Closing Costs in a §1031 Exchange: A Trap for the Unwary?

Closing statements are replete with prorations and credits that adjust the sales price.  Other line items reflect the payment of recording fees, title insurance and other transaction expenses.   Seemingly routine, the way these expenses are handled in a §1031 exchange may have unintended tax consequences.

Remember that the rationale for tax-deferral under §1031 is that the taxpayer has merely moved his investment from one property to another.  The form may have changed, but as long as the underlying investment remains unchanged no tax is due.  Any “cashing out” of the investment (i.e. reduction in equity) will be taxed.

In some instances, using exchange funds to pay closing costs or issue credits that adjust the price, may be a form of cashing out.  The result is that the transaction may be partially taxable.
Another concern is that paying certain expenses could be construed as impermissible receipt of the exchange funds.  Under the IRS regulations the taxpayer cannot have actual or constructive receipt of the exchange funds.  Improper receipt could cause the entire exchange to fail.
The IRS and case law provide very little guidance on this topic.  This article discusses the issues in general, but because of their uncertainties and technical nature, it is important that every taxpayer have his tax advisor approve each closing statement, so there are no surprises when preparing the tax return.

EXCHANGE EXPENSES

Certain items paid at a closing are considered “Exchange Expenses”.  Using exchange funds to pay those expenses will not result in a tax liability to an investor doing a §1031 exchange.  For example, Revenue Ruling 72-456 provides that if exchange funds are used to pay brokerage commissions, it does not result in the transaction being partially taxable.  There are no other clear rulings on this subject, but most tax advisors agree that the following expenses are exchange expenses and may be paid at the closing of the relinquished or replacement properties without any tax consequence:
• Brokerage commissions • Exchange fees • Title insurance fees for the owner’s policy of title insurance • Escrow fees • Appraisal fees required by the purchase contract • Transfer taxes • Recording fees  • Attorney’s fees incurred in connection with the sale or purchase of the property

NON-EXCHANGE EXPENSES

Not all expenses are Exchange Expenses.  Exchange funds can be used to pay a non-exchange expense, although doing so may result in the exchange being partially taxable.
Such payments will not invalidate the application of the Qualified Intermediary safe harbor, but they may still constitute boot to the Exchanger.  On a typical settlement statement the seller of the relinquished property will give the buyer a credit against the sales price, representing security deposits and prorated rents.  Effectively, the seller was using exchange funds to pay the security deposit and prorated rent amounts to the buyer.  To avoid a taxable event, the seller should deposit his own funds to pay those security deposits and prorated rents to the buyer, rather than giving a credit.
In addition, most tax advisors believe that fees and costs paid in connection with getting a loan to acquire the replacement property should be considered costs of obtaining the loan, not costs of acquiring the replacement property, and thus are not Exchange Expenses.  To avoid any potential tax liability, the buyer may want to deposit his own funds to pay loan related expenses.
Some non-exchange expenses create a tax liability but are offset by a deduction.  One example of this is property taxes.  Although property taxes are not an Exchange Expense, the investor will get a deduction for paying the property taxes, and that liability will be offset by a deduction.
The following items are typically found on a closing statement but are generally not considered Exchange Expenses because they do not relate directly to the disposition of the relinquished property or the acquisition of the replacement property:
• Loan costs and fees • Title insurance fees for the lender’s title insurance policy • Appraisal and environmental investigation costs that are required by the lender • Security deposits • Prorated rents • Insurance premiums • Property taxes

TRANSACTIONAL ITEMS AND CONSTRUCTIVE RECEIPT

A separate, but important, issue is whether paying a non-exchange expense from exchange funds will be construed as constructive receipt of those funds by the investor, which has the potential to disqualify the entire exchange.  Under the IRS Regulations exchange funds can be used to pay “transactional items that relate to the disposition of the relinquished property or to the acquisition of the replacement property and appear under local standards in the typical closing statement as the responsibility of a buyer or seller (e.g., commissions, prorated taxes, recording or transfer taxes, and title company fees).”
For example, an investor may want to use exchange funds to pay a rate lock-in fee to a lender.  Since these fees by their nature are paid before the closing, and are not strictly required for the acquisition of the replacement property, paying the fee from exchange funds may trigger a constructive receipt problem.
Since there is no clear IRS guidance, it is important that investors discuss the issue with their tax advisors before seeking to use exchange funds to pay non-exchange expenses, whether prior to, or at the replacement property closing.

