Good Buying Decisions Take Information and Analysis

Buying a home is a huge investment. In this state, it’s up to the buyer to do their due diligence when purchasing a home. That’s a lot of pressure, right? This article will delve a little deeper in how you can be sure you follow the steps toward making a decision that is right for you.

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Tips for Buying Land

While we have a beautiful piece of vacant land on the market on Vashon Island, we thought we would shed some light on the process of purchasing property without a home already there. Continue reading “Tips for Buying Land”

What does an Escalation clause mean?

In this market with very tight inventory and multiple offers, if you are shopping for a property, you might be faced with a tough decision when it comes to the price you offer. Of course, the offer isn’t just about price; there are a number of other terms that can be adjusted to benefit the seller but coming in with a strong offer price is usually a very important component.

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Outdoor Features Buyers Love

As we are in full swing of spring, homeowners begin to dream about beautiful backyard retreats, bar-be-ques, and outdoor entertaining. Functioning – and fun! – outdoor spaces are also being sought out by homebuyers near and far. What are they looking for? Here are four of the top outdoor amenities that make buyers take notice:

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The Benefits of Owning vs. Renting

There have been a few conversations with potential clients and friends telling us that they are going to keep renting for a while and wait for the housing market to slow down. Whether the market will slow down is another post altogether, we want to talk about the cost of renting.

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1031 Exchange – The Nuts and Bolts

Now that we’ve shown you information on investing here in the Pacific Northwest, you might not know about a little (big) detail to consider….taxes. Here’s information on how to roll over your investment proceeds into another property and avoid paying them for the time being.

You might have heard the term 1031 Exchange as a real estate term bandied about by real estate investors. But what is a 1031 Exchange and what do regular would-be investors need to know?

If you have sold a home in the last several years, you may have been aware of the tax rules which indicate that as long as a seller used your home as a primary residence for two of the last five years, he or she would not be taxed on the first $250,000 of capital gains when sold ($500,000 for couples). Meaning, if you purchased a home for $100,000 ten years ago, lived in it for at least two of the last five years and sold it for $300,000 last year, you would not owe capital gains tax on the $200,000 gained.

 

Additionally, if someone sells inherited property the value is considered “stepped up” to reflect current market value. For example, if someone were to inherit their parent’s home and the home has a current market value of $400,000 when inherited, then capital gains is only calculated on this value, not on the value when it was original purchased by the parents. If this person who inherited the home rented it out for three years and sold it for $475,000 they would owe capital gains, but only on $75,000.

 

In theory, a 1031 Exchange is similar to both of these scenarios combined in that it allows the investor to defer capital gains on an investment property by reinvesting those assets. One can invest in multiple 1031 Exchanges until death, passing on those assets to their heirs who then inherit these on the afore-mentioned stepped-up basis.

Stringent 1031 Exchange rules must be met in order to avoid capital gains tax:

  • Both the “Old” property and “New” property must be investment property. Rental property, bare land or vacation homes are examples of these. In most cases, one can sell any type of property (such as an apartment building) and buy any other type of property (perhaps an office building).
  • From the date of closing on the sale of the old property, the investor has 45 days to determine potential properties to buy. This is called the “45 day list”. Several potential properties should be identified to allow for some properties to not be feasible investment options.
  • From the date of closing, the buyer has 180 days to close the purchase of whatever he or she is buying which must have been included on the 45-day list.
  • By law, the proceeds from the first property must be held by a “Qualified Intermediary” (sometimes also called an “Accommodator” or a “Facilitator”) who is also responsible for the preparation of paper work required by the IRS to document the exchange.
  • Whoever held title to the old property has to be the titleholder of the new property.
  • All of the proceeds must be reinvested and the new property has to be at least equal to the net sales price of the old property. If not, tax is owed on the difference.

If you have a vacation or inherited property that you are thinking of selling, consider these rules and options to keep most of your cash in your pocket. Make sure you talk about your options with a real estate agent who is familiar with investment properties. Contact us to learn more about how to invest in this booming market.

16 Important Considerations You Must Make When Investing in Real Estate

We are on an investment kick! Looking back on recent business, we noticed that a large portion of our clients are either selling their rental properties or looking for opportunities.

