Archive for April, 2009

1031 Exchanges & Cash–Out Refis: How to Explode Your Wealth

Thursday, April 30th, 2009

By Jon Swire

Have you started investing in real estate and aren’t sure how to take the next step to grow your portfolio? If so, you’re going to want to read my tips on how to use 1031 Exchanges and Cash-Out Refis to Explode Your Wealth.

Now that you’ve taken the first step and started investing in real estate, the next step is to learn the basics of 1031 Exchanges and Cash-Out Refinances so you can use these tools to explode your wealth. By using each of these where appropriate, you’ll be able to grow your real estate portfolio and passive income stream, without paying any taxes. The key is to take advantage of each in the right situation.

Cash-Out Refis are used when you own a property that has appreciated in value, and therefore so has your equity. Under current tax guidelines you’re allowed to do a cash out refi and do whatever you’d like with the proceeds, tax free. So, you can take the money and use it to purchase another property, thereby increasing the size of your portfolio and your passive income stream. You’ll go from owning 1 property to 2, and having two income streams instead of one.

Like Cash Out Refis, you’re going to consider doing a 1031 Exchange once your property has appreciated in value and your equity has increased. 1031 Exchanges allow you to sell a property and defer taxes until sometime in the future. You can then use those funds that would have gone towards taxes to purchase another larger property that generates an even larger cash flow stream than the one you sold. You can do this over and over throughout your investing career, and I have clients who have been doing this for 30 years or more. Remember, there are time constraints placed on 1031 Exchanges that you must meet, and you should discuss these with your accountant and real estate professional.

Cash-Out Refis are best used in situations where the property you own is one you’d like to keep. Maybe it’s in a good location, has a solid tenant base, or has excellent prospects for future appreciation. 1031 Exchange’s on the other hand, are best used when you’re ready to sell a property and move on. This typically occurs for any number of reasons: you’ve exhausted your depreciation, the building is older and has higher maintenance costs, the area is declining or the tenant base is troublesome, meaning it’s difficult to collect the rent on time each month.

Make sure you analyze your real estate holdings at least once per year to figure out if its time to do a Cash Out Refi or 1031 Exchange. The key to exploding your wealth and climbing the Property Ladder is to keep your equity moving and continually increasing your real estate holdings and the size of your passive income stream. Remember; before you make any financial moves you should always consult your Accountant or Tax Professional to fully understand the implications of what you’re planning.

Understanding 1031 Exchanges

Thursday, April 30th, 2009

By Jon Swire

Are you thinking about selling an investment property but aren’t sure what a 1031 Exchange is or how to do one. If so, check out my tips that will save you thousands of dollars in taxes.

1031 Tax Deferred Exchanges are one of the biggest benefits of real estate investing. This tax code allows you to sell a property today and defer taxes on the gains well into the future, thereby using those monies to purchase a larger property with a larger cash flow. 1031 Exchanges are one of the tools you have available to help you climb the Property Ladder and grow a portfolio that can generate enough passive income for you to retire on.

The key to a successful 1031 Exchange is to understand the rules that govern them. There are 3 key rules that you must follow and not run afoul of. If you don’t, you risk blowing your 1031 Exchange and having to pay the taxes today that you’ll owe on your gains.

The first rule is that you must replace debt with debt and equity with equity. This means that the total value of the mortgage on your new property, or replacement property as it’s called, must be equal to or greater than the mortgage on the property you sold. And, you must use all of the equity from the sale for the purchase of the replacement property.

Next, the proceeds, or funds, from your sale property must pass directly from your escrow company handling the sale straight to your accommodator. An accommodator is a 3rd Party Intermediary that will help you with the transaction and will escrow your funds for the time between when you close your sale property and when you complete the purchase of your replacement property. Remember, you can NEVER take possession of these funds, or you will void your exchange and have to pay taxes.

The final rule deals with timing. Within 45 days of the close of escrow of your sale property you must identify in writing to your accommodator what your anticipated replacement property is going to be. This is critical as it’s necessary to have on file in the event of a tax audit. And, you must complete your exchange within 180 days of the close of your sale property. This is also critical as it results in an invalid exchange if it doesn’t happen. It’s one of the easiest things for the IRS to monitor, so be careful with regards to your timing.