 

REFERENCES

Revenue Ruling 72-456; TAM 8328011; Treasury Regulation §§ 1.1031(k)-1(g)(6) and (7); IRS Form 8824.  – See more at: http://firstexchange.com/July2013Newsletter

-from First American Exchange Company July 2013 Exchange Update

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30 Minutes to a Clean Fridge

There are plenty of reasons to clean a fridge (unidentifiable leftovers, funky odors) and one big excuse not to — namely, lack of time. But you don’t need to set aside several hours to complete a basic cleanout and scrub down. Get it done in 30 minutes when you follow this guide.

Before you start. There’s no reason to clean out your fridge the day after a big supermarket trip. Pick a day just before you go shopping, when your fridge is relatively empty.  For safety reasons, it’s a good idea to unplug your fridge before you start cleaning it.  Gather your supplies:  small bucket small cleaning brush terrycloth towel large sponge new box of baking soda.

Get to it. Take food from the fridge and place it on the table or counter. As you do this, check expiration dates and toss anything that’s no longer edible.  Fill the bucket with warm water, and add a half cup of baking soda. (Save the rest of the baking soda — you can put the box in the fridge later to neutralize odors.) Use this solution to wipe down the empty shelves and interior with a sponge, starting from the top and working your way down.  Use a brush to clean around brackets and gaskets and to dislodge any dried food. Wipe the interior dry with a terrycloth towel.

Rearrange, reseal, restock.  Before you put the food back in the fridge, take a moment to group similar foods together. This will help you find items easier. Separate ethylene-sensitive produce (e.g., apples, broccoli) from produce that releases ethylene gas (e.g., bananas, pears) to prevent premature decay. Make sure that all containers are sealed properly and that anything wrapped is covered completely. Airtight storage will help prevent spills and spoilage.  As you begin to put items back in the fridge, be careful to space food out to allow a free flow of air. Keep eggs, poultry, meat and seafood separate from all other items to help limit the spread of bacteria. For more food safety tips, visit  foodsafety.gov  . And if you’ve unplugged your fridge, don’t forget to plug it back in!  A final note: A basic cleanout like this is no substitute for a thorough cleaning, which your fridge and freezer require periodically. To do that, you’ll need to remove and clean shelves, vacuum coils and wipe down the exterior.

American Home Shield is providing the information for general guidance only. Due to the general nature of the property maintenance and improvement advice in this material, neither American Home Shield Corporation, nor its licensed subsidiaries assumes any responsibility for any loss or damage which may be suffered by the use of this information.

from AHS August Newsletter Inside & Out

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Don’t Jeopardize Your 1031 Exchange – from First American Exchange Company – Exchange Update Newsletter

When completing a §1031 exchange there are some little-known requirements that could potentially disqualify your tax-deferred transaction.  Here are a few that could put your exchange at risk.

Qualified Intermediary Selection

 

Someone who is acting as your agent at the time of the transaction is disqualified from acting as a Qualified Intermediary.  Who is considered an agent? Someone who has acted as your employee, attorney, accountant, investment banker or broker, or real estate agent within the two-year period ending on the date of transfer of the first relinquished property. These persons are disqualified because they are presumed to be under the Taxpayer‘­s control.  Thus, the Taxpayer is deemed to have control of the exchange funds, otherwise known as “constructive receipt”. Constructive receipt by the Taxpayer invalidates the §1031 exchange. See here for exceptions to this rule.

 

If exchange funds are set aside or otherwise made available to you, it is also considered to be constructive receipt. Of course, if you actually receive the exchange funds you will invalidate your exchange.

