Is that sound opportunity
knocking at your door?

Francis Bacon in the 17th Century said, "A man must make his opportunity as oft as find it." Are there opportunities to be found or made in Orange County real estate today? Consider the following facts; a resale market with dropping inventories and rising prices, each phase of new homes is costing more, lenders are willing to lend money to homebuyers at acceptable fixed rates or lend up to 125 percent of value on existing homes, a rental market that is extremely strong and the 1997 Tax Act that allows couples to exclude up to $500,000 of gain on home sales and single taxpayers to exclude $250,000 of gain. Many times, views and opinions of so-called experts are presented in real estate publications. This article will list many commonly accepted facts and you, the reader, can draw your own conclusions. Fact 1 - Orange County housing prices have been increasing steadily, the number of sales are up, the inventory of listings has dropped and multiple offers and offers-over-listed-prices are appearing. Hal Morris of Lee and Associates in Newport Beach and author of the book, Creative Real Estate Investing notes, "The number of Foreclosures and REO sales have dropped and the prices of these sales are coming closer to market values." All of these facts indicate the dawning of a seller's market again. Fact 2 - Recent surveys highlight the fact the residential rental market is "hot". There are extremely low vacancies, increasing prices per square foot of space, and no large number of building permits being filed. Low unemployment rates mean there is money available and fewer apartments and home renters have to double up. Fact 3 - Financing is available for refinance, home purchases, fix-up loans and non-owner occupied buyers. Paul Scheper of Harvard Capital in Irvine, stresses, "The days of Ready-Fire-Aim method of financing are over and homebuyers need to AIM first, i.e. get pre-approved for a loan before shopping for a home. Find out which programs is best and how much, when and where you can borrow to accomplish your short and long term objectives." Fact 4 - The new Tax Law exclusion of $250K/$500K of gain can be used every two years if the taxpayers have owned and used a home for two of the last five years. If they have to sell before two years due to a change of employment, health reasons or unforeseen circumstances, they get a proration of the exclusion. For example, a couple has the possibility of excluding $20,833 of gain for every month that they live in a home. Fact 5 - Leverage of 90 percent is common in real estate compared to 50 percent in the Stock Market. Another advantage of real estate ownership is that capital gains taxes on rental property sales have been reduced to 20 percent (25 percent on any gains caused by depreciation.) Fact 6 - A homeowner could refinance a present home and use the money to buy another home. Their previous home could be rented and any gain on a sale before three years would be excluded. The excluded amount would include all gain now in the home and any increase in value in the next three years. (Any depreciation taken would be taxed at 25 percent.) Fact 7 - It is a mathematical truism that if you wait for your present home to increase in price before selling, any move-up home prices will be increasing at a larger amount. Terry Yapp of Associated Realtors in Mission Viejo told the (Orange County) Register, "Some homes in South Orange County have increased in prices to at or near the peak prices of the past and there appears to be no slowdown in sight." Fact 8 - In the past, homesellers had to buy another home to "defer" gain or be over 55 years of age to exclude $125,000 of gain. Both of these rules have been eliminated on all sales after May 7, 1997. Also, you can now sell an eligible home and move into a long-time-owned rental or vacation home for two years and exclude all gain (up to the $250K/$500K limits), from the day you bought the property. Fact 9 - Homesellers with gains over the $250K/$500K limits can no longer defer gain by buying a higher-priced home. They could convert their home to a rental and use a 1031 Exchange to get a new property and defer the gain. If the wealthy homeowner rented their home for an acceptable period of time, they could exchange the home for another home and then rent the second home for an acceptable period of time. Then, they could move into the new home and all of the gain would be deferred as "lurking gain" into this home. Most tax advisors recommend that the minimum rental on each home to be "acceptable" would be one year, so this would be a two-year deferral program. See a tax advisor before you ever start thinking of this technique. What should you do based on these facts? First, you should visit a professional loan broker to get pre-approved for a refinance and purchase, talk to your tax planner about your own circumstances and find an experienced real estate agent to advise you on properties and give you an idea of the equity in your present home. Some alternative actions include: Buy a move-up home now and sell your present home and exclude gain. Refinance and rent your present home, buy another and get tax-free appreciate on two homes for 3 years. Refinance your present home where you are happy and buy some rentals. 1031 Exchange your expensive home into other real estate and buy another home. If you don't want to actively participate in real estate and if you believe in Orange County Real Estate, refinance and buy some Real Estate Investment Trust Stocks or invest in Southern California Builders whose stocks are soaring. Don't do anything and wait and wait for the "perfect" time to do something and then three years from now, we'll discuss what happened to prices. What should you do? It's your call.