but one day I’ll look back at all the hard work I put into them and my Wife and I will look at the pictures hand in hand of the days long ago and ask ourselves, “How come they never call?”

 

What the hell is a 1031 Exchange?

By: Mark Podolsky | May 19, 2011

1031 exchange, otherwise known as a tax deferred exchange is a simple strategy and method for selling one property, that’s qualified, and then proceeding with an acquisition of another property (also qualified) within a specific time frame. The logistics and process of selling a property and then buying another property are practically identical to any standardized sale and buying situation, a “1031 exchange” is unique because the entire transaction is treated as an exchange and not just as a simple sale. It is this difference between “exchanging” and not simply buying and selling which, in the end, allows the taxpayer(s) to qualify for a deferred gain treatment. So to say it in simple terms, sales are taxable with the IRS and 1031 exchanges are not. US CODE: Title 26, §1031. Exchange of Property Held for Productive Use or Investment

Due to the fact that exchanging, a property, represents an IRS-recognized approach to the deferral of capital gain taxes, it is very important for you to understand the components involved and the actual intent underlying such a tax deferred transaction. It is within the Section 1031 of the Internal Revenue Code that you can find the appropriate tax code necessary for a successful exchange. I would like to point out that it is within the Like-Kind Exchange Regulations, issued by the US Department of the Treasury, that you can find the specific interpretation of the IRS and the generally accepted standards of practice, rules and compliance for completing a successful qualifying transaction.

Why 1031 Exchange?

Any Real Estate property owner or investor of Real Estate, should consider an exchange when he/she expects to acquire a replacement “like kind” property subsequent to the sale of his existing investment property. Anything otherwise would necessitate the payment of a capital gain tax, which is currently 15%, but may go to 20% in future years. Also include the federal and state tax rates of your given state when doing a 1031 exchange. The main reason for a 1031 is that the IRS depreciates capital real estate investments at a 3% per year rate as long as you hold the investment, until it is fully depreciated (raw land can not be depreciated as it’s useful life is forever). When you sell the capital asset, the IRS wants to tax you on the depreciated portion as an income tax, and that would be at the marginal tax rate. Example, if you hold an investment for 15 years, the IRS depreciates it 45%. It then wants you to pay the taxes on that 45% depreciation. If combined state and federal taxes are 35% at the marginal rate, that’s about 15% of the cost of the property (one third of 45%). If your property is fully depreciated, it becomes the whole 35% marginal tax rate. Another way to make it easy to understand is when purchasing a replacement property (without the benefit of a 1031 exchange) your buying power is reduced to the point, that it only represents 70-80% of what it did previously (before the exchange and payment of taxes). Below is a look at the basic concept, which can apply to all 1031 exchanges. From the sale of a relinquished real estate property, we should understand this concept so that we can completely defer the realized capital gain taxes. The two major rules to follow are:

  1. The total purchase price of the replacement “like kind” property must be equal to, or greater than the total net sales price of the relinquished, real estate, property.
  2. All the equity received from the sale, of the relinquished real estate property, must be used to acquire the replacement, “like kind” property.

The extent that either of these rules (above) are violated will determine the tax liability accrued to the person executing the Exchange. In any case which the replacement property purchase price is less, there will be a tax responsibility incurred. To the extent that not all equity is moved from the relinquished to the replacement property, there will be tax. This is not to say that the (1031) exchange will not qualify for these reasons. Keep in mind, partial exchanges do in fact, qualify for a partial tax-deferral treatment. This simply means that the amount, of the difference (if any), will be taxed as a boot or “non-like-kind” real estate property.

THE 1031 Exchange Rule

A property transaction can only qualify for a deferred tax exchange if it follows the 1031 exchange rule laid down in the US tax code and the treasury regulations.

The foundation of 1031 exchange rule by the IRS is that the properties involved in the transaction must be “Like Kind” and Both properties must be held for a productive purpose in business or trade, as an investment.

The 1031 exchange rule also lays down a guideline for the proceeds of the sale. The proceeds from the sale must go through the hands of a “qualified intermediary” (QI) and not through your hands or the hands of one of your agents or else all the proceeds will become taxable. The entire cash or monetary proceeds from the original sale has to be reinvested towards acquiring the new real estate property. Any cash proceeds retained from the sale are taxable.

The second fundamental rule is that the 1031 exchange requires that the replacement property must be subject to an equal or greater level of debt than the property sold or as a result the buyer will be forced to pay the tax on the amount of decrease. If not he/she will have to put in additional cash to offset the low debt amount on the newly acquired property.

