Why is a Home Equity Line of Credit good for you?

There are several reasons to a choose a home equity line of credit (also known as a
HELOC) for home financing. There is such a wide variety of reasons that I will
limit my discussion about HELOCs here to just a few.

Investor:

A Home Equity Line of Credit is the perfect tool to reduce risk within an investment
property. If an emergency repair needs to be made, the cash to pay for such a
repair can be made directly through the Heloc. A Heloc may also allow the funds
for future investments or improvements to the property.

Parents:

Helocs are useful becuase they can allow you to pay for medical bills. For example,
a home equity line of credit may assist the preparation for a newborn or for an
older child, it could make braces more affordable. Consolidating debt is also
another benefit listed below. The benefits are endless. Consider financing your
car through a heloc. car loans tend to be outragious.

Home Improvements:

New landscaping, carpets, and paint are the three fastest and low cost ways to
improve the value of your home. Adding more square footage is the number one way
to increase your homes value and what better way to do that than through a home
equity line of credit. Helocs are better than an improvement loan becuase you
are not required to have inspections throughout the improvement process.

College:

Fund your childs college experience with a home equity line of credit. You
will find that a heloc may make the difference in putting your child through college.
College graduates on average make several time that of individuals with only a
highschool diploma.

Medical:

Use a home equity loan to cut the cost of your insurance by having a larger deductible. Becuase of the Heloc, you will
be able to make the deductible if you have a serious medical emergancy. Becuase
you will be paying dramatically less each month on insurance, your savings will be huge!

Retirement:

A heloc is one way to tap the equity that has
been built up in a home. Another loan to use is a reverse mortgage.

Debt Consolidation:

This is probably the number one reason to get a home equity
line of credit. why have hold several different loans that have large interest
rates when you can consolidate them into one loan with a lower rate. Not only
will this reduce your overall interest rate, but becuase a heloc is ammortized
over a large period of time, you will be dramatically decreasing your monthly
payment and improving your cashflow!

What Qualifies for a 1031 Exchange? Know the Facts

This article is from the IRS website, IRS.gov. The IRS has listed several tips that real estate investors can benefit from in understanding how to make the most out of their investment pursuits. Remember that Capital Gains can be very taxing and in avoiding it through this wonderful tool you will be able to maximize your investments.

A 1031 exchange was created by the government to encourage real estate investment. By avoiding capitol gains tax, an investor will not lose a significant portion of their equity and will have the freedom to make the change. This in turn allows the opportunity to someone else to get into a home that fits their needs and creates motion within the real estate market thus assisting the economy.

I have included below the IRS page. There is a link to the actual page at the bottom of this page.

Like-Kind Exchanges - Real Estate Tax Tips

Generally, if you exchange business or investment property solely for business or investment property of a like-kind, no gain or loss is recognized under Internal Revenue Code Section 1031. If, as part of the exchange, you also receive other (not like-kind) property or money, gain is recognized to the extent of the other property and money received, but a loss is not recognized.

Section 1031 does not apply to exchanges of inventory, stocks, bonds, notes, other securities or evidence of indebtedness, or certain other assets.

Note: The above information references an Internal Revenue Code (IRC) section. A link to the Internal Revenue Code is included for the convenience of those who would like to read the technical reference material. To access the applicable Internal Revenue Code sections visit U.S. code search page. Enter “26” in the “Title” box and then the appropriate IRC section in the “Section” box and click on the search button.

Like-Kind Property

Properties are of like-kind, if they are of the same nature or character, even if they differ in grade or quality. Personal properties of a like class are like-kind properties. However, livestock of different sexes are not like-kind properties. Also, personal property used predominantly in the United States and personal property used predominantly outside the United States are not like-kind properties.

Real properties generally are of like-kind, regardless of whether the properties are improved or unimproved. However, real property in the United States and real property outside the United States are not like-kind properties.

Additional Resources

• Publication 544, Sales and Other Dispositions of Assets
• Form 8824, Like-Kind Exchanges (PDF)

The 1031 Exchange is an Intelligent Financial Vehicle

The IRS webpage listed above is an excellent way to grow your investments. No matter what your home financing structure is this is a great tool to move between homes. Whether you have a Home Equity Line of Credit, a Fixed Rate Mortgage, an Adjustable, or a combination of all of those, this is a great tool.

After a significant amount of equity has been created this can be an excellent tool to move into investment properties. Remember, there are time restrictions to how long you have until you must purchase a new property to qualify for the 1031 exchange. If you plan on using a 1031, discuss this further with your tax consultant(s) and mortgage broker so that you can combine it with other strategies to really excel in real estate investing.

---

This article is from

Internal Revenue Service IRS.gov

(April 2005)