If you follow the above rules you’ll successfully complete your 1031 exchange and defer your tax bill sometime into the future. You can continue to do this from one property to the next over many years and even generations. Finally, make sure you speak with your accountant or tax professional before making a decision to sell. You want to be clear on the tax code and any other issues you may not be aware of.

Please visit for more information, tips, and services.

Also visit to view  complementary webinars on 1031 Exchanges and other investment topics!

Commercial Loans – How they differ from Residential Loans

Tuesday, April 21st, 2009

By Jon Swire,

Are you ready to buy your first Investment property but aren’t sure what types of commercial loans are available and how they differ from  residential loans?

Loans for investment property such as multi-family apartments and retail and office space are also referred to as commercial loans. And the lenders requirements for these loans differ greatly from residential, so you want to make sure you understand the differences before you start looking at buying a property that will require one.

The first and biggest difference is that the lenders are going to require you to put enough money down so the property debt covers. This means that you’ll have enough rental income each month to pay for all your expenses including taxes, insurance, and your mortgage, and still have some money left over. So, each month and year you’re going to have positive income and spendable cash flow. Be prepared though, because this typically means you’re going to be putting down a minimum of 20% and sometimes as much as 35-40% or more depending on the area you’re investing in.

The second difference is that commercial lenders are much more focused on the real estate than the borrower. So, they are going to be more concerned about the location of the property and the quality of the tenants and income stream rather than your credit history and annual income. Commercial lenders want to make sure that the property you’re investing in will continue to generate a healthy income year after year from which you can repay the mortgage you are borrowing. After all, their main concern is getting their funds back and not ending up owning the property.

Finally, commercial loans are typically fixed for 3, 5, or 10 years, and usually never longer. So, you can’t get a 15 or 30 year fixed that you often find in residential lending. After your initial fixed rate term expires, be prepared for your interest rate to adjust and float according to the Index you’re tied to, such as Prime or LIBOR. So, if you plan on holding the property longer, it’s a great time to consider doing a refinance when your rate begins to adjust.

I always suggest to my clients that they speak with a loan broker to discuss their situation and goals and fully understand the options available to them. Commercial lending can be quite different from residential, so do your homework and make sure you’re prepared.
For more information, tips, and services visit

The Property Ladder – How to Build Your Real Estate Portfolio

Tuesday, April 21st, 2009

By Jon Swire,

Have you started investing in real estate and aren’t sure how to climb the Property Ladder or even what it is? Then continue reading for important information on how you can build a real estate portfolio that can generate enough money for you to retire on.

The Property Ladder, as it’s called by many experts, is the path investors take as they trade up from Single Family Homes to Duplexes and onto Multi-Family investments. It’s dubbed the Property Ladder because each ‘rung’ in the ladder is smaller than the next. The goal is to build a portfolio that will one day generate enough passive income for you to pay for your kid’s college tuition and fund your retirement and lifestyle. If you’re diligent and patient, you can turn a $30,000 investment into $2MM or more over 30 years.

For most investors, their first purchase is usually a Single Family Home, or SFR. This is a purely speculative investment and the hope is it will appreciate in value. Once it does, you sell the property and use the equity gain to purchase a 2-4 property, also known as a Duplex, Triplex or Fourplex. These properties will generate more cash flow than an SFR and are usually the second step up the Property Ladder.

The ultimate goal is to sell their 2-4 units properties once they’ve appreciated in value and trade up to a multi-family property consisting of 5 units or more. This is called a 1031 Exchange and allows the investor to defer paying taxes on the gain until sometime in the future.

The key to the Property Ladder and growing your passive income stream is to keep your equity working. I suggest to all my clients that they sit down with their real estate professional at least once a year and evaluate their real estate portfolio. Once your property has appreciated enough, you should consider selling it and replacing it with a larger property generating more cash flow. Remember, be patient and consistent, and over time you’ll find that you’ve built a small real estate empire and successfully climbed your own Property Ladder!

