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CHAPTER 6

THERE’S NO PLACE LIKE (SOMEONE ELSE’S) HOME

Trading goods and services offers some great, lifeexpanding potential for bartering fans. But your ability to barter doesn’t end at your front door. That’s just your jumping-off point for a special area of trade that can satisfy your travel lust or help you lay down roots in a new locale. Bartering for real estate opens up wide vistas of possibility. When we say real estate, we not only mean trading one house, a piece of land, or other property for another but also mean temporarily swapping your home with someone in a far-off land for a unique vacation. Real estate trades can also set you up in a time-share at the beach, in the mountains, in the middle of Manhattan, or by the shores of a windswept lake. There’s no limit to where you can go with barter, and there are even opportunities for staying put once you get to your dream destination.

VACATION SWAPS

One of the most popular ways to save bundles of cash and provide you and your family with a whole different way of experiencing a new place or culture is trading your home with another family for a vacation. Multiple Web sites like HomeExchange.com allow travelers to find, scope out, and lock in vacation swaps with others all over the world. Got a hankering to spend a month in Paris? A week in Istanbul? A long weekend in Cancun? Here’s your chance.

When you trade your home for someone else’s, there are multiple benefits. The first and foremost is you save a huge sum of cash that you would have spent on a hotel or bed-and-breakfast. Think of all the wonderful ways you can spend that cash during your vacation other than just laying your head on a pillow. Have more luxurious dinners. Upgrade your flight to first class. Buy more or better souvenirs. Attend events like plays, games, or concerts you couldn’t have otherwise afforded. Go on pricey excursions like skiing, parasailing, white-water rafting, swimming with the dolphins, spa visits, or high tea. The bottom line is you get to decide where to spend all of that now-available cash.

Another excellent advantage of staying in someone else’s house, condo, or villa is that you will experience the place you traveled to in a more intimate way. Instead of staying in a tourist zone crammed with hotels and people selling you cheap tchotchkes, you will make your base of operations a home or apartment in a neighborhood (or a farm, ranch, or other interesting locale). You’ll see how natives live, work, and play. You’ll also have opportunities, if you want them, to get to know the neighbors and have a more personal interaction with them than you would typically experience in restaurants or hotels.

Early in her career when money was tight, Shera and her best friend, Johanna, traveled to Sydney, Australia, for a vacation. While dining in a restaurant on their first night in town, they began chatting with a vivacious couple intrigued by their American accents. When Joy and Brian discovered that Shera and her friend were visiting, they offered to let them stay at their condo in exchange for caring for their two cats while they went away for a long weekend. The couple lived just on the outskirts of Sydney in a lovely setting not far from a subway station. Joy and Brian could relax, knowing that their cats and home would be well cared for, gratis, while they were away. And Shera and Johanna had a great place to stay, saved a considerable amount on hotels, learned more about Australian culture than they could have imagined, and made friends they would never have met otherwise—all thanks to barter.

Making lifelong friendships is another benefit of home swaps. In the course of setting up your exchange, you’ll correspond with your trading partners and get to know them fairly well. After all, you don’t want to let complete strangers stay in your home, right? Those early relationships often continue to develop, especially if the two parties choose to swap vacation homes again.

That was definitely the case in the very first home swap for Suzanne and Wayne Horne. The Hornes traded their home in Phoenix for the home of a couple who lived outside London. Although that trade took place in 1975, the Hornes remained friends with their swap partners and cherished that friendship. Since then, they have traded homes in the United States as well as Paris; Prague; Edinburgh, Scotland; and Victoria, British Columbia, Canada. The Hornes correspond with their trading partners over several months, getting to know them and working out the details of the stay. Since they retired, the couple spends a month wherever they go and are often able to use their host’s car as well, which saves them additional transportation costs. They locate their swap partners through HomeExchange.com, which charges about $100 for a oneyear membership to list a trade.

Home swapping can also extend to the use of a sailboat, RV, chalet, ranch, farm, or any other sort of trade, with the owners still involved and acting as hosts. One family gets a nice home away to visit and, in return, offers an exciting “experiential home visit.” This is your chance to rope fillies on a dude ranch or track dolphins with marine biologists. Imagination and connecting with a trader are your only limits.

Another perk of a home trade is that you have access to the home’s kitchen and can save money by preparing your own meals rather than eating out for the duration of your stay. You also get a bit more privacy than in a hotel, since various family members can divvy up the house’s bedrooms for themselves.

