Real estate trading
Encyclopedia
Real estate trading is a type of "I buy yours you buy mine" arrangement. This is distinct from vacation home swapping.
The deteriorating real estate market (circa 2006) has led many to realize that trading may be an extremely viable approach to selling one's real estate. This approach only works if the seller is also looking to buy another property, such as a move or relocation. However, it is possible to move up or down in price, size, etc, or even trade to another city or state entirely.
While related, real estate trading is different than 1031 Exchanges. 1031 exchanges are a way to defer capital gains tax on investment properties. 1031 exchanges do need to involve an actual trade of real estate between two parties.
The first is simply the inclusion of a text box alongside a real estate listing, stating the seller will consider a trade and possibility a description of what the seller is looking to trade for. Craigslist is a popular example of this. While not specifically geared towards permanent trades, it is often used for such a purpose. There are also several web sites, mostly set up by Realtors, that make use of this approach.
The second, more sophisticated approach, uses a model similar to a dating service. Such a web site matches sellers with other sellers based on what each seller has and what each is looking to trade for. There are a small number of web site that make use of this approach.
Since both parties are buying new properties, both will need the ability to purchase the other property, either through sufficient equity in their existing house and /or additional available cash or borrowing potential. It is therefore difficult to accomplish a trade with another owner who has little or even negative equity
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In simultaneous sale approach, as the name implies, the two transactions must happen simultaneously. In other words, both close or neither closes. By structuring the closing in such a way, proceeds from the sale of one property can be figured into the amount applied towards the purchase of the other. In this way, you are able to apply a portion of your existing equity towards the new property.
"If you sold your property today, would you be able to go out and purchase that other property tomorrow? If the answer is no, you either need to look at a less expensive property to swap with, or you're not a candidate"DomuswapGoswap.
Since this type of house swapping
is in actuality a simultaneous buy and sell, you will need to walk away from the sale part with enough funds to complete the buy portion. The stumpling block here is often the necessary down payment (20% is standard). You therefore need to have at least 20% equity, minus closing costs, to purchase the other property.
The deteriorating real estate market (circa 2006) has led many to realize that trading may be an extremely viable approach to selling one's real estate. This approach only works if the seller is also looking to buy another property, such as a move or relocation. However, it is possible to move up or down in price, size, etc, or even trade to another city or state entirely.
While related, real estate trading is different than 1031 Exchanges. 1031 exchanges are a way to defer capital gains tax on investment properties. 1031 exchanges do need to involve an actual trade of real estate between two parties.
Online Real Estate Trading
Online trading can take two forms.The first is simply the inclusion of a text box alongside a real estate listing, stating the seller will consider a trade and possibility a description of what the seller is looking to trade for. Craigslist is a popular example of this. While not specifically geared towards permanent trades, it is often used for such a purpose. There are also several web sites, mostly set up by Realtors, that make use of this approach.
The second, more sophisticated approach, uses a model similar to a dating service. Such a web site matches sellers with other sellers based on what each seller has and what each is looking to trade for. There are a small number of web site that make use of this approach.
How it works
While there are multiple ways to accomplish a house trade, the simplest is the simultaneous sale approach. In this scenario, you purchase a property from another seller, and he buys your property, all in the same transaction. As in a separate sale, you must have sufficient funds coming in from the sale to pay off your existing mortgage. You also need the necessary funds to purchase the new property, or the necessary down payment to procure a new mortgage.Since both parties are buying new properties, both will need the ability to purchase the other property, either through sufficient equity in their existing house and /or additional available cash or borrowing potential. It is therefore difficult to accomplish a trade with another owner who has little or even negative equity
Negative equity
Negative equity occurs when the value of an asset used to secure a loan is less than the outstanding balance on the loan. In the United States, assets with negative equity are often referred to as being "underwater", and loans and borrowers with negative equity are said to be "upside down".People...
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In simultaneous sale approach, as the name implies, the two transactions must happen simultaneously. In other words, both close or neither closes. By structuring the closing in such a way, proceeds from the sale of one property can be figured into the amount applied towards the purchase of the other. In this way, you are able to apply a portion of your existing equity towards the new property.
Can it work for me
A simple test to determine if you are a candidate for a house swap is the following:"If you sold your property today, would you be able to go out and purchase that other property tomorrow? If the answer is no, you either need to look at a less expensive property to swap with, or you're not a candidate"DomuswapGoswap.
Since this type of house swapping
House swapping
House swapping is the practice that refers to the swapping of homes on a temporary or more permanent basis. Although its origins stem from low-cost vacation accommodation and are believed to date back to 1953, there has been an increase in house swapping due to the slow-down in the United States...
is in actuality a simultaneous buy and sell, you will need to walk away from the sale part with enough funds to complete the buy portion. The stumpling block here is often the necessary down payment (20% is standard). You therefore need to have at least 20% equity, minus closing costs, to purchase the other property.