For more information, tips, and services visit

Buying Your First Investment Property

Tuesday, April 7th, 2009

By Jon Swire

Are you finally ready to take the plunge and buy your first investment property? Have you finally saved enough money to start investing in real estate, but don’t know where to begin? If so, you’re going to want to read my tips on what to buy and where to start to maximize your investment.

For most first-time investors, the choice is usually between a Single Family Home or a 2-4 unit property, commonly called Duplex’s, Triplex’s and Fourplex’s. There are large differences between both and you should fully understand them before plunking your money down. In this segment we’re going to focus on Single Family Residences or SFR’s for short.

SFR’s provide an investor with the greatest leverage possible, meaning you can put the least money down. It’s not unusual to buy these types of deals with 10% down, meaning on a $150,000 home, you’ll only need to come up with $15,000 plus closing costs. This makes these types of investments very affordable for most young investors who don’t have a lot of capital to begin. Be prepared, however, to feed the alligator every month, because these properties typically don’t debt cover, which means the rent you collect every month probably won’t be enough to cover your mortgage payment, tax bill and any other expenses you have.

Most often these properties are purchased as pure speculation or appreciation plays, meaning the goal is to create equity over time. For example, if you bought a property for $150,000 with 10% down, and were able to resell it in 3 years for $175,000, you’d earn $25,000 on your $15,000 investment, which equates to a 167% ROI over a 3 year hold!

Not bad, but be careful when buying these types of deals, because your goal is to come as to close to breakeven as possible, so you don’t have to come out of pocket. And remember, if you’re tenant moves out for any reason, you won’t have any money that month to cover the mortgage or expenses, so make sure you have 3 months of mortgage payments in reserve for a rainy day.

And remember, the more SFR’s you own, the more tenants and properties you have to manage. It’s easier to own a 10-unit apartment building than 10 SFR’s since you only have 1 roof and 1 lawn to mow, versus 10 roofs and 10 lawns. Finally, as soon as you’re able, take your equity gains from the SFR’s and 1031 into properties with multiple units so you can begin your climb up the Property Ladder.

For more information, tips, and services visit

Buying Your First Investment Property – Part II

Tuesday, April 7th, 2009

By Jon Swire

Are you finally ready to take the plunge and buy your first investment property?

In Part I of this segment we discussed the pros and cons of making a Single Family Residence your first investment. Now I’d like to discuss the benefits of 2-4 unit properties, also called Duplex’s, Triplex’s and Fourplex’s.

2-4 Unit properties typically require 10-20% down, providing an investor with the ability to get pretty good leverage and come out of pocket with a smaller down payment compared to traditional multi-family properties consisting of 5 or more units. Remember, your goal is to find a property with a high CAP Rate and low GRM, so you debt cover each month. This means the rental income you collect each month will be enough to cover all expenses (taxes, insurance, utilities, etc.) plus the mortgage.

Like SFR’s, these properties are often purchased as pure speculation or appreciation plays, meaning the goal is to create equity over time. Unlike SFR’s, 2-4 unit properties have a lower Vacancy Loss Risk since there are more units to spread the risk over. So, if one of your tenants vacates, you’ll still have the rent from the remaining units to help pay your mortgage and monthly expenses. Remember, however, that you may still need to come out of pocket, so make sure you have 3 months of mortgage payments in reserve for a rainy day.

2-4 unit properties are a great place for you to cut your teeth and learn the basics of Property Management. They’ll provide you with the opportunity to rent units, negotiate leases and perform routine maintenance. I suggest you hire a local property manager for the first 6-12 months of ownership so you can ride shotgun and learn the basics of management before you completely take the task on yourself.

Like SFR’s, once you’ve built up some equity in these properties, you’ll want to sell them and do a 1031 Exchange into a multi-family property consisting of 5 or more units. 2-4 units are one of the first rungs in the Property Ladder and a great place to begin on your way to building a real estate portfolio that will generate enough passive income for you to retire on.

For more information, tips, and services visit