There have been only a few options for individual needing to access the equity in their home.  If one needs investment capital for a “can’t pass up” deal, but don’t want to borrow more money.  According to Dean Foust of Business Week, there’s A New Way to Extract Equity from Your Home.  If one has a mortgage for less than 67% of the value of the house, one may qualify for a REX™ Agreement. This new service called Real Estate Exchange (“REX”) that will typically provide cash up to 15% of the equity in the home.  Instead of charging you interest and principle payments, an equity position (up to 52%) in the equity of your home it taken with the Agreement.

This program will “partner up” with individuals on a new house or a residence already owned and shares in the appreciation or depreciation of the house. REX™ Agreements are only for primary, owner-occupied residences.  It is not for rental or investment properties.

The contract can be written in REX™ Agreement for up to 50 years, and it ends at the earlier of the expiration date or when the house is sold. When buying a house, the funds can be used towards the down payment, and if the house is already owned, the money can be used for whatever purpose the homeowner chooses.

There’s no minimum income or assets requirement, but the credit requirement is a credit score of at least 680.  If you want to terminate the agreement, you can “buy out” the REX™ Agreement for the appreciation or depreciation difference at the time of the buyout.

According to Brooke Southall, in InvestmentNews, consumers don’t pay taxes on the money that they receive from a REX™ Agreement, and many use the funds to hedge their investments from just real estate. As the article says “In 90% of the cases, customers used fund received to reinvest in securities or additional real estate.

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What is the best entity to use when investing in out-of-state
real estate, and what are the different tax implications?

I have noticed that the taxes associated with different entities
will differ. Therefore, you want to research what entity will meet
your tax strategy best. For example, there are franchise tax fees
associated with a LLC and Corporation. Here in California, it is
$800 per year minimum. Therefore, I would need to calculate that
into my property cash flow analysis if I were to use a California
corporation to buy an out-of-state property. I would not need to
do that if I bought it as an individual. On the other hand,  I could
lower that expense by incorporating in the state the property
was located, etc.

In addition, I have noticed that different cities have different
taxes associated with property ownership. I have been in
situations where there were property user taxes that were not
included in the Property Tax. I have an additional one or two local
tax bills associated with property ownership in some cities. Make
sure to ask what are the different taxes associated with property
before purchasing. You will not be surprised when the City sends
you a bill stating that — your potion of the Table and Park Bench
Beautification Project is $84.35. Do your research before you buy.

Taxes I have paid associated with owning property differ greatly
depending on where it is. My job is to calculate that cost prior to
buying in that city. Can I make a profit is the bottom line. I have
not noticed any different in income taxes once I have made the
profit or loss. This is my personal experience.

For personal tax advice, you should consult a CPA or Tax Attorney.

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