Keep personal residence out of tax-deferred exchange
DEAR BOB:  I am very interested in your responses to several questions about using a tax-deferred exchange to convert a rental property investment to a personal
residence.  I own a single-family rental house.  I also own my own home.  We want to move to Texas.  Thus, we will be selling both properties.  But I want to arrange an Internal Revenue Code 1031 tax-deferred exchange on the rental property to defer profit tax.
If I use the sales proceeds from the rental house to buy a rental house in Texas, can I avoid paying tax if I later move into that acquired house?  What if I can't rent out the acquired house and have to move in right away?  If I immediately move into the
acquired house, but rent out part, will this be a tax-deferred exchange? - Edward G.
DEAR EDWARD: Please consult your tax adviser before you do anything.  IRC 1031 tax-deferred exchanges require trading one investment or business property for another such "like kind" property of equal or greater value without receiving any
taxable "boot."  Keep your personal residence out of it.
After you complete a tax-deferred exchange for another rental property (to show rental intent), you can later convert that rental property into your personal residence. But don't ask me how long you must rent the acquired property before converting it. Even the IRS doesn't have an official answer.  Most CPAs recommend at least six to 12 months.
Triple net lease investments are difficult to find
DEAR BOB:  My wife and I have invested in real estate for many years.  We have about $2 million in equity in our several apartment properties.  But we are very tired of what you call "tenants and toilets."  We can easily sell our apartment buildings. However, how can we get into a management-free property without owing Uncle Sam a ton of tax dollars? - Donald K.
DEAR DONALD:  The solution to your nice problem is to make an IRC 1031
tax-deferred exchange of your several apartment buildings for one or more NNN-leased properties.
Triple-net investment properties are virtually management-free.  The tenants pay the maintenance, insurance and property taxes.  All you receive is a net rent check each month.  You'll probably be bored with nothing to do but cash it.
The difficulty is finding NNN-leased properties.  Good ones are few and far between. Another problem is locating NNN properties that are leased to reliable tenants.  To illustrate, hundreds of Kmart properties are NNN.  The landlords thought they had safe, secure investments.  Now they'll have major problems if bankrupt Kmart
cancels its NNN leases.
To find NNN-leased properties, work with an experienced commercial real estate broker.
Are timeshares good investments?
DEAR BOB: What do you think of timeshare investments?  On a recent vacation in Orlando, at our hotel we were "enticed" into a one-hour timeshare presentation.  The lure was lots of "goodies," such as free admissions to various Orlando attractions. The timeshare investments seemed interesting.  Our three children love to visit
Orlando, so we will probably go back for many years.  Would it be a good idea to
invest in timeshares, and are they good investments? - Durk T.
DEAR DURK: Timeshares are horrible investments, except for the developers.  The only money you should waste on buying a timeshare is cash you will never need again.
Timeshares are current purchases of future vacation time at a hotel or resort.  You can probably do much better renting a hotel room each year rather than tying up cash in a non-liquid vacation timeshare.
It is virtually impossible to resell timeshares for anywhere close to the original
purchase price.  If you want to buy a timeshare, purchase it on the resale market at one of the many resale Web sites for about 10 percent of the original sales price.  The only way to profit from a timeshare is to be the original developer.