 

Identification Deadlines

 

The most common reason an exchange fails is missed deadlines.  Potential replacement property(ies) must be identified by midnight of the 45th day after the relinquished property transfer.  Therefore, it is advisable to begin searching for the replacement property as soon as possible. In addition, the replacement property must be received by the taxpayer within the exchange period which ends on the earlier of 180 days from the date on which the taxpayer transfers the first relinquished property, or the due date for the taxpayer’s federal income tax return for the taxable year in which the transfer of the relinquished property occurs.  Extensions may be available for Taxpayers within a Presidentially Declared Disaster Area, or in active service in a combat zone. See here for exceptions to these deadlines.

 

Same Taxpayer Rule

 

Another mistake someone could inadvertently make would be to change the manner of holding title from the relinquished property to the replacement property. As a general rule, the same Taxpayer that transferred the relinquished property should be the same Taxpayer that acquires the replacement property. There are a variety of reasons you might want to change how title is held in an exchange and some changes are allowed, but you must be sure to talk it over with your tax advisor first. You can read further details on vesting title in a §1031 exchange, here.

 

Related Party Exchanges

 

You must also give serious consideration to any relationship you might have with the seller of the replacement property. Acquiring replacement property from a related party is potentially problematic, so the facts of the transaction should be reviewed by your tax advisor before proceeding.  The IRS could view the transaction as an abusive shift of basis between related parties resulting in tax avoidance and disallow the exchange.  Exchanges involving related parties are allowed, but both parties must hold their newly acquired properties for at least two years or both exchanges will fail.  For more information on exchanging with related parties, click here.

 

First American Exchange has helped thousands of taxpayers successfully complete even the most difficult transactions. While we don’t provide tax or legal advice, we make it our business to keep you informed of your exchange deadlines and other potential pitfalls that could jeopardize your exchange.

– See more at: http://firstexchange.com/June2013Newsletter#sthash.7dRJR7Vh.dpuf

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Powerwash Exterior Surfaces? – from HomeAdvisor Newsletter

Power washing can be done on almost any surface and is a great way to keep things like your driveway, parking areas, decks and even your home exterior looking clean and new.  Before you power wash, there are some things you should think about first.
What is the difference between power washing and pressure washing?

When you talk to your professional, make sure that you understand the difference between the two terms.  Many use them interchangeably and you may end up not getting the service you anticipated.

Power washing makes use of a steady and somewhat powerful stream of hot water. The temperature of the water is the key. By setting the temperature gauge to a specific setting, it is possible to dislodge items such as chewing gum from sidewalks and decks with ease. At the same time, the stream of hot water also comes in handy in killing moss and weeds, and ridding the surface of any mold or mildew that has built up. If there is a lot of gunk and other matter to cut through, a power wash is the way to go.
By contrast, pressure washing relies on the force of the water stream rather than the temperature. A pressure wash works very well for cleaning surface dirt from walkways, walls, patios and decks. Pressure washing masonry cleaning is especially common, as the technique does an excellent job with any type of concrete, brick, or cinder block construction. When there is no ground-in dirt or mold to contend with, pressure washing provides a quick and easy cleaning solution.
What are dangers of power washing?

Because the water used for power washing is powerful AND hot, it can be easy to ruin surfaces or get injured.  Only trained professionals should attend to your power wash needs because they will know what can or can’t be cleaned using this method.  Talk to your professional about the possibility of damage and what they will do in that event.

What are the best things to be power washed

Driveways:  Power washing is ideal for restoring driveways and parking areas whether they are concrete, brick, or asphalt.

Decks, patios, and wood: Any wood surface will look brand new after power washing. This includes fencing, decks, patios, gazebos, and any outdoor structure made with wood.
Garages, gas stations, and trailers: Power washing works on a variety of surfaces and is not just limited to outdoor structures and buildings.
Vinyl siding:  On a lower heat setting, your vinyl siding can benefit from a power wash.
Does power washing use chemicals?

Some power wash professionals do use chemicals.  Be sure to ask what is being used and any implications of those chemicals.  If it’s important to you, ask if your contractor can use non-toxic and biodegradable materials and whether or not they provide water reclamation services when needed to prevent run-off into public water systems

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Tips for a Stress-Free School Year

Field trips, packed lunches and permission slips—school means much more than just homework. With these extra activities come all sorts of organizational challenges.

