Grand Strand Real Estate News - March 2023

March 2023

Volume 2023 Issue 3

Dear Gene Carter Team,

Summary

Since we are in the middle of tax season, much of this month’s newsletter will be devoted to ways to utilize real estate for tax saving strategies. In particular, for many of you owners out there who would like to lock in profits from price increases of 50% over the past 18 months but don’t want to pay capital gains taxes and don’t want to purchase another property through a 1031 exchange, THERE IS A SOLUTION.

Defer Capital Gains Taxes With Delaware Statutory Trusts (DSTs)

If you currently own rental or investment property or if you are a potential buyer hoping to build wealth in the future by purchasing and selling real estate, please read this article carefully and in its entirety. There is a way for many of you to defer capital gains taxes and the recapture of depreciation savings without buying another property. For more details, read the full article in the newsletter.

DISCLAIMER: I am not a financial advisor or tax counselor. Please discuss the following topics with a trusted resource. Also, DST’s, as described below, may only be acquired by an “Accredited Investor”, currently defined by the SEC as “An individual with a net worth over $1 million, excluding primary residence (individually or with spouse or partner) or income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year.” 

 As of today, prices for most area properties are 50% (or more) higher than they were 18 months ago. Today’s high prices are sure things (right now). Continued high prices and super strong rental incomes forever are not. 

One of the oldest adages in real estate is that, to make money, buy low and sell high. So why are so many owners passing up this opportunity to “sell high”? The reason many owners have given me is that they will have to pay capital gains taxes on their huge profits. In addition they will have to pay “recaptured” depreciation savings.

One way around this is to do a 1031 exchange and purchase a property of equal or greater value.

The reason many owners do not pursue this strategy is that they believe, rightly or wrongly, that prices are at their highest point right now and will be coming down sometime in the near future. They don’t want to pay today’s top dollar price for a replacement property that they believe will decrease in value in the near future.

Many of the same owners who believe prices will come down have stated to me that they would like to purchase additional properties once prices decrease. Unfortunately this means that if prices do decrease, the value of the property they currently own will also decrease, depriving them of the chance to “sell high” at a big profit.

I don’t know what is going to happen with prices in the future but those of you who qualify as Accredited Investors can have your cake and eat it too.

A seller can sell now and lock in the profit and obtain the same 1031 tax benefits (deferred capital gains taxes and deferred recapture of depreciation) by purchasing a Delaware Statutory Trust (DST) instead of a specific property. This is still a 1031 exchange. 

So what is a Delaware Statutory Trust (DST)? A DST can be used anywhere in the United States (not just in the state of Delaware). A DST is a legally recognized trust in which real estate is held, managed and operated for a profit. DST’s are commonly organized and sold as securities. The process is easy and simple. Each investor will receive their share of the profits, depreciation and gain or loss to report on their individual tax return. 

A DST can own one property or a portfolio of properties, usually all within the same asset class (such as multifamily, a chain of drugstores, etc.), and the investor can invest as little as $50,000 to acquire fractional interest. Annual cash-on-cash returns typically range from 5% to 9%. Also, the investor is shielded from any liabilities related to the property.

DST’s are typically structured to have 2 to 10 year terms. At the end of the term, the gain is prorated between the individual investors so each can decide to exchange into another DST or traditional real estate or cash out and pay the taxes. A DST can be sold prior to the end of the term although my research turned up mixed opinions as to how easy this is to do.

Be aware that DSTs, like all real estate investments, have some risks. Please consult a trusted adviser about these.

Here are some situations in which DSTs can be beneficial.

Take advantage of the “sell high” strategy now and lock in your profit and then defer the taxes by purchasing a DST instead of another property. This way, you will not be “buying high” for a replacement property. When the term of the DST is up, you can decide to purchase another DST or go back to purchasing regular real estate and shooting for another 50% appreciation home run like owners have seen over the past couple of years.

If your desired replacement property is less expensive than your relinquished property and you need to buy additional property to maximize the benefits of the 1031 exchange, you can identify a DST to make up the difference. This is a common scenario. An owner wants to sell a property and buy another property with a better ROI but the math doesn’t work out. There’s leftover profit after the sale, for which taxes will need to be paid. He can buy a DST with the overage instead of paying taxes.

A DST can be a good solution when you cannot find a desirable replacement property and your 45 day identification deadline is approaching. There are always multiple offerings available and they can close quickly. A DST can also be a good backup in case the purchase of a property falls through.

