Monday, April 22, 2019

When Does It Make Sense To Become A Real Estate Investor In The East Valley?

Becoming a real estate investor in the East Valley, or anywhere else, is a big step toward the financial future you desire and as such shouldn’t be taken lightly. Mixed with a traditional retirement plan, real estate offers returns and monthly income that you can access long before you’re eligible to dip into your 401k. Keep in mind it’s a lot more complicated than buying a house, renting it, and collecting income. It takes identifying a clear goal, having a plan for the properties, and a willingness to bend with change.

What is a real estate investor?

If you have the financial ability to buy a second home, fix it up, and rent it, you may be a real estate investor. Determining whether or not you can afford to become an investor happens when you work with a real estate professional like me, Elaine Beery of Beery Realty, and our team of trusted lenders, to understand if you’re able to qualify for a loan, the loan amount, and loan programs to fit your needs. If you’re a seasoned investor, you may have cash to roll over into a new project without incurring capital gains; ask about a 1031 exchange.

What is a 1031 Exchange?

This refers to the IRS rule that you can swap one investment for another like it with limited or no tax implications. There is currently no limit to the number of times or how often you can do this. For long-term investors, you may be able to pay one tax at a long-term capital gains rate at the sale of the last rental property. As with anything related to taxes, the rule is subject to change at any time so check with your tax expert to be sure you qualify.

What are the benefits of becoming a real estate investor?

In addition to the 1031 tax benefit, being an investor means creating an income stream. That’s not without its challenges as that income is dependent on having renters who pay on-time every month. Rather than handling properties themselves, many investors hire a management company to vet renters, schedule repairs, and check on the homes.
Take my friends in Mesa as an example. They’ve been renting the same home for nine years because the location is perfect and because they don’t want the maintenance costs of owning a home. Their owner lives out of state and a property management firm handles processing rent and upkeep. It’s a win for the owner to have long-time renters who pay on-time and for my friends, they get to live in a house they like in a location that is convenient, without worrying about ownership costs.
Over the years, the equity in the home has increased which is another benefit of being a real estate investor. While the real estate market has its ups and downs, over time it can increase in value. Whether you hold it long-term or sell at the height of the market in order to invest in another property, you’re likely reaping the benefits of having equity.

Because equity isn’t a guarantee, make sure you’ve got cash flow.

Let’s talk in a hypothetical scenario about a real estate investor we call Carl who bought four homes in the East Valley 20 years ago when prices were significantly lower than they are currently. His mortgages are $650 per month and he rents the homes for $750 per month, making his margin only $400 per month total for the four homes. When one of the air-conditioners broke and needed to be replaced, he didn’t have the cash on hand and had to finance the transaction. If he’d been charging a rental rate aligned with current rental prices, $1300-1800 per month in his area, he would have had the cash to fix his rental home. Now, instead of being a source of income, he’s losing money.
You might think he can just get new renters at a market-rate but it’s not that simple. The homes were built in the 1970’s and haven’t been renovated since he took ownership 20 years ago. Other homes in the neighborhood are renovated and renting at the top of the market so Carl’s homes don’t stand a chance of renting at the same rate unless they’re renovated and there’s no cash flow to do that. While he had the best of intentions to leave the homes to his children and grandchildren, they are advising him to sell.

The lesson? Don’t be Carl. Make sure there’s enough margin to create cash flow.  

While the idea of becoming a real estate investor in the East Valley sounds like a good idea, it’s important to have a plan for renovations, property management, and financial security.

At Beery Realty, we have trusted colleagues to help you on your path to becoming a real estate investor. Call us at (480) 570-1912 today to get started

Friday, April 12, 2019

Phoenix Real Estate Market Update – April 2019

After a slow start in 2019, home sales and their corollary “listings under contract” continue their rise into early April, now slightly exceeding the sales and listings under contract for this same period in 2018.  Most of the improvement in sales and buyer interest can be attributed to our continually falling interest rates. Interest rates have declined throughout 2019 since peaking in early November of last year at 4.94% (Freddie Mac).  As of April, rates are down almost a full point from that high, to 4.08% (Freddie Mac, April 4, 2019).
The monthly median sales price for greater Phoenix is up 4.6% year over year to $266,000, so buyers and sellers should still expect a relatively competitive market.  However, since much of what is driving our current market can be attributed to falling interest rates, buyers and sellers would be wise to keep an eye on rate changes (and their drivers), as any significant change in rates and rate direction would likely directly and quickly impact pricing and sales.
In summary, while 2019 is shaping up to be another healthy year for Phoenix real estate, sellers and buyers are encouraged to make smart choices in both pricing and offers as today’s buyers and sellers are very value sensitive.

