1031 Tax-Deferred Exchanges

Investing for Dummies: Investing in San Diego Income property

Paying Capital Gains Tax on the sale of your San Diego income property could defeat the purpose of your investment strategy. If you have to give back the profit to Uncle Sam, consider this:

You can defer the entire gain by purchasing a property (or entity used for business) of equal or greater value ~within a specific time frame and adhering to specific rules~. That’s right! The I.R.S. says go ahead, sell your income property and if you do this within the guidelines we have stipulated “you don’t have to pay us a dime”. Well, you may be thinking “What if I don’t want to be a Landlord anymore, I have other areas of my life that keep me busy? I’m sick of all the headaches. If I sell my income property, then what?”

Here are some “1031 Tax-Deferred Exchange”  ideas :

Purchase a condo for your child to live in while they go to college.

Buy a future retirement home in an area of your choice (U.S. only) and rent it out until you are ready to retire.

Buy into a TIC investment.

Downsize your life to a multi unit dwelling,live in one apt. and you will be able to defer a percentage of the gain.

Buy a Farm

Buy a vacation condo/house you use less than 2 weeks/year. (this does not include a time share).

Purchase raw land.

Purchase a Corporate Jet used for your business.

There are many more legal ways to reinvest the gain from your income property using a 1031 Tax-Deferred Exchange.

Disclaimer: Always consult with your CPA before undertaking a 1031 Tax-Deferred Exchange or other tax strategies.



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The Charlie Stone School of Hard Knocks-Investing in San Diego, CA Property

My dad wasn’t a wealthy man, nor did he have more than a high school education but he was one of the smartest people I knew. His advice has gotten me further than much of the knowledge I have accrued from college degrees and industry courses. Being raised during the Depression, he had to assist supporting his mother and 4 siblings when he was 12 years old (his father had died very young) by being a golf caddy. There was no welfare or public assistance at the time. Fortunately, the Stone brothers had inherited very high intelligence and a strong work ethic. His brother, my Uncle Harold, had nothing more than an 8th grade education, but became extremely successful in the stock market. My dad worked at General Electric for 35 years. He also ran his own business, designing wrought iron fixtures for industry. He was always resourceful and optimistic.I never once heard him complain about what he didn’t have. He was a man of short stature, reserved in nature but one of the most honest and diligent I knew. 

Here are the basics of his business plan:

If you can’t take the heat, get out of the kitchen. This was advice he gave to me when I was complaining about rents and tenant issues. In other words, shut up and keep on working hard, or get out of the business. You will always have battles to fight, no matter what industry you are in.

If you invest in several pieces of Real Estate, you will never be homeless: Perhaps not 100% true, but more than once did I have to move into a rental unit I owned to compensate for a slow R.E. market and less income than I expected that year.

There is no such thing as being a “little” honest. Either you are or you are NOT. Hmmm. We all don’t like to hear this, but it’s the truth. Integrity goes a long way in this industry.


Buy “bread and butter” property. In a market downturn, the demand will be much higher than high end property. Wow, have I learned this. Not only the past few years in San Diego CA Real Estate but also in Boston in the early 90′s. The luxury condos were sitting empty and my phone was ringing off the hook for the “less fancy” affordable units.

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10 Questions To Ask At An Open House

for sale10 Questions to Ask at an Open House. Not everything about your potential new home may be visible on your first walk-through.

Visiting an open house gives would-be buyers the opportunity to speak directly to the seller’s agent. And the best way to take advantage of this personal meeting is to be prepared. Get the inside scoop by asking these 10 questions:

1. How many offers have been made? Does the agent look suspiciously happy? The agent might have received word that an offer is coming in any minute. If the agent has received offers, the agent will probably be eager to tell you, in hopes that you’ll bid as well and drive the price up.

2. How stable has the price been? Your agent can find out how many times the price has changed since it was first listed, but the seller’s agent will likely jump at the chance to explain why. Perhaps the price dropped because the seller has to move on a tight timeline. Info like this might even clue you in that the list price is somewhat flexible.

3. Why do the sellers want to move? If the sellers are moving because the area is unsafe, the schools are terrible or the neighbor practices the drums at midnight, their agent is unlikely to tell you. But ask this question anyway, and try to read between the lines.

4. How long has this property been on the market? You can find this information yourself or by asking your agent to check the local multiple listing service, but the seller’s agent will be able to put this information in context. Perhaps it’s been on the market for a long time, but only because the sellers received an offer from a buyer whose financing fell through. Or perhaps the house went on the market this week, but the sellers have had a lot of interest and expect it to sell quickly. All of this is useful when you’re deciding whether to make an offer.