Investing in real estate can be one of the most lucrative investment vehicles available today. It can also turn into a financial nightmare if you do not do your investment homework first. Before you even think about investing in real estate you need to think about the following 16 points that I advise investors to follow. Real estate investing is a wonderful tool to achieve financial freedom. If you do your homework, invest wisely, take emotions out of your decisions and plan carefully, you will reap financial rewards. I hope the following points give you the confidence you need to take the leap into the lucrative world of real estate investing.

1. ZONING – Never purchase any investment property until you determine the zoning of your potential property and your neighbor’s property. Your property’s value is directly affected by the surrounding properties. When you check the zoning, be sure to check the surrounding properties as well.

2. AREA APPRECIATION – Check to make sure that the area where you are considering purchasing has had a steady and consistent appreciation growth of at least 7% per year for the last 5 years on average. You do not want to buy in an area that has already peaked.

3. POPULATION GROWTH – Is the area where you are considering purchasing an area where people are moving in? The easiest way to track this is to check population growth numbers. Where there is growth – there is opportunity.

4. DO BABY BOOMERS WANT TO LIVE HERE? The country has an incredible number of baby boomers; therefore invest in an area where baby boomers want to live. Baby boomers want a lot of recreational possibilities as well as easy access to good health care facilities.

5. OWNER OCCUPIED – Is the neighborhood where you are thinking of buying primarily owner occupied or tenant occupied? Homeowners, that live in their homes, invest more money to fix them up than do renters. Remember, your property’s value is also determined by its neighbors.

6. NEIGHBORHOOD APPRECIATION – Before you buy in any neighborhood make sure you research the sales in that neighborhood for the past 5 years. Check to see how that neighborhood has appreciated.

7. EMPLOYMENT STABILITY – Without question, one of the biggest factors that affect a local real estate market is the job market. You could be in the nicest recreational area in the world, but if there are no jobs, people leave because they have to find work. Check to make sure that employment in that area has been stable over time.

8. PROPERTY MANAGERS – Make sure that there is a property management company that can manage the property in the area where you are choosing to purchase. Many investors have gone on real estate shopping sprees only to find that there is not a property management company available in that area. This poses a huge problem for the out-of-area investor.

9. FLOORPLAN – Floorplan is more important that square footage. Of course it would be wonderful to find an investment that is both large in square footage and perfect in floorplan. However, this does not happen often. If you find a house that lacks a little in square footage but shines in floorplan, buy it. Renters look for properties by price and by bedrooms. They don’t search for square footage. Having the right numbers of bedrooms is more important than having the biggest bedrooms.

10. YARD – Often times people come with children and with pets and both of these need room to roam. Many investors that I have consulted have shared their horror stories about not being able to rent out the big beautiful house with no yard. Big beautiful houses are filled with children and pets. Even a small yard will help keep your property occupied year round.

11. INSPECTION/AGE OF THE HOUSE Never, ever, ever buy an investment property without having a thorough inspection of the house. Make sure the inspector gives you a good age range for the home and make sure you check the electrical wiring and plumbing thoroughly. Old pipes and wiring can be extremely expensive the replace. Make sure the mechanical side of your investment is not so old that you may be looking at a costly replacement in the near future.

12. THE 10% RULE – One of the easiest ways to make money on your investment is to do a cosmetic makeover. A good rule of thumb is “The 10% rule”. This means that if you purchase a house for $150,000, take 10% of that or $15,000 and you should be able to do a nice cosmetic makeover within that budget. If, however, you have to spend a good portion of that money on the mechanical side, not the cosmetic side then you may want to look at another property.

13. RENTAL STABILITY – Remember, if you buy a 1 bedroom condo you are definitely limiting the different segments of the rental market that can rent from you. If you purchase a 3 bedroom, 2 bath single family residence you have just expanded your rental possibilities. Just because the condo is $50,000 less does not mean it will be a better investment. In fact, you often have to go a little above your comfort zone to get a highly sought-after rental property. The stretch is well worth it!

