By Michele Francis House May/June 07

FI = Fire Island, New York!  As the temperatures begin to climb to a comfortable level our minds bring us back to past summers in all their glory.  Warm ocean breezes, the sun shining brightly and of course the scent of sunscreen in the air; please choose your number!

Those of us who are serious about location during the months of June, July and August have already begun the search and perhaps have gone down the road of viewing and making offers on some of the most coveted ocean front properties on our much-loved Fire Island.

Recently I have had the pleasure of advising a prominent eye surgeon with both a sale and purchase of ocean front property on the Island.  Let us start with this little number: 1031.  1031 Exchange is a term used for selling and buying property without a tax consequence.  Internal Revenue Code section 1031 actually permits the deferral of capital gains and other taxes on the sale of property.  In the most common type of exchange, a Forward Exchange, property is sold and the proceeds are used to purchase replacement property within certain timeframes.  To qualify for a safe harbor tax deferral, proceeds should be held with a Qualified Intermediary between the sale and purchase.  In addition, properties can be exchange from state to state. 

The purchase price of the new beach house was $1.2M and my client was looking to maximize his financing options and utilize the 1031 Exchange program.  The home being sold provided him with $400,000 to bring to the new purchase.  Thus leaving us with $800,000 to finance which is ideal due to the fact that it brings the Doctors loan to value to 67%.  At this level we will avoid a private mortgage insurance event and simply shop the best financing terms out there for a second home.

In today’s mortgage industry loans are priced based upon a risk factor.  Due to the fact that my clients scores were in the 800’s we were able to obtain very aggressive pricing for his Jumbo 30yr fixed loan.  We closed the loan with a rate of 6.125% which gave the Doctor a payment of $4,861.75 in principle and interest per month.  This loan also has an interest only option available too!  The alternative payment of interest only would be $4,083.00 if chosen.

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