5. What issues does the house come with? The seller is required to tell potential buyers about any known structural problems or code violations. It’s standard to ask for a written seller’s disclosure, so request one – and if you’re lucky, a talkative agent might reveal more in person.

6. When was the house last updated? Clearly visible updates, such as new appliances or a fresh coat of paint, are easy to identify. However, features like the age of the roof and wiring that can’t be easily seen are equally as important and need to be asked about.

7. How much do utilities cost? Know what you’re getting into before you make an offer by asking to see recent utility bills. If you’re moving from an apartment into a house, you might be surprised at the impact utility bills have on your budget.house with key

8. What’s the seller’s timeline? Sometimes sellers choose a buyer’s offer simply because of timing. Perhaps they want to sell quickly, or delay the sale so their kids can finish the school year. The more you know about what the sellers want, the more easily you can work around it — and put together a tempting offer while getting a good deal on the price.

9. Where can I get a bite to eat? Getting directions to a local eatery or coffee shop will tell you a lot about your neighborhood. If there’s a retail strip close by that locals frequent and feel proud of, chances are you’ll love it, too.

10. What are the neighbors like? Is the neighborhood kid-friendly? Are there lots of retired people? Is there a thriving bar scene on the weekends? Some people are fine doing their own thing and don’t require (or want) a tight-knit neighborhood community. But other people are much happier if they’re surrounded by kindred souls who are in a similar stage of life. The seller’s agent will be able to give valuable information about who you’d be rubbing shoulders with, if you choose to buy.

And don’t forget: While open houses are great venues to ask questions and listen, be careful not to give away more than you want about your own situation. Being discreet about your finances and how much you love the home will benefit you when it’s time to bargain for a good price.

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Rentals-So Easy Even A Caveman Can Do them-WRONG!

Finding tenants is so easy—all you do is run an ad on Craigslist, answer the e-mail, show the home and BAM—you got a tenant!

 I wish it were that easy!

 For the uninformed owner, finding tenants, getting all the right documentation together, and managing the property seem like a “no-brainer”. I’ll tell you a little secret: it’s not.

The landlord tenant relationship is adversarial at best, so knowing this from the start alleviates making some very dumb decisions.

 Example #1

 Henry owns a home. He works a day job and decides he’d like to “save some money” by finding his own tenant. He runs an ad, finds a tenant, signs a 6 month lease and thinks he has done his job. 3 months later, the place is trashed, and rent hasn’t been paid. Henry thought she was so nice, so didn’t get a security deposit, or even a credit report (where he would have found out she had a previous eviction). When on month 2 the rent was 2 weeks late, the “tenant told him she would pay.” 3 weeks went by, no rent. Henry called the tenant (NEVER beg for rent) and she gave him a “sob story”. He finally called his Attorney and $3000 later, got her out.

 Example #2

Annette owned a lovely large, sprawling home. She wanted to take a year sabbatical and find tenants to rent her home. She ran an ad and found a nice couple, agreed upon a rental amount and drew up “her own lease”. The tenants said they “loved to garden” so Annette left the landscaping and watering up to them. BIG mistake! Upon Annette’s return, the landscaping was overgrown, or dead, poorly maintained and not watered for months (water was too expensive). Since this was a gray area in her “homemade” lease, she could not hold tenants responsible.

Paying property management to maintain your property is worth every cent. The above scenarios would never have happened if I managed the property. I LOVE single family homes. Call me for a FREE consultation.


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Buyers: 7 Questions to Ask Before Buying a Condo.


Condo Buyers in San Diego, CA: 7 Questions To Ask Before Buying  A Condo

You’ve found your dream condo and are ready to relax among the mango trees and swaying date palms. Hold everything. To keep from getting
stuck with a lemon, you’ve got to do some homework. Here are the seven most important questions you need to ask before buying a condo.


1. “What’s the Beef?”

Take a look at the minutes of the condo association board meetings to see what the owners have been griping about. If everyone was complaining about the faulty plumbing or the gardener’s absence, you know that the complex is having management difficulties. Even if there aren’t any complaints, reading the minutes will reveal the sorts of projects that are under way at the complex — projects the seller may have neglected to mention.

2. “Who’s Been Naughty and Who’s Been Nice?”

Find out the delinquency rates of present owners. If people aren’t paying
their association dues on time, that is either a sign of discontent or an
indication that the association might be underfunded.

3. “How Much Is In the Repair Fund?”

