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6 Don’ts When Buying Your First Home

These are exciting times. You’ve finally outgrown apartment life or living with your parents or sharing a place with waaaaayyyyy too many roommates, and you’re ready to take the leap to homeownership. Now it’s time to prepare. As you embark on this journey, beware of six important don’ts that could potentially derail your purchase.

Don’t think it’s too early to get prequalified

So, you’re just going to go out “looking” at houses, you say? The time when you just expect to drive around a little and maybe visit an open house or two is obviously the time when you’re going to fall in love with a house and want to make a move on it right away. If you’re not already prequalified with a lender, you may not have a chance at it. Competition is fierce across the country thanks to low inventory, and well-maintained, move-in ready homes do not sit if they’re priced right. Talk to a lender now to make sure you can qualify – and learn your max budget – even if you just think you’re casually looking (because that can change in a hurry!).

Don’t wait to the last minute to check credit

As a continuation of the casually looking conversation…you want to check your credit the second you start thinking about buying a home. You never know what’s going to be on there. Even if you’ve never missed a payment and have always done a good job of managing your outstanding debt, there could be errors on your report that you’re unaware of or even something from many years ago that you didn’t realize had been reported to a credit agency. Those little boo-boos, accurate or not, could be hurting your score, and a low score could keep you from getting a mortgage at all. Give yourself time to correct errors or fix blemishes; every tick upward can help you get a better rate and make your home more affordable.

Don’t forget about PMI when calculating your monthly expenses

The idea of putting as little down as possible on your new home is attractive, especially if you’re not a natural saver. Today, that can mean just three percent of your purchase price, depending on the loan. For FHA loans, it’s three and one-half percent. The problem with making the minimum down payment is that you then have to pay Private Mortgage Insurance (PMI).

“PMI is a fee you pay on your mortgage until you owe 80 percent or less of what your home is worth. It’s one reason why so many experts advise homebuyers make a 20 percent down payment; if you do, you avoid the evils of paying PMI,” said Student Loan Hero. “PMI can cost between 0.3 percent and 1.15 percent of your loan annually. Depending on how much you borrow, that can mean thousands of dollars in extra costs until you can cancel your PMI.”

Don’t ignore the closing costs

Many of us micro-focus on the down payment when getting ready to buy our first home, but there is another important expense related to the purchase: The closing costs. Closing costs encompass a wide variety of fees, some or all of which may apply to you depending on where and what you’re buying. They can include everything from the application fee and appraisal to the escrow fee to the home and pest inspection to the recording fees. You’re looking at between two and five percent of your purchase price for closing fees, which can definitely add up. Many first-time buyers fail to factor this in when getting ready to purchase, and you don’t want something that could amount to a few thousand dollars or more to come as an 11th-hour surprise.

Don’t forget to factor in all the monthly expenses

New-home communities often quote a monthly payment that looks quite affordable and that can entice buyers who don’t look more closely. That’s because the payment is based on principal and interest only (Typically, you’ll see a star next to the payment that tells you there’s a disclaimer at the bottom of the page.). If you take a look at the small print, you’ll see that there are also taxes and insurance to factor in. In some cases, there is also a homeowner’s association fee. That monthly payment may not be looking so good anymore.

If you’re buying your first home and coming from an apartment or other rental property, you may not have worked things like a gardener into your monthly budget. You’ll also want to consider that if you’re going up in square footage, there could an increase in your utilities, and you may be taking on payments for things like water and trash that were covered by your rental. It’s best to have a true idea of what your monthly expenses are going to look like when buying your first home so you don’t end up in over your head.

Don’t think you can go it alone

Can you buy a home without an agent? Sure. Is it a good idea? Not usually. It could be that you are looking to buy a home that is for sale by owner. “In the industry, we call these types of sellers unrepresented,” said The Balance. “Beware if you are trying to buy a home directly from an unrepresented seller. Odds are the seller won’t know what she is doing or she might be taking advantage of you; either way, it could be problematic.”

