3 Tips for Seller’s ‘Stay Or Go?’ Dilemma

3 Tips for Seller’s ‘Stay Or Go?’ Dilemma
Written by PJ Wade

Although the focus is on selling price during negotiations, sellers know that how they use their real estate, and all that represents, present and future, is the true measure of value. It’s this accumulated value, not just how much money they’ll get, that sellers should concentrate on when tackling the “Should we stay, or should we go?” dilemma.

Lack of experience or uneasiness with the unknown should not dissuade you from the mental adventure of weighing your options. Don’t shy away from a thorough, creative comparison of all that can be gained by staying and all that this would cost versusall that can be gained by going and all that would cost. Have fun talking to friends and exploring the internet to discover other people’s successes and experiments. Here’s 3 tips to get you started on your real estate adventure:

1. Don’t just compare possible selling price to potential purchase price.

When deciding whether this is the real estate market to jump into, many sellers concentrate on the possible selling price of their current real estate and the potential purchase price of the next property. These dollar figures get the most attention, but they are not all that buying and selling real estate involves. Yes, selling and purchasing prices matter, but it’s your TOTAL NET GAIN from the combined sell-and-buy real estate transactions that really counts:

TOTAL NET GAIN = NET GAIN from Sale + NET GAIN from next Purchase

Your real estate professional can help you estimate how much will end up in or out of your pocket after mortgages and a long list of fees (including theirs) for both the sale of your current real estate and the purchase of your next property. Add to the “sale cost” list any long-standing service contracts for which you’ll lose price benefits when you move, and any accumulated benefits like-lower-than-neighbours realty tax, earned by consistently disputing tax increases. Moving, legal, and renovation costs must be included in the equation, too. Broad strokes will get you started, so you can assess net benefits and net losses in every aspect of life and homeownership. Often this exercise reveals clear “stay” benefits or disadvantages that make deciding easier.

2. Don’t let financial promise distract you from assessing the true value ownership represents to you.

Before setting goals and scribbling down a “what comes next” action plan, assess the true value of ownership of your current real estate and all it connects you to, not just its financial value. One measure of what your home means to your life and family is whether you want to move out of the neighbourhood or just to a new location within it. If you don’t want a dramatic location change, list what you value about the neighbourhood. Will these items persist, or is social or economic change putting those value elements at risk? While you assess what’s keeping you here, consider these connections with open eyes not just nostalgia for what was. Moving to a new location brings change on many levels. How will the new neighbourhood enrich life and what will be sacrificed?

3. Don’t overlook how ‘staying’ could involve significant change.

Just because you are not handy and have never undertaken a renovation before does not mean you can’t or that you won’t be great at it. If there is a strong pattern of extensive renovation and new builds in the neighbourhood, take a close look at what these options, or a less ambitious refreshing of your property would give you and at what cost. If this pattern is common in your area, moving to a new location in the same neighbourhood may represent a lateral financial move or even require additional expenditure. Then, your choice may be to renovate your current property or move to a less expensive area. Also, check with your municipal office to see if secondary suites or duplexing would be an option for your property. Adding an income-generating suite will also give you choice in the future.

For example, you could live in the suite and spend time travelling on the rental income from the rest of your home. Tied to these considerations are modernizations and upgrades that are necessary, or will be, since 15 to 20 years is the average life of most residential systems. If you project ahead 5 or so years, what overhauls will be necessary? If a new furnace, roof, windows…are on the horizon, a renovation now may make sense. This may allow upgrades like solar panels, heat pumps, and energy-efficient windows which can also improve building efficiency, increase comfort, and reduce maintenance and costs, while increasing property value. Architects, renovation contractors, builders, and real estate professionals are the idea people to involve in these value investigations.

This mental exercise will open doors and expand horizons in ways you may not have been able to foresee. This is research, so step back from anyone intent on getting you to sign a contract for anything until you have had time to explore your options. This may take a while, especially if you have only a few gripes about your current home or cottage.

May I suggest a great place to start? Write out a two or three sentence description of how you want your life to change. Be very specific. I suggest this exercise to clients who want things to improve or who are faced with change they wish to triumph over. The clearer the future is to you, the more likely you are to achieve it. Finish this sentence with what a brilliant outcome represents to you: “When I/we are successful…”. If you don’t know where you want to end up, how will you know the best way to get there?

Onward & Upward…The directions that really matter!

Sacramento Home Prices Rise in the Midst of Low Inventory…

Sacramento-area home prices rise in February amid low inventory

 

 

3 Valuable tax deductions real estate pros often overlook…

3 valuable tax deductions that real estate pros often overlook

Real Estate Tax Talk

Tax deductions are worth a lot. Exactly how much depends, of course, on your top tax bracket.

