The National Association of Realtors (NAR) has released new research on the conversion of hotels and motels into housing. While the study was spurred by a 37% drop in hotel occupancy rates driven by the pandemic, the findings have broader implications. Hotel conversions provide a means to simultaneously create renewed profitability and help address the national housing shortage.
Commercial members surveyed
A survey was sent to 75,000 commercial members of the NAR between February and March of 2021. 168 reported being engaged in the sale, leasing, development, property management or appraisal of converted hotels/motels between 2018 and 2020. Of the reported conversions:
79% were for housing.
12% were for homeless shelters, either temporary or permanent.
6% were for healthcare or quarantine facilities.
3% were for retail, industrial, ranch land or other development.
The report ends with five case studies detailing acquisition, zoning, renovations and expected final property values. For those interested in engaging in hotel/motel conversions, they’ll find an excellent road map in this report.
Every homeowner who’s considering hiring a contractor to do some work in or around their house should make sure they’re familiar with their state’s mechanics lien laws before making a decision. Never heard of a mechanics lien? You’re not alone. Let’s uncover what it is and why you should protect yourself from it.
Think Twice About Not Paying
If you wind up having a beef with the contractor you employ for builds or repairs – poor workmanship, perhaps, or maybe they walked off the job before it was completed or failed to finish the work in a timely manner as promised – and you decide not to pay, that contractor can respond by attaching your house to a legal claim for unpaid work until some kind of settlement is reached.
That could turn into a waiting game if you are not considering selling your home. But, if you intend to put your home on the market in the near future, that lien could stop you in your tracks.
What EXACTLY is a Mechanics Lien?
Sometimes known as a materialmans lien, every state has a a mechanics lien law granting tradespeople a way to protect themselves from those who fail to pay them for services and time rendered.
Here’s how Rusty Adams, a research attorney for the Texas Real Estate Research Center at Texas A&M University, described it in a recent edition of Terra Grande, the Center’s monthly magazine:
“It is an equitable interest that gives its holder the right to have satisfaction out of the property to secure payment on a debt. It is not title to the property, and a lien holder does not have ownership rights. Rather, it is an equitable interest that gives the lien holder the right to have satisfaction out of the property to secure the payment of a debt.”
In other words, it is an encumbrance the property owner must deal with, one way or another. Otherwise, it could result in a foreclosure and forced sale of your house.
How Mechanics Liens Work
None of what follows should be considered legal advice. Rather, it is intended only as a brief, mile-high overview.
A mechanics lien can be filed by anyone with a claim against the property. This concept isn’t new; for example, Uncle Sam can place a lien if you fail to pay your taxes, as can your state. Your homeowners association can do the same if you don’t pay your dues or a special assessment.
In the case of work done to your house, the contractor can file if you fail to pay, even if you feel you’re justified in withholding. The company from which he or she gets their supplies – roof shingles, for instance – can also file against your house if the contractor doesn’t pay them. And if the contractor uses subcontractors, they, too, can go against the house if the contractor doesn’t pay them.
The “very broad” law in Maryland “covers almost everything,” attorney Harvey Jacobs says. For example, if the developer doesn’t pay the paving company hired to cover your cul-de-sac, the company can file a mechanics lien against every house that touches that street. Ditto for the outfit hired to landscape, sod and plant shrubs.
How to Protect Against Mechanics Liens
Fortunately, lien laws afford owners some protections. In some places, the amount owed must be of at least a certain amount. They also must be filed within a certain number of days from when the work was completed, and may require the property owner to be notified within a specified time that a lien has been filed.
The rules, which also apply to subs and suppliers, can be somewhat tricky for an owner to decipher. But the absolute best way to protect yourself is to require the contractor to provide lien releases before you pay anything more than your down payment. In other words, no draws or final payment until he or she certifies that everyone in the chain has been paid.
Often, says Texas attorney Adams, a notice of intent to file or the actual filing is enough to resolve the debt attached to the property without going through the process itself.
Once payment has been received, a contractor has a duty to remove the notice or the lien itself from public records. Failure to do so allows the property owner to file a lawsuit against the contractor to compel the lien’s removal. But to avoid that, Adams suggests making sure the release has been recorded.
