1031 Exchange


A 1031 exchange is an transaction that entails selling one investment property in order to purchase another. When swapping your current investment property for another, you usually pay a significant amount of capital gain taxes. On the other hand, if this transaction qualifies as a 1031 exchange, you can defer these taxes indefinitely. This allows an investor the opportunity to move into a different type of investment real estate. Or you can shift your focus into a new geographic area without incurring a large tax burden.

To understand how beneficial a 1031 exchange can be for you, learn about capital gains tax on your property. This is because, in most real estate transactions where you own investment property for more than one year, you pay a capital gains tax. You are directly charged a tax on the difference between the adjusted purchase price (initial price plus improvement costs, other related costs, and factoring out depreciation) and the sales price of the property. The percentage that’s taxed on your capital gains depends on the tax bracket that you’re in. The 1031 exchange is defined under section 1031 of the IRS code, which is where it gets its name. You can learn more about 1031 Exchanges by CLICKING HERE.


The main requirements for a 1031 exchange:

  • Must purchase another “like-kind” investment property
  • Replacement property must be of equal or greater value
  • Must invest all of the proceeds from the sale (cannot receive any “boot”)
  • Must be the same title holder and taxpayer
  • Must identify new property within 45 days; and
  • Must purchase new property within 180 days


A) Selecting a less-than- qualified “Qualified Intermediary.” A “Qualified Intermediary” is a professional third-party company that handles the exchange process. They help you avoid making any critical mistakes that could jeopardize your tax-advantaged sale. An incompetent Qualified Intermediary could subject you to loss of funds, lawsuits, risk of unintentional tax fraud and other problems.

B) Taking possession of the proceeds from the relinquished property. For a successful 1031 Exchange, the proceeds must be held in escrow for the seller, usually by the Qualified Intermediary. Proceeds must all be reinvested into the new property. You cannot receive boot, ie., cash, stocks, bonds, personal property.

C) Not keeping track of the exact deadlines and adhering to them properly:
– Must identify replacement within 45 days of sale of relinquished property.
– Must close replacement within 189 days of sale of relinquished property.

D) Selling or exchanging property not held for investment or used in trade or business. For instance, this includes personal use property, like a residence or 2nd home are not eligible.

E) Attempting to exchange property held in a partnership or multi-partner LLC. Ask your tax advisor about a 1031 Drop & Swap.

Consult with your tax professional before beginning a 1031 exchange. The tax benefits for this type of exchange for investment real estate is sizable. However, you must guard against making any mistakes to avoid serious penalties.

Untaxed Gift Limit Increased for 2022

2022 Untaxed Gift Limit Amount increased to $16,000
Three generation Hispanic family standing in the park, smiling to camera, selective focus


The untaxed gift limit for 2022 is $16,000 and no tax is due to the donor or the donee. There are provisions that would allow gifts higher than this amount. This is provided that the total lifetime gifts above the annual exclusion of $12.06 million for 2022 has not been met.

The donor and donee can be separate persons so that the aggregate tax-free gift for one-year amounts to more money. For instance, a father and mother can gift $16,000 each to their son. They can also gift an additional $16,000 each to their daughter-in-law. This equates to a total $64,000.


If the son and daughter-in-law use the money as a down payment on a home, the mortgage company might require a gift letter. The letter is usually a statement from the parents stating the money is a gift with no need for repayment. Lenders may ask the exact amount of the gift, where it came from and the relationship involved.


Family members and friends with financial resources can become the catalyst that allows buyers with good credit and income to purchase a home. Gifted funds provide a down payment and acts as an early inheritance. This allows the recipients to show their gratitude and the donor to see the enjoyment and benefit of the gift.

In some situations, the buyers have saved enough money for a minimal down payment. By using gifted cash to they can put more money down. This may help them get a lower interest rate or eliminate the need for private mortgage insurance.

The important thing involving gift funds is to have complete disclosure with the lender. It is best discussed during the pre-approval process. Your real estate professional should also know about it so they can guide you through the process.

Cash Now… Loan Later Potential Pitfalls

The Main Pitfall of Cash Now, Loan Later Purchases

Some homebuyers opt to pay cash now and get their mortgage loan later. Cash purchases are more common now due to low inventory and multiple offers. See some reasons why HERE. Buyers who pay cash for a home but expect to get a loan later need to be aware of IRS rules. You can lose your mortgage interest rate deductions with this type of cash purchase. If a buyer intends to get a mortgage later, there are important things to be aware of.