Unless you are a real estate attorney or are otherwise connected to the industry and aware of the laws, contract issues, etc., it’s best for you to have representation, regardless of what type of home you are buying.

Position Realty
Office: 480-213-5251

Phoenix Real Estate Market Report ~ May 2018

The number of new listing this month is 10,670 listings which is back in line with the number of listing back in May 2017 of 10,672 listings. The overall number of active listing is still down as compared to 21,230 listings in May 2017 and 20,808 listing in May 2018 which is a decrease of 422 listing or -2.0% In the past months this difference has been a lot wider where the number of new listings coming on the market is helping with the total number of active listings. As for the number of sold transactions, we had fewer transactions in May 2017 of 9,859 transactions as compared to 10,098 transactions in April 2018. This increase in demand during the summer buying season is causing prices to appreciate at a faster rate than in 2017. Also the low amount of active listings and the high amount of transactions the months of inventory has gone from 3.9 months in January 2018 to 1.81 months in May 2018.

The Phoenix Housing Market ended 2017 with an overall annual appreciation rate of approximately +9.0%. If inventory remain low throughout 2018 and a strong demand for housing continues we can expect the market to continue to appreciation above the national average. Historically, real estate prices don’t start to increase until March as the buying season begins and with the low inventory of homes the market has already appreciated 5.5% from an average sold price of $315,070 in January 2018 to $332,267 in May 2018. Another sign we are in a healthy market is the current percentage of foreclosures and short sales sold remains at only 1% of the total market. Since June 2017 (12 months ago), the average days on market has decreased approximately -7.5% (down from last month) and the number of sold transaction has increased approximately +4.9% (up from last month).

Since January 2018 we have seen four sharp trends: The average sold price has appreciated +5.5%, the average days on market have decreased -17.3%, the number of sold transactions has increased +62.6% and months of inventory have decreased -53.6%. Should this trend continue throughout 2018 we can expect another year of appreciation above the national average in the Phoenix real estate market. Historically, 20,808 homes for sale represent the lowest number of homes this market has seen for over a decade. This low number of homes for sale indicates we are in a seller’s market (low supply and increased demand). Property owners are not putting their homes on the market because they are holding off to accumulate additional equity from the market. Hopefully, this roller coaster will come to a slow end instead of everyone wanting to put their homes on the market at the same time.

Real estate prices will continue to increase and interest rates are planned to increase in 2018 so if you are thinking about buying a home this year will be the time to buy before you get priced out of the market. Give us a call to discuss your best buying or selling strategy, TODAY!!

Position Realty
Office: 480-213-5251

Eight Signs It’s Time To Move Up

The starter home. It was so cute and quaint and sweet when you bought it, right? But, that was before kids and dogs and overnight quests and holiday dinners that require mathematician-level logistics to finding everyone a seat in a dining room that bursts at six people.

Let’s face it: It’s probably time to move up. Lack of space is the No. 1 reason people start looking for a larger home. Families expand, lifestyles change, and the sheer accumulation of stuff can make a small home feel even tighter. “More than a third of all homebuyers last year were families with kids,” said Dave Ramsey. “And 37% of sellers age 36 and under cited cramped quarters as their reason for moving.”

But running out of room not the only reason to consider moving up.

You’ve got the equity

You may have had to scrimp and save for the down payment on your first home, but, if your home has appreciated, you may be in a completely different financial position this time around. If you’re the type who envisions paying off your home and being free and clear, moving up may not be on your mind. But, for the rest of us, having equity in our current home means greater buying power to buy something bigger or get into a neighborhood we covet.

You’re at each other’s throats

Feeling cramped and living in clutter and hating that you don’t have a space of your own or even a minute to yourself? That can create stress and leave you feeling anxious and overwhelmed. And, it goes against the general principle of homeownership since your home is supposed to be your sanctuary! Having some extra room to spread out and yard for the kids and dogs to play in can make a real difference in the way your family functions.