1031 Exchange Rules and Timelines:

There are 2 timelines that anybody going for a 1031 property exchange or (NNN) should abide by and know.


The Identification Period:
This is the crucial period during which the party selling a property must identify other replacement properties that he proposes or wishes to buy. It is not uncommon to select more than one property. This period is scheduled as exactly 45 days from the day of selling the relinquished property. This 45 days timeline must be followed under any and all circumstances and is not extendable in any way, even if the 45th day falls on a Saturday, Sunday or legal US holiday.

The Exchange Period: This is the period within which a person who has sold the relinquished property must receive the replacement property. It is referred to as the Exchange Period under 1031 exchange (IRS) rule. This period ends at exactly 180 days after the date on which the person transfers the property relinquished or the due date for the person’s tax return for that taxable year in which the transfer of the relinquished property has occurred, whichever situation is earlier. Now according to the 1031 exchange (IRS) rule, the 180 day timeline has to be adhered to under all circumstances and is not extendable in any situation, even if the 180th day falls on a Saturday, Sunday or legal (US) holiday.

Always consult your CPA and a 1031 exchange expert prior to diving  head first into the 1031 world.   As a seller, I love it when a buyer is doing a 1031 exchange as they lose negotiating leverage since they are under the gun to make a purchase during the exchange period.  Remember don’t ever make a deal strictly to save money on taxes…

 

 

Putting Things In Perspective

By: Mark Podolsky | May 18, 2011

I’m not a big complainer, but lately I’ve been getting down about this real estate market and the economy.  I have notes falling out, sales are slow and in general I haven’t been in a good mood…  Everything just feels like a grind lately.  So, I ran across this blog last night just surfing the net using stumbleupon.com and found this post from this blog– http://www.marcandangel.com/:

Even in times of financial uncertainty, it’s always important to keep things in perspective.

Wealth is the ability to fully experience life.
– Henry David Thoreau

  1. You didn’t go to sleep hungry last night.
  2. You didn’t go to sleep outside.
  3. You had a choice of what clothes to wear this morning.
  4. You hardly broke a sweat today.
  5. You didn’t spend a minute in fear.
  6. You have access to clean drinking water.
  7. You have access to medical care.
  8. You have access to the Internet.
  9. You can read.
  10. You have the right to vote.

After reading this list, my mood lifted and it really put life into perspective.  Even when things are tough we all have a lot to be grateful for!

Get Rich on Renewable Energy in Nevada

By: Mark Podolsky | May 16, 2011

Three years ago I was approached by a geothermal company asking for a $1000 utility easement over my property to begin developing their geothermal program to power about 500 homes in the Winnemucca area.  I told them they would have to acquire the property as I thought the power lines would negatively impact any future sales for me in that area.  We negotiated for about a month and because they needed my property or an easement to complete the project they acquired the property at what was a great price for both of us.  This is just one strategy to capitalize on the burgeoning alternative energy market in rural Nevada, California, New Mexico and Arizona.

Check out the link below for the proposed projects capitalizing on Solar, Wind and Geothermal Power in Nevada.  This is the future and the land owners whom own land in these rural areas will have tremendous negotiating leverage when other companies start knocking on their doors.

Nevada Projects

 

Let me know what you think…. Leave a comment and we can start a dialogue.

Land as an inflation hedge?

By: Mark Podolsky | May 13, 2011

Here is just another reason to look at a land investment…  A hedge against inflation…

Another factor that makes land such an attractive investment today is that it is a hedge on inflation. The recent influx of dollars into circulation spells almost certain doom for the U.S. dollar to continue to inflate and lose its value. However, land is a low-risk option for your money and is not subject to the volatility of the stock market.

Take this excerpt regarding the current inflationary fears from a recent interview that CNBC had with legendary investor Jim Rogers, CEO of Rogers Holdings:

“Markets do not trust the governments’ plans to keep struggling banks alive and investors will only calm down when the companies with bad assets are allowed to go bankrupt”, legendary investor Jim Rogers, told CNBC recently.

“The way to solve this problem is to let people go bankrupt,” Rogers said.

“Then you will hit bottom and then you start over. The people who are sound will take over the assets from the people who aren’t sound and we will start over. This is the way the world has worked for a few thousand years.”

“The current rescue plans, which will force governments to issue more debt, print money and flood the markets with liquidity, will flare up inflation after the crisis is over and will create worse problems”, Rogers warned.

