March 2022

Volume 2022 Issue 3

Dear Gene Carter Team,

Summary

Teressa and I have sold 42 condos so far this year. There are some good buying opportunities and it’s a great time to sell. See below for my thoughts.

For the first time in a year and a half, the numbers of active condo listings are increasing. As can be seen in the chart below, the number of active oceanfront condo listings, which had been hovering around 120 for several months, increased to 190, a 57% increase over last month’s inventory. Non oceanfront active condo listings increased from 184 to 192, a 4.3% increase.

There was a big jump in new listings in March with 292 vs 226 in 2021. As might be expected, prices are leveling off in some buildings as inventory increases. Most of the new listings are efficiencies and 1BR condos. Larger condos are still in short supply and prices are generally still going up for these. 

Buyers: There Are Still Good Deals Out There.

With the recent uptick in 1BR and efficiency listings, there are now choices in a number of quality buildings (instead of having to wait for the next listing and fight multiple offers). Also, the prices have leveled off and there is more inventory in many of the non-condotel buildings which are suitable for true second homes. For investors, this is the ideal time to purchase to take full advantage of the upcoming peak rental season. 

Sellers: Why Are So Few Owners Listing at the Current High Prices?

There are lots of condo owners who own multiple units or who’s lives have changed since they bought so that selling now makes sense. So why are so many sitting on the sidelines instead of taking advantage of this opportunity?

I have had at least a dozen conversations with oceanfront and resort condo owners in recent weeks and they’ve all been very similar so I think what I’m about to say represents the viewpoint of a great majority of the current owners. I am not a financial planner or a tax adviser so please consult these experts for issues involving the details and your personal circumstances. I am an expert, however, at oceanfront condo sales.

The answer I hear most frequently is “If I sell at these high prices, I’ll have to pay capital gains taxes”. Yes, if you sell and make a big profit, you will owe capital gains taxes. 

Tax strategy is important but don’t forget to make money by ignoring real estate strategy (Sell at a high price when the market is hot!)

Today’s high prices are sure things (right now). Continued high prices and super strong rental incomes forever are not. We are currently experiencing the first seller’s market for oceanfront and resort condos in 15 years and prices are much higher than they have been in all of those 15 years. I truly hope prices go higher still in the immediate future and stay there but there is real risk in passing up these prices while they are currently attainable.  

Basing all financial decisions purely on tax strategy assumes prices and cash flows will remain as good or better than they are now so an owner can simply choose whenever he wants to sell and make the same amount as he can today. Based on 37 years of experience, prices and incomes can and do decrease sometimes. Seller’s markets (with rapid appreciation) have been rare for oceanfront condos in our area and it’s best to take advantage of them while you can. 

Delaying capital gains taxes by passing up sure profits was very costly for many oceanfront condo owners who chose not to sell at the top of the 2005 market (because of capital gains taxes). When they finally sold at huge losses years later, they didn’t have any capital gains to worry about. 

What if your potential capital gains taxes are high because of a lowered tax basis from claiming depreciation? Choosing not to sell now when prices are high won’t save you from this because your tax basis will continue to decrease each year. If you wait in hopes that your market value will decrease, that will lower your capital gains tax but, once again, that would be making a bad real estate decision just to save taxes.

One way to defer capital gains taxes (but not avoid them forever) is to do a 1031 Exchange in which you buy an investment property of equal or greater value (your replacement property) when you sell your property (relinquished property). There are many types of properties which qualify as replacement properties and they don’t have to be in this area. You can also buy multiple properties. We can help you find a replacement property and we have a local exchange agent we work with frequently. 

Several owners have told me they don’t want to do a 1031 exchange now because they don’t want to pay top dollar for their replacement property. If they wait for the replacement’s property’s value to decrease, the relinquished property the owner wants to sell will almost certainly drop in value too. In other words, the owner is effectively waiting for his own property value to go down to sell. Once again, this seems to be a case of passing up a sure profit just to save taxes.

Suggestion: Owners of multiple properties or properties they’ve been wanting to sell should choose which ones to keep and either sell the not-so-great properties outright (and pay the capital gains taxes out of the giant proceeds produced by current prices) or upgrade to either a nicer property (if it’s used personally) or an investment property with a higher return using a 1031. If they sell outright, they can wait to see if prices go down some time in the future and time their purchase.

As always, please contact us if you are looking to buy or sell. Each person’s situation is different and we will assist you in finding the best solution for you!

That’s all for now. Check out all our usual Grand Strand Market Reports, Sales and Listing Updates, my Best Buys, and new Beach Pro Team reviews.  

Greetings from The Grand Strand!