So how does it work? The process is pretty simple. Before you get started, make a list of the destinations you’d like to visit and the times of year you’d like to go, as well as when your home will be available. The more flexible you are with your travel, the more likely it is you’ll be able to make a successful exchange. Just don’t book your transportation until you’ve got a confirmed agreement with another trader. Allow between four and six months to set up a trade. Sign up on a swap site and list your home, with lots of photos inside and out. Make sure you list the number of bedrooms, how many people it can accommodate, and any amenities that will make your home more attractive to potential traders. If you’ve got a gourmet kitchen, hot tub, pool, golf course, or gym at your disposal, those are important items to list. If your house is kid or baby friendly, especially if a crib is available, that’s good information to provide as well. Give viewers an idea of how close you live to the area’s main attractions and details about the transportation to those sights. If a car is available for their use, say so. Also specify smoking preferences and if animals live in the home, in case your visitors have allergies or don’t want to care for a pet.

Expect to spend quite some time corresponding with your partners via e-mail, postal mail, and the phone to establish the ground rules of the trade. And you’ll have to do quite a bit of preparation before you take off. That includes clearing out drawer, closet, pantry, and toiletry space for your guests. It’s also essential that you provide a guide to the operation of your home, appliances, alarm, car, computers with passwords, emergency contacts, and other pertinent information to make their stay a success. Many swappers provide maps, tips on good restaurants, directions to sights, the nearest drugstore and grocery, and other helpful information. It’s also a good idea to give them a phone number of a neighbor or relative who can help if they’re in a jam and who have an extra set of keys to the home and car in case they get locked out.

Don’t forget to indicate whether your guests are allowed to eat food that you’ve stored in your pantry, freezer, and refrigerator. If you have pets, you’ll need to make sure that your guests are comfortable living with them and caring for them while you’re gone. High-value items in your home are best stashed in a safe or safety deposit box or locked away in a room or closet that is off limits to the newcomers. Your home owner’s insurance policy will cover any accidents your guests may have, so you don’t need additional insurance for their stay. However, you should contact your auto insurer to make sure you are covered for driving their vehicle while you stay at their home, especially if they live overseas. You can ask that your guests do the same if they drive your car.

Once all the details are set, you’re ready to book your flight and take off. You may get the opportunity to meet your hosts if your arrival or departures overlap. Often, though, you’ll know each other only through e-mail and phone calls. In the end, the benefits of swapping homes will be worth the mystery of having friends you’ve never met stay in your home.

YOUR NEXT TEMPORARY HOME

Perhaps you’ve heard of those elusive people who somehow manage to live in a nice apartment or house for free (other than offspring, of course). How do they do that? Most of the time it’s in exchange for being the resident manager or caretaker. That’s just another form of barter and can be very helpful for cutting costs. If you have handyman skills, you’re even more likely to snag a bartered residence since you can earn your “keep” through doing repairs and maintenance. But if you aren’t handy around the house, don’t despair. You can still barter.

Take our friends, Carrie and Steve: They sold their house and moved into the home of a colleague who had relocated to Florida but wasn’t ready to sell his house in a depressed market. In exchange, Steve helped manage their friend’s real estate business for about ten hours each week. At first, they had a handshake deal, but they eventually signed a lease with the owner to ensure there were no misunderstandings. Carrie and Steve paid the utilities, but they freed themselves from a mortgage while getting to live in a larger, nicer house than they had previously owned. They converted the money they were saving on mortgage payments into paying off debts, and they also invested in Carrie’s life coaching business.

To get started, ask friends and family if they or anyone they know would be interested in trading rent for caretaking or some other service you can provide. If you don’t have luck there, you can try CraigsList, or you can call property management companies, your local landlord association, real estate agents, and apartment complexes or residences with For rent signs posted. While it might seem like a bold move to approach a property owner about bartered rent, the worst that can happen is that he or she will say “no.” Trading your time or caretaking ability for a place to live can save you enormous amounts of money and stress and, for some people, from the prospect of being homeless. If you are able to work out a deal, you will save yourself thousands of dollars a year—money that you could save for a down payment on a house of your own, to pay off bills like Carrie and Steve did, to have a fabulous vacation, or to buy whatever is important to you.

TRADE THROUGH AN EXCHANGE

If your area is in the doldrums and real estate isn’t selling well, you might consider selling your home through an online or commercial exchange.

First, the commercial exchange: You don’t have to be a member of the brokerage initially to sell it, but you may have to join to be able to use your barter credits. Selling a home or property through an exchange is a fast way to move your property and get a large amount of trade credits that you can spend as you like. If you don’t need that property, you could turn it into all manner of goods and services that you could use: chiropractic, gems, vacation time-shares, autos, massages, restaurants, home renovations—the list goes on and on. Just be sure you have a clear idea of how you want to spend all those trade dollars you are going to earn from the sale of your home. Otherwise, how will you know if the exchange can accommodate the purchases you want to make with tens of thousands of dollars in trade credits or cash?