Ask yourself if “your quality of life is suffering,” said Unpakt. “This category can include many things: your ever-growing pack of dogs or cats who are driving you crazy. Your cascading piles of fabrics that you use for quilting, but just can’t keep organized in your current space. The lack of a guest room means that when family visits, you’re stuck on the couch. Whatever it might be, if your quality of life has taken a nosedive because your house is too small, well, the answer is pretty clear.”

The neighborhood is changing…and not for the better

One of the reasons you may want to start looking at a new house is because your neighborhood is starting to evolve. Maybe there are new restaurants and bars that have attracted a different crowd or plans for a huge mixed-use project that, while great for the economic potential in the area, could mean more traffic than you want in your quiet little town. Even something like a change in the flight patterns from the local airport can get you thinking about that next home.

Remodeling is price prohibitive

A good real estate agent should be able to give you an idea of what necessary (or wanted) renovations would cost to your existing home. It could be that the amount of work you would need to do on your home to get it where you want it – or get it into tip-top shape for a sale – is beyond what you want to spend. In that case, it might make better financial sense to make small improvements, put it up for sale, and put your money into a new home that better suits your needs.

You don’t want to over-improve for the neighborhood

The other important factor to consider when deciding whether to move or improve your home is how the redone home would sit in your neighborhood. You don’t want to run the risk of doing a bunch of expensive renovations only to have the home sit on the market because it’s overdone and considered overpriced.

“Weighing against renovation is the risk you’ll ‘over-improve’ your home compared with others on the block,” said Bankrate. “When you are in a neighborhood that has starter homes and smaller homes, adding a large addition or doing an extensive renovation may not yield the return one would expect.”

Everyone else has moved on

So, your kids were young and bicycles and basketball nets lined the street when you first fell in love with your home. At the time, it was everything you were looking for. But now, so many of those families have moved on, and the lively street you loved has turned rather sleepy. If you’re still holding on to the memories of what your neighborhood once was, maybe it’s time to find one that better meets your lifestyle needs today.

You’ve crunched the numbers

Presumably, a move-up home is going to be more expensive. Beyond the equity you can use to make the purchase doable, you have to consider the monthly expenses, too. “It’s not just the sticker price on the house; it’s the long-term costs associated with it,” said Realtor.com. “When you go up (in square footage), you get higher property taxes, higher utilities, and more maintenance.” And acquiring more rooms means shelling out for more furniture, too.

You can make sure you can afford a move-up home without becoming “house poor” by “using online affordability calculators to figure out how far you can stretch your dollar.

Position Realty
Office: 480-213-5251

Home Inspections Can Save You Money In The Long-Run

If you’re hiring someone to inspect the home you want to buy, or you’re a seller trying to find out if there are any hidden problems that need fixing before you put your home on the market, here are five things you need to know:

1. You can choose your home inspector.

Your real estate professional can recommend an inspector, or you can find one on your own. Members of the National Association of Home Inspectors, Inc. (NAHI), must complete an approved home inspector training program, demonstrate experience and competence as a home inspector, complete a written exam, and adhere to the NAHI Standards of Practice and Code of Ethics.

2. Home inspections are intended to point out adverse conditions, not cosmetic flaws.

You should attend the inspection and follow the inspector throughout the inspection so you can learn what’s important and what’s not. No house is perfect and an inspection on any home is bound to uncover faults. A home inspector will point out conditions that need repair and/or potential safety-related concerns relating to the home. They won’t comment on cosmetic items if they don’t impair the integrity of the home. They also do not do destructive testing.

3. Home inspection reports include only the basics.

A home inspector considers hundreds of items during an average inspection. The home inspection should include the home’s exterior, steps, porches, decks, chimneys, roof, windows, and doors. Inside, they will look at attics, electrical components, plumbing, central heating and air conditioning, basement/crawlspaces, and garages.