Teressa and I have sold 42 condos so far this year (closed or under contract) and our pipelines both for buyers and sellers are staying full. Some segments of the market seem to be shifting however. There are some good buying opportunities and it’s a great time to sell. See below for my thoughts.

For the first time in a year and a half, the numbers of active condo listings are increasing. As you can see on the chart below, the number of active oceanfront condo listings, which had been hovering around 120 for several months, increased to 190 (as of today). Although this is still a very low number of active listings, it’s a 57% increase over last month’s inventory. Non oceanfront active condo listings increased from 184 to 192, a 4.3% increase.

I also checked the number of new oceanfront condo listings per month for 2021 vs 2022. There were slightly more new listings in January and February this year but there was a big jump in March with 292 new listings vs 226 in 2021. As might be expected, prices are leveling off in some buildings as inventory increases. With lots of similar listings to choose from, buyers are going back to being normal buyers and carefully weighing out all the numbers and making offers rather than acting quickly at full price or above to avoid missing opportunities. This was bound to happen eventually and it’s how seller’s markets typically end. But sellers should keep in mind that prices are still far higher than they were just a few months ago.

Most of the new listings are efficiencies and 1BR condos. Larger condos are still in short supply and prices are generally still going up for these. Eventually, the higher prices will entice more sellers to the market and these prices should level off too. 

Buyers: There Are Still Good Deals Out There.

With the recent uptick in 1BR and efficiency listings, there are now choices in a number of quality buildings (instead of having to wait for the next listing and fight multiple offers). Also, the prices have leveled off and there is more inventory in many of the non-condotel buildings which are suitable for true second homes. For investors, this is the ideal time to purchase to take full advantage of the upcoming peak rental season. 

St. Patrick's Day at Murrells Inlet Marsh Walk

Sellers: Why Are So Few Owners Listing at the Current High Prices?

There are lots of condo owners who own multiple units or who’s lives have changed since they bought so that selling now makes sense. So why are so many sitting on the sidelines instead of taking advantage of this opportunity? What about those who bought at the top of the market and have waited through 15 years of flat prices far below what they originally paid to be able to sell? How about the ones who own multiple properties and want to unload their underperforming assets?

I have had at least a dozen conversations with oceanfront and resort condo owners in recent weeks and they’ve all been very similar so I think what I’m about to say represents the viewpoint of a great majority of the current owners. I am not a financial planner or a tax adviser so please consult these experts for issues involving the details and your personal circumstances. I am an expert, however, at oceanfront condo sales. I also am not directing the following comments to any particular client or owner. 

The answer I hear most frequently is “If I sell at these high prices, I’ll have to pay capital gains taxes”. Yes, if you sell and make a big profit, you will owe capital gains taxes. I know we all hate paying taxes but please balance the cost of the taxes versus the lost opportunity cost if prices decrease.

Today’s high prices are sure things(right now). Continued high prices and super strong rental incomes forever are not. We are currently experiencing the first seller’s market for oceanfront and resort condos in 15 years and prices are much higher than they have been in all of those 15 years. I truly hope prices go higher still in the immediate future and stay there. It would be good for owners, current buyers and good for me (higher prices, bigger commissions!). Unfortunately, that has not been how other seller’s markets have ended in the past in our area. Also, next year’s prices largely depend on how strong the rental incomes are this year since one of the main reasons for the recent price increases is the strong 2021 incomes. Let’s hope 2021 wasn’t just a Covid-money induced anomaly. My point is that there is real risk in passing up these prices while they are currently attainable.  

Tax strategy is important but don’t forget to make money by ignoring real estate strategy (Sell at a high price when the market is hot!)

Basing all financial decisions purely on tax strategy assumes prices and cash flows will remain as good or better than they are now so an owner can simply choose whenever he wants to sell and make the same amount as he can today. I can assure you that, based on 37 years of experience, prices and incomes can and do decrease sometimes. Seller’s markets (with rapid appreciation) have been rare for oceanfront condos in our area and it’s best to take advantage of them while you can. 

Factors to Consider Regarding Capital Gains Taxes

Delaying capital gains taxes by passing up sure profits has been costly for oceanfront condo owners in the past. During the big 2005 price run-up, I can’t tell you how many owners told me they couldn’t sell at the top of the market because they were scared of the capital gains taxes they would have to pay on their $500K profits they would make in only 6 months. A year later they couldn’t sell because they refused to “lose” $100K because their property was now selling at a price that would only give them a $400K profit. This went on for years as prices continued to drop. When they finally sold at huge losses years later, they didn’t have any capital gains to worry about. 