  • Stock up on supplies. Anticipate last-minute school project needs by stockpiling supplies. Buy in bulk or wait for back-to-school sales. Get markers, index cards, poster board and other items that will come in handy throughout the school year.
  • Choose outfits ahead of time. Deciding what the kids will wear shouldn’t be left to the morning rush. On Sunday night, pick out clothes for each day of the week and set them aside.
  • Simplify lunch packing. Use clear containers in the fridge and pantry for lunchbox supplies. When it’s time to pack lunches (see below), you won’t have to search for them.
  • Consolidate meal making. Prepare lunches for the following day while you’re making dinner. You’ll be able to cross off one more item from the morning checklist and have one cleanup instead of two.
  • Touch papers once. Take a time management tip from the business world – if a task will take you a few minutes or less, tackle it immediately. So when your child brings home a permission slip, read it, sign it, add the event to your calendar (see below) and put it in his or her backpack.
  • Use a whiteboard. A functional calendar that everyone can update is essential to manage multiple schedules. Buy a large whiteboard calendar, hang it in a conspicuous spot (e.g., the kitchen) and use it to track practices, games, recitals and appointments.
  • File school papers. Use a cabinet drawer or file box to store and organize your children’s school materials. Each subject should have its own tab and folder; kids can unload weekly papers to save for later.
  • Color-code your bags. Use colored tote bags, one for each activity, to store equipment and supplies. Stow them in the same place every day, ideally near the door. That way, you can easily grab the right bag on your way out without having to empty and refill a single bag.

from American Home Shield July Inside & Out Newsletter

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Roof Inspections

In many states, especially those that see a higher amount of snow and hail, when  buying a home it is usually requisite to have the roof certified from  inspection. Matter of fact, many lenders required this to be done before they  will cut a check. In most states, a properly ventilated roof can last 20 years  or more. In states where the snow is heavy, they often have to be replaced every  five years. While having a secure roof is one of the most important parts of a  home, it can also be a very expensive investment, especially if you bought a  home under the guise that everything was on the up and up.

Roofing Inspections Roof inspections are simply inspections that  determine the intergrity of a roof, how long it may last, and when it will need  to be replaced. Roof inspectors are not going to climb up on your roof or the  roof of a home you are thinking of buying and pull up shingles or tiles. Roof  inspectors have special procedures wherein they can determine the lifespan of a  given roof without tearing into it. At first glance it might seem that roofing  inspectors would have to pull up part of the roof to do a  thorough examination,  but if you consider your own roof, you would not want anyone tearing holes in it  just to see if it was in good shape.

Roof Inspectors Roof inspectors also have super-technical  techniques like infrared roof inspections where they don’t even have to touch  the surface of the roof itself to determine a roof’s integrity. This process  uses infrared rays to locate parts of a roof that are at higher or lower  temperatures than the rest of the roof. These “hot spots” can show a roof  inspector just exactly where heat is escaping.

Roof Inspections Because replacing a roof can be quite an investment,  insurance companies and lenders require that this has been checked off. It makes  sense for these companies to protect their investments, but you as the homeowner  should want this to be secured as well. You don’t want to be stuck with a bill  that you weren’t expecting, and you also don’t want to sell a home to a family  and put them in the same spot.

from Homesense by Servicemagic

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Yes, You Can Use 1031 Exchange Funds to Improve Your Replacement Property

Many people are familiar with the “law of fixtures”.  In general, when an item of personal property becomes affixed to a parcel of real estate, that personal property is transformed into real property.  For example, a cabinet is personal property in the home improvement store.  When you bring it home and install it on your kitchen wall it becomes a fixture, and thus real property.

It seems logical, then, that improvements to a replacement property must be like-kind property.  But not so fast…

When it comes to tax-deferred exchanges, timing is everything.  Once the Exchangor takes title to the replacement property, the exchange is completed.  Subsequent improvements will not qualify for tax deferral, even if the funds come from the sale of the relinquished property.

Exchangors often ask if they can use exchange funds to purchase materials that will not be installed in the replacement property until after the closing, or pre-pay for construction services that will be performed at a future date.  The answer in both cases is “no”, even if the payments are disbursed through escrow as part of the replacement property acquisition.