A lien release is not the same as a lien waiver. Nor is it the same as a lis pendens. While a release removes an existing lien, a waiver is an agreement that prohibits a contractor or supplier from placing a lien on the property. But some states don’t permit waivers at all.
A lis pendens, which is Latin for “suit pending,” is a written notice that a lawsuit has been filed in the county land records office involving either the title to the property or a claimed ownership interest in it. The notice alerts a potential purchaser or lender that the property’s title is in question, making it less attractive, if only because the buyer or lender is subject to the suit’s ultimate outcome.
Beyond this, it is crucial for a homeowner to ensure the contractor, subcontractor or supplier has followed the rules of the road. In Texas, said Adams, the claimant must give the appropriate preliminary notices, make the proper filing and give filing notice to the property owner.
In Maryland, the unpaid amount must be at least 15% of the property’s assessed value. So if the house is assessed at $100,000, the lien must be for $15,000 or more. “Small jobs don’t count,” Jacobs said. Contractors must also file a lien within 180 days of performing the work in Maryland, but subs must file within 120 days.
In neighboring D.C., though, there is no minimum to file, and the contractor, supplier or sub has only 90 days to file.
(Note: In the case of mechanics liens, property value is an evidentiary question. Courts often use assessed value in deciding whether a lien can be brought.)
In Texas, though, contractors aren’t required to provide a preliminary notice, but they are required to present a list of all subs and suppliers before starting work. But subs and suppliers who have a contract with the original contractor must send notices to both the contractor and the homeowner by the 15th day of the second month.
As you can see, once you get into the tall grass with mechanics liens, it becomes fairly complicated. It’s at this point that it may be time to consult legal counsel.
Syndicated newspaper columnist, Lew Sichelman has been covering the housing market and all it entails for more than 50 years. He is an award-winning journalist who worked at two major Washington, D.C. newspapers and is a past president of the National Association of Real Estate Editors.
Here at Money Talks News, we spend a lot of time telling you how to save money.
We’ve explained how to save $1,000 quickly and how to save on every online purchase.
What happens once you’ve cut the lattes and canceled the gym membership, but you’re still burning a hole in your checking account each month? At that point, it may be time to pull out the big guns — time to get extreme.
Here are some out-of-the-box ways to save big. These go beyond the frugal tips that save you pennies. Instead, they are things that may require big lifestyle changes, but that will pay off in the form of serious savings.
1. Turn off the A/C
About 6% of all electricity produced in the U.S. is used by air conditioners, which collectively cost homeowners around $29 billion per year, according to the U.S. Department of Energy (DOE). So, turning off the A/C — and leaving it off — could save you some serious cash.
In some parts of the country, this would hardly be considered extreme — one-fourth of homes don’t have an A/C system, according to the DOE. But in hotter areas, it’s not for the faint of heart — and not something you should try if it would endanger your health.
If you want to give it a shot, we’ve got directions for how to make your own mini A/C as well as “5 Unusual but Effective Tips to Stay Cool Without A/C.”
2. Unplug and live like it’s 1949
We love our electronic toys, but using them costs us a pretty penny.
Cutting cable TV seems to be fairly standard money-saving advice. A more extreme way to save might be to not only cut cable, but also to eliminate internet and mobile phones altogether.
Unless you have a legitimate need to have the internet or a smartphone for work, you can probably get by with checking your email once or twice a week at the library. As for your cellphone, you probably don’t need to be accessible 24/7, right? Try carrying a prepaid phone for emergencies.
Less extreme options: If you don’t want to completely unplug at home, at least lower your bills. Free streaming services, for example, let you cut the cost of in-home entertainment entirely — see “15 Free Streaming Services to Watch While Stuck at Home.”
You can also use Money Talks News’ free cellphone and plan search tool to find cheaper options for phone service.
3. Move to a tiny house
Imagine your whole family squeezed into a home the size of your living room. It may sound crazy, but the tiny house movement can be the ticket to big savings.
Tiny houses typically run from 250 to 600 square feet, and they may be permanent or mobile. It may seem unrealistic to pack several people into such a small space, but some families do it — and quite happily too.
Small houses mean small bills. Plus, with minimal storage space, you may find you are forced to stop spending money on stuff you don’t need.