By the way, some of these same clients still own those properties they paid top dollar for during the boom years ago and then didn’t sell at the peak because of the capital gains taxes . I’ve talked to a few lately and thought they would be eager to sell because their long wait was over. Instead, they told me they can’t sell at these high prices now because - you guessed it - they don't want to pay capital gains taxes with their lower tax basis (see below).   

What if your potential capital gains taxes are high because of a lowered tax basis from claiming depreciation? If an owner has been claiming depreciation for many years, the result can be a big taxable gain even if the actual profit is minimal or nonexistent. Unfortunately, choosing not to sell now when prices are high won’t save you from this. In fact, as long as you continue to claim depreciation, the tax basis will continue to decrease, making the gap bigger. If you wait in hopes that your property value will decrease, that will lower your capital gains tax but, once again, that would be making a bad real estate decision just to save taxes.

If you do have to pay capital gains in a case like this, it’s often referred to as “recapture” because the taxes you avoided for all those years by claiming depreciation will now need to be effectively repaid (at least partially). One way to look at this is that you were able to use that money all those years before you had to give it back to the IRS. Per the principle of the time value of money, you got the best of this deal. It’s the opposite of overpaying income withholding taxes all year and then having the IRS give you a “refund'' of your own money they over collected.

One way to defer capital gains taxes (but not avoid them forever) is to do a 1031 Exchange in which you buy an investment property of equal or greater value (your replacement property) when you sell your property (relinquished property). We are seeing lots of these lately. For some sellers they make sense. There are many types of properties which qualify as replacement properties and they don’t have to be in this area. You can also buy multiple properties. Please let us know if we can help you with one of these exchanges. We can help you find a replacement property and we have a local exchange agent we work with frequently. 

Several owners have told me they don’t want to do a 1031 exchange now because they don’t want to pay top dollar for their replacement property. What concerns me about this reasoning is that, if they wait for the replacement’s property’s value to decrease, the relinquished property the owner wants to sell will almost certainly drop in value too (as long as they re-buy in this same market). In other words, the owner is effectively waiting for his own property value to go down to sell. Once again, this seems to be a case of passing up a sure profit just to save taxes.

Suggestion: Owners of multiple properties or properties they’ve been wanting to sell should choose which ones to keep and either sell the not-so-great properties outright (and pay the capital gains taxes out of the giant proceeds produced by current prices) or upgrade to either a nicer property (if it’s used personally) or an investment property with a higher return using a 1031. If  they sell outright, they can wait to see if prices go down some time in the future and time their purchase instead of having to identify a replacement property within 45 days of the closing of the sale of their relinquished property (as is required with a 1031 exchange). 

As always, please contact us if you are looking to buy or sell. Each person’s situation is different and we will assist you in finding the best solution for you!

That’s all for now. Check out all our usual Grand Strand Market Reports, Sales and Listing Updates, my Best Buys, and new Beach Pro Team reviews.

See you at the beach! 

Here are some new reviews published in Zillow. 

• So we were the clients that Teressa could not get rid of. She spent countless hours working with us in trying to find an investment property/second home. ( and somehow she never got tired of us ). I doubt there is anyone that has more expertise in knowing the Grand Strand Area, She always had just the right information that we needed. She always had time for us and made us feel as if we were her most important clients( as I am sure she does with everyone) It took us two years but we finally found the perfect second home. None of this would have been possible without Teressa. We would highly recommend Teressa to anyone looking to purchase real estate. Robert. Margate. Myrtle Beach.

• Gene and his team were true professionals. I told them what I was looking for and they delivered, in a very short time, and with very little back-and-forth conversation required. Having recently sold in other markets I really appreciated this as it was not the case in with other sales. Mike. Avista. North Myrtle Beach

We have chosen to utilize Zillow's review platform. This is not an endorsement of Zillow (Please ignore the ridiculous "Zestimates") but we think an online third-party review service provides more credibility than simply printing reviews ourselves. At this time, we have over 130 reviews with more coming in each month. To see all of the reviews at any time, you can visit Zillow Beach Pro Team reviews. 

Grand Strand Market Report - February 2021

OF/OV Homes Brochures:    Link to Listings 

OF/OV Homes Spreadsheet:   Link to Spreadsheet 

OF/OV Condo Brochures:    Link to Listings

OF/OV Condo Spreadsheet:   Link to Spreadsheet

Non-OF Condo Brochures:     Link to Listings 

Non-OF Condo Spreadsheet:  Link to Spreadsheet

Gene Carter

Beach Pro Team

Cell Phone:  843-455-4785

Email: GeneCarter@BeachProTeam.com

Website:  www.BeachProTeam.com