Here is the reasoning.  The exchange begins when the Exchangor transfers real property.  If the Exchangor receives real property plus materials and/or construction services in return, only the real property is like-kind.  To qualify for tax-deferred treatment, the materials have to be real property (i.e. affixed) at the time the Exchangor acquires the replacement property.  Similarly, any construction services performed on the replacement property must be completed prior to closing.  Reg §1.1031(k)-1(e)(4).

So what can be done?  One possible solution is to ask the seller to make the improvements prior to closing, in exchange for a higher selling price.  The purchase contract can be structured so that the Qualified Intermediary pays exchange funds to the seller as additional earnest money deposits or as direct payment for the improvements.

If the seller will not cooperate, the alternative is an improvement exchange.  Similar to a reverse exchange, an improvement exchange requires that a third party take title to the replacement property.  The third party should not be someone who is a related party to the Exchangor under the deferred exchange regulations.  This deal structure gives you a cooperative seller who can make the desired improvements before the end of the exchange period.

In most instances the transaction will be structured in accordance with Rev. Proc. 2000-37.  The Qualified Intermediary, or an affiliate, acquires the replacement property through a single member limited liability company (i.e. Exchange Accommodation Titleholder or “EAT”).  The purchase price may be paid using exchange funds, obtaining a loan to the EAT from a bank or the Exchangor, or some combination thereof.  Unlike in a reverse exchange, the parked property should not be leased to the Exchangor, to avoid constructive receipt issues.

No matter how the transaction is structured, care must be taken to ensure that the replacement property is properly identified.  It is not enough to simply identify the underlying real property.  The improvements should also be identified, especially if they will be extensive enough to change the basic nature or character of the property.  The exchange will qualify even if the improvements are not completed prior to the end of the exchange period (unlike personal property exchanges which require that the replacement property be 100% complete).

An improvement exchange requires careful planning and involves higher transaction costs, but a properly structured improvement exchange will enable an Exchangor to get the property he wants, along with the maximum in tax deferral.

from  First American Exhange Comapny

The Exchange Update

A Newsletter For 1031 Tax-Deferred Exchanges

 

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Financing Part 2 – More Options for Every Investor

In last month’s article, we reviewed financing options for investors to use in their businesses. The two options discussed were traditional financing and asset-based financing (also called a hard-money loan). This month, we will review additional options, including seller financing and lease options, debt partners, and equity partners.

The whole point of both of these articles is to show you that there are financing options that will allow you to capitalize on some of the best real estate deals you will see in your lifetime. Now is the time to be creating a portfolio of real estate that will pave the way for financial independence. Applying these principles will make getting out of the rat race easier than it ever has been.

Seller Financing/Lease Options

Seller financing and lease options are very viable strategies in today’s market as it allows investors an option to bypass financing altogether. Usually when we discuss creative financing techniques, like seller financing or lease options, people usually wonder if these techniques are commonly used and accepted by sellers. The answer to that is yes and no. Let us explain…

Yes, the techniques are commonly accepted. In fact, seller financing is commonly used with commercial properties and other types of real estate that are not easily financed through traditional means (mobile home parks, commercial buildings, etc). Although it is less common with single-family homes, it still happens when it is explained the right way. And that brings us to the “no” part of the answer.

No, they are not common because it is usually explained the wrong way. Most investors will simply ask the seller if they would be willing to carry the financing. Most sellers are not sophisticated enough to know what that means, so they will say “no,” simply because they do not understand. As an investor, part of your success will be based on how you present this to sellers. You would be better off saying something like, “If I were to make your payments on the home until I could find a buyer and cash you out, would that work for you?” or “Would you like cash, or more cash?” Either of these questions will open up the door for the conversation to go further. At that point, you can explain how seller financing or a lease-option works and they can make an educated decision.

When you are presenting seller financing, always frame the discussion around the benefits for the seller. These benefits include monthly cash flow from your payments, more money because of the interest on the loan, no more hassles of being a landlord, and the tax benefits. Tax benefits are a huge reason for people to consider seller financing. If the seller is selling a property where they are making a gain and it is not their personal residence, or if they have lived in the property less than two of the last five years, the seller must pay capital gains taxes. If the seller is receiving a lump sum of money from the sale, they have to pay capital gains taxes. When they are taking monthly payments from you on seller financing, they only pay taxes on the payments received and greatly reduce their capital gains tax. Or, if you are using a lease option, the title of the property has not transferred and it is not subject to capital gains until the property is purchased and title is exchanged.

