Can a vacation 2nd home qualify for a 1031 tax deferred exchange? The answer is an unequivocal “maybe.” Clear enough? There certainly are established tax breaks that can make a vacation home more affordable, and use of this knowledge is how tax specialists earn their daily bread. I strongly suggest you meet with one for the latest IRS rulings and to maximize your benefits.

One very basic rule is to document the length of time per year that you and your family members spend at your vacation home, and whether it is held for personal use and enjoyment or for investment purposes. This, along with any rental income you may derive from it, will determine how the property is treated for tax purposes.  The three basic categories for review are: Use a lot/Rent a lot; Use a little/Rent a lot; and Use a lot/Rent a little.

What qualifies for a 1031 exchange?

It is accepted that a 2nd property that is used fewer than 14 days per year by the owner and rented out the rest of the year, is considered to be an investment property and qualifies for a 1031 exchange. Furthermore, raw land with no improvements and held solely for appreciation purposes qualifies for a 1031 exchange. Again, this at times may seem like a somewhat moving target, and discussion with your tax advisor would be my advice.

If your 2nd home is used exclusively for family vacations, the interest on a mortgage would be deductible just as interest on your first home is treated. And as important, local property taxes may be deducted on your second home. If your 2nd home is for seasonal use only, and you rent it out for 14 days or less in a calendar year, you can receive rent without claiming it on your income tax return. You can also still claim the same deductions in that the IRS considers it to be a vacation home.

Some formerly seasonal homes, bought many years earlier, and then later used as the principal residences of  newly retired owners following improvements, may qualify for the up to $500,000 tax free profit upon its sale after 2 years of primary use. However, federal legislation has been adjusting this break recently to apply tax to a pro-ration of the total years of 2nd home ownership to that of primary residence.

Confused? It is daunting at times, but 2nd home ownership reality is made more possible for many by navigating through the existing rules and regulations – and for, by and large, very enjoyable results.
Jim Ferriman

The Wolfeboro Area Children’s Center (Daycare and Pre-school facility and after school care) will be holding a fundraiser. The organization has a sliding scale for people of all incomes to be able to afford care for their children in the area. They rarely turn anyone away and it is because we put great effort into fundraising. This is one of the biggest events of the year.  It will be held at Estabrook Hall at Brewster Academy Sat June 5th from 6-10PM. There will be lots of yummy food (included in the ticket price) and a cash bar, along with Las Vegas Style gaming put on by Alpine Amusements. The guy used to own a casino in Vegas and now takes his equipment to events like this.

Tickets are $45 a person, you get food, $150 in poker chips to start. We have tons of great prizes (gift certificates, artwork, tickets to events, etc) that you can use your winnings to either bid on (for bigger items) or get raffle tickets to put in the baskets for some of the smaller ticket items!

It should be a fun time, and of course you can always buy a SUPER RAFFLE ticket for $50 and have a 1 in 300 chance to win $5000! You need not be present to win! I have raffle tickets and casino night tickets if you are interested! I know many of you have had your kids go here or have grand kids that attend, it is a well run Center.

Thanks for your support!

Karin

Belknap Mountain Tower in 1989 (Photo courtesy Iris Baird)

Around this time last year, after a period of little rain and low humidity, the Town of Alton experienced a major fire which, fanned by 40 MPH winds, destroyed a number of homes in the Alton Bay area. The town council has been active in reviewing and acting upon prevention suggestions. But one of the first lines of defense remains the Belknap Mountain Fire Tower, in operation since 1913.

Each day may begin like any other for a smoke watcher in the Lakes Region of New Hampshire. The fire watcher makes a visual scan for any blue smoke, reads the weather recording devices, checks the Osborne Fire Finder instrument, settles into the insulated chair, for lightning storms, and makes his morning radio check.  Right now the forest is dry, always flammable, but until the lightning storms later in the summer the danger of fire is moderate. Later, with the afternoon winds, the tower will sway; maybe there will be a visit of St. Elmo’s fire.  Vigilance is the watchword; there are no magazines or newspapers; no telephone, doorbell or mailbox.

The trails to the fire tower are worth the walk. My favorite route is along the ridge from Mt. Major. There are also trails from the Gunstock Recreational Area. The views – what can I say, they’re mesmerizing. Lakes Winnipesaukee, Crystal, Manning, Wentworth, Merrymeeting. The towns of Alton, Gilford, Wolfeboro, Meredith, Center Harbor. To the Northeast, the Maine mountains bordering the ocean, to the North, Mt. Washington and the White Mountains, to the Southwest, Mt. Monadnock.  Dreamlike views, all of it seemingly empty.

