Bridge Loan: The Tool to Buy and Sell at the Same Time

In the world of real estate, timing is everything. Whether you're upgrading to a larger space, downsizing, or simply seeking a change of scenery, the transition between selling your current home and purchasing a new one can be fraught with financial and logistical challenges. In fact, buying a new home before selling your current home or timing the sale and purchase is often the biggest challenge our clients face. This challenge is exacerbated in this low-inventory housing market. We have several tools we use when our clients want to a buy a new home before they sell their current home or want to seamlessly sell and buy simultaneously. One tool that we are now recommending our clients consider is the bridge loan. As a real estate expert, I want to delve into what bridge loans are, their benefits, and some of the drawbacks to consider. What is a Bridge Loan? First off, a bridge loan is a short-term financing option designed to bridge the gap between your current home's sale and the purchase of your new home. This type of loan allows homeowners to borrow up to 70-80% of their current home's value. The funds from a bridge loan can be used in two main ways: to pay off the existing mortgage and use the remaining money as a down payment for a new home, or as a second mortgage to directly finance a down payment for your next home. Each mortgage lender has their own requirements and be sure to consult a trusted mortgage loan professional. Interest payments on bridge loans are typically limited to the interest itself, with the principal due at the end of the loan term, which usually does not exceed one year. The idea is to pay off the bridge loan quickly, often with proceeds from the sale of your current home, aligning perfectly with the loan's purpose to "bridge" your financing needs temporarily. I emphasize to my clients that a bridge loan is a short-term financing strategy and not a long-term mortgage option. Advantages of a Bridge Loan 1. Flexibility in Home Buying and Selling: Bridge loans offer the flexibility to make a down payment on a new property before selling your existing home. This can be particularly advantageous in our current low-inventory, hyper-competitive housing market, where you need to act immediately to secure the home you want. 2. Immediate Access to Funds: Since bridge loans are designed for short-term financing, they are often, not always, processed more quickly than traditional mortgages. This rapid access to money means you can move forward with purchasing a new home without waiting for your current home to sell. 3. Interest-Only Payments: With a bridge loan, you're typically only required to make interest payments until the loan is paid off. I think this is one of the best features of a bridge loan. There is no free-lunch but the interest-only nature of a bridge loan is not budget-busting during the transition between selling and buying homes. Disadvantages of a Bridge Loan 1. Higher Interest Rates: Due to their short-term nature and increased risk to lenders, bridge loans come with higher interest rates compared to traditional mortgages. This means you'll pay more for the convenience and flexibility that bridge loans offer. 2. Risks of Paying Two Mortgages: To me, this is the biggest risk we see in a bridge loan. If the sale of your current home is delayed, you may find yourself in the position of paying two mortgages - both your original mortgage and the bridge loan. The key to mitigate this risk is to have a full understanding of what your house will sell for and more importantly how long it will take to sell and close on the sale of your home. 3. Short Repayment Term: The typically one-year term of a bridge loan means that you'll need to repay the loan relatively quickly. This pressure can be compounded if the sale of your current home takes longer than anticipated. If our client is considering a bridge loan we do a full analysis and pricing strategy to ensure that the home can be sold in a timeframe that meets our client’s budget and is less than 1 year. Conclusion Bridge loans can be an effective tool for buying your new home before you sell your current home.  A bridge loan paves the way between selling your current home and purchasing a new one, offering flexibility, immediate access to funds, and the convenience of making interest-only payments. However, the higher interest rates, potential for double mortgage payments, and the short repayment timeline are important factors to consider and manage. As with any financial decision, it's essential to weigh the pros and cons and consider your unique situation before proceeding with a bridge loan. Be sure to work with a real estate professional, do your homework and know how much your home will sell for and all expenses associated with a bridge loan, including how long it will take to sell your home. If all of the disadvantages and risks associated with a bridge loan are managed and mitigated you may find that the bridge loan is the ideal tool for you to buy a new home before you sell your current home stress-free. Questions about how to transition from your current home to your next home? Contact Jeff Higgins at jeff@higginspartners.com or call/text at (248) 233-6165