They report on the working order of items such as faucets to see if they leak, or garage doors to see if they close properly. Inspectors may point out termite damage and suggest that you get a separate pest inspection. The final written report should be concise and easy to understand.

4. Home inspectors work for the party who is paying the fee.

The NAHI Standards of Practice and Code of Ethics clearly state that members act as an unbiased third party to the real estate transaction and “will discharge the Inspector’s duties with integrity and fidelity to the client.” A reputable home inspector will not conduct a home inspection or prepare a home inspection report if his or her fee is contingent on untruthful conclusions.

The inspector should maintain client confidentiality and keep all report findings private, unless required by court order. That means it is your choice whether or not to share the report with others. If you’re a seller, you don’t have to disclose the report to buyers, but you must disclose any failure in the systems or integrity of your home.

5. Inspectors are not responsible for the condition of the home.

Inspectors don’t go behind walls or under flooring, so it’s possible that a serious problem can be overlooked. Keep in mind that inspectors are not party to the sales transaction, so if you buy a home where an expensive problem surfaces after the sale, you won’t be able to make the inspector liable or get the inspector to pay for the damage. In fact, you may not be entitled to any compensation beyond the cost of the inspection.

As a buyer, you need the home inspection to decide if the home is in condition that you can tolerate. You can use the report to show the seller the need for a certain repair or negotiate a better price. You can also take the report to a contractor and use it to make repairs or to remodel a section of the home.

One thing you should not do when buying a home is skip having the home inspected because of cost or undue pressure by the seller. A home inspection is reasonable, it can save you money in the long run, and it’s required by many lenders, particularly for FHA loans. There’s a reason why buyers should beware, and a home inspection gives you the information you need to make a sound buying decision.

Position Realty
Office: 480-213-5251

Phoenix Real Estate Market Report ~ April 2018

Back in April 2017 (same time last year), the number of new listings on the market was 10,518 listing as compared to 10,804 listing in March 2018 which is only an increase of 286 listings. More concerning is the number of active listings was 21,682 listing in April 2017 as compared to 18,928 listings in April 2018 which is a decrease of -2,754 listings or -12.7%. In April 2016 there were 25,169 listing, in April 2015 there were 24,965 listings and in April 2014 there were 29,308 listing. As for the number of sold transactions, we had fewer transactions in April 2017 of 8, 833 transactions as compared to 9,182 transactions in April 2018. Due to the lack of new listings and the high amount of transactions the months of inventory has gone from 3.9 months in January 2018 to 2.06 months in April 2018.

The Phoenix Housing Market ended 2017 with an overall annual appreciation rate of approximately +9.0%. If inventory remain low throughout 2018 and a strong demand for housing continues we can expect the market to continue to appreciation above the national average. Historically, real estate prices don’t start to increase until March as the buying season begins and with the low inventory of homes the market has already appreciated 4.7% from an average sold price of $308,715 in February 2018 to $323,306 in April 2018. Another sign we are in a healthy market is the current percentage of foreclosures and short sales sold remains at only 1% of the total market. Since April 2017 (12 months ago), the average days on market has decreased approximately -7.1% (down from last month) and the number of sold transaction has increased approximately +6.3% (up from last month).

Since January 2018 we have seen three sharp trends: The average days on market have decreased -13.3%, the number of sold transactions has increased +47.8% and months of inventory have decreased -47.2%. Should this trend continue throughout 2018 we can expect another year of appreciation above the national average in the Phoenix real estate market. Historically, 18,928 homes for sale represent the lowest number of homes this market has seen for over a decade. This low number of homes for sale indicates we are in a seller’s market (low supply and increased demand). Property owners are not putting their homes on the market because they are holding off to accumulate additional equity from the market. Hopefully, this roller coaster will come to a slow end instead of everyone wanting to put their homes on the market at the same time.

Real estate prices will continue to increase and interest rates are planned to increase in 2018 so if you are thinking about buying a home this year will be the time to buy before you get priced out of the market. Give us a call to discuss your best buying or selling strategy, TODAY!!