It still surprises me somewhat to find people local to the area who have never gained such a perspective offered from the highest point in Belknap County. There are more of them than you would guess. Not so, my friend J.R. Stockwell, the 10th generation native who I believe has hiked more trails, ascended more mountain tops in winter, and taken more advantage of the wonders New Hampshire has to offer than anyone that I know of or have heard of.

I stayed on Belknap Mountain one afternoon until sunset, the sky filled with banks of ragged fiery clouds and then hiked back down in a fine mist as the forest settled in for the night. Time well spent.
Jim Ferriman    Jferriman@spencerhughes.com    603-520-5385

Considering real estate? Don't wait!

Why? Why indeed! The answer is and always will be the long term appreciation rate of a property. Appreciation is the increase in property value over time due to inflation and the effects of supply and demand imbalances. If the appreciation rate is high enough, about 1.75 points above the inflation rate, the value of the property increases faster than the outlay costs of taxes, insurance, maintenance and interest. This results in the experience of “living for free.”

Long term appreciation rates will mirror the general rate of inflation. If they don’t, the great leveling factor of supply and demand comes into play. A statistical review tracking repeat sales of the same homes, known as the Case-Shiller index, concluded that the price of existing homes increased by 3.4% annually from 1987 to 2009. The general rate of inflation during this period was 2.9%.

Has the bottom been tested? The awful corollary of appreciation is depreciation. This happened in the late 2000s. Has it run its course? Well some of the best returns from Wall Street for the past 12 months have been realized by real estate mutual funds. PIMCO Real Estate, PRRSX, showed a 107.41% per share increase for the 12 months ended 4/30/10. To me this is an excellent indicator of how investors and finance insiders assess the national real estate market.

Now here is my central point: There remains little undeveloped waterfront property in the Lakes Region; ergo the appreciation rate should not only keep pace with the national inflation rate but also allow a faster increase in value due to the demand exceeding supply. Low property taxes and interest rates, a growing population and the desirability of an area are other major factors, and which I have written about in earlier blog posts, that will also positively affect the value of Lakes Region Properties.

Tomes have been written, are probably being written and likely will be written about the real estate fluctuations of the past 4 years. And though I prefer to retain a sense of the undiscovered nature of our area I imagine we can expect some focused attention on the Lakes Region of New Hampshire.
Jim Ferriman    Jferriman@spencerhughes.com    603-520-5385

Fishing the NH Lakes Region...It really was this big

The fun of fishing seems to transcend all ages as to excitement and thrills, from the great grandparent to the great grandchild. And the lakes and rivers of the Lakes Region of New Hampshire provide endless opportunities and memories for everyone. I have several favorite quotes about fishing. Some even by noted and notable fisher folk.  But my all time one remains, “We are always the same age inside” which I’ve taken from a Gertrude Stein essay and applied to this noble effort.

In another few weeks I’ll put my own dock out. I have a bench at the end of it which provides just the right comfort level for both the eldest and youngest anglers. For me as well, though I do like to go out in pursuit of the small mouth bass and lake trout of Lake Winnipesaukee. For the first timers I suggest a day or half day with one of the professional guides on the big lake, check Lake Winnipesaukee Fishing Guides. They won’t give away all of their secrets, just enough of them to make sure that you’ll enjoy yourself.

The NH Fish and Game Dept. has been busy since early April stocking the smaller lakes, rivers and streams in Carroll and Belknap Counties. My neighbor and his son had a great day at Manning Lake on Sunday. They limited out on fine Brook Trout. And my friend, Captain Joel, of www.nhsaltwaterfishing.com should have his boat out by late May in the Piscataqua River and offering the very best striped bass action anywhere. I’ve been out with him a half dozen times and always had a great time.

Like James Joyce, “I love all things that flow”, I too am enamored by the sight and sound of moving water though I suspect he may have been alluding to things other than rivers. At any rate its fishing season, part of the many whys folks embrace the New Hampshire life style especially here in the Lakes Region. I encourage you to experience and re-experience an activity that will never grow stale, you can always recall a day on the water.

Jim Ferriman
603-267-9866

I had a good friend who always seemed to be misplacing things. Out of habit I always replied that as space is truly finite it follows that chances for recovery of the item then must be infinite, always a optimistic view. A handy solipsism perhaps but not at all applicable to waterfront properties here in the Lakes Region of New Hampshire. Why, because of an almost infinite demand for this particular finite resource.

The Lakes Region is a finite resource...