Ready to take the plunge? Check out “7 Ways to Know You’re Ready for a Tiny House.”
Less extreme options: If a tiny house isn’t for you, cut your bills by moving to a smaller home. It costs a lot less to heat or air-condition 1,000 square feet than it does to keep 2,500 square feet as warm or cool as you like it.
Or, move to an apartment. Sure, you’re not building equity, but you’re also eliminating all of your maintenance costs and possibly some utility bills.
4. Park the car permanently
You can save some serious money by selling your vehicle and relying on your feet, bicycle or public transportation instead. If you need a car for a longer trip, rent one.
Less extreme options: If you can’t bear to be without a vehicle, at least drive it less. Carpool whenever possible, and combine errands. You can also go in with a neighbor or friend and buy a car to share.
5. Go veggie
Beef takes a bite out of many grocery budgets. Extreme savers might want to eliminate meat altogether from their diet. Of course, vegetarian diets can be expensive if you’re buying out of season or loading up on specialty products.
Less extreme options: Maybe you aren’t ready to give up meat completely. You can always have one or two meatless days a week or buy cheaper cuts of meat to keep costs down.
6. Find your own heating fuel
The cheapest way to replace costly heating oil and propane may be to install a wood-burning stove. If you have trees on your property, you can cut your own wood for free heating. If not, you might need to buy wood, which shouldn’t be too costly.
However, please be sure any stove is installed by a professional and inspected each year before use. Install carbon monoxide detectors, too. Dying from an improperly vented stove may be one extreme way to save money, but we would prefer that our Money Talks News readers stick around to enjoy more great articles for years to come.
Less extreme options: While a little more expensive than a wood-burning stove, a pellet stove is another inexpensive heating option. Also, if you have a little money stored up in savings, you might want to see about converting to natural gas. That might cost a bit upfront but will save money in the long run.
If you already have natural gas or none of these options will work, you can try the conventional advice of installing a programmable thermostat and adjusting the temperature at night and when the house is empty during the day to use less energy.
7. Embrace your neighbors with communal living
Cut down living expenses by living in a commune — or an intentional community, as they are now often called.
These living arrangements vary significantly from community to community, but most involve shared work and shared expenses. In addition, many of these communities are based upon values such as conservation or voluntary simplicity.
The Foundation for Intentional Community maintains a searchable directory.
Less extreme options: Rather than moving to a commune, embrace communal living in your own home by renting out a room. A step above that might be buying a duplex or similar property to share with a friend’s family.
8. Hold your breath and dumpster-dive
Some folks curb-surf for useful items others have left out as trash, while others actually climb into garbage bins to retrieve overstock food from restaurants and stores.
I have a hard time recommending this extreme way to score free stuff. The law can be a bit hazy about the legality of dumpster diving, particularly when the trash is located on private property and not on the curbside.
Less extreme options: Instead of dumpster diving, you could try Freecycle to find freebies in your area. Also, send out the word to family and friends that you are on the hunt for reclaimed items, and you might be the first person they call before sending unwanted goods to the curb.
9. Turn the heat way down
Are you tough enough for this strategy? Blogger Tanja Hester writes in Forbes that she and her husband have learned to tolerate an indoor temperature of 55 degrees in winter.
After moving into a new home the couple got a whopping bill for heating fuel. They began to search for the lowest indoor temperature they could handle. Their answer: 55 degrees, which probably would be pretty frigid for most of us.
“Any colder and we actively shiver … which is unhealthy. But 55 degrees we can handle by bundling up. We warn guests who visit in the winter!”
Less extreme option: If you don’t have a programmable thermostat (to set and forget the house temperature), get one. If you do have one, use it as intended.
You can save up to 10% a year on the cost of heating without sacrificing comfort by dropping your indoor temperature setting by 7 to 10 degrees for eight hours daily — while sleeping, for example — says Energy.gov.
We’ve got other tips for saving money and energy here: “22 Mistakes That Send Energy Bills Soaring.”
Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.
As a buyer in this intense seller’s market, you may have experienced this unfortunate scenario: You find the perfect house, make what you believe is a strong offer, wait on pins and needles to see if it was accepted, only to find that you haven’t won this round of bidding wars. It begs the question: how do you choose your offer price so you know it’s competitive right out of the gate?