Position Realty
Office: 480-213-5251

Phoenix Real Estate Market Report ~ March 2018

Back in March 2017 (same time last year), the number of new listings on the market was 12,200 listing as compared to 11,559 listing in March 2018 which is a decrease of 641 listings or -5.3%. More concerning is the number of active listings was 22,246 listing in March 2017 as compared to 19,129 listings in March 2018 which is a decrease of 3,117 listings or -14.0%. In March 2016 there were 25,329 listing, in February 2015 there were 25,570 listings and in February 2014 there were 29,435 listing. As for the number of sold transactions, we had approximately the same number of transactions in March 2017 of 9,365 transactions as compared to 9,652 transactions in March 2018. Due to the lack of new listings and the high amount of transactions the months of inventory has gone from 3.9 months in January 2018 to 1.98 months in March 2018.

The Phoenix Housing Market ended 2017 with an overall annual appreciation rate of approximately +9.0%. If inventory remain low throughout 2018 and a strong demand for housing continues we can expect the market to continue to appreciation above the national average. Historically, real estate prices don’t start to increase until February or March as the buying season begins and with the low inventory of homes we can expect to continue to see the market appreciate. Another sign we are in a healthy market is the current percentage of foreclosures and short sales sold remains at only 1% of the total market. Since March 2017 (12 months ago), the average days on market has decreased approximately -4.1% (down from last month) and the number of sold transaction has increased approximately +9.3% (up from last month).

Since January 2018 we have seen three sharp trends: The average days on market have decreased -5.3%, the number of sold transactions has increased +55.4% and months of inventory have decreased -49.2%. Should this trend continue throughout 2018 we can expect another year of appreciation above the national average in the Phoenix market. Historically, 19,129 homes for sale represent the lowest number of homes this market has seen for over a decade. This low number of homes for sale indicates we are in a seller’s market (low supply and increased demand). Property owners are not putting their homes on the market because they are holding off to accumulate additional appreciation from the market. Hopefully, this roller coaster will come to a slow end instead of everyone wanting to put their homes on the market at the same time.

Real estate prices will continue to increase and interest rates are planned to increase in 2018 so if you are thinking about buying a home this year will be the time to buy before you get priced out of the market. Give us a call to discuss your best buying or selling strategy, TODAY!!

Position Realty
Office: 480-213-5251

Traits to Look for in a Potential Tenant

Finding a good tenant is essential, but it can also be tricky. It requires more than just putting an ad on the internet. To find a great tenant for your rental property, it pays to know what makes a good tenant.

So, we’ve created a list for you. These are 8 traits to look for in a potential tenant.

1. Openness Toward Background Checks It’s important for you as a landlord to know who you are renting to before you rent out your property. This is because you never know when a tenant is going to be reliable and worthwhile or seriously problematic.

A tenant background check is important for the following reasons:
• To find out if they have a criminal record • To choose the best tenants from your pool • To check their work history • To make sure that they will comply with your rules • To confirm your tenant’s rental history • To know which questions to ask during screening • To confirm their identity

2. Reasons for Moving Tenants move for various reasons. For example:
• To change their neighborhood • They had problems with neighbors • A job change/relocation • The need for more space • They had problems with their previous landlord

Contacting their previous landlord isn’t 100% reliable, as some might throw an array of unjust accusations. The only option is to ask them directly. Granted, the tenant may lie but some of the reasons are quite straightforward and oftentimes completely honest answers.

3. Personal Behavior You should call up tenant’s previous landlords to ask how they were personally. Good questions to ask them include:
• Did the previous tenant pay the rent and on time? • Did they do a reasonably good job of taking care of the rental property? • Was the person disruptive towards neighbors? • Was the unit clean and in good order when the tenant left? • Was the tenant evicted?

4. Ability to Pay Rent This is a no-brainer. The prospective tenant should be able to pay rent without struggling. To verify whether they can afford the price of the rent, you need to look at their proof of employment.