“We’re setting the stage for when we come out of this of a massive inflation holocaust,” he said.

“Many people bought 4-5 houses with no money down and no job… you think we’ll just say well, that’s too bad, we’ll start over and nobody loses their job? Be realistic.”

Economies who did not take part in the subprime bonanza are likely to suffer along with Wall Street and the developed economies as the crisis unfolds, he warned.

“What about all the people in countries that minded their manners, saved their money, didn’t get overextended and now all of a sudden they’re being asked to bail out a bunch of guys on Wall Street who were incompetent at best and some of them crooks?”

“I thought it outrageous that anybody has to step in a bail out a bunch of 29 year olds driving Maseratis,” he said.

“There are not many safe havens in the volatile markets”, he said.

Well, it is hard to disagree with Mr. Roger’s proven track record, however, there is a hedge that is a safe haven and is neither subject to general commodity deflation nor the volatility of the stock market…Land investment.

Another factor keeping the land market stable — it hasn’t been hit as hard by the credit crisis. Most land buyers put down 20% on their purchases and the industry, for the most part, avoided using creative financing which got the rest of the real estate world in a heap of trouble. If you view an investment in land as a long-term strategy and avoid leveraged positions, buying land might just be the best investment option for anyone wondering what to do with their money.

“Buying land on time with a long-term fixed rate, coupled with tax-deductible interest and cash potential from a partial sale or rental, is a strategy that floats over turbulence,” according to Curtis Seltzer, in his post In a Recession, Does Land Offer Refuge? on LandThink.com. “Undeveloped land that has marginal characteristics—so-so location, limited uses, negatives—will not do well. But quality land will ride out a recession.”

Leave me a comment and let me know what you think.

 

What the Hell are Water Rights?

By: Mark Podolsky | May 11, 2011

Billionaire T. Boone Pickens can’t buy water rights fast enough.  Check out this article.  Pickens is quoted as saying,  “I know what people say – water’s a lot like air. Do you charge for air? ’Course not; you shouldn’t charge for water,” says he. “Well, OK, watch what happens. You won’t have any water.”

Water rights in water law refers to the right of a user to use water from a water source, e.g., a river, stream, pond or source of groundwater. In areas with plentiful water and few users, such systems are generally not complicated or contentious. In other areas, especially arid areas where irrigation is practiced, such systems are often the source of conflict, both legal and physical. Some systems treat surface water and ground water in the same manner, while others use different principles for each.

Water rights in the United States

In the United States, there are two divergent systems for determining water rights. Riparian water rights (derived from English common law) are common in the east and prior appropriation water rights (developed in Colorado and California) are common in the west. Each state has its own variations on these basic principles, as informed by custom, culture, geography, legislation and case law. California law, for example, includes elements of both systems. In general, a water right is established by obtaining an authorization from the state in the form of a water right permit. A legal right is formally consummated, or perfected, by exercising the water right permit and using the water for a beneficial purpose.

Under the prior appropriation doctrine, water rights are “first in time, first in right.” That is, the older, or senior, water right may operate to the exclusion of junior water rights. The concept of “priority date” is significant. The priority date is generally associated with the date that water was first put to beneficial use, or the date that a successful application for a water right was submitted, and indicates the relative status of seniority among competing users. Older rights are senior. More recent rights are junior.

Water rights are generally established pursuant to State law, but there are exceptions, most notably, the concept of federal reserved water rights. Reserved water rights are rights that are established when the federal government reserves land for a specific federal purpose. Courts have held that there is an implied water right to satisfy the primary purposes of the reservation. Examples of reservations include Indian reservations, national wildlife refuges, federal forests and military bases.

Proceedings to determine the relative priority of claims to water rights are known as adjudications. Through Congress’s passage of the McCarren amendment, the federal government has consented to having its claims adjudicated in state courts.

All states offer mechanisms for changing how a water right is exercised, e.g., amending the point of diversion or withdrawal, the place of use and the purpose of use. In reviewing such requests, the state must guard against the impairment of other water rights, the enlargement of the water right and injury to the public interest.

