IAHIS Suggests Real Estate Investors Risk Lost Profits In Investing Boom

Given the recent popularity of home makeover programs on TV it is perhaps not surprising that the National Association of Realtors(R) (NAR) should have announced that 23% of all home purchases in 2004 were made as investments and 13% as vacation homes. The study by the NAR also shows a marked increase in the number of second homes being purchased as investments. The success of real estate investments has in part been the ability to defer paying capital gains taxes. However, the complexities of this process could mean new investors risk losing out when it comes time to sell.

"While many people seem to have taken to the idea of remodeling older homes in the hope of making a quick profit, I was surprised by just how big a slice of the market these statistics show has gone to investors," says Nigel Fenwick, REALTOR(R) and Founder of The Association of Home Investor Specialists (IAHIS). "There is certainly money to be made in real estate but investing it's not without risks. With so many new people in the market, many investors could risk profits without realizing it."

"For example, investors who don't know they can defer their capital gains tax on a home purchased as an investment might compromise their ability to use their gains for future investments," continues Fenwick. "By taking advantage of 1031 Tax Exchanges, investors can buy and sell multiple properties while deferring capital gains taxes almost indefinitely."

Under complex tax rules for such investments, investors can transfer their assets from one real estate holding to another while deferring capital gains taxes owed on the sale, provided they follow the rules and plan ahead. Restrictions include not using the property for personal use and specifying a 1031 Exchange at the time of sale. Because of the complexities of compliance with the rules, many investors use firms that specialize in these exchanges to facilitate the process.

To help new real estate investors, IAHIS has established a new "Associate" membership level. Associate members receive twelve issues of The Home Investor Monthly; an electronic journal providing tips and advice on creating wealth from real estate.

The Association's website, www.USHomeInvestor.com, provides plenty of help for new and experienced investors alike, with sections on buying, selling and renovating homes for profit. The site also includes more information on how 1031 Exchanges work to defer capital gains taxes on real estate investments.