Look for a tenant who has good job prospects and a steady, reliable income. A good rule of thumb is that the price of rent shouldn’t exceed 30% of the tenant’s income.

Some red flags to look out for include a person who has long periods of unemployment or if the person changes jobs often.

5. Cleanliness A good tenant maintains cleanliness. It’s every landlord’s dream to get a tenant who will take good care of your property. You obviously wouldn’t want a person who is going to let trash pile up on the patio or leave food remnants building up in the microwave.

You can get a better idea of the way they would maintain your property if you get a glimpse of their car or if they allow you to meet them at their current residence. You could also include a cleaning clause in your lease as well.

6. Subletting When you are a landlord, it’s important to protect yourself against as many potential risks as possible. This is the same reason why you have to do a proper tenant screening before renting out your property in the first place.

But should you allow a tenant to sublet? Subletting happens when an existing tenant lets all or part of their home to someone else.

Allowing subletting is risky. Some tenants want to sublet as a way to earn extra cash or to avoid paying rent on a vacant apartment. Also, there’s no guarantee that they would pay as much attention to the tenant selection as you did.

It would be counterintuitive to be okay with your tenant getting a couple of tenants of their own.

7. Roommates It’s important to know how many people are going to be living with your renter. The tenant might be planning to move in with their significant other or even their entire family.

Should you allow roommates, here’s how to do it smoothly while protecting your investment:
• Consider updating your occupancy limit • Be prepared to consider a unit switch • Be cautious about creating new lease terms • Require potential roommates to be screened as tenants

8. Plans for residence Your final layer of screening is a simple practicality test. If they have a job nearby, verify that your house is not an impractical distance away. If they have a family, check that there is a room for everyone in the home. If they have a pet, confirm that they are willing to conform to the pet clause in your lease agreement.

Generally, tenants will have an excellent plan for residence, but it never hurts to check.

If your prospective tenant possesses most of these traits, then they are a great candidate for a long-term renter. They will most likely keep the home in good condition, and that they will be responsible and well-behaved.

Position Realty
Office: 480-213-5251

Nine Landlord Tips You Can’t Afford To Ignore

This is a great time to be a landlord. Monthly rents have been increasing for years, vacancies remain at historic lows, and renters are paying down any loans you have on the property while your equity continues appreciating every month. All is good! Now is the right time to fine tune and improve your processes.

1) The landlord process begins with a thorough screening of tenants. Whom you allow to move into your property always makes a difference in how profitable your business will be. No landlord likes having a vacancy but allowing the wrong tenant to move in can be more costly than a vacancy. The problems that bad tenants can cause are countless. If it’s a multifamily residence, one bad tenant can cause good tenants to move out. Bad tenants can move bad friends in to create even more trouble. Of course, the damage they do to the property can easily exceed your rent profits, the security deposit, and cause you headaches to make repairs. Besides the obvious screening for criminal backgrounds and credit reports, always follow up on references. Require at least two previous landlord references and place more weight with a landlord that doesn’t currently have him or her as a tenant. A current landlord is likely to give a bad tenant a glowing report just to get them out of their rental property. Also make sure all adults living in the residence sign the lease.

2) Go beyond the standard rental agreement to set your own rules. Certainly, your Arizona has minimum requirements that must be met to rent a property. Usually, these apply mostly to the landlord. You need to have your tenants sign a set of rules that you require them to obey. Common rules include not disassembling vehicles in the parking lot, no excessive noise after 10 pm, the number of days a guest is allowed to stay overnight, etc.

3) Understand and enforce security deposits fairly. Arizona allow one and one half months rent amoutn for a security deposit. Always have a walk through with a new tenant and take photos of existing damage. Have the tenant sign and date the written description along with signing printed copies of the photos.

4) Keep the property in good repair. Failing to make prompt repairs can give tenants the right to move out without advance notice, to withhold rent, or to make repairs themselves, and deduct it from rent. Stay in control of your properties by requiring tenants to promptly notify you of needed repairs and then you promptly making the repair.

