The Real Estate Bubble

Is there a real estate bubble? A friend of mine, attorney Dennis Haber answered that question with the following: "Is the sky really falling, as so many newspaper and magazines would have us believe?...We may have reached the point where really bad news is the only news we notice and to reverse an old chestnut, good news is no news." He points out that there is some good news about the real estate market, contrary to all of the doomsday press from the last year. Although sales of existing homes has slowed down according to the report from the National Association of Realtors, developers have continued to prosper with new home sales up 13% in October, the largest increase in 12 years. I don’t have any idea what will be the final result, but in South Florida, we have over 48,000 condo units coming on line in the next two years and the average consumption rate has been approximately 7,000 units a year. Presuming 10,000 units get consumed a year, what happens to the remaining 28,000 units? Obviously, if there are no real consumers for the 28,000 units, prices on those types of real property will decline, even if only temporarily. It’s going to be an interesting couple of years.

vacation homes

Was happy to see the article written by Robert Bruss last week on vacation homes.  I get asked all the time about whether the taxpayer can exchange, tax free, their vacation home into another investment piece of real estate.  The answer is that IRS looks at a number of factors, the major factors being intent, holding period, and personal use.  The property must be used as an investment, not as a "second home".  You can't use it for more than 14 days a year for personal use or more than 10 per cent of the time it was rented in any one year.  If you can pass both of those tests, you have a shot at IRS saying this is an investment property.  Hopefully the taxpayer has been filing this "vacation home" on its income tax return as investment property.  If it's an investment property, then the taxpayer probably can do a 1031 exchange.