Most lenders are not concerned about whether the homeowner wants to deduct the interest. They want to make a good loan that will be repaid. So if a buyer qualifies for the loan, they won’t worry about making sure it fits the mortgage loan deduction window. A new loan must be established within 90 days of the date of purchase to qualify for interest deductions.

Qualified mortgage interest, which is deductible, is based on the acquisition debt used to buy, build or improve a principal residence. The maximum mortgage amount of interest deduction is $750,000 of acquisition debt. When cash is paid for a property, the acquisition debt is zero. Zero acquisition debt means no mortgage interest deduction. After the window of opportunity, the only way to increase the acquisition debt is to make and finance improvements to the home.

Therefore, if you are considering paying cash for a home, it’s best to consult your tax advisor. Contact Sound Investments, Inc. Our owner is also a tax professional who can help explain the ramifications of this type of purchase.

Are You Well Positioned to Buy?

Position yourself for buying


If you are looking to buy a new home, it is critical that you are well positioned to buy. Right now, some buyers are becoming discouraged. They feel that there are not enough homes on the market, especially, in certain price ranges.  When they do find something they want, there may be multiple offers and they end up losing to another buyer. If you experience this, you may choose to wait until the market changes.  This is understandable. However, your wait may be very long, and it may end up costing you more.

Inflation is affecting all sectors of the economy; prices on food, cars, and electronics are going up as well as housing and mortgage rates.  Home prices rose 20.2% year over year in May 2022 over 2021, according to a recently released CoreLogic report.  The advantage for current homeowners wanting to move up is that their current home is now also worth more which will help pay the increased price for a larger home.


And while it is true that housing inventory is at very low levels, over six million homes sold last year. For buyers, the problem was that available homes sold fast and there was a lot of competition for them. This certainly isn’t as easy as if there were four to six month’s supply of homes for sale. But, once you purchase a home, these same dynamics will be working in your favor to build your equity with appreciation.


Successful buyers separate themselves by being well positioned to buy when the new listings hit the market.  They arm themselves with the following:

  • Working with a trusted real estate professional
  • Pre-approved by a local lender
  • Developed a plan to write a competitive offer
  • Determined their limits financially and emotionally.

Remember, six million people bought homes last year and you can be among the fortunate ones who buy one this year.  Be committed to what it takes in a highly competitive market.  Surround yourself with a competent and confident team that will produce the results you want.

For more information, download our Buyers Guide and schedule an appointment with us to get the facts about the best plan to get you into a home this year.

Avoid These Common Buyer Mistakes!


When buying any property, you want to avoid making these common buyer mistakes. Like driving a racecar, buying a home can be a very fast but complex process. And like racing, if you make a mistake, you can easily miss your chance to grab the position you want. Buying a new home is an emotional process. However, you if you don’t use your logic and the right information, it becomes much harder to get the home of your dreams. Let’s look at some tips about mistakes to avoid when you buy.


Manage your credit score and make sure it is as high as you can make it. It’s important to know your credit score when you are looking to finance a new home. And keeping it as high as possible by avoiding bad financial practices is critical. Remember, borrowers with the best credit scores get the lowest mortgage rates.

Don’t look at new homes without being pre-approved for a loan first. Because the real estate market is so competitive, it is unlikely that your offer is accepted if you aren’t already pre-approved. It is also very likely that you will lose the opportunity to bid if you need to take the time to get a loan approval.

While we are on the topic of mortgage loans, do your homework! Shop around for the best mortgage rate available. Rates and fees are not the same from all lenders. Regardless of your credit score, different lending institutions will often offer different mortgage rates. Find the best one for you. You real estate agent can help you do this.

It is unwise to spend your entire savings to purchase a home. Hidden and unexpected homeowner costs can leave you vulnerable in emergencies. 


Research the neighborhoods you want to look in. Find out about schools, crime statistics, access to amenities and emergency services. These will affect both how happy you will be while in your new home, and how much value you’ll receive when it’s time to sell. Also find out what recent “comparables” in the neighborhood sold for. This will give you a realistic idea of what range of prices you can expect.

Good schools affect your property value positively.


Never waive the right to inspection. Waiving the right for inspection may make your offer look better, but you give up protection from unexpected problems and expenses. Be wary especially is the seller is eager to accept your offer only if you waive inspections.

Not working with a real estate professional is a big mistake some buyers make. Purchasing real estate is an extremely complex process. If you don’t believe us, you only have to go through all the documents and requirements someone else has on purchasing their property. You can see that without inside knowledge to the terms, language and processed involved you can easily get lost and confused. A real estate expert has the knowledge to guide you successfully through the process.