Ask if the community has done a reserve-fund review in the past five
years. Lester Giese, the author of The 99 Best Residential & Recreational
Communities in America, recommends the following formula: If the complex is one to 10 years old, the reserve fund should have 10% of the cost of replaceable items (roofs, roads, tennis courts, etc.). Between 10 and 20 years old, the repair fund should be at 25% to 30%. At 20 years, that amount should be 50% or above. Residents who brag that they don’t pay much in maintenance may be in a complex that either is not being kept up well or is living beyond its means.

4. “Can You Cover Me?”

If you look at nothing else, get a copy of the certificate of insurance,
which is a summary of the association’s policy. First see if the replacement
costs covered by the policy are an accurate estimate of the cost of
rebuilding. Then make sure that the policy has a building-ordinance clause,
which means that the insurance will cover the cost of bringing the building
up to code if there is any rebuilding to be done. On older buildings, there
may have been many code upgrades since the time of construction. Finally,
make sure that you understand exactly what the association policy covers and
what you are responsible for. The smart condo owner will insure his or her
personal belongings, along with any other items within the unit that are not
covered by the association’s policy. If you have trouble understanding the
insurance lingo, take the insurance certificate to an agent whom you trust
and who understands the state laws.

5. “Does the Association Present Any Legal Problems?”

Buying a single-family home without a lawyer is no big deal for many
people. But with a condo, there’s so much more involved. Contact a local real
estate lawyer and have him or her go over the bylaws of the association. Do
they make sense? Are they consistent with the state laws? Giese, the author,
once found that the association bylaws of a large garden-style condo complex
had been lifted from the books of a high-rise condo, leaving confused tenants
with rules about shared hallway space and the correct use of garbage chutes.
Benny Kass, a Washington real estate attorney, recommends that you also have your lawyer screen the association at the local courthouse, to see if any
owners have filed suit against it.

6. “Is the Complex Renter-Friendly?”

If the renter population is over 10%, there should be clear rental
policies, either listed in the bylaws or tacked on as an amendment. Does the
management company find renters for you? If so, do they get enough good renters?
Ask other tenants about their experience. In addition, ask to see the
association’s rental lease, and have a real estate lawyer look it over. Keep
one thing in mind, though: An association can change its bylaws to prohibit
or restrict renting at any time. The more owners who rent, the less chance
that will happen.

7. “Am I My Community’s Keeper?”

Watch out for a condo whose owners manage the place themselves. Although
many are operated efficiently, self-management can lead to more hassles for
owners — especially those who live thousands of miles away. If the complex is professionally managed, check out the management company as thoroughly as you check out the association. Ask other owners. Ask people in nearby buildings. And be sure to interview the day-to-day manager directly. If you hook up with a bad manager, you can be sure of this: Your dream condo will keep you up at night.

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Small Income Property Investors—You Got All The Smarts!


When I tell my friends I work with small to mid-sized San Diego income property investors, mostly everyone thinks I am talking about these guys—– but in fact I am talking about the small investor: the at home mom, the student who has a few extra dollars to invest, the young college grad who wants to buy an owner occupied duplex or “2 on 1″.

Nowadays, you don’t have to be a multi-millionaire to be a real estate investor BUT you do have to do a little homework, pavement pounding and research.


Invariably when I get an e-mail from a client looking for “cash flow” on a 2 unit property it sets off a small red flag—–either one who has significant cash to put down on the property or one who is fairly new at investing. “Cash flow” is a buzz word, but it means very little in the San Diego small to mid-sized income property market. Why? Because cash flow is probably the least important of all the benefits of owning smaller properties and I’ll tell you why. A 2 unit property is best owner occupied, thus allowing you, the owner (investor) a well priced place to live. Although you will be renting out the 2nd unit, the “cash flow” will help pay for mortgage, taxes, maintenance and utilities. Are you running to the ATM to deposit extra cash every month? No——–but it allows (or should allow) you to have a well-priced primary residence, thus adding to your monthly “cash flow”.

Example: If you bought a $300K SFR home with a downpayment of $60K, your P & I would be about $1430. If you bought a duplex (or 2 on 1) for $400K with the same $60K downpayment your P & I would be about $2025. Assume a $1200/monthly rental income, and your monthly “rent” is $825. That’s a $605/month savings, for not inconveniencing yourself a heck of a lot. You would not have to give up the idea of a SFR, because you could certainly save for it very quickly with almost $8K annual “savings” before tax write-offs of 50%! And then keep the duplex as property #1 in your investment portfolio.