The Real Estate Investor’s #1 Tool: The 1031 Tax Deferred Exchange

In real estate investment, savvy investors continuously seek strategies to maximize their returns and minimize their tax liabilities. One of our favorite tools, the 1031 Tax Deferred Exchange, stands out as a powerful tool for accomplishing both objectives. To execute an effective 1031 Exchange, there are a number of rules and a timeline to follow. While there is a specific process, the mechanics of the 1031 Exchange are not difficult. This quick guide aims to demystify the 1031 Exchange process, emphasizing its primary advantage: the deferral of capital gains tax, which effectively increases the capital available for investment in replacement property. Understanding the 1031 Tax Deferred Exchange The 1031 Tax Deferred Exchange, named after Section 1031 of the U.S. Internal Revenue Code, allows real estate investors to defer the payment of capital gains taxes on the sale of an investment property, provided that the proceeds are reinvested in another property or properties of like-kind within specified time frames. The concept of "like-kind" is broad and generally encompasses most types of real estate held for investment or productive use in a trade or business, offering flexibility in investment options. One key component of a successful 1031 Exchange is to ensure you are selecting a qualified like-kind property. The Mechanics of a 1031 Exchange A successful 1031 Exchange involves several critical steps and requirements: 1. Identification and Timing: After the sale of the relinquished property, the investor must identify the replacement property or properties within 45 days and complete the acquisition within 180 days. 2. Qualified Intermediary (QI): The exchange must be facilitated by a Qualified Intermediary, who holds the proceeds from the sale of the relinquished property and subsequently uses them to acquire the replacement property, ensuring the investor does not take constructive receipt of the funds. While there are many excellent QI’s out there, we recommend and use IPX 1031. 3. Title and Value Requirements: The investor must take title to the replacement property in the same manner it was held in the relinquished property, and the replacement property must be of equal or greater value to fully defer the capital gains taxes. Check with your advisor here but you want to make sure the entity is the same. More specifically, if ABC Properties, LLC has title to the relinquished property, a different LLC or ownership cannot be used for the replacement property. The Paramount Advantage: Deferring Capital Gains Tax The principal advantage of a 1031 Exchange is the deferral of capital gains taxes. Typically, when an investment property is sold, the investor incurs capital gains tax on the profit, which can significantly reduce the amount of capital available for reinvestment. By opting for a 1031 Exchange, the investor effectively defers this tax liability, retaining more capital for the acquisition of the replacement property. This deferral does not merely postpone the tax liability; it serves as a powerful leverage tool, allowing investors to reinvest the entirety of their sale proceeds into higher-value properties, diversify their portfolio through the acquisition of multiple properties, or relocate their investment to more lucrative markets. Over time, this can result in a compounding effect on the investor's capital growth, as each exchange permits the deferral of taxes, thereby amplifying the potential for wealth accumulation. Strategic Considerations While the 1031 Exchange offers significant advantages, it is not without its complexities and nuances. Investors should consider several factors, including the quality and potential appreciation of the replacement property, market conditions, and long-term investment goals. Furthermore, it is crucial to consult with tax professionals and qualified intermediaries who specialize in 1031 Exchanges to navigate the rules and deadlines effectively. Conclusion The 1031 Tax Deferred Exchange is an effective tool for real estate investors to use to maximize their investment returns. By allowing the deferral of capital gains taxes, it not only conserves capital for reinvestment but also opens the door to greater investment opportunities and potential for wealth accumulation. As with any investment strategy, thorough analysis, careful planning, and professional advice are key to leveraging the 1031 Exchange to its fullest potential. If you have any questions regarding a 1031 Tax Deferred Exchange, call or text Jeff Higgins of Higgins Partners of Real Broker, LLC (248) 233-6165. You can also send an email to him at jeff@higginspartners.com.