Remember. With a reputable real estate professional on you side, you can easily avoid these common buyer mistakes and others. For more information on how this is done, you can contact us at (510)-244-0081. Or Click Here to send us a message. Sound Investments, Inc. is here to help you!

Can You Benefit During Inflation?

Buying a Home can benefit during times of inflation

Benefit during inflation? Most people believe that inflationary periods only bring negative impacts. However, homeownership benefits you during these periods and helps offset these negative trends.

Negative Impacts of Inflation

In inflationary times, (currently the highest in 40 years), the purchasing power of your money diminishes each day. This means that your money essentially, buys you less. The biggest threat during this period is to be without capital assets. Capital assets, such as a home, benefit you from the increase in prices in the housing market.

Your money buys less gasoline now, than it did a year ago, by close to 50%. Beef prices are up about 20% since last year. Used cars are about 35% more expensive than they were a year ago. Mortgage rates are near 5% after reaching their lowest of 2.65% in January 2021.

And then, there is the price of houses. CoreLogic reports that home prices increased year over year by 20% in February 2022. Their Home Price Index indicates an annual five percent increase in prices from 2014 to 2021.

Adjust for the Long Term

However, if you choose to invest in a home, you can reap a benefit of inflation. This can offset losses you experience otherwise. If you are now priced out of your “dream house,” consider a different tactic. Adjust your expectations for the perfect home make it a long-term strategy. Start by purchasing a “less perfect” but affordable property. You delay the gratification of getting everything you want in a home now. But the compromises you make would allow you to “stair-step” your way into the “forever home” and incrementally reach your goal.

Benefit During Inflation

Owning a home in today’s market, even if it isn’t the ultimate home, provides a significant hedge against inflation. Not only is the home appreciating faster than the rate of inflation, the mortgage on the home produces leverage that increases a homeowner’s return on their equity. Homeowners have both the home’s appreciation and its amortization working in tandem to increase their equity. Money in a bank account or the stock market can’t compare to the potential.

Choosing to Invest in a Home

$40,000 invested in a certificate of deposit earning 1% would be worth $42,040 in five years. If the same amount was invested in the stock market that earned 6% annually, it would be worth $53,529. However, if the $40,000 were invested in a $400,000 home, with a mortgage at 5% for 30 years, that appreciated at 5% annually, the equity would be close to $180,000 at the end of the same five-year period.

Connect with us at (510)-244-0081 and let’s put together a plan to help you benefit from inflation.

Skills Needed in Today’s Real Estate Market  

Skills Needed in Today's Real Estate Market

Why Skills Are Needed

In today’s ultra-competitive real estate market there is only 1.7 months supply of inventory. Compare this to the 6 months supply in a balanced market. Moreover, the average home is getting 4.8 offers per sale. It is more important than ever to have the right person “champion” your cause when purchasing real estate. And that’s why there are high-level skills needed in today’s real estate market.

Sellers’ and buyers’ objectives are different and, in many cases opposing in nature.  Sellers attempt to get the most money for their home. They also want to minimize expenses and avoid any issues that could cause delays.  Buyers want to be treated fairly and have an opportunity to buy the home of their choice. They also want to take advantage of the protections of normal contingencies for things like mortgage approval and inspections.

In most situations, there are two real estate agents involved in a single sale.  You want your champion to be the most capable person available. Furthermore, you want them to have the skills needed in today’s real estate market

What Type of Skills Are Needed in Today’s Real Estate Market?

There are skills that agents need in today’s market. One of the most important is the ability to conduct negotiations.  Regardless of which side of the fence you’re on, your agent needs to be skilled in negotiating on your behalf.  Remember, every part of the contract is a negotiation. This starts with the price then continues to the other financial complex financial and transaction agreements involved with the purchase.  What’s a reasonable amount of earnest money?  Can the sale be “as is” yet still allow buyer inspections so you cqn be fully aware of what you’re buying? Will the buyer provide a CLUE report for the property? [Read our post about CLUE Reports. Then click here to learn more about CLUE Reports.]

The buyer wants to negotiate the best terms possible with the seller. They are depending on their agent to work for them to get them.  The home inspector is hired by the buyer to determine the condition of the home. The inspector and will point out what repairs are necessary. Your agent will help you negotiate who pays for those repaires.