In uncertain economic times it is always prudent to save for a rainy day. Starting out as a small to mid-sized real estate investor in San Diego is smart, smart, smart and a great way to get ahead of the game!

Have questions about being a newbie San Diego small income property Investor? Tenant issues? I have the answers!

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Don’t Hate Me Because I Don’t Cash flow……………Investing For Dummies in San Diego Income Properties

Creating Wealth: Investing for Dummies

San Diego is a great place to live and many investors have had unsurpassed success in finding good tenants in San Diego. Rentals are in high demand in most every part of this county and you can be assured that “bread and butter” units will be at the forefront of desirable properties to buy or sell. I specialize in small to mid-sized investment properties and many of my clients are novices who have done extremely well by following my investment advice.Why do investors buy income property as opposed to stocks? What are the benefits of owning real estate?There are 3 main reasons people buy Real Estate.

 Cash Flow, Tax Shelter/Depreciation, Appreciation

 What is Cash Flow?

 This is the cash left over at the end of the year when all debt, taxes and management fees have been paid. This is the money you can spend on vacations, a new car or that new kitchen you have always wanted. This takes into consideration the expenses of owning property but is not limited to: debt relief, property taxes,vacancy rate, insurance, utilities, maintenance, advertising, repairs and legal fees. Is cash flow a necessary component of a performing real estate asset? No it isn’t. You may be wondering then why would I bother to invest all my money in an asset that produces no income? Glad that you asked! Depending upon your specific financial goals and earnings, cash flow may just be a burden for you. If you pay Uncle Sam 28% of every dollar you make, why would you want to earn more dollars? The key to building wealth is not by earning as much money as possible but by keeping as much money as possible. Why work harder to make more money if all you are going to do is fork it over to Uncle Sam? So defining cash flow as your primary (and only) investment objective is a short-sighted approach to real estate investing and you just might miss out on some “diamonds in the rough”….to say nothing of putting yourself in a financially disadvantageous position. There are some great investments that may even lose money before taxes the first year or 2 or even longer!

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Small Business—Honesty is Always the Best Policy.


This is Rosa. She sells fresh fruits and vegetables in a stall in an alley off the main street in Black River, Jamaica, West Indies.

 On a recent trip to the south west coast of Jamaica to investigate vacation real estate, I stopped in the nearby town of Black River to do some errands. Of course I couldn’t resist the luscious local produce she was selling. After purchasing some produce,she handed lemons2me the bag.

 Black River is about a 45 minute “route” taxi drive to where I was staying in St. Elizabeth’s Parish on the SW coast. If you haven’t been in a “route” taxi, I must tell you…it is a rather daunting (and dangerous) way to travel..(…but when in Rome)….the roads are potholed and very narrow for 2 lanes of traffic, making for a white knuckle ride. And adding to this is the custom of packing 4-5 people in the back seat of some pretty run down “taxis”. Yup, you may be sitting on someone’s lap, with your feet dangling out the window.

taxi route When I returned to the house of my host, I opened the bags of produce and found a small rather heavy, black plastic bag. I opened it up and a large wad of paper money, coins, cell phone, receipts, keys etc were inside.  Rosa has inadvertently handed me her entire business! You can imagine my shock at this discovery. My host called her on the cellphone( thank goodness it was in the bag) & explained in Jamaican patois, the situation. The plan was that I would return the next day, yup, you guessed it, by “route” taxi..again… a grueling 45 minute ride each way.

 When I finally arrived , I searched around for the alley where Rosa’s “shop” was located …a maze of cars, blaring music over giant loudspeakers, throngs of people, feral cats and dogs, vendors hawking wares, 90 degree heat,with the smells of curried goat wafting in the air. It wasn’t an easy task!

 As I approached, she recognized me immediately, I handed her the bag and she threw her arms around me, with tears in her eyes. It was a solemn moment. I assured her that I wouldn’t t have done anything else. As I went about my errands, I was back out on the main street and I saw Rosa coming towards me. She threw her arms around me again, thanking me so much. I didn’t feel I deserved this, but I was happy that she was so grateful and her worries were over.

 This experience will most likely stay with me a lifetime, since I do believe everything happens for a reason. And I’m glad I was the one who mistakenly got her money..

 The moral? Well, honesty is always the best policy, and never hesitate to do the right thing. Sometimes a seemingly small incident could be a complete life-changer for someone. As it turned out, it was a life altering experience for me!



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What’s Property Damage?

What’s Damage?

Messy junk in  junkyard.I’ve been asked by my clients who act as their own property manager, what is considered damage after Tenant moves out? The laws in every state differ, so I am not addressing CA laws specifically.