Beyond Zillow: The Real Secrets to Downsizing and Selling Your Home

In today's fast-paced real estate market, where every click leads to a new discovery, Zillow stands out as a titan, commanding the attention of nearly half of all real estate website traffic with its impressive 200 million monthly visitors. It's a treasure trove of over 140 million properties, turning casual browsing into a national pastime for home enthusiasts and potential buyers alike. Yet, when the stakes are high and it's time to make life-changing decisions, the glaring question arises: Can you truly rely on Zillow for the most critical financial decision of your life? The Real Estate Dilemma: Downsizing in a Seller's Market Countless homeowners face the daunting prospect of downsizing in today's market—a market characterized by its alarmingly low inventory and sky-high prices. The thought of leaving a beloved family home for a more manageable space sends shivers down the spine of many, sparking a mix of fear and frustration. But even in these turbulent times, the real challenge emerges: finding a new home that doesn't just fit your lifestyle but also aligns with your financial goals.  A Tale of Transformation: The Birmingham Breakthrough Consider the story of a Birmingham couple, eager to transition from their family home to a more suitable living space—a condo or ranch that mirrors their current and future needs. Their journey from apprehension to action underscores a common predicament: the fear of not fetching enough from their current home to fund their next chapter.  In a sea of uncertainty, enter the Equity Review Report, our in-depth analysis not only shows the potential sale price in today's market but also your home's true equity. The facts? They had more than enough home equity to turn their downsizing dream into reality. However, a shadow loomed over their optimism: the infamous Zestimate. Falling short by a staggering 30%, the online Zestimate nearly derailed their plans. The Sold Solution: Revolutionizing Home Selling Faced with Zillow's limitations, we deployed The Sold Solution—our proprietary home-selling system. Our custom strategy, featuring a "Coming Soon" marketing blitz, exclusive neighborhood preview, a Mega Open House, and a digital marketing campaign, redefined the selling process. The outcome was nothing short of spectacular: a sale that exceeded the Zestimate by an astonishing $200,000.  Beyond Zillow: Making Informed Decisions When it comes to the value of your home, Zillow's Zestimate might not just be off—it could be costing you dearly. In a decision as big as selling your home, precision is paramount. The allure of convenience should never eclipse the need for accuracy. If you're contemplating https://higginspartners.com/sell-my-home5-1 or simply curious about its true value, avoid reliance on automated estimates. Consult the expertise of real estate professionals equipped to provide you with a precise, data-driven valuation of your home. In a market where every dollar counts, make informed decisions that pave the way for your financial success and peace of mind.  In the journey toward selling your home, knowledge is not just power—it's profit.

Best Birmingham Neighborhood

Birmingham has a number of great neighborhoods but one of my favorites is Pembroke Park. If I were looking a new home in Birmingham and home price appreciation was most important to me, Pembroke Park would be the only neighborhood I would consider. Nestled north of West Maple and east of Eton, Pembroke Park in Birmingham includes just under 700 homes. The neighborhood is an eclectic collection of homes from 1950s bungalows to custom built homes pushing the $2,000,000. The focal point of the neighborhood? The park itself. Pembroke Park is abuzz with activity including children using the playground, soccer games and softball games. Or you may see just see folks having fun and relaxing. How’s the location? I think it’s the best location in Birmingham. Why? Pembroke Park is the closest neighborhood to Whole Foods which is on West Maple and makes for an easy walk. While you’re walking you can also visit Cannelle, located right on Eton or to the Eton Market. The Rail District, Birmingham’s trendiest area, is located super close to the Pembroke Park neighborhood. The Rail District is home to Griffin Claw Brewing Co, The Whistle Stop and the newly opened Lincoln Yard. Coming later this year to the Rail District is Big Rock Italian Chophouse presented by Cameron Mitchell Restaurants and Tom Celani. Because of the mix of homes from bungalows under $500,000 to custom built homes price upwards of $2.0 million, Pembroke Park is positioned for big price appreciation. I think it's the best area if you are looking to invest in Birmingham real estate. Here's what is currently on the market: 2662 Derby - If you are looking for single-level living in Birmingham, you are going to want to check out this ranch. 2647 Pembroke - Priced under $600,000, this tudor is unique and exudes Birmingham charm. 2168 Manchester - Looking for a new home? Check out this home on Manchester built in 2023. You will love the convenience of the upstairs laundry. 2182 Buckingham - Looking to build a new home? Check out this fabulous lot right across from Pembroke Park.  Pembroke Park is the gem of Birmingham and a neighborhood poised for price appreciation. The best way to stay up-to-date on all things Birmingham 48009 is to get our monthly snapshot The Birmingham Report where we summarizes all things Birmingham including what's on the market, what has sold and what is coming soon. The best part about The Birmingham Report is you get access to off-market listings.