14. COMPARING RENTAL RATES – It is imperative that you know what the rental market is like in your area. Before you buy a rental property, make sure that you know what similar properties are renting for and how long they are taking to rent. Call a property management company and ask if they do opinions of rental value. Many of them do in hopes of getting your business.

15. THE FINANCIAL SNAPSHOT – You must do a financial analysis of the property. What will your net operating income be? This is the total amount that you will receive from owning this property (rental payment). Also make sure you know what your total expenses will be. (Mortgage payments, principle, interest, taxes, insurance, utilities, neighborhood association dues, etc.) Your net income less your expenses equals your gross spendable income. This will tell you whether the property gives you a positive or a negative cash flow. Don’t be alarmed if it is a negative cash flow because your capital appreciation potential may be so great that having to financially feed the property for a few years would be OK.

16. SELLER FINANCING – Always, always, always ask for seller financing if you can get it. Why? Because you can often get better terms, better rates and save on loan origination fees. The best advice I can give a new investor is to put together a team of experts to help you.

 

You should be working with a good inspector, a good mortgage broker, a good contractor and most importantly a good real estate agent who truly understands investment real estate. (Do not just settle for a real estate agent that sells residential homes. If you are going to invest, you need an investment specialist). Don’t be afraid to ask questions and always, always do your investment homework.

Thinking of Real Estate Investing?

Over a beer and cider, we had the best conversation about the different ways to invest in this market. There are so many options, it’s hard to know where to begin. With real estate appreciating at record-high levels across the country, you might be thinking of getting in on the property investment bandwagon. There are a lot of ways to invest and it is important to tune into your investment style to determine the best investment for you.

Below are four general investment options along with an overview, the pros, and the cons.

Option Overview Pros Cons
Single Family Residence (house) There is potential for both cash flow as well as long-term appreciation. Need to make sure long-term rentals are allowed in the area you are buying in (check zoning, HOA, CC&Rs). You can either self-manage or hire a property-management company. In general, these appreciate faster than condos or townhomes. Maintaining the whole house, inside and outside as well as the property. Higher insurance and property tax costs also need to be considered.
Condo There is potential for both cash flow as well as long-term appreciation. Lenders may have stricter requirements for a condo purchase. The condo building may have a rental cap meaning you may not be able to rent it out. You can either self-manage or hire a property-management company. Not as much maintenance required. Usually outside is maintained. May be more secure than a stand-alone home. Condo dues can be high and usually go up over time. Rules around renting out the unit can change over time. Special assessments can be costly.
Vacation Rental There is potential for both cash flow as well as long-term appreciation. These might be homes or condos and are also known as short-term rentals. You can either self-manage or hire a property-management company. If you buy in an area you like to vacation, this could become a vacation home for you as well. If you do not live close-by, a property manager may be something you need to look into. Depending on how you are set-up tax wise, you may only use your property 14 days or less per year.
Land There is potential for long-term appreciation. With land becoming more difficult to find, it provides an excellent opportunity if you buy in the right area and focus on land that can be developed. Little or no maintenance usually required. If left undeveloped, rules around how the property can be developed may change over time.

 

And there are even more ways to invest including tax liens, auctions, and even storage facilities! You can evaluate the investment for short- or long-term gains, regular cash flow, and even projected appreciation. Some people invest strictly with their spouse while others are comfortable investing with a group or syndications. The key is to stay within your comfort zone, plan for the “what if”, and think about not only your now needs, but your future needs as well.

When you are ready to learn more, we would be happy to help as there are so many more details than those outlined here. We can talk you through the different options available, provide you with lenders who are equipped to handle the type of investment and financing you need. Are you ready to talk investments? Reach out!

Fixer-Upper – Should You or Shouldn’t You?

Making a house your own by remodeling, moving walls, opening things up is often a dreamy idea. But when you really think about it, what are the factors may impact your decision to delve in the world of Fixer Upper?