 When a tenant moves into a dwelling, there’s a Move-In Checklist that is given to them. I allow 7 days, giving the tenant some time to settle in. I explain this is simply a “statement of condition”, not a “request for repairs”. BIG difference.

 If the owner would like to take photos, that’s fine. But unless you have a commercial grade camera with zoom lens, dirt on the carpet or wear and tear on the floor is not going to be visible. My advice: get the place in great shape, maximizing your ability to attract quality tenants and insuring your property value stays high.

 Wear and tear: this is something you can’t expect your tenant to pay for. If you have a 10 year old carpet and tenant leaves a small stain that is barely visible, forget it. If the carpet was brand new and  the cat urinated on it, you can have them pay for the entire carpet replacement. If you have screens that were torn by cat (and I have yet to see any catAngry cat not participate in this creative past time)or blinds that were bent by a curious child, then that is damage. They need to pay for replacement, but I’d be very lenient with the cost, since kids and cats act like….well, kids and cats. I delineate between “malicious” damage and accidental or “wear and tear” damage.

 Carpet cleaning is a sticking point since my personal feeling is if the carpets were cleaned before move-in, than tenant’s dirt is on the carpet, and they need to pay to remove it. This is a gray area, since it’s believed to be “wear and tear” but I always deduct for this.

Handsome man painting wall.Repainting is just a fact of life when you own property, but do you expect a freshly painted unit to be filthy after a 6 month lease? Absolutely not, and that is not normal “wear and tear”. After 2 years, I sometimes only wash walls with TSP and touch-up scuffs, but that’s after a really good tenant.

 Lightbulbs: Yes, this has been an issue, since I have properties with recessed lighting and bulbs can cost $6.00/each. Should tenant replace burned out bulbs after move out? Absolutely, or they get the cost deducted from their security deposit.

Being fair is the name of the game….there are just some things that as owners, we have to write off as business expenses. And inappropriate security deposit deductions will many times land you in court.

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Why Do Some Folks Hate Social Media So Much?


Football fans jumpingThe other day I was talking with a friend of mine who emphatically told me Facebook was “stupid” and he’d rather be out talking to people face to face. I then had a conversation with a family member who expressed her feeling that anyone who “wasted time” on Facebook was lacking in social skills, and needs to “get a life”. I laughed to myself.

 When I hear folks disparaging Facebook I often think they don’t really understand it, or how it works, and how it can benefit the user. Sure, you can post photos of yourself drinking beer, scantily clad at a pool party, disparage someone, or make rude comments…..but is that who you are in real life? Facebook is a window into who you are—-or at least YOU have the option of creating a Facebook persona. Do I mean a page filled with lies? No— but there is nothing wrong with “tweaking” your Facebook page to make you look friendly, politically involved, dog-friendly, well traveled etc. if that’s who you are. It’s called MARKETING, spinning the facts– but in a good way—posting relevant posts to uphold your “image”—-and making thoughtful comments that are not hurtful or excessively inflammatory.

  The advantages of Facebook are many and each person has their own way in which they utilize it. The following list are some of the ways that Facebook has benefited me.

  People with similar views and interests–I’m a political activist and have made many contacts with similar agendas.

 Elderly feel less isolated—Many of my older FB friends have been transformed by Facebook. An IM is a wondrous thing when you are all alone, and not feeling well.

 Make announcements—New baby? Job promotion? You can share this with just family, or just close friends, many of whom may not be in the same geographical location.

 Opportunities for real-life relationships—I have met many of my “friends” in real life and have broadened my social circle, leading to new business, and new friendships.

 Strengthen existing relationships—Time zones are tough, especially when one has friends in New England or New Zealand. Messages an be posted 24 hours a day, making your location transparent.

 Sharing photos and events with family members—I’m so glad I don’t have to email 15 different people my daughter’s wedding photos, my new landscaping project etc.

 Communicating in many ways—Sharing a joke is often a bonding experience, especially if 2 people have the same sense of humour. I often send a silly cartoon via Facebook to my brother.

 Self education—I’ve learned a heck of a lot about many things I really had no idea about, from cooking to skydiving.

  Insight into someone’s personality—Do you want to know more about the babysitter you may hire for your child? Check out their Facebook page.

 All in all, there are many more ways in which Facebook can be utilized. Learning about privacy settings, circles of friends and how to ignore nasty comments……….it’s all up to you! Between you and me, social media is here to stay and allows us to connect to folks we never would have been able to.

  What’s up the pike after Facebook? I wish I knew!

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