Significance Of Code Section 1245

accelerated cost recovery system

(ACRS), 133 acceleration clause, 181 additional principal payment, 181 adjustable rate mortgages (ARMs), see also interest-only mortgage; minimum-payment mortgage adjustment period of, 46-47 attraction of, 54 common indexes for, 47 defined, 46, 181 fully amortized, 189 hybrids, 190

and interest-only mortgages, 71 interest rate and payment caps, 47-48

negative amortization feature, 85 recent history, 53 risk of rate increases, 71 adjusted basis, 181 adjustment date, 181 adjustment period, 182 Advantage ARM, 45 affordability analysis, 182 amortization, 84

term, 182 annual percentage rate (APR), 182 appraisal, 182 appraised value, 182

asset, 183 assignment, 183 assumability, 183 assumption fee, 183

balance sheet, 183 balloon mortgage, 183 balloon payment, 183 before-tax income, 183 biweekly payment mortgage, 183 bridge loan, 184 broker, 184

Budney, Dean, 173-176 buy-down mortgage, 184

caps on ARMs, 47-48, 184-185 lifetime payment, 192 periodic payment, 47-48, 195 periodic rate, 47-48, 195 Cash Flow ARM, 45 Certificate of Eligibility, 185 Certificate of Reasonable Value

(CRV), 185 change frequency, 185 Choice Pay, 45 closing, 185

compounding, power of, 90 compound interest, 185

consumer reporting agency/

bureau, 186 conversion clause, 186 Co-ownership of Real Estate

(CORE), 100 Cost of Funds Index (COFI), 85 cost segregation study (CSS), 25 analysis procedures, 142-145 as asset-reclassification strategy,

132-133 combined with 1031 Exchanges,

132,134 complexity of, 130 defined, 129

direct vs. indirect costs, 142 engineering-based, 133, 139 goal of, 131

IRS Audit Techniques Guide, 139 maximum tax deferral, 134 methodology, 142-145 preparation for, 139 quantity take-off estimates, 143 tax benefits, 131, 140 tax regulations, 133-134, 135-137 credit report, 186 credit score, 186

importance in obtaining a mortgage, 13 lowered by inquiries, 12

conversion into cash, 6 mortgage payments as, 5, 16-17 debt, ''good'' vs. ''bad,'' 8 debt-free status as favored strategy of banks, 20 undesirability of, 19 debt reduction, and minimum mortgage payments, 34 deed of trust, 186 default, 186

delinquency, 187 deposit, 187 depreciation as non-cash loss, 25 of real vs. personal property, 131, 137, 139, 144

discount, 187

down payment, 187

due diligence, importance of, 159

effective gross income, 187 engineering-based cost segregation,

133,139 equity, 187

calculating how much to extract, 21-22

as hidden source of cash, 34-36,

38, 58 as illiquid asset, 31 strategy for use of, 21 escrow, 187

disbursements, 188 payments, 188 exit strategy as conversion of equity into cash, 27

creation of, 23 refinancing as, 24 sale of property as, 24 1031 Exchange as, 24-25

Fannie Mae (FNMA), 188

interest-only mortgages by, 69 Federal Home Loan Bank Board, mortgage rate as index, 47 FHA mortgage, 188 FICO score, 186, 188 financing, lining up before property,

11, 39-40 first mortgage, 188 fixed installment, 188

fixed rate mortgage (FRM), 189 as ''free money'' for banks, 30 predictability of, 29 vs. interest-only mortgages, 64-65

vs. New Smart Loans, 17-18 Flex Pay, 45

Florida, real estate boom in, 16 Foust, Karl R., 115

Gile, Dan, 169-172 Gile, Gayle, 169-172 Ginnie Mae (GNMA), 189 Greenspan, Alan, 125 growing-equity mortgage (GEM), 189

guarantee mortgage, 189

home equity, see equity housing expense ratio, 189 HUD-1 statement, 189-190

Index, 190

initial interest rate, 190 installment, 190 insured mortgage, 190 interest accrual rate, 191 interest-only mortgage concerns over, 73-74 defined, 63-64 early history of, 68-69 offered by Fannie Mae, 69 paying off the mortgage with, 5152, 65-66, 79 popularity of, 67, 71 risk of flat market, 74 risk of spending the money, 79 for short-term ownership, 68 vs. fixed-rate mortgages, 64-65 vs. negative amortization, 95-96 for wealth accumulation, 67 interest rates, 191 buy-down plan, 191

ceiling, 191 floor, 191

simple vs. compounded, 66 vs. payment rates, 88 reserves, 195 Internal Revenue Service (IRS) Audit Techniques Guide, 139 on classification errors, 141 code section 1031, 110, 114, 122 code section 1245, 131, 138 code section 1250, 131, 138 investment tax credit (ITC), 133

late charge, 191

lease-purchase mortgage loan, 191 leverage importance of, 153 proper use of, 154-156 vs. use of all cash, 155-156 liabilities, 192 lifetime payment cap, 192 lifetime rate cap, 192 like-kind property defined, 109 exchanges, 121 line of credit, 192 liquid asset, 192 loan, 192, see also mortgage loan-to-value (LTV) percentage, 192

lock-in period, 192-193 London Interbank Offered Rates (LIBOR), 85

margin call, 70, 193 maturity, 193

minimum-payment mortgage and negative amortization, 57, 83 tied to indexes, 85 modified accelerated cost recovery system (MACRS), 133, 144 monthly fixed installment, 193

mortgage, 193 defined, 48

initial vs. long-term costs, 56 paying it off quickly, 91 paying off vs. refinancing, 8-9, 32-33

prequalification for, 39-40 reverse, 19

risk of failing to pay off, 10 as wealth creator, 36-37, see also wealth creation mortgage banker, 193 mortgage insurance, 193-194 mortgage insurance premium