6337 38th Ave SW, Seattle | Sold | $470,000

Sometimes a home comes up for sale that is well-below market value for homes similar to it. However, sometimes these homes are priced low because they need a lot of work. It might be tempting to save money on a purchase and transform the home into exactly what you want, especially if the home is in a very desirable area. Before you make the leap, you should ask yourself if this type of project is right for you and the way you live:

What shape is this house really in? Years of neglect don’t always show up in dated wallpaper and stained linoleum. It can show up as a leaky roof, rot, and structural damage. We always recommend getting an inspection before purchasing a property, even if your plan is to gut it. If the initial inspection turns up problems that are concerning, calling in a structural engineer or other experts is a good use of your money so you get an idea as to how extensive problems are.

How much is this going to cost? Although builders and contractors with a lot of experience can look at a kitchen or bathroom and know that x will cost $20,000 and y will cost $30,000, those are very very rough ballpark figures. They don’t take into account a discreet vent pipe that may need to get relocated or a plumbing hidden in a wall that needs to get updated. A contractor may be able to give you a rough estimate in a few hours but ask for a detailed proposal so you both understand the scope of work. Make sure you include a 20% contingency budget to deal with unforeseen problems.

How are we going to deal with hidden problems? Even if you get the home inspected and bring in contractors to give you quotes for work to be done, that doesn’t mean more problems aren’t hidden behind the walls and under the floors. Although you should have a 20% contingency padding in your budget for such situations, what happens if the needed repairs exceed that?

How are we going to live while the repairs are being done? Are you planning on having all the work done before you move in? Or will you be tackling one project at a time? Are you okay with living with a certain amount of chaos, dust, and missing functional spaces? Can you function without a kitchen for weeks on end? Not all people can.

What if the bank won’t give us a loan for this property? Banks want to make sure the asset that is being used to secure the loan is sound. Therefore most banks will have criteria for what types of property they will lend on. Working around this may take some strategy and we may need to shop around to see what options you have.

Buying a home in disrepair and renovating can indeed be a strategic way to build equity or simply have a home you will love and enjoy for years to come. However, before taking the leap, make sure this is a fit for your situation and your personality. If you would like to learn more about this option, let’s talk! Give us a call, text or email any time.

 

Why you Need a Local Expert

Hi All! Sarah and Shelley here, with a friendly reminder that we specialize in the Greater Seattle area and south. From Downtown all the way to Federal Way, we understand what’s happening here.

 

When it comes to buying or selling what is likely your biggest asset, it pays to have a real estate agent who is not only a professional, but who also has the local expertise to help make sure you are investing your money wisely and that your investment will pay off when it is time to sell.

Photo Credit: kevinandamanda.com

Here are just some of the items that an agent with local expertise can provide you:

  • Information on possible zoning changes and how those might impact future value
  • Historical market appreciation or depreciation data
  • Data on local amenities and services
  • School information
  • Information on upcoming local improvements to streets and thoroughfares
  • Information on big housing or commercial developments on the horizon
  • Updates on businesses moving in or out of the area
  • Information on trends such as population growth
  • Data on regional economic trends as these can have a strong impact on the demand for housing
  • Market information such as listings, pendings, and sold properties
  • Up-to-date notifications of new listings and solds in the neighborhood, and how the updated sold information can affect the value of your property
  • What your neighbors are doing to remodel their homes and how those changes can help their bottom line when it comes time to sell
  • Information on how property taxes are assessed and the relationships between assessed value and sold values
  • Information on developed and undeveloped land in the neighborhood, and what may be built on those.
  • Traffic trends information

And so much more! A local expert truly understands the special nuances of the different neighborhoods – such as those special pockets of parks and trails, the historic homes or businesses and their significance, or important events that have occurred there. Check out our Videos to see this in action.

 

As much as people buy homes, they also buy areas. It is rare that one can buy a home and have it relocated, so it is important to have an appreciation for an area before one buys a home there. And when it comes time to sell, it pays to have an agent listing the home who can explain all the benefits of your home, not just what is behind your walls.

It is easy to hire a generalist in real estate, but remember, we hire medical specialists when we have a unique diagnosis and your asset should get the same specialist treatment. I would be more than happy to provide you with local information and how the changes I have seen affects your home value. Please let me know how we, YOUR local experts, can be of service. Contact us and let’s chat.