Your lender hires an appraiser to determine the value of the home. This is because the loan will be secured by the property.  Recent sales can be used as comparables. But they trail the market. This becomes a challenge in rapidly appreciating markets, especially, when there are multiple offers. 

Consider Legal, Ethical and Personal Aspects of the Sale

And since multiple offers are the norm currently, agents must know how best to handle them based on the seller’s or buyer’s perspective.  There are legal and ethical procedures that must be followed. But an agent’s experience can contribute to creating a more favorable outcome.

The skilled and experienced negotiator understands that every transaction is different because of dealing with individuals, their families, their needs, and their emotions.  The role of the third-party negotiator can be invaluable to the success of the transaction. This is not only based on their experience but the juxtaposition to the principals and their objectivity of trying to reach a compromise.

Let Sound Investments be your skills champion. Click here to see what we can provide for you when looking to purchase a new home or other property.

Will the Housing Bubble Burst?

Will the housing market bubble burst in 2021?

If you believe we’re on the brink of a “housing bubble” that will soon burst, you may have to rethink that. But there are many factors that suggest that isn’t the case. For example:

  1. Housing supply is low.
    – 1.9 months current supply; 6 months supply is normal.
  2. Housing demand is high.
    – The economy is improving.
    – Interest rates remain low.
  3. Rampant foreclosures are not expected
    – Currently, a vast amount of homeowners have a large amount of equity.

Experts are expecting prices will continue to increase and rates will remain relatively stable through 2022.

Plenty of Home Buyers Continue to Enter the Market

According to the 2021 Realtors Confidence Index Survey, real estate agents across the country described their market based on how many buyers were looking and how many sellers were selling. The map below shows how hot the buyer traffic looks in your state.

But the Market Needs More Homes to Be Listed for Sale

Conversely, the survey showed that the number of homes actively listed for sale in March 2021 was down over 50% as compared to 2020. The next map shows how the majority of markets look slower when it comes to the number of homes available for sale. Buyers will have a harder to find their dream home.

How Fast Are Homes Selling in 2021?

In 2020, existing homes were typically on the market for 21 days. That’s over two weeks less than was the case in 1999. But in 2021, homes sell even faster than that. This year, homes stay on the market for an average of 18 days. This is great news for sellers… but buyers need to stay on their toes. Wait too long, and you may be a loser!

What About Foreclosures?

Early projections showed that up to 500,000 homeowners across the country might face foreclosure in 2021. Post-pandemic foreclosures are ticking up, but only on vacant and abandoned properties. What do more foreclosures mean for home buyers? Increases in foreclosures could mean a increase in available supply plus some discounts.

Is the Housing Market Going to Crash?

It’s unlikely that the housing market will crash in the next two years. Home prices have already seen a 16.2% increase in 2021 which is more than two times the original predictions. That reflects a strong economy. And, as long as new buyers keep entering the market and there aren’t enough homes for sale to meet demand, home sales and prices will continue to rise. This should keep the market healthy.

What Does This Mean for Home Buyers and Sellers?

Buyers will have to be smart and quick. With more buyers than sellers, you’ll be up against some heavy competition. But there are some bright points. Mortgage rates will likely still be low through 2021. Experts also anticipate that housing inventory will climb in the second half of 2021, which means less competition.

Sellers might want to put your house on the market sooner while inventory is still low. There are plenty of buyers out there. Also, it is a very good idea to work with an experienced agent to set the best home price and find the right buyer. With an expert by your side, you should have no problem selling your house at a great price this year.

Even with all the data available to us, the housing market is hard to predict. To buy or sell with confidence, it really pays to have a trusted professional on your side. Get an experienced Real Estate Agent on your team, leverage their expertise and you’ll be in the best position to have your interests protected.

Rental Rate of Return

Sound Investments Inc. Rate of Return on Rental Property
Sound Investments Inc. Rate of Return on Rental Property

Looking for a simple way to determine if a rental property delivers the rate of return you want? This modified annual property operating data may be just what you’ve been looking for.

Let’s look at different rates of return that investor’s consider to determine whether a property will generate the yield that they expect. Sometimes the simplest of calculations can tell you whether you should buy it or not. If you get other benefits like tax advantages and appreciation, it makes it that much better.

Cash-on-Cash ROR

Cash-on-Cash rate of return is the first yield we will look at. To calculate this, divide the initial investment, usually down payment and closing costs, into the Cash Flow Before Tax.

To arrive at Net Operating Income, take the gross scheduled income, less vacancy allowance and all operating expenses. Then deduct the annual debt service which is the principal and interest payment times twelve. The remaining amount is referred to as Cash Flow Before Tax.

In this example , we took the initial investment of the down payment and closing costs, $66,000 and divide into the Cash Flow Before Taxes of $5,468 to get an 8.28% Cash-on-Cash rate of return.

Equity Build-up

Next, let’s consider Equity Build-up. Each payment made on an amortizing mortgage pays a portion toward the principal balance to retire the loan. Calculate Equity Build-up by dividing the initial investment into the principal contribution for the year.

Continuing with the example, If you divide $66,000 into the principal reduction for year one of $4,606 you get a 6.98% Equity Build-up rate of return.

This approach is easy to understand because you are not considering depreciation, anticipated appreciation, holding period, recapture of depreciation or long-term capital gains. Simply rent the property, pay the bills and if there is money left over, it pays a return on the initial investment.

The same goes for the Equity Build-up. When you make your mortgage payment, you are reducing your loan. While you don’t have access to the money as you would with cash flow, it is definitely your equity and tangible.

To determine whether an ROI on a rental is good, compare it to what your initial investment is earning currently. Ten-year treasuries are earning less than 2%. Certificates of deposit currently earn less than 1%.

Operating Data

If you’d like help with these rental return on investment calculations, and help finding the right rental properties that will produce the type of rental rate of return you want. Contact us at Sound Investments, Inc. By calling us at (510)-244-0081 or CLICK HERE and leave us your information

Writing a Successful Offer in a Low Inventory Market

Currently there are at least 40% fewer homes on the market now than there were a year ago. Many serious buyers have lost a property they wanted because of the increased competition. Today’s buyers should be looking for ways to improve the odds that their contract will win without needing to use purchase price as their only tool.

Buyers should reconsider, rethink, and re-evaluate their “must have” features and amenities. It’s unrealistic in a normal market to get your perfect home at the price you want. But in today’s market, it is even less possible. Start by listing the things you must have, and the things you would like to have, then prioritize them. Identify the critical from the convenient.

The next step is to put together your “home” team. You are the captain of this process, but it is essential to have a strong first officer and that is your real estate agent. This professional will oversee the process, advise you on current market conditions and normal procedures. Your agent will even help you assemble the rest of the assets you will need such as a mortgage officer, title, insurance, warranty, inspectors and service providers.

Your agent can advocate your cause personally to the listing agent by personally delivering the offer and pointing out your strengths to lobby your position. Obviously, your agent will not share anything that you do not expressly give them permission to.

Even before you write your offer, your agent can ask the listing agent about any preferences of the seller not mentioned in the listing agreement, as well as which contract forms and addendums to use.

The following list of suggestions are provided for your consideration realizing that some may not be appropriate for your individual financial situation or comfort level.

  • Get pre-approved from a local lender and include documentation with offer to purchase.
  • Have your lender phone and email the listing agent to verify that you are pre-approved.
  • Increase the amount of earnest money.
  • Acknowledge flexibility on closing and occupancy dates.
  • Eliminate unnecessary contingencies.
  • Waive the appraisal and have proof of funds to meet the difference in the purchase price.
  • Avoid concessions like asking the seller to pay the buyer’s closing costs or points.
  • Avoid including personal property to go with the sale unless specified in the listing agreement.
  • Purchase “as is” with right of quick inspection to cancel contract if condition is unacceptable.
  • Shorten time frames on necessary contingencies.
  • Attach proof of funds for down payment or full purchase price if cash.
  • Arrange bridge financing to be able to pay cash.
  • Buyer should pay their own normal closing costs.
  • Write a personal note to the seller explaining why you like and want their home. Some listing agents are advising sellers to not accept them due to potential discrimination liability.
  • Escalation clause … offer to pay $X,000 more than highest acceptable offer up to a limit.
  • If you physically sign the offer, use a contrasting color ink to add a personal touch. If using a digital contract, change the font and color to distinguish the signature.
  • Make your best offer first because they may not make a counteroffer.

When a new listing hits the market, it is common for there to be a rush of interested buyers that result in multiple offers. Because of this, it’s prudent for you to research and consider which of these ideas you can implement before you find the home. It is much better to have more time to make these decisions, especially, if it involves a mortgage officer or an attorney.

Your real estate professional will be able to tell you which of these suggestions are viable and may be able to offer additional recommendations. If you do not have an agent, contact me at 510.244.0081 or to discuss a plan to craft your offer in the most favorable way possible.