If, for example, you’re in the 28 percent federal income tax bracket, every $100 in deductions will save you $280 in federal income taxes.

If you’re self-employed, and the deduction is a business deduction, it will also save you on self-employment taxes as well — a combined Social Security and Medicare tax of 15.3 percent tax up to an annual ceiling (for 2013, $113,700 in net self-employment income) and a 2.9 percent Medicare tax thereafter (with an extra .9 percent tax for very high earners).

If your state has income taxes, your deductions will save on these, too.

So you want to make sure you claim every tax deduction you can on your 2013 taxes. Here are three potentially valuable tax deductions that real estate pros can easily overlook:

Home office deduction

Almost any real estate professional who uses a portion of his or her home exclusively for business can qualify for this deduction. This is so even if you do the bulk of your work outside your home.

This deduction is particularly valuable if you are a renter because it enables you to deduct a portion of your monthly rent, a sizable expense that is ordinarily not deductible. If you own your home, it is not worth as much, but still permits you to deduct a portion of your utilities and other home expenses and depreciation for the area of your home office.

Even though they qualify for the home office deduction, many people don’t take it because it can be complicated and/or they fear it will increase their chances of getting audited. There is no empirical evidence that taking this deduction increases your chances of being audited. For years, the IRS has denied that the deduction is an audit flag.

In fact, the IRS has created an optional simplified version of the deduction in attempt to encourage people to take it. Using the simplified method, you merely deduct $5 per square foot of your home office space, up to a maximum of 300 square feet. The simplified home office deduction can be used only for 2013 and future tax years. So this is the first tax filing season it is available. We discussed the simplified method in detail in a prior article (see “Simplified home office deduction may not be the best option”).

State sales taxes

If you itemize your deductions, you have a choice between deducting the state and local income tax or state sales tax you paid in 2013. If you live in Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Washington or Wyoming, you don’t pay any state income taxes and can only take the sales tax deduction. If you live in one of the other 42 states that has income taxes, you’ll usually be better off deducting such taxes, rather than sales tax. However, this may not be the case if you bought an expensive item during 2013, such as a car or boat, that required you to pay substantial sales tax.

Since figuring out how much you actually paid in sales tax during 2013 (or any other year) is likely impossible, the IRS has estimated how much sales tax people at various income levels pay on average in each state based on that state’s sales tax rates. Its results are contained in the sales tax tables in the instructions to IRS Schedule A. But you are allowed to add to the total in the table the actual sales tax you pay for:

  • a motor vehicle (including a car, motorcycle, motor home, recreational vehicle, sport utility vehicle, truck, van, and off-road vehicle).
  • a leased motor vehicle.
  • an aircraft or boat.
  • a home (including a mobile home or prefabricated home) or substantial addition to or major renovation of a home).

To make things as easy as possible for you, the IRS has created an online sales tax deduction calculator you can use instead of its printed tables and worksheet.

Moving expenses

If you moved during 2013, the cost is deductible if your new workplace is at least 50 miles farther from your old home than your old job location was from your old home. In addition, you must work full time at your new job for at least 39 weeks during the first 12 months after the move, and for a total of at least 78 weeks during the first 24 months following the move. If you meet these requirements, you can deduct the reasonable expenses of:

  • moving your household goods and personal effects (including in-transit or foreign-move storage expenses).
  • traveling (including lodging but not meals) to your new home.

Moving expenses are figured on IRS Form 3903, Moving Expenses, and deducted as an adjustment to income on your Form 1040. This makes them a particularly attractive deduction because they are not a miscellaneous itemized deduction that must be listed on Schedule A and are not subject to the 2 percent of adjusted gross income limitation on such deductions (miscellaneous itemized deductions are deductible only if, and to the extent, they exceed 2 percent of AGI).

best Regards, Chris Mesunas.

Investors Losing Interest…

Investors Losing Interest in Housing, Despite Rise in Distressed Sales Share

Institutional investors appear to be losing interest in purchasing foreclosed properties for rentals in the face of rising property prices and interest rates and increased competition from homebuyers.   According to RealtyTrac's January 2014U.S. Residential and Foreclosure Sales Report, the share of home sales tied to institutional investors – entities that purchase ten or more properties in a calendar year – dropped to 5.2 percent in January, down from 7.9 percent in December and 8.2 percent in January 2013.  The January number was a 22 month low.