The whole point of creative financing is to find a win-win scenario. When you construct deals that benefit both parties, you can produce great results by investing and you can also sleep well at night knowing that you have benefitted someone else.

Debt Partner

Most people think that a partner is a partner and there is not much difference between a debt partner and an equity partner. The truth is, that they are very different.

A debt partner is someone that partners with you by owning the debt of the property. In other words, they put up the money, and you are paying them a return in the form of interest on the loan. For the sake of clarity, let’s explain it this way…

When you buy a property through a bank and use traditional financing, the bank is your debt partner. They own the mortgage and expect you to pay them interest on the loan. They make money as the payments are made each month, regardless of how well (or poorly) the property performs. They make money by financing you and you repay them the interest. If the property goes up in value or receives more positive cash flow, they do not receive a greater return.

When you have a partner that puts up the money and they only want you to pay them interest on the money you are using, this is a debt partner. They do not have any ownership in the property. They own the financing behind the property. The property is their security in the event that you do not pay them. If payments are not made, they would have the right to foreclose and secure the property to recoup their investment.

What would make someone want to be a debt partner? It is all based on the return that they would get. Consider the options from their point of view. They could put their money in a CD at the bank and get a return that won’t even keep up with inflation. They could put it in a mutual fund or the stock market and get a lower return. Generally speaking, most mutual funds and index funds offer low rates of return. As a debt partner, they could finance the money on a property, get a fixed return in the 5-9% range, and have the property as security for their investment. That is a pretty safe deal for them when you consider their other options.

Equity Partner

The equity partner is different from the debt partner. Instead of owning the debt on the property, the equity partner owns a percentage of the property based on splits that are predetermined. Since there is not a fixed return (based on an interest rate on the loan) there is no guarantee that the partner will make money.

However, as the property increases in value or cash flow increases, their return increases as well. You will find that most people will prefer to have an ownership interest as it will also provide them a greater return.

When you are raising capital from other people, there are rules that you must comply with or you can get into trouble with the Securities and Exchange Commission (SEC). You will want to read up on Rule 506 for Regulation D on the SEC’s website. It will walk you through exactly what you have to do to be in compliance when raising capital for an investment.

The presentation to potential money partners is one of the most important aspects of raising capital. The presentation should ideally cover market conditions, the type of properties you will be purchasing, why you are able to provide a return, and how the return will be shared. If you do not adequately address all of these issues, then you will not be as successful raising money as you could be.

When you are working with money from your investors, you must be conservative and handle their money the way it should be handled. Provide them with an accounting of each fee, expense, and return. The worst thing you can do with a money partner is to not communicate with them. They will get the impression that you are trying to hide or run away with their money. That does not inspire a lot of confidence.

Raising capital is one way of being able to finance almost any kind of deal. Investors that are successful with equity partners will be able to take their business to the next level without investing any of their own money into the deal.

That is the whole point of these two articles on financing options. There are so many possibilities out there. It is just a matter of finding solutions for your deals. When you open your eyes to the possibilities, you will see that there are so many more options than just traditional financing.

from Rich Dad Education Newsletter

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Container homes: out-of-the-box thinking

By SUSAN GALLEYMORE

A trend in recycling structures not traditionally considered “real estate” is changing how potential home and business owners, not-for-profit organizations, government agencies and the U.S. military view shipping containers.

The use of rudimentary containers to ship cargo began in the late 17th century. By the 1950s, Malcolm McLean of Sea-Land Shipping, pushed by the U.S. military to standardize their design, was building strong, uniform, theft-resistant, stackable shipping containers that were easy to load and unload by truck, rail and ship, and easy to store.

In 2005, an estimated 18 million containers made a combined total of about 200 million trips. Many containers measure 20 feet or 40 feet in length, and a 40-foot-long shipping container offers 304 square feet of floor space.

A trade imbalance has led the containers piling up around U.S. hubs, and storing them increases the cost of doing business.