Thursday, April 11, 2019

Why You Should Track Home-Related Expenses

Your primary residence isn’t an investment, this has been said time and again (especially since the market crashed entirely), but that doesn’t mean that when you go to sell you have to take a loss. Far from it.
In fact, as of the writing of this article, you’ll likely qualify for a tax exclusion (meaning you won’t pay taxes on this amount of profit from your home sale) of $250,000 if you file on your own or $500,000 if you and your spouse file your taxes together. But, if you sold and there was more than the applicable amount in gains, you’ll have to pay taxes only on the profit above the mark. When you have all your ducks in a row, it gets a lot easier to see what side of that line you stand on.
Reducing Your Tax Burden is the Goal
When your gain from your home sale exceeds your tax exclusion, there are two ways to help improve the situation with all those receipts you’ve been saving (you have been saving them, haven’t you?). First, you can deduct expenses related to selling your home, provided these are not expenses that affect the house physically. Think closing fees, brokerage commissions, and some seller-paid closing costs.
The other way to reduce your capital gains burden is to produce records that account for your extensive remodeling. These are the kinds of projects you definitely need a hand with. They include, but are not limited to:
·        Adding an additional room
·        Upgrading your kitchen
·        Replacing flooring
·        Having new landscaping installed
·        Putting on a new roof
The best part? These don’t have to be from the same tax year as when you sold. If you added that bedroom three years ago, pony up the receipts and reduce your tax burden. Unfortunately, regular home maintenance isn’t included on this list of ways to save a few dollars. Make sure you keep those receipts separate.
Get a Little Help From Your Friends
Keeping track of your personal finances, let alone the expenses related to your home, can be a daunting task. There are so many ways to pay these days and so many different kinds of things to pay for. This is the very reason, though, that you must be even more careful when tracking home-related spending.
Everybody has their own system, to be sure, but some are clearly superior to others. For example, if your plan is just to toss a bunch of receipts in a bucket until you get around to sorting them and manually recording each one, you may want to look into something a bit more efficient.
Even an Excel workbook is out-modeled these days, but there are several different types of apps you can use to help track your expenses, including:
·        Complete personal finance apps. Popular apps like Mint and Wally are essentially full personal finance packages that happen to store receipts. While you can give these apps permission to grab you bank information from a variety of banks all at once, you may end up with enough data that it’s a trick to find those old receipts down the road.
·        Dedicated receipt storage. ShoeboxedReceipts by Wave and Expensify are far more focused on the receipt part of your financial picture. All allow you to photograph and upload the receipts in question, can export the data you collect as a variety of reports and have a cloud-storage option, so you don’t have to worry that you’ll lose your receipts if you change phones or need to reload your operating system. PS. BTW, Shoeboxed will actually take that bucket of receipts and process them for you if you mail them in.
·        Receipt storage designed for homeowners.  HomeKeepr, Expensify, Quickbooks and many other expense tracking software really comes in handy. They allow you to scan your receipts in and helps you track home-related expenses automatically. All you need to do is snap a picture of your receipt and the software does the rest. You can then sort your receipts by the service type or business so you can see at a glance how much you’re spending on your project. Unlike other receipt trackers, HomeKeepr can track and maintain records for related items like appliance manuals and maintenance tasks that are due for your home.
Are You Ready to Invest in Your Home This Year?
All this talk of bookkeeping and receipt scanning surely has you thinking about how much you’ve been wanting to redo the deck or hang new gutters. Well, if today’s the day, I would be happy to hook you up with some of the best contractors in your area. Just contact me and I can send over a list of trusted companies. If you want to know what you should concentrate on first to get the most out of your remodeling dollars—I would be happy to help with that as well!