5) Maintain a secure property. The best tenants insist that the property be kept secure from criminal activity. Often this only requires good outside lighting and shrubbery kept cut back. Larger properties might add security cameras as an additional deterrent to crime.

6) Notify tenants before entering their dwelling. Tenants have a right to expect privacy. Arizona laws allow landlords to enter under emergency conditions but you must give 48 hour notice before entering for any other reason.

7) Give notice of any known hazardous conditions. For older properties, the most common hazard is lead paint. Even if you don’t know if lead paint is four or five layers down, it’s wise to give notice of the potential so that you don’t become liable for tenants’ (especially young children) health problems. You may have other hazards such as an old covered well.

8) Maintain enough insurance to protect your investment. You need rock solid insurance to protect you from injury liabilities, discrimination lawsuits, fire, storm damage, and much more. Now is good a time to review your coverage.

9) Resolve disputes promptly. Conflicts can arise over rent, noise, mold, repairs, and a plethora of other issues. When a tenant has a complaint, discuss it with them quickly. Attempt to put a resolution in place as soon as possible. Doing so can avoid rent being withheld, moving out without notice, or even having the issue escalated to attorneys and courts.

Position Realty
Office: 480-213-5251

New Tax Law May Encourage Home Rentals

The new tax law brought welcome news for people who rent out their homes for short periods. And it likely will entice even more people to do it.

To be sure, the tax rules are complicated and the Internal Revenue Service and the Treasury Department haven’t issued the final regulations yet. But here are some ways short-term landlords could benefit:

Property-tax deductions
The new tax law caps state and local income-tax and property-tax deductions at a total of $10,000; previously there was no limit. But there may be a way around this new cap for people who rent out their home or vacation property for at least 15 days a year, tax experts say.

Here’s how it might work in practice, according to Stephen Fishman, a legal writer and author of several Nolo do-it-yourself legal guides, including one on short-term rentals.

Let’s say you pay $1,000 a month in property tax ($12,000 a year) on a home. Under the new rule, if you live in the home all year, you’re only entitled to a $10,000 deduction. But say you rent it out for three months. You can deduct 25% of your property tax, or $3,000, on Schedule E for rental deductions and income. You can then deduct the other $9,000 you pay in property taxes on Schedule A for itemized deductions, allowing you to deduct the full amount of your property tax, Mr. Fishman says.

If you’re in the top bracket of 37%, the difference in the amount you could deduct in this example would result in a tax saving of $740, Mr. Fishman says. If you’re in the 32% bracket, it would be a saving of $640, and it would be a saving of $480 in taxes if you’re in the 24% bracket, he says. “It’s not a gigantic amount. But it is an additional saving that you would not otherwise have, and that will probably encourage people even more to do short-term rentals.”

Mortgage interest
The new law also caps mortgage-interest deductions for first and second homes purchased during 2018 through 2025. Under the new tax plan, you can only deduct mortgage interest on loans of up to $750,000 over that eight-year-period; the previous limit was $1 million.

However, “a rental property does not fall under those rules,” says Robert Gilman, a partner at New York-based accounting firm Anchin, Block & Anchin LLP. “On a rental property, you could have a mortgage of $10 million and deduct the full amount of the interest.”

“If the property is part rental and part residence, you can deduct the mortgage interest without limitation for the period of time that it’s a rental property—provided it rented for 15 or more days,” Mr. Gilman says.

Again, let’s use an example, courtesy of Mr. Fishman. Say you have a $1 million mortgage on a home you bought in 2018 on which you pay $60,000 interest annually. Only interest on loan amounts up to $750,000 is deductible, so you can only deduct 75% of that $60,000 as an itemized deduction on Schedule A, or $45,000. If you rent the home for three months or 25% of the year, you can deduct 25% of your mortgage interest, or $15,000, as a rental expense, not subject to the $750,000 limit. You get a $15,000 deduction on Schedule E, allowing you to deduct the full amount of your mortgage interest.