Each brokerage will have different rules on how they conduct property barter, but many people will buy or sell for a combination of trade dollars and cash. If you are buying property through a commercial exchange, you will still need to obtain a mortgage; the good news is, you may be able to trade for your mortgage fees and other costs if the exchange has a lender member.

You can also trade other aspects of the transaction, such as a real estate agent or broker’s commission; title insurance; closing costs; building, mold, and termite inspections; surveys; appraisals; attorney’s fees; mortgage brokers; and more.

Some exchanges will issue a mortgage to their members for a property purchase. The member would still have to repay the mortgage and interest through trade dollars. The critical component in obtaining a mortgage on trade is making sure that you can earn enough trade credits to satisfy your monthly mortgage payments.

The good news is that although the trade exchange will issue a tax form indicating you had income from the sale of your property, you will be able to deduct the sale from your taxes just as you would normally, assuming that you bought a more expensive home in the same year.

THE 1031 EXCHANGE

There is yet another method of real estate barter, but this one allows you to defer paying taxes for quite some time. To execute this sort of transaction, you’ll definitely need professional assistance.

For many years, farmers have been swapping land as their needs and commodities changed. In 1921, Congress enacted a law that allowed farmers to trade land without having to pay taxes on each swap. That law is the basis for a powerful tax deferral tool referred to as a 1031 exchange, tax-free exchange, or like-kind exchange.

A 1031 exchange is best for property owners who are selling at a gain. (If you have a loss, it’s not a good option because you’ll want to deduct the loss from your taxes, not defer it.) A 1031 exchange doesn’t apply to your home, or primary residence, or to people who are renovating or “flipping” houses as an investment for resale. However, 1031 exchanges are ideal for any type of real estate that is held for investment or business purposes. For example, most commercial, retail, industrial, residential rental, or vacant property may qualify for a 1031 exchange. Raw land or farmland may also qualify.

To get started, you’ll need to contact a 1031 exchange facilitator, or “qualified intermediary.” That’s a company that can walk you through the steps of the deal and hold the cash from the transaction so you get the tax deferral. This type of firm must be contacted before closing in order to have the proper documents ready to make it a tax-deferred transaction. Trying to set up a 1031 exchange after a deal has closed is too late. To find these types of firms, contact the Federation of Exchange Accommodators (www.1031.org), the national trade association for these businesses.

The way it works is basically this: You agree to sell your property to a buyer, and your intermediary will accept the payment on your behalf. If your agent, attorney, or anyone else you have had control over in the prior two years accepts the payment for you, you could run afoul of the IRS rules and invalidate the 1031 exchange. You must choose a disinterested party. Since you’ll be transferring that large payment to another person who will have total control over it, make sure you know the firm or individual well, or you will risk losing your money to a possible embezzler. It’s best to deal with a well-established intermediary on the transaction. Since the intermediary will place the sales proceeds from the deal in escrow on your behalf, it is important to research the company’s credentials. Check the company out with the Better Business Bureau. The following questions are good to ask the intermediary:

Once the funds have been transferred, you have forty-five days to notify your intermediary in writing of up to three “like” properties that you would prefer to purchase. If you had a storefront that you sold, you could designate another commercial property, vacant land that could be built upon, a vacation home, or residential rental property. At the same time, the clock starts ticking, and you have six months to purchase one of those three properties. If you fail to buy, you lose the option to defer the taxes. The key to deferring all the tax is to buy replacement property or properties that are equal to or greater than the sales price you received. If you buy property of lower value, you will pay tax on the difference. If you do make your planned purchase, you can defer the payment of federal capital gains tax, any applicable state taxes, and depreciation recapture tax (if applicable).

After owning the new property for a while, you could sell it and put those proceeds into another 1031 transaction and go through the process again. In that way, you would defer the taxes until eventually, you sell the “replacement” property and keep the cash. It is possible to eliminate tax payments by continuing to structure every sale as an exchange, continuously deferring the tax. After you die, your heirs receive the property at its current fair market value, and the previously deferred taxes are eliminated.

The intermediary who handles the payment and 1031 paperwork for you will likely charge you between $600 and $2,500 for his or her services. Some will charge a percentage of the sale price of the property. Clearly, this type of transaction isn’t without cash costs. It’s important to consult with your tax or legal advisor before entering into a 1031 exchange. The key to structuring a successful 1031 exchange is to plan ahead. Ideally, you should educate yourself before you sign a purchase or sale contract. Most intermediaries offer complimentary consultations or seminars to educate taxpayers on 1031 exchanges.