Resolution of Interstate Water Conflicts

Because water bodies may cross political and jurisdictional boundaries, conflicts may arise. In the United States, three basic approaches are used to settle such conflicts: 1) Litigation before the Supreme Court of the United States; 2) Legislative resolution by the Congress of the United States; and 3) Negotiation and ratification of interstate compacts between states. [3] In the western United States, for example, the 1922 Colorado River Compact divides the Colorado River basin into two areas, the Upper Division (comprising Colorado, New Mexico, Utah and Wyoming) and the Lower Division (Nevada, Arizona and California). A comprehensive review of existing interstate water compacts has been published by the Model Interstate Water Compact Project at the University of New Mexico School of Law’s Utton Transboundary Resource Center.[4]

Limitations on water rights

In California, courts have held that appropriation water rights may be limited under the public trust doctrine, a common law principle recognized by some courts, which holds that the public has access rights upon navigable waters and that navigable waters are held in trust for the use of the people. The public trust doctrine was invoked by the California Supreme Court in a case restricting the amount of water Los Angeles could divert from tributaries of Mono Lake. The case was filed by the Audubon Society and the Mono Lake Committee.

In the United States, Navigable waters are subject to the commerce clause of the U.S. Constitution. The commerce clause provides the federal government the ability to restrict state issued water rights via, for example, the enforcement of water quality standards via the Federal Water Pollution Control Act (Clean Water Act), the Federal Power Act and the protection of endangered species via the Endangered Species Act.

I know this is all fascinating stuff, but basically if you’re interested in building in a rural area get to know the States stance and procedures for water rights.

 

How to sell your land online

By: Mark Podolsky | May 9, 2011

About 15 years ago the best way to market your rural land was either a classified ad in the local paper, signage off the highway or the local pennysaver.  Larger companies would use radio or some other direct marketing piece.  All of these marketing strategies were slower and more expensive than the options today.  I know we all like to complain about inflation, but in terms of online marketing we’re in a deflationary environment!

With a little computer knowledge, we have at our disposal today the most compelling and powerful marketing platform ever created and it can be accessed from zero cost to less than $30 a month.

CONTENT:

When you first start composing your ad you need to take a deep breath and put on your real estate agent hat.  Look at a few sample ads for houses and you’ll notice that they are emphasizing the benefits and amenities of the house.  Don’t sell the steak, sell the sizzle.  Well, raw land is no different.   Take a good look at what makes your land compelling. Mountain views?  Water?  Hunting? Recreational area?  Good access?  In the path of development? Trees?   Then get out the thesaurus and use some colorful adjectives to describe the area and land.  Of course, you will need  a section for just the facts like, elevation, access, terrain, deed conveyance, taxes, driving directions, GPS coordinates, sewer, water, utilities, mineral rights, etc.  I like to use a simple table outlining all of the basic attributes and facts about the land.   This is essential, but it won’t help sell the land.  Your language and conviction about the area needs to be conveyed to a potential buyer.  More information is always better than less.  Once you have our content you need to add images.

IMAGES & MAPS:

Your potential buyer needs more than just the words they need to feel the area via high quality maps and pictures of the parcel and area.  You don’t need to have 50 pictures, but you need at least five to give the buyer an idea of the terrain, soil and views as well as the road of where they would access the land.   They will need a plat map (call the county for a copy), general area map (I like to use Google Earth for maps) and a topographic map is always helpful as well.  You can always contact a local surveyor if you need help preparing the maps and getting the GPS coordinates.

PRICING:

Raw land prices are currently depressed.  Be realistic about pricing.  Call the County Assessor for the last two years comparable sales and price accordingly.  Remember pigs get fat hogs get slaughtered…

FREE CLASSIFIED ADS:

The best place to list for free classified ads today is going to be craisglist.org.    It’s a simple no-nonsense interface where you can list the property add images and show the price.  The big drawback is you have to continue to edit and update your listing to stay on top of the listing system otherwise it will be more difficult for buyers to find you.  This is a good resource to read about how to do this:  Stay on top of craiglslist.

PAID AGGREGATOR SITES:

There are a few major paid aggregator sites that list land and do all the search engine optimization work for you so when someone Googles “land in California” they come up first.  I prefer a few sites:

Check out eaglestar.net, landandfarm.com, landsofamerica.com and landflip.com.  They’re not free, but none of them will cost more than $40 a month for a basic listing which is actually cheaper than eBay and tends to fetch higher prices as eBay buyers are typically deal hunters.   These sites have easy to fill out forms requesting all the basic information a buyer will want to know prior to acquiring the land.  They have easy to upload pictures and map functionality as well that are similar to craigslist.org.  Don’t expect the property to sell within the first month, but you should get some inquiries the first month and if you don’t you will need to edit and adjust your advertisement or switch aggregator sites.  Once you have your link to the property start sharing it on social media sites like Facebook and Twitter.  You just never know if a friend of a friend might be in the market for your property.