One response to the problem: Re-engineer the containers. As architects and designers around the world evolve and refine creative reuse, containers are reshaping as disaster-relief shelters, coffee shops, student housing, custom homes, retail towers, even storing physical books after they are digitized.

The U.S. military, for example, has deployed “Containerized Housing Units,” or CHUs (pronounced “SHOOS”): Army and private military contracting companies use the converted shipping containers to house troops, contractors and others.

The units offer hard floors, windows, air conditioners, beds for up to three people, and some are outfitted with refrigerators.

According to the U.S. Army Environmental Command, the first multistory commercial structure built of recycled steel containers on a U.S. Army base opened in Fort Bragg, N.C., in April 2008.

Twelve containers, each measuring 9 feet 6 inches in height, 8 feet wide, 40 feet long and made of 14-gauge steel, form the two-story, 4,322-square-foot 249th Engineers company Operations Building that houses two company detachments.

Living in former shipping containers may have begun as a fringe novelty, but it is far from such these days. Many entrepreneurs are exploring new niches amid the growing assortment of shipping container-based structures.

Alex Klein of Container Home Consultants Inc. has been involved in shipping container conversions for 30 years, while Heather Levin said she appreciates container homes after noticing how much of her hard-earned dollars went to a bank as mortgage loan interest.

Victor Wallace of ContainerHomes.info authored the free downloadable book, “The 30 Most Influential Shipping Container Homes Ever Built!” His website presents extensive tutorials and videos for container conversions and also offers a free download of the book with designs from around the world.

21st Century Homes & Structures builds modular homes and claims it is the “original approved shipping container home manufacturer in New York … certified since 1985.”

That company reports that its modified shipping containers are “eco-friendly, (energy-efficient), hurricane-resistant, pest-free, affordable and green.” The company offers units in sizes ranging from 480 square feet to 1,280 feet, and prices starting at $89 per square foot. That does not include excavation site work and foundations. The company offers turnkey packages and ships throughout the U.S.

An Argentinian-born woman living in California identified by faircompanies.com as “Lulu” (no last name given), was reportedly forced by the recession to downsize, and found and modified a free shipping container. She took a couple of months to gather mostly recycled components to remodel the unit, faircompanies.com reported, and it took another month to convert the original 360-square-foot space into a home for herself and her small daughter.

With hot water on demand from a small camping device, and camping stoves for cooking, Lulu noted that her home features a separate bathroom and second bedroom, and she plans to add a teahouse and a greenhouse.

One New Jersey-based company, Sea Box Inc., offers a 1,000-square-foot, three-bedroom home — the Modular Systems Housing Unit — built from shipping containers. The structure also features a living-dining room, kitchen, bathroom and storage.

For multifamily housing, we can deliver and erect a four-story, 16-unit apartment building, fully furnished and move-in ready, in three days,” according to Robert A. Farber, director of contracts and counsel for Sea Box.

“All of these living quarters will last more than a hundred years, are impervious to pest infestation (termites can’t bite through steel), and can withstand hurricane-force winds that would destroy conventional housing,” he also said in an email message, adding that the company bid for a job to potentially supply tens of thousands of housing units built from shipping containers to New York City in the event of a major natural disaster.

The company offers a range of designs, he said, “including offices, laundry facilities, machine shops, personnel shelters, and even a giant movie screen: 90 feet high.”

Sea Box structures have also been used by the U.S. military in Iraq, Afghanistan and other nations, he said, and “We’ve sold two-story container configurations, which individually house 2,000 computer servers used to power the search engine Bing.”

By Inman News, Wednesday, March 14, 2012.

Inman News®

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3 steps to furnace duct repairs

You set your thermostat, you hear your furnace come on, and you feel warm air coming out of the registers. All must be OK with the system, right?

Maybe not.

The furnace and the thermostat are only two of the elements in the system that heats and controls the warm air in your home. The third is the duct system, and even though it’s delivering warm air to the registers, there’s a pretty good chance that it’s not doing it at peak efficiency. And every bit of warm air you’re losing is money that’s coming straight out of your pocket!