Daren Blomquist, a RealtyTrac vice president said, "Many have anticipated that the large institutional investors backed by private equity would start winding down their purchases of homes to rent, and the January sales numbers provide early evidence this is happening.  It's unlikely that this pullback in purchasing is weather-related given that there were increases in the institutional investor share of purchases in colder-weather markets such as Denver and Cincinnati, even while many warmer-weather markets in Florida and Arizona saw substantial decreases in the share of institutional investors from a year ago."

The fall back in institutional investors occurred in nearly three-quarters of the metropolitan areas tracked by the Irvine California company.  Areas with particularly large declines from a year earlier included Cape Coral-Fort Myers, Florida (-70 percent); Memphis (-64 percent), Tucson (-59 percent), and Tampa (-48 percent).  Institutional activity increased in 23 of the 101 areas with Austin, Texas notable for a 162 percent rise while Cincinnati was up 83 percent and Dallas 30 percent.

Institutional investment remains a major factor in sales in several areas including Jacksonville, Florida at 25.5 percent, Atlanta, (25.1 percent), and Austin (18.0).

Sales of all U.S. residential properties including single family homes, condos, and townhomes were at an estimated annual rate of 5.126 million units in January, a less than 1 percent increase from December and up 8 percent from a year earlier.  The rate of sales declined in seven states and 17 of the 50 largest metropolitan areas.

RealtyTrac said that foreclosure-related and short sales accounted for 17.5 percent of all residential sales in January, up from 14.9 percent in December.  In January 2013 distressed properties accounted for 18.7 percent of sales.  The distressed sales breakdown in January as a percent of all sales was 5.9 percent short sales, 10.2 percent bank owned real estate (REO) and 1.5 percent properties sold at foreclosure auction.

All-cash sales accounted for 44.4 percent of all U.S. residential sales in January, the seventh consecutive month where all-cash sales have been above the 35 percent level.  In several metro areas the majority of sales were all-cash; Miami (68.2 percent), Jacksonville, (66.2 percent), Memphis (64.4 percent) Tampa (61.5 percent) and Las Vegas (56.5 percent.)

The national median sales price of U.S. residential properties – including both distressed and non-distressed sales – was $165,957 in January, down 3 percent from December but up 1 percent from January 2013. The 3 percent monthly decrease was the biggest monthly drop since February 2013.  Some of the markets which had shown the fastest appreciation posted declines in January.  Some cities where prices fell 1 to 2 percent were San Francisco, Sacramento, Memphis, Cincinnati, Phoenix, and San Jose.  Prices in each, however, were a minimum of 19 percent above year-ago levels.

Best Regards, Chris Mesunas.

 

New Homes in Sacramento Areas…

Six-acre, 55-home community planned along Madison Avenue

 

 

10 of the most affordable cities to purchase a home…

Top 10 cities people are moving to

Whether it's the warm weather, jobs or cheap cost of living, these are the top 10 cities Americans are moving to, according Penske Truck Rental's annual list.

 

Atlanta

  • Median income: $66,300
  • Median home price: $166,000
  • Home price growth forecast : 5.3%

Even though it was hit hard by the recession, Atlanta has claimed the top spot on Penske's list for four years running. Home to Coca-Cola, Home Depot and roughly a dozen other Fortune 500 companies, the city offers a range of job opportunities. And the cost of living is pretty cheap — less than half the cost of Manhattan — with much warmer weather (well… except for this winter).

Tampa, Fla.

  • Median income: $56,800
  • Median home price: $129,000
  • Home price growth forecast : 6.5%

Beaches, boating and baseball are among some of the top reasons people come to Tampa, which is a newcomer to the top cities list. Several Major League Baseball teams come here for Spring training and MacDill Air Force Base has long been one of the biggest employers in the area…

CNNMONEY – http://www.cnn.com

 

 

 

http://bit.ly/Mf97K6

Rental Property Depreciation…

Tax Savings: Rental Property Depreciation Explained AUTHOR:

One reason you might consider investing in rental properties is to save money on federal income taxes. While this may be true, you should fully understand how rental properties and taxes work in order to determine whether you will save money from your rental property ownership.

If you’re already an investment property owner or are thinking about becoming a landlord, here’s a refresher on how the depreciation expense could help you maximize your tax savings.

The basics

In doing your annual 1040 federal income tax return, you’ll record your rent and all expenses on a Schedule E form. The net amount of gain or (loss) is then recorded on your 1040 form and can shield your income from taxes if you had a loss. One of the bigger expenses on most rental property owners’ Schedule E is something called depreciation. Here’s how it works.