CUSTOMER SERVICE:

You will need to advertise an email address and phone number for people to contact you so you can field additional questions about the property.  Most often, people will want to know if the property is free and clear of any liens or encumbrances including back taxes.  They will want to know if there are any other closing costs, Home Owner Association Fees and other details regarding the property.  Always be direct when dealing with your customers.   If you don’t know the answer simply say you don’t know.  Typically a surveyor or the local County can help them with what they are looking for.  If you are not familiar with deeds and deed conveyance and closing of real estate use a title company.  I prefer First American Title and they are everywhere.  They will handle the monies, title search, title policy, deed, recording of the deed and pro-rated taxes, etc.  Fees will vary and certainly negotiate, but typically the seller pays for the title policy and the buyer pays for half the escrow fees.  You can always charge an extra recording fee to offset these expenses.

THIS SEEMS LIKE A HASSLE!  WHAT OTHER OPTIONS ARE THERE?

Hire a land broker.  A land broker will take a commission, but they will handle all of the above for you and hopefully price it so that you get net what you would have received if you just sold the property yourself.   Don’t work with a land broker that charges a flat up front fee even if the property doesn’t sell.  Keep on top of them and make sure they are doing their job.  Unless the commission is hefty, a land broker isn’t going to care as much about selling your land and may end up just listing on there Web site and letting it sit forever.  Communicate regularly with your land broker so your listing remains a priority for them even if it’s just to get you off their back!

The last option is to call a company like mine and field an offer.  We will do all the research and make an offer (typically below market value as we need to make money), but it’s quick and easy and we pay all the fees.  Try it on your own first though as it’s a fun process and you’ll stretch a bunch of brain muscles you may not be used to stretching.  You will need to refresh yourself on marketing, computer skills and getting more familiar about your land.

Leave a comment if I missed something…

The South West is a great investment

By: Mark Podolsky | May 3, 2011

I get calls almost everyday about our raw land.  The same issues are brought up repeatedly:

I want to be in a warmer climate.

How cold does it get in the winter?

I have arthritis (or pick the illness) and need to be in a warmer climate.

My cousin just moved out to (pick your State in the South West) and loves it.

Basically, long-term legacy investors should only be acquiring land in the following states:

California, Nevada, New Mexico, Arizona and Texas.  No one is excited about retiring in Wisconsin or Minnesota.  People don’t yearn for the beauty of Oklahoma or Kansas.  New Yorkers love Florida, but can’t stand all the New Yorkers.  When you look for your long-term investment focus on these states and you can’t lose.

How to get Free Land (Legally of course)

By: Mark Podolsky | May 2, 2011

We specialize in selling land in the Southwest.  We focus on California, New Mexico, Arizona, Colorado and we’ll occasionally buy in Oregon or Wyoming.   However, once in a while we’ll find timberland properties at a deep discount.  Why do we love these properties?  Because once we sell off the timberland it’s literally like getting free land!

Buying Timberland Property has become a new way to invest money in land and get a quick return from the timber after the initial buy. Many have sold the timber off of their Timber Land for Sale after buying it and paid back most or a good bit of the principal loan this way. Timber clearing companies come in and will deforest the land and farm all of the timber off of it that can be used to sell, and usually, they sell the timber for you. After their cut of the money for clearing it and acting as the middle man you are usually left with a hefty sum of money that you can then do anything you’d like to with it, and if you were planning on clearing the land anyway, it is partially cleared minus the grading and usual roads that would have to be built. Logging roads tend to only be good for logging and maneuvering around the property before it has been established. Buying Timber Land for Sale or Commercial Timber Land for Sale and having it cleared and logged is sometimes a great way to get a large sum of money directly out of your investment in the land.

That’s how you can get free land…

 

 

 

Top 10 Best Recreational Activities on your Rural Land

By: Mark Podolsky | April 29, 2011

Do you own rural land?  Do you want to own rural land?  Sure it may not be ready to build on yet, but at least have some fun with it while your investment grows in value.  Here are the top 10 best recreational activities to enjoy on your land.

10.  Riding Quads.

9.   Camping.

8.  Hunting.

7.  Gardening.

6. Dirt Biking.

5.  Sand Rails.

4.  Kite Flying (You know for the kids…)

3. Burning Man activities…

2. Meditating in complete silence.

1. Shooting off fireworks.

Let me know if I missed something from my list.


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