Well now they’ve done it.

Myrtle Beach real estate investors have long used the tax code to reduce their exposure to tax consequences of their gains on property sales… but now our ‘friends’ in Washington have yanked that rug out from under many of us.

Some investors used to purchase investment property and then, at some point in the future, convert it into their primary residence. The tax law said that if the property was their primary residence for at least two of the five years prior to sale, then $250,000 to $500,000 of their gain would be non-taxable. This has been a tremendous wealth-building strategy.

No longer.

As I understand it, effective January 1, 2009, the gain will be pro-rated over the five year period. So, if the property is used for investment for three years, and as primary residence for two, 60% of the gain will be taxable.

If you are considering selling property in the next several months, this may be one reason to do so sooner rather than later.

DISCLAIMER: I am not an attorney, nor am I a tax expert. Please do not rely on my interpretation as Fact. Consult your expert for advice applicable to your personal situation.

If you’re going to Hard Rock Park this summer, don’t plan on sitting in traffic or waiting in long lines to ride the rides.

This isn’t the news that the park’s owners expected to announce last week. “It is a really tough summer,” said Steven Goodwin, CEO of the $400 million Hard Rock Park. “We’re seeing people cutting their vacations from seven days to five days to three days, spending less money.”

The park has reacted by cutting back operating hours and lowering ticket prices, including an extension of its $45 price for adults and $30 for children (age 4 to 9) through Labor Day.  Locals (residents of North and South Carolina) can get in on Saturdays and Sundays for $39.

Before the park opened in April, officials expected to remain open until at least 1 a.m. But the park has been closing at 11 p.m. since at least mid-July, and now plans to close at 10 p.m. this month and 7 p.m. after Labor Day.

Original plans were to remain open five days a week during the off season, but those plans have been scaled back to four days a week, with aspirations to remain open all week long… eventually.

This item has been modified from its original publication in the Myrtle Beach Sun News.

Remember the old joke, “What do you call the guy who graduated last in his class in medical school?”

The answer?  “Doctor!”

The same principle applies to real estate.

For a financial transaction that may be in the hundreds of thousands of dollars, who do you want representing your interest?  Should you settle for a real estate agent who dabbles part time, has the fanciest website, or makes unkept promises?  Or, should you choose the Myrtle Beach real estate professionals who, when the Sun News (our local newspaper) is looking for expert advice, they call first?

Yes, our very own Chris Price was quoted again last week in the Sun News, as seems to be happening more and more often these days. And he’s in good company, quoted right next to Tom Maeser, whom everyone in town knows as the go-to guy, our very own “Mr. Real Estate.”

Of course I’m biased. But when it’s my hundreds of thousands of dollars on the line, I want an acknowledged expert on my side. Every time.

When real estate was the hottest thing since sliced bread, everybody was watching the real estate reality shows, drooling over the easy profits that could be had - if only you would just get into the game.  Two years ago, Flip This House produced an episode here in Myrtle Beach that featured this Ocean Boulevard home:

This home is located in one of the prime residential areas of Myrtle Beach known as the Golden Mile, but it needed some serious work. Among the renovations this house received were: new kitchen, new flooring, new landscaping, new exterior paint. Typical for the properties featured on this show.

As always, the episode ended with the ominous Open House, where they show many people viewing the property and then an update on the house. Normally, they discuss the price of the property, the cost of renovations, and the profit from the flip.  This ending was slightly different: ‘Several of the buyers who looked at the home had high levels of interest and this home should be sold in the next few days.’

So what really happened after the cameras were turned off and the lights went out?

Purchase price on the property: $837,000

Renovations: Undisclosed (Requests to Trademark Properties were not answered.)

Original listing: $1,199,000 in November, 2006

Sold: $873,000 in February, 2008

Real estate commissions paid: $52,380

Final Result: Net loss of over $15,000 on price alone.  Once we add in the estimated cost of renovation and fifteen months of mortgage payments, this flip was a flop.

We hear all the time about investors who are purchasing short sales or foreclosures and then spending tens of thousands of dollars on repairs or updates… and only after the repairs are complete does the waiting start. And more waiting. And the hemmoraging of profit.

Our approach is different.  We work with our investors to invest into demand, and we walk the walk.  I can show you the check for $5,000.00 my tenant/buyer eagerly paid in order to move into my home.  Our ‘flips’ are engineered a year (or two) in advance.   Our tenant/buyers appreciate the transparency of the transaction. Our investors can count on locked-in profit. Everybody wins.

And every time I drive past this flop, I have to wonder… how many other quick-flip investors would be better off today financially if they were using our system?  And how many more happy Myrtle Beach real estate homeowners would there be right now?

(This is a continuation of Part 1 - Click here to read Part 1.)

In my last post, I promised details of how the new mortgage law can help you if you’re stuck in one of their “targeted” loan situations, as well as details on the “gotcha” in the new home buyer tax credit.

First, if your current mortgage is an adjustable rate mortgage, and you’ve been stung by ever-increasing monthly payment hikes, you might qualify for a new FHA loan.  You qualify if you meet all of these criteria:

- Is your mortgage on your primary residence?
- Was your loan originated between January, 2005 and June, 2007?
- Do you currently spend 31% (or more) of your gross monthly income on your mortgage?
- If your mortgage the ONLY loan on the property?

If you answered “yes” to these questions, and your lender agrees to drop your loan balance to 90% of your home’s current appraised value, then you can obtain a new FHA-insured mortgage at current 30-year fixed rates.  If you are currently paying your mortgage on time, you must be able to prove that you won’t be able to continue paying the mortgage.  If you are already in default, you must show that you are not deliberately in default so that you can obtain lower payments.

The new loan will specify that you can’t take out a home equity loan or line of credit for at least five years, unless it is necessary to pay for upkeep on the home. And in that case, FHA must approve the loan or line of credit, and it cannot exceed 95% of the home’s then-appraised value.

Also, FHA will require that you share the profits from any future appreciation by paying a 3% “exit fee” on the principal balance of the loan when you sell or refinance the property.  If you sell or refinance the property within one year, you’ll have to pay FHA 100% of the difference between your loan principal amount and your sales price.

To see if your lender is participating, contact your current loan servicer.

The new home buyer tax ‘refund’ sounds great - an automatic $7,500 if you buy a home - but beware! Here’s how this really works.  You will receive a tax refund worth up to 10% of your home’s purchase price - up to a total refund of $7,500.00.

However, you will be required to pay this money back through equal installments over fifteen years.  So, in reality, it’s more like an interest-free LOAN than a REFUND.

As always, keep in mind that we are not attorneys, accountants, tax experts or fortune-tellers, and we encourage you to rely on these experts for advice pertinent to your personal situation.  Do continue to rely on your Myrtle Beach real estate experts for the latest news and goings-on around town.