VERY IMPORTANT: I don’t see DSTs as necessarily being better investments than purchases of individual properties under most circumstances. Traditional real estate purchases offer bigger potential returns, as evidenced by the past couple of years of strong appreciation). Also, with traditional real estate ownership, there is more immediate flexibility. Nevertheless, DSTs can be important additions to the toolbox of anyone whose goal is to build wealth through real estate.

I have reached out to several companies that manage DST’s and I would be happy to provide contact information to anyone interested. Please contact me if you want to discuss the potential opportunities for using a DST.

Oceanfront and Resort Condo Market Update

The number of active oceanfront listings dropped for the 8th month in a row, from 370 in February to 353 in March. The number of active condo listings off the beach also decreased again, from 757 in February to 711 in March. See chart below.

Although the average selling price didn’t change much (+ 2.9%), there was greater activity as we moved into the peak buying/selling season. The number of new listings increased sharply, from 139 in February to 203 in March, a 46% increase. Despite this, because of a 61% increase in closed sales (taking listings off the market) the number of active listings decreased, as mentioned above. Overall, closed sales volume was up 65%. See chart below.

Sellers: It’s still a great time to sell because of the low inventory and high prices.

There’s no guarantee that inventory levels will remain this low in relation to buyer demand. Please take a close look at the DST article for ways to take advantage of the current situation. Also, please contact me if you would like a customized market analysis of your property.

Buyers: There are more listings coming in but they are getting snapped up quickly. Peak rental season is right around the corner but there’s still time to buy! Please contact Teressa or Kevin if you’re interested in purchasing. 

New Home Sales (Resales Too)

Once again, new home sales comprised over half of all closed residential sales in March (51%). The chart below provides further insight.

Business Personal Property Tax Form (PT – 100)

If you own a condo or rental property in our area, you have probably received this form in recent weeks. Do not ignore this form or throw it away or it could cost you (See below)! 

If you rent your property out, it is considered to be a business and your furnishings, appliances, etc, are taxable. The tax is usually not that much for a vacation rental property, typically a few hundred dollars per year. If you do not send in this form, the taxing authority will use a default value for your personal property much higher than the actual value. Please consult your accountant or financial advisor to help you fill out this form. Unfortunately, this is out of my lane and I cannot properly advise you.

Please Contact The Beach Pro Team If:

You are thinking of buying or selling an oceanfront or resort condo in our area

                                                                  Or

You are considering moving to our area or know someone else who is

                                                                   Or

You are an agent who has clients thinking of moving here or buying or selling in our area

                                                                   Or

You currently own a condo in our area and want a permanent home here

Check out our usual Grand Strand Market Reports, Sales and Listing Updates, my Best Buys, and new Beach Pro Team reviews.

Greetings from the Grand Strand!

Since we are in the middle of tax season, much of this month’s newsletter will be devoted to ways to utilize real estate for tax saving strategies. In particular, for many of you owners out there who would like to lock in profits from price increases of 50% over the past 18 months but don’t want to pay capital gains taxes and don’t want to purchase another property through a 1031 exchange, THERE IS A SOLUTION. See the article below.

The real estate price balancing act continues. Even though buyer activity is less than has been the norm for the past couple of years, low inventory is keeping prices stable. Market details below.

New home sales are still red hot. See details below.

Rental owners should have recently received a Business Personal Property Tax form (PT-100). Please do not ignore this. Details below.

Defer Capital Gains Taxes with Delaware Statutory Trusts (DSTs)

If you currently own rental or investment property or if you are a potential buyer hoping to build wealth in the future by purchasing and selling real estate, please read this article carefully and in its entirety. There is a way for many of you to defer capital gains taxes and the recapture of depreciation savings without buying another property.

DISCLAIMER: I am not a financial advisor or tax counselor. Please discuss the following topics with a trusted resource. Also, DST’s, as described below, may only be acquired by an “Accredited Investor”, currently defined by the SEC as “An individual with a net worth over $1 million, excluding primary residence (individually or with spouse or partner) or income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year.” 

As of today, prices for most area properties are 50% or more higher than they were 18 months ago. 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 now much higher than they have been in all of those 15 years.”

One of the oldest adages in real estate is that, to make money, buy low and sell high. So why are so many owners passing up this opportunity to “sell high”? The reason many owners have given me is that they will have to pay capital gains taxes on their huge profits. In addition they will have to pay “recaptured” depreciation savings.