Start with an inspection

Whether you do this yourself or pay a home inspector or, better yet, a licensed HVAC contractor to do it for you, tuning up your duct system begins with a thorough inspection. You may be surprised to find what age and even damage from others who’ve worked under your house have done to your duct system over the years. It’s going to mean some crawling, but it’s worth it.

Turn the furnace on, even if it’s just to the “fan” setting. That way there’s air moving through the ducts, which makes it easier to both hear and feel any leaks. Take a strong light — preferably a cordless one so you’re not dragging a long extension cord around behind you — and follow each duct run from the furnace all the way to the end.

If you’re not planning on doing the repairs immediately, plan on also taking some bright pink or yellow flagging tape with you. It’s available at any home center, and you can use it to mark any problem areas so you can easily find them later.

Look and feel for areas where joints between pipes and fittings may have come loose, or where there may be small gaps. Also look for areas where support straps are missing, sagging, or otherwise not providing adequate support for the ducts. This is especially important with flexible ducts, where large sags or kinks in ducts can impede air flow.

Another thing to look for is areas where insulation is missing or nonexistent. You’ll also want to make note of any areas where the ducts are resting directly on the ground, as contact with the cold, damp soil can wick heat out of the ducts, and can also cause rust and other moisture-related problems.

Inspect each of the boots, where the duct attaches to it. Again, look for loose joints, missing insulation and sagging ducts. Around the boots, look to see that large gaps are not present where the floor or ceiling was cut out to accommodate the fitting. Occasionally you will find a floor that has been cut too large for the boot and then not patched, which can leave an opening for drafts to come into the house from unheated areas.

Also inspect the plenum, which is the large sheet metal box attached to the top or bottom of the furnace from which all the ducts originate. You’ll want to check that the plenum is fully insulated all the way around, and that all of the ducts are well sealed at the connection points.

Be sure that you inspect the garage and unheated basement as well. These areas are sometimes assumed to be part of the house, and people have the mistaken impression that ducts there don’t need to wrapped. But remember — if it’s unheated space, ducts that are not insulated will lose a tremendous amount of heat into the surrounding air, so you’ll have a nice warm garage or unfinished basement, and higher utility bills to go with it.

Make the repairs

Put together a simple repair kit of some basic tools, including a hammer, tin snips, utility knife, cordless drill, and anything else you may have identified during your inspection.

You’ll also need some short sheet-metal screws, a roll of metallic foil duct repair tape (get the good stuff, not your basic, run-of-the-mill gray cloth duct tape), and some duct strapping. Assemble everything into a 5-gallon bucket or other tote that’s easy to work with under the house.

In hard ducting — solid sheet metal as opposed to flexible ducts — repair loose joints using sheet-metal screws. After the joints have been secured, seal them up using the foil tape. Be sure there’s air moving in the ducts, and check to be sure you can no long hear or feel any air leaks.

Flex ducts typically use a clamp system to secure the flex duct to a hard duct. If a flex duct joint has come loose, check to see if you can reuse the original clamp. If you can’t, you can typically use a large worm-drive clamp or a flexible plastic clamp to secure the joint. After re-securing, wrap the duct’s inner insulation blanket and outer shell back into place to cover and seal the joint.

If ducts need to be re-supported, use duct support strapping that’s made for this purpose. Attach the strapping to a joist, girder or other solid support, using nails or screws. Don’t use wire or string, as it doesn’t provide adequate support and can also pinch and kink the ducts. Make sure all of the ducts are up off the ground.

Insulate the ducts

Remember that you’re pushing heated air through ducts that live in a very cold environment under your house or up in your attic. That heated air is constantly trying to move out of those ducts and into the unheated air that surrounds it, and when in goes, it happily takes your hard-earned dollars with it.

The best way to prevent that from happening is to insulate the ductwork. All of your ducts, both hard ducts and flex ducts, should be insulated to at least R-8, and I prefer R-11 if you can get it. If you live in a warm climate and you’re not worried about losing heated air, remember that the reverse is true as well, and you’re also wasting money whenever you lose air-conditioned air.

By Paul Bianchina, Friday, February 24, 2012.

Inman News®Remodeling and repair questions? Email Paul at paulbianchina@inman.com. All product reviews are based on the author’s actual testing of free review samples provided by the manufacturers.

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