This is Part 1 of a 4 Part Series.

If you are investing in Real Estate or plan to, this story and the continuing saga that will evolve over the next month or so is a must read. It’s from someone who is in the trenches, right now, me!

A little background to set the stage.

I had an exchange on one investment property that I need to do in order to keep deferring the tax. With this type of investing (exchanging) you have a certain period of time to identify the investment (a standard 1031 exchange allows 45 days to find replacement property and 180 days to close).

However, my exchange is not a typical 1031 exchange. It is from an insurance payout on a property that was part of an older exchange (yes, I have been doing exchanges for years). This property had a sink hole and due to this, the insurance company no longer wanted to insure the property so they paid me off at the fair market value of the property which at that time was higher then it is today.

I paid off my loan with the proceeds then resold the property “as is” full disclosure to a nice couple who could never have otherwise afforded to live in the community where the property was located. We did the closing in a local attorney’s office, as I wanted no mistakes on the sale of this property. With an insurance payoff like this exchange I am allowed more time to re-invest. My time is up at the end of this year.

If I do not re-invest the dollars of profit and my basis from this insurance exchange, I have to pay tax. Exchanges are tax deferred until you stop doing them. Then you owe the tax that goes back to your basis in the original exchange. In other words I would have to invest more money then I received from this insurance payout.

Sounds complicated? Well it gets worse! Due to the current market conditions it’s not only a matter of finding the right property, but obtaining the financing. Due to the fact that I am not a gazillionaire, financing in today’s climate is quite challenging with lenders not lending and high investor loan rates.

Even if you can get a loan, the sheer number of foreclosures and short sale properties out there is overwhelming not only to lenders (who are backlogged at least two months) but also to us investors.

Not to be undeterred, I decided to see just how things really were in a market I know and understand but have not invested in lately. Besides, I thought I could find the money from other “financial friends” if I have to. With my strategy in place, I took myself real estate shopping to Florida. I know, some people go for the sun, but since Florida is on sale…

Stay tuned to Wise Women Investor through June as I will update the investor section every Friday where I will share one lesson learned from this excursion along with extreme measures we, as investors have to consider in today’s market, no matter where that market is!

Lesson #1

If you thought you can buy property over the Internet with these spiffy web sites that have instant quotes among other bells and whistles, FORGET IT! There is no way you should try to buy anything site unseen. Even if you have a trusted person in an area you wish to invest in trust but verify, get on the plane, the car, the bus and go and see what it is you are buying or stay out of this market!

Don’t forget to check back here next Friday for more on my Real Estate shopping trip in Florida. You can also read the entire story in my newsletter coming out in late June.

In the meantime, I have posted a couple of pictures to illustrate what that market looks like. It was amazing to see one property for rent, next door to one for sale, and next to that one, one that said short sale.

Short Sale, For Sale and For Rent

Snapshot of the Current Market

This entry was posted on Friday, May 29th, 2009 at 12:24 am and is filed under Investing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.