When giving my seminars and keynote speeches around the United States, I include in the presentations the subject of how many investors have converted their apartment complexes into condominiums, with the result of hopefully obtaining a higher return on their investment.
The tax issue involved is whether these investors can still claim the sale of the condo conversion units as an investment, rather than as inventory, and thereby still conclude a Section 1031 tax deferred exchange. Generally, IRS examines the investors "intent" when deciding whether the investor is still an "investor" rather than a "dealer" .
Recently, I wrote an entire article on this critical issue because it is a very hot topic. Many observers are finding the following to be a very interesting: as a result of the declining real estate market, many developers are taking their condominium projects and trying to turn them into rental apartments.
The Wall Street Journal recently reported: "That is the strategy developers and lenders are aiming to use on billions of dollars of troubled condo complexes....And while a few reversions have succeeded, the obstacles to make the switch from condo to rental are high. Among the hurdles: lenders reluctant to lengthen loan terms because rental properties produce income more slowly than condos; irate condo owners who don't want to live with renters; crushing tax assessments based on old condo sales prices; and a rental market that is weak in some of the worst-hit condo markets, such as Florida and Arizona."
I believe that 2008 is going to be a very interesting year and those investors that are solid and creative are still going to be successful.
Comments