SWAPPING HOUSE FOR HOUSE

One other intriguing form of real estate barter exists, although it’s rarer than most: the permanent house-for-house swap. In these trades, one home owner agrees to swap his or her home with another home owner. These trades can happen on the same street, same city, or across the country from each other. Web sites such as DomuSwap.com, U-Exchange.com, OnlineHouseTrading.com, and RealEstateExchange.com offer venues to connect with other potential swappers. Most charge a fee to list your home on their site, and there is no guarantee that you’ll find a willing partner. One of the biggest advantages of swapping homes is that you don’t need a real estate agent to handle the transaction. That means you’ll also save the agent’s commission, which can amount to tens of thousands of dollars depending on the value of your house. Swapping homes can also give you an alternative to selling your property in a soft market.

In fact, swaps tend to work best if your real estate market is slightly sluggish. A deeply depressed market will make a swap partner much more difficult to find, in part because many people just need cash for their home and because housing prices are likely to have dropped dramatically, wiping out much of the value of the property.

By their nature, these swaps tend to be unequal. After all, no two existing homes are exactly alike. If one home is valued more than the other, cash or additional trades will have to change hands to even up the deal. You’ll have all the same taxes, fees, and paperwork, such as a title search, surveys, inspections, and so on. You will also need to obtain a mortgage if you have to finance your side of the deal. But the good news is that mortgage lenders don’t think of house barter any differently than a traditional mortgage.

Another critical component of house swaps is having equity in your home to begin with. Home owners who have little or no equity in their house are not good candidates for a swap unless they have a substantial amount of cash reserves to make a down payment on the new home. Ideally, both sellers want to have enough equity in their homes to cover a standard 20 percent down payment on the new home, plus closing costs.

Swaps are harder to execute, which explains why they don’t happen every day. You have to think of a home swap as the simultaneous sale of two homes. That means, ideally, closing on the sale of both properties at the same time, even if the closings are in different locations. Simultaneous closings ensure that the buyer doesn’t renege on the deal at the last minute, leaving you in the unenviable situation of having bought their home and failing to have sold yours.

The other aspect of a home swap that makes it more difficult is that you are most likely not going to find your dream house. Because so few people know about and are willing to swap homes, you have a limited pool of properties to choose from. That means some of the amenities you want, most in your next home may not be available in a swap. The house might be larger or smaller than you really want, in poorer condition than you desire, or in a neighborhood, or even a city, that isn’t exactly where you wanted to live. You may fail to find any number of characteristics that you had on your new-home wish list. You have to determine how much you are willing to compromise to make a swap work. If you are inflexible and demanding, you are not a good candidate for a home barter. But if you are open to all comers and possibilities, you just might be able to seal the deal and line up the moving van.

GREAT TRADE!

When Sherry Crosslin and James Ray retired from their jobs as federal workers, they decided to pull up stakes and sell their home in Hampton, Virginia. But after their home was on the market for several months, they hadn’t received any offers, and even interested lookers had stopped inquiring. After firing their third real estate agent, Sherry got busy and began looking for any way possible to find a buyer so they could realize their dream of moving to Las Vegas.

Sherry soon discovered DomuSwap, a home-swapping Web site. She listed their home and within a few months had found a buyer with a home in Thousand Oaks, California, who was interested in trading. Since the home wasn’t too far from Vegas, they decided to trade. They agreed on a purchase price of $500,000 each for the houses and began writing up the paperwork with the help of their title companies and lenders.

When a bank appraised the home in California, the appraiser placed the value at $90,000 less than the price Sherry and James had agreed to. To make the deal work, the swap continued as planned by valuing both homes at $500,000, but to even out the trade a bit, Sherry and James provided the California buyer with cash to make up the lost equity in his home. Sherry conceded that although the California house wasn’t her dream home, it enabled them to sell their property in Virginia and finally move to the West Coast to start the next phase of their lives.

TRADING TIP

Invite vacation swap guests to feel at home in your house so they have a great experience during the swap. Let neighbors know guests will be visiting so they can help put out the welcome mat while you’re gone.



TRADING TIP

Leave a notebook with all the information your vacation swap guest will need to know about your home, vehicle, pets, appliances, area attractions, public transportation, emergency numbers, and other pertinent data that will make their stay a pleasure.



TRADING TIP

Before trying to sell your home through a barter exchange, review the membership rolls of the exchange and make a list, including dollar amounts, of goods and services you would like to purchase with the trade credits you’ll earn. If there aren’t enough members or items to spend your credits on, check out another exchange or ask the broker to recruit the type of business you want to buy from. If you still can’t satisfy your wish list, selling through an exchange may not be right for you.