(MIP), 194 mortgage payments as ''dead money,'' 5, 16-17 loss of buying power, 18 vs. other investments, 5, 31-33, 77-78 mortgage selection before finding property, 11, 38-39

learning about the options, 41 monthly payment vs. interest rate, 20-21

mortgage strategies, bankers vs. investors, 4-5 ''Mortgage Stretch,'' 45 mortgagor, 194 Mouma, Mark, 161-168

napkin rule, 112

''negam'' mortgage, see negative amortization negative amortization, 48-49, 194 advantages, 85 as cash management tool, 94 conditions for, 84-85 as deferred-interest loan, 86

defined, 83-84

to increase short-term cash flow, 89

and minimum-payment option, 57, 83

misleading advertising, 87-88 to pay down the mortgage, 92 payment rate for, 88 plan, 22

positive cash flow from, 95 vs. interest-only loan, 95-96 net worth, 194

New Smart Loans™, see also adjustable rate mortgages (ARMs) as ARMs, 46 flexibility of, 45, 55 interest-only option, see interest-

only mortgage minimum-payment option, see minimum-payment mortgage mortgage options, 50 negative amortization option, see negative amortization qualifying for, 55 vs. 15-year fixed mortgage, 17-18 non-liquid asset, 194 note, 194, see also mortgage

Option ARM, 45 origination fee, 195 owner financing, 195

payment change date, 195 periodic payment cap, 47-48, 195 periodic rate cap, 47-48, 195 Personally Tailored Mortgage, 45 personal property, see also property depreciation of, 131-132, 137,

139,144 tangible, 144 points, 56, 195-196 preapproval, 196

prepayment penalty, 196 prime rate, 196 principal, 196 principal balance, 196 principal, interest, taxes, and insurance (PITI), 191, 196 private mortgage insurance (PMI),

197 property classification, 136-137 depreciation of, 131-132, 137,

139, 144 factors determining permanent nature of, 144 lining up financing first, 11,

39-40 personal vs. real, 138 purchasing vs. renting, 75

qualified intermediary (QI), 111,

113, 120, 197 qualifying ratios, 197 quantity take-off estimates, 143

rate lock, 197

ready cash, advantages, 5

real estate cash flow as key, 152 as ''equity farm,'' 24 exit strategies, see exit strategy extracting equity from, 10-11, 58 function of time in, 158 as leverage, 8, 152-156 obtaining value in, 42 reasons for investing in, 152 7-year cycles, 26 as tax-favored investment, 105 real estate professionals, 197 classification as, 136 need for experienced associates, 151

need for focus, 149-150

need for knowledge, 150-151 Real Estate Settlement Procedures

Act (RESPA), 197 real property, see also property depreciation of, 131-132, 137, 139,144 Realtor®, 198 recording, 198 refinancing, 198 advantages, 8-9 as exit strategy, 24 as insurance against catastrophe, 37-38

vs. paying off the mortgage, 8-9, 32-33 reverse mortgage, 19 revolving liability, 198 rights of survivorship agreement, 102

risk management, 157-158

sale of property, as exit strategy, 24 secondary mortgage market, 198 security, 198 seller carry-back, 198 servicer, 198-199 smart loan, 48-49, 54-56, see also New Smart Loans ™ options, 7 standard payment calculation, 199 Starker judicial rulings, 109-110, 122

step-rate mortgage, 199

Tenants in Common (TIC) arrangements benefits, 101-102 defined, 99, 100 and 1031 Exchange, 100-101,

102-103 to generate tax-sheltered cash flow, 103-104

increasing popularity of, 101 vs. rights of survivorship agreement, 102 1031 Exchange advantages, 111-112, 115 assignment of contract, 115-116 combined with cost segregation study, 132, 134 dealers vs. investors, 126 for deferral of capital gains taxes, 108, 110 defined, 107 downside, 124, 125 examples of, 115-118 as exit strategy, 24-25 forward exchanges, 113 45-day rule, 119 gain taken at move-in, 116-117 ''Golden Era of,'' 114 importance of deadlines,

119-120 judicial rulings on, 109-110, 122 as like-kind exchange, 107-108 and multiple properties, 125-126 napkin rule, 112 95% rule, 126 no limitation, 125-126 and partnerships, 120

qualification for, 114 simultaneous close, 117-118 tax regulations, 110, 112-113, 121

third-party origination, 199 Total Cost Analysis, 92

to compare mortgage options, 51 total expense ratio, 199 Treasury Index, 199 Truth-in-Lending Act, 200 12-Month Treasury Average Index, 85

two-step mortgage, 200

underwriting, 200

VA mortgage, 200

wealth creation by adding real estate assets, 40 through compound accounts, 57 through interest-only mortgages,

Whiteco Industries, Inc. v. Commissioner, 144 "wrap-around" mortgage, 200

Borrowing Basics

Borrowing Basics

Some small business persons cannot understand why a lending institution refused to lend them money. Others have no trouble getting funds, but they are surprised to find strings attached to their loans.

Get My Free Ebook


Responses

  • Negisti
    Is loan fees section 1245?
    5 years ago
  • Albina
    What is the significance of code section 1245?
    5 years ago

Post a comment