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  Dear
Steve,
What is the difference between primary,
secondary and investment property?
-- Virginia
 Dear
Virginia,
Typically, the terms "primary" and "secondary"
in real estate lexicon are used to describe a homeowner's
properties as either a "primary residence," which
is a principal dwelling, or a "secondary residence,"
which can be a second home, vacation home, cabin or time share.
These definitions and distinctions are important
to lenders, who may impose a larger down payment or other
tougher lending restrictions on secondary homes.
Additionally, many special low-interest home-lending
programs are available only for primary residences, although
some extend to secondary residences. But they rarely extend
to investment property, generally considered residential or
commercial property that is being purchased for development,
rental or resale.
In large urban areas, the tenants of rent-controlled
apartments must convince their landlords that their rental
unit is their "primary residence" or risk losing
it.
The distinction between the three is also important
in a tax-deferred 1031 Exchange. That's where a property investor
sells investment real estate and uses all the proceeds to
reinvest in another income property or properties, deferring
that tax liability until a point where he or she decides to
cash in the final asset -- often after several more 1031 Exchanges.
In most such exchanges, the investors' primary or secondary
properties are not eligible.
Additionally, the terms primary, secondary and
tertiary are sometimes used in 1031 disclosure information
to the IRS. Exchangers must identify three possible replacement-property
options to the IRS within 45 days of the sale of their investment
property in order for the deal to qualify for a 1031, and
they must buy one at least one of those identified properties.
Another less-common use of the words primary
and secondary in real estate comes in describing some lesser
for-sale properties. For example, a property with age, condition
or location problems such as highly restrictive zoning or
polluted soil can make it considerably less desirable than
a primary, or "prime property," hence making it
a "secondary property."
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