What the Current Market is Demanding of Buyers
As cash offers have risen sharply and multiple offer situations have become the norm, buyers are having to bring more to the table, employ strategic tactics, and work with an experienced, full-time real estate agent. But one of the biggest questions buyers are navigating these days isn’t merely how much they’re willing to offer; they’re having to decide how much they’re willing to offer over list price. And while there isn’t a perfect formula to help a buyer decide, there are several things to consider when creating a purchase offer that could help it stand a chance of winning a bidding war.
How Much To Offer On A Home
The median existing home price is up over 17% from March 2020, and what this means for buyers is that they will need to pay substantially more than they probably want to pay and more than they would’ve paid just one year ago.
In some markets, offering a few thousand dollars over list price might be all it takes to win a bidding war. But in other markets, offering $50,000 over still won’t get the job done. Since real estate is a local endeavor, it’s critical to work with an experienced buyer’s agent that has a pulse on the current trends of your market.
Tips when deciding on the offer price:
Have your buyer’s agent pull the localized data on recent home sales to determine what percentage of the list price the previous sales received.
Determine if the local comps support a higher purchase price than the current list price.
Evaluate how much liquid cash you have to pay over appraisal value if need be.
Before you agree to an escalation clause, make sure your agent fully explains how they work.
In most cases, you don’t get to know what others are bidding on the home. You are blindly bidding against someone else, so in this market, offer your best right out of the gate, keeping in mind that the highest isn’t always the best if it means you’ll wind up “house poor.”
Other Ways To Strengthen Your Offer
There’s a reason real estate contracts are several pages long, and price is only one small section in the offer. While presenting a strong purchase price is critical, there are other factors that make up a home purchase contract — which means there are other ways to strengthen an offer in this seller’s market!
One of the biggest ways buyers weaken their offer is by including contingencies. The most common contingency is the home sale contingency—the purchase is contingent upon the sale of their home. While needing to sell in order to buy is common and reasonable, in this market, sellers are just not wanting to entertain these offers if they can avoid it.
Buyers should consult their lender to see if they can safely purchase without having to sell. In addition, work with your real estate agent to determine a reasonable list price and sale price to get your home sold quickly. And while it’s not ideal, buyers should consider selling first and living in temporary or month-to-month housing while they search for a home to avoid having a contingency offer. If a home sale contingency is necessary, buyers can strengthen their offer by adding a kick-out clause.
If you’re considering asking the seller to pay for your closing costs, you should rethink it depending on your local market. A strong offer these days means that it’s “clean” and over list price, so sellers won’t be likely to consider requests for concessions, personal property, or any others. Before buyers begin their home search, they should educate themselves on the upfront costs of purchasing a home, and become familiar with loan programs available to buyers that assist with some of those upfront costs.
Forego Repairs Or Offer A Repair Threshold
In this market, sellers are doing less and getting more. They’re not wanting to spend thousands on repairs, especially when there’s plenty of buyers who would purchase it “as is.” That said, offers that forego inspection and repairs or offer a repair threshold stand out among the crowd.
While waiving an inspection altogether can be highly risky (and is often not recommended), it is happening in many markets. But, if you still wish to have the comfort and protection of a professional home inspection without sabotaging your offer, consider an offer that specifies there will be no requests for repairs, or that you will request repairs only if they meet a certain financial threshold. This tactic gives buyers the protection of an inspection discovery while also reassuring the seller that they won’t be nickel-and-dimed on repairs.
Include An Appraisal Gap
In years past, the appraisal price was the dominant factor in the transaction and one of the biggest protection for buyers. Now, however, buyers are readily agreeing to pay well over appraisal. By including an appraisal gap in a purchase offer, buyers can substantially strengthen their offer. An appraisal gap is when a buyer agrees to pay all or some of the shortage between the offer price and the appraisal value. It’s important to remember that banks will only lend on the appraised value, so any appraisal gap is the out-of-pocket responsibility of the buyer.