One way around this is to do a 1031 exchange and purchase a property of equal or greater value, thereby deferring any taxes indefinitely into the future. Many sellers are using this strategy. In fact, at least half of our recent sales have involved 1031 exchanges either on the buyer or seller side or both.

The reason many owners do not pursue this strategy is that they believe, rightly or wrongly, that prices are at their highest point right now and will be coming down sometime in the near future (Time will tell!). For this reason, they don’t want to pay today’s top dollar price for a replacement property that they believe will decrease in value in the future, negating their big profit from the sale of their relinquished property. . 

Many of the same owners who believe prices will come down have stated to me that they would like to purchase additional properties once prices decrease. Unfortunately this means that if prices do decrease, the value of the property they currently own will also decrease, depriving them of the chance to “sell high” at a big profit.

Of course I have no crystal ball so I don’t know what is going to happen with prices in the future. I do know, however, of a way those of you who qualify as Accredited Investors can have your cake and eat it too.

A seller can sell now and lock in the profit and still obtain the same 1031 tax benefits (deferred capital gains taxes and deferred recapture of depreciation) by purchasing a Delaware Statutory Trust (DST) instead of a specific property. This is still a 1031 exchange. The proceeds of the sale go into an intermediary’s account instead of going to the seller. The seller can then choose one or more DST’s or a combination of property and DSTs as the replacement property(s). The seller has the same 45 day time period to make this choice as with a 1031 exchange for a replacement property.

So what is a Delaware Statutory Trust (DST)? First of all, a DST can be used anywhere in the United States (not just in the state of Delaware). A DST is a legally recognized trust in which real estate is held, managed and operated for a profit. DST’s are commonly organized and sold as securities that must be acquired via a securitys agent, or broker. DST brokers ordinarily work with sponsors to help investors make informed choices. The process is easy and simple. Each investor will receive their share of the profits, depreciation and gain or loss to report on their individual tax return. You can Google lots of information on DSTs..

A DST can own one property or a portfolio of properties, usually all within the same asset class, such as multifamily, land development or drug stores, and the investor can invest as little as $50,000 to acquire fractional interest. Annual cash-on-cash returns typically range from 5% to 9%. DST’s provide individual investors access to institutional grade commercial real estate that is usually only available to insurance companies, pension funds and endowments.They can provide current, predictable and steady cash flow without the headaches of being a landlord or rental property owner. Also, the investor is shielded from any liabilities related to the property.

DST’s are typically structured to have 2 to 10 year terms. At the end of the term, the gain is prorated between the individual investors so each can decide to exchange into another DST or traditional real estate or cash out and pay the taxes. A DST can be sold prior to the end of the term although my research turned up mixed opinions as to how easy this is to do.

DSTs have been around for many years and I can’t believe I haven’t heard of them until recently. All of my research results and conversations with local accountants and 1031 exchange agents have been positive. 

Be aware that DSTs, like all real estate investments, have some risks. Please consult a trusted adviser about these.

Here are some situations in which DSTs can be beneficial.

Take advantage of the “sell high” strategy now and then defer the taxes by purchasing a DST instead of another property. This way, you will not be “buying high” for a replacement property. When the term of the DST is up, you can decide to purchase another DST or go back to purchasing regular real estate and shooting for another 50% appreciation home run like owners have seen over the past couple of years.

If your desired replacement property is less expensive than your relinquished property and you need to buy additional property to maximize the benefits of the 1031 exchange, you can identify a DST to make up the difference. This is a common scenario. An owner wants to sell a property and buy another property with a better ROI but the math doesn’t work out. There’s leftover profit after the sale, for which taxes will need to be paid. He can buy a DST with the overage instead of paying taxes.

A DST can be a good solution when you cannot find a desirable replacement property and your 45 day identification deadline is approaching. There are always multiple offerings available and they can close quickly. A DST can also be a good backup in case the purchase of a property falls through.

VERY IMPORTANT: I don’t see DSTs as necessarily being better investments than purchases of individual properties under most circumstances. Traditional real estate purchases offer bigger potential returns, as evidenced by the past couple of years of strong appreciation). Nevertheless, they can be important additions to the toolbox of anyone whose goal is to build wealth through real estate.

I have reached out to several companies that manage DST’s and I would be happy to provide contact information to anyone interested. Please contact me if you want to discuss the potential opportunities for using a DST.

