Investment Properties

It’s the green parcel at the lower part of this photo..

Is a 1031 for Investment property only?  The short answer is yes.  If you are looking to do a 1031 tax exchange when you buy or sell a property, be sure to consult and hire a 1031 exchange company and work closely with your accommodator.  There are strict rules and regulations, time restrictions and other things you must be aware of and adhere to.  If you are looking to buy or sell a property in the Coachella Valley, give local resident and agent, Kim Kelly a call at 760-285-3578.

From the IRS Fact sheet:  To qualify as a Section 1031 exchange, a deferred exchange must be distinguished from the case of a taxpayer simply selling one property and using the proceeds to purchase another property (which is a taxable transaction). Rather, in a deferred exchange, the disposition of the relinquished property and acquisition of the replacement property must be mutually dependent parts of an integrated transaction constituting an exchange of property. Taxpayers engaging in deferred exchanges generally use exchange facilitators under exchange agreements pursuant to rules provided in the Income Tax Regulations. .

(courtesy of Exchange Resources, Inc.)  Is a 1031 for investment property only?  We are regularly asked if owner-occupied or personal-use property is exchangeable. It’s important to remember that the intent of the §1031 Exchange must be specifically for property held for investment purposes. However, there are some situations where investment and personal use might conflict or even overlap.

The most common example would be a duplex, a multi-unit property, or a property with an ADU where the owner occupies one of the units.  The essential questions for the taxpayer to ask are:

• Have I been reporting a portion of the property and any income from it as investment property?
• Have I been using a portion of the property for ‘Productive Use’ in a trade or business OR renting the portion at FAIR MARKET RENT.

If YES, then that portion could be eligible for a §1031 Exchange…

This 9.7 acre organic date farm would be a great 1031 business exchange.  Offered at only $795,000!

ROI; a critical part of your investment due diligence.

ROI; Return on Investment:  There are many different types of real estate investments.  Maybe you are buying land to develop.  Maybe you are buying rental properties.  Maybe you are looking at Commercial properties.  Maybe you are looking at Short Term Vacation Rental properties, or event spaces.  Whatever type of investment interests you, the ROI, Return on Investment, should always be a part of your calculations. Local Coachella Valley resident and agent, Kim Kelly 760-285-3578.

Your return on investment (ROI) is how much money you make or lose on a property investment. It should be enough to cover expenses and have positive cash flow. ROI can vary greatly, depending on the formulas you use.

The 2% rule. This rule states that the monthly rent for a rental property should be at least 2% of its purchase price. If you paid $300,000 for your home, you should be able to rent it for $6,000, as $300,000 X 0.02 = $6,000. This figure may be unrealistic in most markets.

The 1% rule. Let’s say that monthly rents for single family homes like yours are closer to $3,000. That’s only a 1% return on your $300,000 home. Is it worth it? Yes. If you combine the costs of your first mortgage and equity loan at $240,000, and the projected monthly rent of $3,000, you’ll net $600 a month in addition to the renter paying your mortgages. $240,000 X 0.01 = $2,400. $3,000 – $2,400 = $600. $600 X 12 = $7,200.

ROI for rental properties is determined by subtracting the total operating costs from the total rental income for the year and dividing this number by the mortgage amount. Operating expenses don’t include mortgage costs, but it does include repairs, maintenance, taxes, utilities, vacancy losses, management fees, etc. $3,000 X 12 = $36,000. Monthly operating costs are $800 X 12 = $9,600. $36,000 – $9,600 = $26,400. $26,400 / $240,000 = 0.11 ROI.

ROI should increase the longer you own the property.  Take a short walk tour of the yard area of this Indio Short Term Vacation Rental that is for sale, asking $3,950,000.

Coachella Valley real estate update

Coachella Valley, especially multi acre properties are hopping!

Things are hopping here in the Coachella Valley to end 2021 and begin 2022.  Not exactly news since real estate is selling pretty much everywhere right now.  Residential listings do not sit on the market unless they’re so extremely over priced for their community that it just doesn’t make any sense for a buyer.  The most interesting thing from my perspective is all the NEW money and buyers coming into our Coachella Valley..in particular the Eastern Coachella Valley.

Our beautiful Eastern Coachella Valley cities of Vista Santa Rosa, (which is unincorporated), Indio, Thermal, Coachella and even further East are drawing a lot of investment.  The land is still relatively inexpensive, it just isn’t that “far out”, as people once thought, and the development and activities moving Easterly continue to expand.

My vacant land  listings are generating interest, showings, and sales.  The price/acre hasn’t changed much, except that any land listings that are more Westerly..meaning closer to La Quinta amenities and nearer Coachella Festival grounds, have risen.  There isn’t a lot to choose from; certainly not if the location is close to the famed Coachella Music Festival grounds and polo fields.

Some recent changes in our Eastern Coachella Valley are the following..

1. Empire Polo Club no longer will host actual polo games. Goldenvoice has leased the Empire Polo Club grounds through 2050.  They will be having events year round!
2. Eldorado Polo Club right next door to Empire is already owned by Goldenvoice, but there are currently no plans to end the seasonal polo tournaments.
3. There are several water parks planned. Not sure what stage they are in with them.
4. There is a private golf course currently under development in Thermal.
5. The Jacqueline Cochran airport has had extensive additions and renovations over the past several years.
6. Multi acre properties in the county are generating strong sales. This is mostly due to local city ordinances limiting short term rentals and events, pushing buyers to the County.

Take the tour of this incredible listing at 54250 Monroe St., Indio.  It’s 9.4 fenced, secure and gated acres a walk or bike ride away from the Coachella Valley festival grounds.  Listed at 9.5 million and generating a strong short term lease return, this property is a great investment!

Small farms are such great luxury event sites and STVR properties.

High end market for investors; a new home model.  What’s left as far as a manner remaining to capitalize on the Coachella Valley real estate market?  With all the recent law change proposals for Short term vacation rentals, and luxury event site rentals, what’s next???  Call local realtor, Kim Kelly at 760-285-3578.

There is a one year old 1.5 billion company named Pacaso that is buying high end Coachella Valley homes and selling shares in them to investors.   Pacaso, (according to the Desert Sun) has bought properties in Palm Springs, Palm Desert, Indian Wells and La Quinta.  The idea is the now buyers who want a second home in the Coachella Valley, can now buy a 1/8 share of a luxury home.  If Pacaso does succeed, the company will probably be followed by others looking to cash in on this form of fractional home ownership.

Sound like a timeshare??  Does to me also.  Timeshares are banned in many areas of the Coachella Valley, and as we have all read, one of their prime problems is that an owner will find it very difficult to sell their time.  Pacaso categorically rejects this notion.  It says that it’s homes’ shareholders are buying shares in real property, not useage rights.  It remains to be seen how this fractional ownership will eventually be classified and if it can expand through our Coachella Valley.  In the meantime, take a tour of this lovely small farm that is for sale in Thermal, 20 acres, $1,775,000.

Investment Properties in the Coachella Valley range from homes, to farms and vacant land!

Inflation Cools a bit and consequently here in the Coachella Valley as everywhere else, mortgage Rates decline just a bit.  With the inventory already low, the reduced Mortgage rates will certainly drive buyers to our beautiful desert!  The following article is courtesy of Brad Tilford, with Franklin Loans, a local lender that can get your loans done!  Call local Realtor, Kim Kelly, if you are thinking of buying or selling your home, land or Equestrian property.  760-285-3578.

Overview: Over the past week, investors were mostly focused on the latest inflation data. The reading came in weaker than expected, and mortgage rates ended the week a little lower.

The Consumer Price Index (CPI) is a closely watched inflation indicator that looks at the price changes for a broad range of goods and services. To get a better sense of the underlying long-term trend, investors generally prefer to look at core CPI, which excludes the volatile food and energy components. In August, core CPI rose 0.1% from July, which was less than expected. On an annual basis, core CPI was 4% higher than a year ago, a very high figure by historical standards. However, this was down from an annual rate of increase of 4.5% in June, a level not seen since 1991. Since inflation is negative for mortgage rates, this lower-than-expected data caused rates to decline.

The Department of Labor releases the total number of new claims for unemployment insurance each week, and the latest reading was 310,000, the lowest level since March 2020. This was down significantly from the inflated figures seen during the early months of the pandemic, but still well above the readings around 220,000 that were typical during 2019.

As expected, the European Central Bank (ECB) announced at Thursday’s meeting that it will reduce its bond purchases, but it did not specify by exactly how much. Rather, the meeting statement said that it will proceed with a “moderately lower pace” of net asset purchases. While the U.S. Federal Reserve has not yet begun to scale back its bond buying program, it is expected to do so before the end of the year.