When you own property, each year you write off costs for money you expend where the cost is a one-year expense, such as gardening, general maintenance, repairs and HOA fees. But what if the cost is for an improvement such as a new kitchen or new sidewalks? Because those costs have a useful life beyond one year, you must “capitalize” and depreciate those costs. That means you divide the total cost by the useful life of the improvement, and write off 1/nth of the cost per year. For example, you do $15,000 worth of driveway and sidewalks, with a 15-year useful life, so you can write off $1,000 per year ($15,000 divided by 15 years).

The biggest capital asset of any property is the actual purchase of the house. When you buy a rental property and will own it for longer than one year, you can depreciate the structure. First you must divide the purchase price of the property between the land and the building. You can use your tax assessor’s estimate of the cost of each of those components, an appraisal or an insurance agent’s estimate of the cost of the building. Either way, you can only depreciate the building, as theoretically the land portion of your purchase price is not “used” up and cannot be depreciated.

Crunching the numbers

Here’s an example: Let’s say you buy a single-family home for $200,000. The tax assessor’s estimate of the land value is $75,000, and the building value estimate is $125,000. Your depreciation expense that you take each year against rental income would be $125,000 divided by the IRS allowed 27.5 years of useful life (residential real estate) for a depreciation expense each year of $4,545. So thanks to that depreciation expense, you are saving (assuming you can use passive activity losses) $4,545 multiplied by your marginal tax rate (which is a topic for another day). This could be tax savings from $1,000 to $2,000 per year, just for the depreciation amount.

The calculation and write-off are pretty straightforward, but the actual tax savings amount gets a little more complicated. Many people flub this calculation from the start, so it’s best to find a licensed tax professional and start saving some money going forward.

 

Don’t Blame Tech Industry For High Home Prices…

Don't blame tech industry for tech hubs' high home prices

By:  | CNBC Real Estate Reporter
 

Housing in tech hubs is expensive. Just ask anyone in California. Home prices are in fact 82 percent higher in tech hubs than in other large metros, according to a report from Trulia. What is surprising, however, is that technology may not have contributed to that huge disparity, at least according to Trulia's chief economist Jed Kolko, who sifted through Census data to make his arguments.

"Housing in tech hubs was expensive even before the modern Internet era," noted Kolko. "In 1990, median price per square foot was 52 percent higher in tech hubs than in other large metros."

Powerfocusfotografie | Flickr | Getty Images
Victorian houses with San Francisco skyline.

So the tech industry didn't push prices higher. It was drawn to places that were already expensive. This may have been because these areas had major research universities, technically skilled workers, computer manufacturing industries or nice climates. Kolko points out that the year-over-year increase in home prices in tech hubs is actually in line with, not ahead of, the national trend; that is, after one accounts for the local severity of the housing bust.

Looking 10 tech hubs—San Francisco, Oakland, San Diego and San Jose, Calif.; Seattle; Middlesex County, Mass.; Raleigh, N.C.; Bethesda, Md.; Austin, Texas; and Washington, D.C.—the average price gain in 2013 was 13.4 percent from 2012. Compare that to an 11.4 percent gain for the 90 other large metros. The gap, Kolko argued, has to do with fact that tech hubs had steeper price declines during the housing crash but have fewer homes stuck in foreclosure today. If you adjust for that, the gap disappears.

(Read moreAll-cash offers crushing first-time homebuyers)

Still, there has been growing animosity, in San Francisco especially, that the influx of workers from Google has made the city increasingly unaffordable. Affordability actually varies pretty widely among the top 10 tech hubs. Just 14 percent of homes in San Francisco are considered affordable (based on median metro household income) compared with 60 percent in Raleigh, Bethesda and Washington, notes the Trulia report.

The reason San Francisco is so expensive may not be the high-paid tech workers, but a far more old-fashioned scenario: too little supply amid high demand.

(Read moreCold weather puts chill on home sales)

"Since 1990, there have been just 117 new housing units permitted per 1,000 housing units that existed in 1990 in San Francisco," Kolko said. "That's the lowest of the 10 tech hubs and among the lowest of all the 100 largest metros, even with the recent San Francisco construction boom."

Other tech hubs, like Raleigh and Austin, have 10 and eight times as much construction, respectively. The Bay Area's tough geography and regulatory environment have pushed development prices higher, limiting construction.

 

Micro-apartments on the rise in big cities…

Micro-apartments offer slight relief for San Francisco residents

 

 

Sacramento County Relaxes Affordable Housing Requirements.

Sacramento County relaxes affordable housing requirements