Last week, 4/12/10 through 4/18/10, our chief search engine, Google, reported that our website received 2,301 visits from 22 separate countries. This total is also broken down by new visitors, 47.85% and the average of 4 minutes 6 seconds per visit. Impressive to be sure and that reflects the broad international interest in what the Lakes Region of New Hampshire has to offer as a second-home haven. Though I have to suspect the sole visit from Fiji was likely a local on vacation and who was checking out the live web cam video of Wolfeboro or Alton Bay.

The above figures do serve to underline the strong market interest in Lakes Region properties as well as the accessibility of complete and timely information available to browsers, investors and homesick expatriates on the PSH site. But a leading website is more than just the result of a large amount of invested capital and skillful design. Anyone with the means and commitment can achieve a semblance of success and turn out an attractive product. We strive to surpass this worthy goal by additionally pledging our negotiation skills, time saver methods and efficiency expertise to our clientele. Our teamwork is unmatched.

So, where are we? The knowledge and ability to account for that large “Invisible Hand” of Adam Smith, Milton Friedman and Friedrich Hayek and connecting with it in a way helpful to both the seller and buyer is what we offer at Prudential Spencer Hughes. No more, no less, only better than anyone else.

Jim Ferriman
603-267-9866

No time is better than the present for second home buyers

Realtors are certainly becoming popular, at least at gatherings and parties. Not for their entertaining personalities, perhaps, but for what opinion they might venture regarding the direction of the real estate market.

Now, man is a gregarious social creature, not a herd animal mind you, but one who is aware of time and therefore timing. Is this the “bottom”?  I don’t know. I do know that home prices have come down significantly in the past year or so, while financing rates have been more or less firm. While I embrace time, I prefer to exclude timing, championing Newton over Leibniz.

Buyers seeking second homes usually do so for the fundamental desire of establishing a personal alternative to their familiar routine, no matter how interesting and stimulating. Picking the absolute market nadir for a second homebuyer becomes almost antithetical to their true interests. And, the total variables determining a “market bottom” are so numerous and diverse that picking it becomes more a matter of chance than any realized action.

At the same time, sellers have their own time tables and they may be quite different from most buyers. They, if they wish to follow classic market precepts, need to position their property competitively to the general market to attract the buyer. But, waterfront homes in the Lakes Region present unique market conditions; for the buyer pool is large, diverse and can exert unanticipated influence on the actual selling prices on the local market.

My advice, therefore, which I offer to one and all, is that if you see something you like and have the means, don’t hesitate, but make it your own. After all, time as we experience it proceeds in only one direction.

Jim Ferriman            Jferriman@spencerhughes.com (603) 267-9866

Lakes Region Docks MLS# 2778813

As a metaphor it might be a stretch but in actuality this is where the lake experience begins, at the dock. Think of them a transition points, allowing for a natural and gradual introduction from a static familiarity to an ever changing medium.

We, at Spencer Hughes, are much attuned to dock pricing on the Big Lake. Because of state legislation the value of lake side properties are greatly affected by any existing, “grandfathered” dock.

Crib docks, boat houses, breakwaters, permanent docks, floating docks and seasonal docks all have a very strong influence on the appraised and assessed value of waterfront properties. A focal point of waterfront property, this is where we all gravitate eventually, for entertainment, curiosity or simply to maintain contact with the lake.

Waterfront homes with docks in need of attention have, at times, a worth exceeding their appraised value, though a question can arise of at what point do repairs become new construction and perhaps prohibited. Regardless, any repair, alteration, or new construction concerning a dock may require both local and state and permits.

Jim Ferriman
603-267-9866

I reviewed a new study of 90 global equity investors last week. The report by Prequin, a London group, indicates that institutional investors intend to commit more capital to private equity funds in 2010 than they did in 2009. The long term view is predominantly bullish and rather than chase emerging property markets in Asia and India they are likely to shift their interest to debt-burdened and distressed property.

Foreign investors, 51% of respondents, view the U.S. market as the best opportunity for real estate appreciation, according to the Association of Foreign Investors (AFIRE) in a report released January 18, 2010. One of the significant portions of the survey detailed that of the top 5 U.S. cities reflecting the best investment opportunities 3 are on the East coast; Washington D.C., New York, and Boston. Multi-family properties led as the preferred investment type followed by office, industrial, retail and hotel properties. read more »

Goethe’s last words reportedly were “Light, more light”, and boy was he right. Here in the Lakes Region in February, many of us share his plea for more light. In winter, we often find our calls answered in architecture with good southern exposure.

At present there is an abundance of land on the market here in the Lakes Region. From a Realtor’s standpoint land sales appear to be the first to suffer and last to recover in a real estate cycle. Opportunities abound, forested land strewn with glacial boulders, mountain slopes offering wonderful views, secluded creeks tumbling down picturesque vales.

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