You can’t double dip, though, so if you claim a deduction on Schedule A, make sure you don’t also claim it on Schedule E and vice versa, Mr. Fishman says.

If you’re in the top 37% bracket, the tax saving from the difference in the amount you could deduct in the example above would be $5,550, Mr. Fishman says. If you’re in the 32% bracket, it would be a saving of $4,800; it would be a saving of $3,600 if you’re in the 24% bracket, he says.

Other deductions
Another benefit for owners renting out their homes is that the new law makes it easier than ever to deduct in a single year the cost of personal property like furniture or appliances used by renters, Mr. Fishman says.

Say you buy furniture or appliances for your home rental property. You can now deduct 100% of your tax basis (the cost times the percentage of the year the property is rented) in one year for purchases made during 2018 through 2022. In the past, you had to deduct the cost of the property over five or seven years, depending on the item—and all the items had to be new. Now they can be used as well, Mr. Fishman says.

Position Realty
Office: 480-213-5251

Source: Wall Street Journal

Disclaimer: Position Realty is not a tax accounting firm. Before implementing any ideas in this article you need to speak with your tax professional.

Selling An Investment Property? Read This First!

Recently, a family of my acquaintance were selling a condo that had been an investment property. They had owned it for five years, and it fetched a rent a third higher than the mortgage; however, it was in an old building that had had several expensive assessments, so the condo had not been cash-flow positive during that time. Plus, the property had nearly doubled in value, and the couple thought it was prudent to cash out, since prices in the area seemed to be softening. They started researching their options.

There are three reasons people like investing in real estate. First, it’s a great way to diversify a portfolio and build wealth. Second, average citizens can take out a mortgage to leverage their investment; this is a more exotic, less advisable option when it comes to securities. Finally, a piece of real estate can pay off in two ways: by appreciating in price and by bringing in rental income.

When spouses filing jointly sell their primary residence, $500,000 in gains is shielded from tax. But when you sell an investment property, as my friends were doing, you owe capital gains tax on the proceeds. This can take a big bite — the federal top rate is 20 percent.

However, there is a way to defer paying that tax. It’s called a 1031 exchange. It allows you to put off capital gains tax if you use the proceeds of the sale to buy other rental real estate.

Here’s what my friends found out:

In order to complete a 1031 exchange, you must engage the services of a firm that specializes in such exchanges before you close on the sale of your investment property. They will charge a fee to hold onto the money from the sale until you are ready to spend it.

After closing, you have 45 days to identify up to three “like kind” properties for the exchange. Like kind simply means real estate; in practice it can be anything from empty land to an apartment or a freestanding house. But it must be an investment property, not a timeshare, shares in a REIT, or a second home, and not renovations or improvements, either.

And, you have 180 days in total — or until tax day (with extensions) for the year your property was sold, whichever comes sooner — to close on the sale of one of those three properties. For example, if you closed January 1, 2018, the new property must be purchased by July 1. But if you closed in December 2017, you only have until April 15 of 2018, unless you get an extension on your taxes.

Now let’s do some math.

In order to get the full tax deferral, the value of the new property should be equal to or greater than the sale price of the old property. Keep in mind that you owe capital gains on the mortgage payoff, as well as the cash that comes from the sale of your original property. You can, of course, put some cash into a new property and keep the rest, known as “boot.” But in practice, if you go much below the sale price the tax advantage can be quickly eaten up by closing costs and fees. As a rule of thumb, if the boot, the amount you take home, is greater than the total capital gains, it’s not recommended to do an exchange.

The main issue that wards people off of 1031 exchanges is the time crunch on finding a suitable new property. It can be daunting if real estate is not your primary occupation. It would be best to research your options before putting your existing property on the market. In fact, you can do a “reverse exchange” by buying the new property before selling the old property — provided you are confident of selling it in time.

Position Realty
Office: 480-213-5251

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