Question (CA): A local agent sent me a report showing home sales in the area I live in. I'm confused as to the difference between "Days of Inventory" and "Days on the Market." Days of Inventory is around 61 days (up from 52 last month) and Days on the Market is still below 30 days. Why is one twice another? Is this normal?
Answer: "Days in inventory" is a number that attempts to predict future performance of a specific market (as an example, the market in which you live) by applying past performance (the rate of actual sales) to all the homes currently for sale in that specific market.
"Days on the market" (usually referred to as "Average Days on the Market") is a number that describes past performance noting the average number of days that it actually took to sell those homes that actually did sell within the specific market during a past time period.
The "days in inventory" being 61 as compared to 52 the previous month, while the "(Average) Days on the market" is still below 30 days, means the homes have been selling at a fast pace in your market area and that there are a few more homes on the market right now than there were last month. That is normal for a fast-paced sales market.Such small fluctuations are normal, even inevitable, in any market during any time period.
Question (MI): My nephew has been in his new home for thirteen months and has a buyer to whom he has sold. The home was purchased for $122,250 and it sold for $128,500. The appraised value that was just completed a week ago came out to $129,000. He put $20,000 down at the time of purchase. Even though this is a minimal amount for many people it is a large for amount for this nephew. What can he expect as far as capital gains on this purchase and sale transaction?
Answer: This is a question that should be asked of a tax professional who is accustomed to dealing with such matters from both the federal and state levels. As far as the federal Capital Gains Tax, there might be a pro-rata amount of the exemption available to your nephew. We suggest your nephew read the following IRS publications:
Question (PA): A seller wants to sell his home for $38,000. The buyer and his broker want the seller to change the sale price to $75,000 and give back $36,600 dollars to the buyer for repairs. An addendum is attached that says, "Seller has agreed to credit back to the buyer an amount of $36,600 for improvements." Is this advisable? Will the seller have to pay capital gains on the full $75,000? Is this legal?
Answer: Does the purchase agreement involve any mortgage financing? If it does, then that sounds like mortgage fraud to us unless the lender agrees, in which case there would be a construction loan involved. Other than that, stay away from this deal!
Any time you are asked by a buyer, the buyer's broker, or anyone else to sell your property for any amount more than the fair market value of the property (as established by an appraisal or by a lender-hired appraiser), then you need to ask yourself, "Why are they asking me to do this?" We would not only advise that the seller not do this, but we also recommend that the Buyer's Broker be alerted that he may be risking his real estate license by colluding with the buyer.
If, by some miracle, the revised sales price is somehow "legitimate" then the seller still only has the actual amount of proceeds realized on the sale of the property subject to Capital Gains tax. In other words, the $36,600 is treated as a selling expense in addition to other more typical selling expenses.
Question (TX): I'm thinking about buying some land about 85 miles from Dallas, Texas. I am going to open a distribution center for my company in that area. If I purchase the land and have a building built and lease it to the company, what kind of write offs do I get? Do I need to form an LLC in order to do this? What would be the tax benefits of doing this?
Answer: We suggest you hire a tax professional who is qualified to take into consideration both your individual as well as your business tax planning, and who can integrate your long-term goals into both.
As to your 2nd question, you do not have to form an LLC (Limited Liability Company), C Corporation, Subchapter S Corporation, Limited Partnership, or other form of entity as opposed to owning the land and/or building individually. That is one of the questions that should be answered by your tax planner.
As to your first and third questions regarding tax write-offs and tax benefits, these depend upon so many variables that they must be addressed by your tax planner. However, some -- from among many, tools that you can use (the tools are applicable to both residential and commercial decisions) that will also help you in formulating questions for your tax planner are contained in the following articles:
From a business standpoint, we'd also suggest that you look into ad valorem tax abatements in the city or county that may encourage new businesses in smaller, rural communities. Using an S corporation or LLC can also help you get better financing (the project is not tied into other liabilities you may have) and also offer an insulation of liability for your other assets from creditors if this business is not successful.
Question (VA): I am a licensed Realtor in Virginia. I am debating on whether to try and originate loans. Can I as a Realtor originate loans? Can I originate loans for other agents within the realty organization I work for? Can I originate loans and still hold my real estate license?
Answer: All of your questions can be answered by accessing the Virginia State Corporation Division's Bureau of Financial Institutions website . Look at the "Frequently Asked Questions" link, and the "Laws, Regulations, Administrative Letters" links. Also be sure to review the "Summary of 2005 Amendments to the Code of Virginia."
The Real Estate Settlement and Procedures Act ("RESPA") sets forth certain federal requirements designed with consumer protection in mind. We suggest you access it here , or via HUD . The "anti kickback" provision in Section 2607 is designed to make sure that no person either pays or receives commissions or fees without providing actual services to the consumer. If you wish to learn more about Virginia and RESPA requirements for originating mortgage loans, we suggest you take a loan officer course from one of the schools operating in your area.