Oceanfront and Resort Condo Market Update

Here’s the updated chart for active oceanfront condo listings. The number of active oceanfront listings dropped for the 8th month in a row, from 370 in February to 353 in March. The number of active condo listings off the beach also decreased again, from 757 in February to 711 in March.

The chart below shows month-to-month metrics for oceanfront condos. Although the average selling price didn’t change much (+ 2.9%), there was greater activity as we moved into the peak buying/selling season. The number of new listings increased sharply, from 139 in February to 203 in March, a 46% increase. Despite this, because of a 61% increase in closed sales (taking listings off the market) the number of active listings decreased, as mentioned above. Overall, closed sales volume was up 65%.

Ocean Blue in Myrtle Beach

Sellers: I probably sound like a broken record but it’s still a great time to sell because of the low inventory and high prices. Two of my new listings sold in the past several days, one with multiple offers.

As I’ve stated many times, there’s no guarantee that inventory levels will remain this low in relation to buyer demand. Please take a close look at the DST article for ways to take advantage of this situation. Also, please contact me if you would like a customized market analysis of your property.

Buyers: There are more listings coming in but they are getting snapped up quickly. Peak rental season is right around the corner but there’s still time to buy! Please contact Teressa or Kevin if you’re interested in purchasing. 

New Home Sales (Resales Too)

Once again, new home sales comprised over half of all closed residential sales in March (51%). The chart below provides further insight.

The Parks in Carolina Forest

Business Personal Property Tax Form (PT – 100)

If you own a condo or rental property in our area, you have probably received this form in recent weeks. Do not ignore this form or throw it away or it could cost you (See below)! By the way, if you do not rent your property out, you will owe no taxes. I think there is a place on the form to state this and, if not, use the contact info on the form to convey this to the proper authority. 

If you do rent your property out, it is considered to be a business and your furnishings, appliances, etc, are taxable. The term which may be familiar to you is FF&E (Furniture, Fixtures and Equipment). The tax is usually not that much for a vacation rental property, typically a few hundred dollars per year. Please consult your accountant or financial advisor to help you fill out this form. It’s a little complicated - with depreciation factored in so it changes from year to year. Unfortunately, this is out of my lane and I cannot advise you about how to fill it out. 

One thing I can tell you is that if you do not send it in, the taxing authority will use a default value for your personal property much higher than the actual value. I’ve had quite a few selling clients through the years get nasty surprises at their closings when they found out they owed thousands of dollars in personal property taxes because they threw these forms out each year and it simply accumulated year after year at maxed out rates. Don’t let this happen to you!

Please Contact The Beach Pro Team If:

You are thinking of buying or selling an oceanfront or resort condo in our area

                                                                  Or

You are considering moving to our area or know someone else who is

                                                                  Or

You are an agent who has clients thinking of moving here or buying or selling in our area

                                                                  Or

You currently own a condo in our area and want a permanent home

That’s all for now. Check out 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 on Google. 

• Gene is NOT your average realtor.....he is a professional. He is willing to do the "extra" and not just put you on a list to automatically send you listings when they come on to the MLS like SOOOO many others do....hoping that you do the work and every day , scour the new listings in your desired areas and then , hopefully call to make purchase!! He will spend money and put in work and not just count on you to do the work yourself to find your place . He is a scholar and studies the market with great insight....like I said, not your average Realtor! Robert. Horizon at 77th. Myrtle Beach.

• I have used Kevin's realtor services twice, that's how amazing he is! From being the buyer to the seller, Kevin has always had my back and my best interest at heart. The process of both buying and selling are hard and a little scary when you do it alone, but Kevin was there for every single question I had (and I had a lot!!). Kevin is always so kind and will always check in on you to make sure you know exactly what is going on in the process and that you feel 100% confident in it. You can find a good realtor who knows the market well, pretty much anywhere. But with Kevin, you will also find a friend because he ensures that no matter what decision you make, you love it and would do it again 10x over. I will always recommend Kevin to anyone, and will definitely use him again in the future. Sarah

We just started collecting Google reviews. At this time we have over 150 Zillow reviews which can be seen on our website Beach Pro Team reviews. 

Grand Strand Market Report - February 2023

OF/OV Homes Brochures:    Link to Listings 

OF/OV Homes Spreadsheet:   Link to Spreadsheet 

OF/OV Condo Brochures: