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Think Curb Appeal When Remodeling to Sell

With home prices up in some areas, the return on remodeling investments at resale can be good. Making little changes can have big impacts when it comes to remodeling your home to sell.

Some updates will return as much as they cost in hotter markets, but unless your home is in a rapidly inflating city, you may not get enough bang for your buck.

But the lesson isn’t to avoid remodeling your home. It’s to rethink your expectations. Do you want to enjoy your updates for a few years? Or do you want to make your home more immediately appealing to homebuyers?

If you’re remodeling for your own household, updating a home has a legitimate purpose that is unquantifiable. When you add square footage, update systems and fixtures, or rearrange traffic flow, you improve the functionality of your home. Refreshing wall colors, window coverings, and flooring adds to the beauty and enjoyment of your home. Many would consider that money better spent, and if you decide to sell in a few years, you’ll be ahead of the game in terms of updates that will appeal to homebuyers.

But if you’re remodeling strictly for the next buyer, there’s some risk. Will you choose the right elements to appeal to the next buyer? What if they don’t share your taste or appreciate the areas where you allocated your remodeling budget?

Start with what absolutely has to be done, whether you plan to stay in your home or not. You may be tempted to put off replacing the roof for an average of nearly $20,000, because Remodeling Magazine says it will only return approximately 72 percent of costs. But a new roof could make the difference in whether or not an FHA or VA buyer can buy your home and pass government inspection.

Otherwise, stick to smaller updates that can yield big impacts in terms of curb appeal, safety and building integrity. The top five cost-to-value projects that netted the most return are:

  1. Replacing the front door with a 20-guage steel door – 102 percent.
  2. Manufactured stone veneer — 92. 2 percent
  3. Fiber-cement siding — 84.3 percent.
  4. Garage door replacement — 82.5 percent
  5. Wood window replacement — 78 percent.

As you can see, the most lucrative projects for resale were all about curb appeal. Seal the deal with a new welcome mat, new sconces to complement the new steel door, and potted plants for color. Wow your buyers on the outside and they’ll be more likely to choose your home over the competition.

Position Realty
Office: 480-213-5251

Self-Employed? What to Know About Buying a Home

Jammie pants and slippers. Dog curled up at your feet. Your favorite TV show playing in the background. Sound like a quality weekend day? Not so fast. For a growing number of Americans, it’s what a regular ‘ole workday looks like.

We’re not necessarily talking about a work-from-home scenario (although this is another growing workforce trend). And it goes beyond having flexibility to work from wherever you want (and wear whatever you want!). It’s self-employment, and it’s on the rise. FreshBooks’ second annual Self-Employment Report found that, “Some 27 million Americans will leave full-time jobs from now through 2020, bringing the total number of self-employed to 42 million,” said the New York Post. “The report defines self-employed professionals as those whose primary income is from independent client-based work.

But self-employment can also make it difficult to buy a home. “Lenders are primarily concerned that all applicants, including self-employed workers, have the ability to consistently repay the mortgage,” said U.S. News & World Report. “They’ll need to see that your income is high enough to pay for the mortgage and likely to continue, and that you have a good track record of repaying your debts.”

These tips can help you get yourself in a better position.

What do you need to show?

Showing two years of steady income is a basic requirement for just about any mortgage, but those who have an employer other than themselves may have more flexibility. Other factors, such as income, savings, down payment, and debt-to-income ratio can make that two-year rule less critical.

Those who are self-employed, however, will want to show as much income history as possible. “Mortgage lenders typically require self-employed individuals to show two years’ worth of self-employment income to prove that they have a steady revenue stream,” said The Motley Fool. In addition, “You’ll have to provide tax returns from the last two years, and you may also have to provide a list of your existing debts and assets. Business owners may have to provide profit and loss statements from the last couple of years.”

How to treat business expenses

Adding to the challenge is the fact that lenders are going to be looking at your income after deductions. “Self-employed workers also might write off a significant portion of their income as a business expense, minimizing the size of the mortgage they’re able to obtain,” said U.S. News. “Because mortgage underwriters typically look at income after expenses, your taxable income may be too small to qualify for the mortgage you want.”

Managing your debt-to-income ratio

“Most mortgage lenders will not give you a loan if that ratio is greater than 43%—that is, if more than 43% of your income is going toward paying off debt each month,” said The Motley Fool. That debt-to-income level is key in any mortgage approval scenario, but takes on added importance when everything is under a self-employment microscope.

“It’s important to make sure you keep your debts down to a manageable level. They should never exceed 43% of your income, and it’s best if you can keep your obligations under 36%,” they said.

How’s your credit score?

Credit scores are even more important if you’re trying to prove you’re worthy of being approved for a mortgage. “Even if you’ve been wildly successful after striking out on your own, having a lousy credit score will hinder your chances of getting a good rate on a mortgage,” said Bankrate. They recommend checking your credit before you start applying, which will give you an opportunity to pay down debts or spot errors on your report that could be dragging your score down.

Position Realty
Office: 480-213-5251

IRS gives rental owners clarity on 20% deduction

The IRS on gave owners of rental properties a better idea of how they can qualify for the 20 percent deduction on qualified business income from pass-through entities such as sole proprietorships, partnerships and S corporations.

This deduction is a big, complicated part of the sweeping Tax Cuts and Jobs Act that Congress passed in December 2017. It’s called the qualified business income deduction, or the 199A deduction after its section in the tax code.

The IRS published proposed regulations for this deduction in August, but the section on rental real estate left room for debate. It said that to qualify, a real estate activity must rise to the level of a “trade or business,” an ambiguous term that has no clear or consistent definition in the tax code. The IRS said it would look to its use under section 162(a) of the tax code, but that still left a lot of tax pros arguing about whether people who owned one or a few properties would qualify.

The IRS published final regulations on the overall deduction Friday, but clarified its position on rental real estate in a separate notice.

“The Treasury Department and the IRS are aware that whether a rental real estate enterprise is a trade or business is the subject of uncertainty for some taxpayers,” it said in the notice. “To help mitigate this uncertainty,” the notice contains a proposed revenue procedure that provides a “safe harbor” under which a rental real estate enterprise will be treated as a trade or business under Section 199A and thereby qualify for the 20 percent deduction starting with the 2018 tax year.

The notice outlines numerous requirements, but here’s the big one: Between 2018 and 2022, at least 250 hours of rental services must be performed each year for the business. Starting in 2023, at least 250 hours must be performed in three of the five past years.

Rental services under this definition include advertising the space for rent, negotiating and executing leases, screening tenants, collecting rent, maintenance and repairs, purchasing materials and supervising employees and independent contractors. “Rental services may be performed by owners or by employees, agents, and/or independent contractors,” the notice said.

It added that rental services do not include financial or investment management activities, such as arranging financing, procuring property, studying financial statements and hours spent traveling to and from the real estate.

Also, real estate used by the owner “as a residence for any part of the year” is not eligible for this safe harbor.

More information

To see the notice: https://www.irs.gov/pub/irs-drop/n-19-07.pdf

To see the final regulations on the deduction: https://www.irs.gov/pub/irs-drop/td-reg-107892-18.pdf

It also added that real estate rented under a triple net lease is not eligible. A triple net lease is one that requires the tenant to pay taxes, fees, and insurance, and to be responsible for maintenance in addition to rent and utilities.

Four Different Ways To Flip A Property

Flipping real estate is a buzz term that has come screaming into mainstream media in the last few years. Its growing popularity is evident by the magazine articles, TV shows, and Average Joe teams trying to break into the business. Is it easy? What is it? How does it work?

Flipping real estate simply means purchasing or acquiring a property then reselling it quickly while attempting to turn a profit on the sale. Flipping can be handled several different ways and when done properly, each of them can be very profitable for a real estate investor.

Buy it, Fix it, Flip it

Likely the most common form is the tried and true “fix and flip”. This involves a real estate investor picking up a property at a discounted rate, doing the necessary work to get the property up to acceptable standards, and then selling the home on the market – generally to someone who will live in the property. This type of fix and flip can get you anywhere from $15k to $50k on a closure depending on the market and of course how good the bargain was on the home when you bought it. You can set yourself up for failure if you underestimate the cost for remodeling and repairs or do not consider the cost of a real estate agent when listing the property for sale.

The Wholesale Flip

The fix and flip is a very popular method of doing business, and that means there are a large number of real estate investors looking for remodel properties. If you can get a property at a relatively good bargain, you can turn around and immediately sell the home to a real estate investor who is willing to put all the work in and take the project the rest of the way. You can make several thousand in this manner on each sale. While the number is small, you can quickly see how it would add up after quickly reselling multiple houses in this manner.

Buy it & Flip it “As Is”

Fix up work is not for everyone, and some real estate investors want to quickly move a house without sinking money into a professional contractor. If a house is in sellable condition and requires little immediate maintenance work then you can consider just selling it as is. Even if a home is in poor condition, you can make a quick sale if the real estate market is in good shape and the property is in a transitioning neighborhood.

Buy It, Refinance & Lease

Instead of tossing the property for all cash right away, you can try and sell for terms. Once the remodel and refinishing is completed, refinance the property. Provided you were able to punch the math up right, you should not have any money tied up in the deal (or very little at least). You can turn around and sell the real estate investment on a lease, with option to buy. Any rent payment that you make from your renter (buyer, hopefully) can be used to handle the mortgage payments. This way, when the tenant goes for the option to purchase you’ll end up reaping a larger profit – mainly because you don’t have to pay a broker fee.

There Is More Than One Way to Flip a House

I’ve identified the ways to flip a property for virtually every real estate investing scenario. These methods all work extremely well, so it is only a matter of determining what works best for your real estate investment strategy and your overall goal.

***Gain access to our deeply discounted list of flip properties: CLICK HERE

Position Realty
Office: 480-213-5251

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