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Normally an exchanger has a whole piece of investment property to sell. He sells and closes that property, the money goes to the exchange company, the investor identifies a new piece of property within 45 days, and closes on that property within a 180 days. As long as you’re adept at evaluating investment properties, and you can accept the risk on a single piece of property, this system works well.

But what if you’re the type of guy that would rather buy a mutual fund than a stock? Let somebody else do the math, the management, and base your investment on the strength of their pro forma and analysis. If this is the case, then a 1031 TIC may be for you. In this scenario, you’re not buying a whole piece of property. You evaluate a pro forma submitted by a “sponsor” who is looking to raise a target amount of capital secured by an undivisible interest in a particular property. There is normally a minimum investment amount you can 1031 into the property, and a maximum amount of capital that is looking to be invested. Multiple owners come in through multiple closings. The performance of your investment is usually controlled by a put-call agreement and by aggregating together with the other investors are able to buy a more valuable piece of property than you would normally be able to purchase that, theoretically, may have a higher return on investment than a property of less value. At some point in the future, the property is sold, or your interest is purchased, and the tenants in common 1031 into their next investment.

There are a number of people in Central Oregon putting these kind of investments together. If you would like their names and numbers please contact me. For more information check out http://en.wikipedia.org/wiki/Tenants_in_common_1031_exchange

So it looks like some of the 1031 money is running scared. What I’m hearing is that several exchangers are entering into their 45 day identification phase, not finding a replacement property, and then canceling the exchange. That’s probably not surprising. Right now we are near historic lows on the capital gains tax, so the fear of taking a tax hit is offset by the fear that you’ll purchase a piece of real estate that is overvalued or declining. There are still exchangers out there that because of depreciation and multiple 1031 exchanges are at risk for suffering a much larger than average tax penalty, but it’s becoming harder and harder for them to find a decent replacement property that can believe in. This is creating some creativity in the kinds of properties people are looking for. More on this later…

So, Bend is in the overvalued news once again. Unfortunately this study, like the last, only takes into consideration appreciation vs. income. It’s true that most folks take a pay cut to move to Bend. The average person is bringing a ton of cash out of California real estate and buying their Oregon home free and clear. My point is, as long as that continues to happen appreciation vs. income really doesn’t matter. Now, if something happens to the California real estate market, that could be a much different situation.

This is an interesting article that coordinates my losses in General Motors stock with the collapse of the housing industry (my profession). The kind of thing that makes you feel all warm and fuzzy inside. MSN Money - GM’s woes one more blow to housing bubble

“The use-your-house-as-an-ATM-to-live-beyond-your-means stimulus is finished, thanks to the recent de-leveraging/crackup in the bond market. The refi game and the bull market in housing it created postponed the consequences of the largest stock-market bubble in history. Though the Fed and the rest of the government succeeded in postponing the fallout from the massive misallocation of capital that took place in the mania, they have also succeeded in compounding and exacerbating those consequences. Even more leverage was created in the system, as we attempted to speculate our way to prosperity. “

The future of housing may lie in prefabricated structures, but I believe significant business logic will need to be applied to get there.

The latest edition of Dwell magazine focuses on the future of prefab possibilities. One of the more interesting articles showcases the FlatPak House idea of Charlie Lazor. The design is very impressive, but I was disappointed to see the $200 per foot estimated cost for building the system in my area. That cost includes many things right down to appliances, but does not include site work, permits, utilities, survey, or of course, the land.