What NOT To Do In A Seller’s Market
The best way to get your offer accepted? Submit an excellent offer and keep it ethical. Submitting a subpar offer but including a buyer love letter is no longer the way to win a bidding war. Not only is it risky, but it can also potentially violate federal law. So forego the love letter and instead submit your strongest, cleanest offer for the best chance to stand out from the crowd. It might not be the most convenient scenario, but if you’re really wanting to buy, it could mean all the difference between getting that coveted house or staying in the search pool!
Jennifer is an accidental house flipper turned Realtor and real estate investor. She is the voice behind the blog, Bachelorette Pad Flip. Over five years, Jennifer paid off $70,000 in student loan debt through real estate investing. She’s passionate about the power of real estate. She’s also passionate about southern cooking, good architecture, and thrift store treasure hunting. She calls Northwest Arkansas home with her cat Smokey, but she has a deep love affair with South Florida.
A house purchase accounts for a sizable net worth of a person. Just like any investment, insuring your house makes economic sense. Ideally the cover should help you rebuild and replace your belongings if disaster strikes. A good policy should also shoulder the financial burden arising from injuries that a third party might suffer within the property.
So, how much homeowner’s insurance should you get? When deciding on this, the following factors will come into play.
Replacement cost of the house
Your house is insured on replacement basis. This means you will be reimbursed the equivalent cost of rebuilding your entire house or part of it that has been damaged.
To this end you should go for a policy whose limit will cover the current cost of rebuilding the house. It should take into account the cost of buying the same type of materials as well paying the labor at current prices.
The policy should also be flexible enough to account for possible changes in building regulations. Such include building code upgrades that may require some aspects of your house to be changed; say better foundations or a different drainage design.
Beware of policies that only cover the original value of a house. The premiums might be lower but they won’t cover any increase in labor or material costs. The payout will also be less the depreciation value of your home.
This is the out-of-pocket money that a policy holder must pay before the insurer settles a claim. It’s advisable to go for policies with high deductibles since they offer low insurance premiums.
A publication by Oregon Insurance Division shows that on average homeowners make a claim once in every 9 years. With this in mind, it makes sense to foot a higher deductible when disasters strike and save on monthly instalments in the long run.
Most insurance companies will increase your premiums or refuse to cover you in the future if you get into a habit of claiming reimbursement for minor damages. The move will ensure that you only file claims when the direst of disasters hit.
Location of your Home
Your policy limits will vary depending on the location of your home. Houses built on sloppy or hilly sites are deemed problematic. Same goes for homes at far off places like a heavily wooded area that may inaccessible to emergency services e.g. fire trucks.
Some locations and states are also flagged as high disaster areas. These include flood, earthquake or hurricane prone areas. If your house is located in such an area then expect to pay high limits on your policy.
Flooding accounts for the highest percentage of insurance claims from natural disasters. You should consider having a policy that addresses it; even if your zone is not susceptible to floods. This is according to Loretta Worters, the Vice President of Communications at Insurance Information Institute
Value of your Possessions
A detailed inventory of your belongings should give you an idea of what you stand to lose as a result of burglary or damage from a disaster. Normally, policies will insure possessions up to 75% of the home value.
You can insure your belongings on their actual value or that of replacing them. Replacement coverage attracts higher premiums but it makes more financial sense. This is due to the fact that most house possessions have a high rate of depreciation.
What Else to Consider
Having factored the above in your insurance calculations, the figure that you come up with should fall within a given margin. Take it upon yourself to find out the average cost in your state and specific city.
To give you an idea of what to expect let’s consider a home coverage of $200,000 with a $1000 deductible and a liability coverage of $100,000. A study showed that:
The national average falls at $1,228 with Florida and Louisiana having annual average rates north of $2900. Hawaii and Vermont attract the minimum coverage averaging at $589 and $337 respectively.
Pro Tip: Your policy limit can vary slightly from the average figure depending on the uniqueness of your home and possessions.
Although home insurance is a must-have for every homeowner it needn’t be expensive. Lack of knowledge on the subject can land you on expensive policies that are not worth your property. Similarly, you may find yourself with a cheap cover that is inadequate for your property. The above information will guide you in deciding on the amount of insurance that you should get for your home.
Technology has totally transformed the house buying experience. You no longer get in your agent’s car, and the agent drives you around to different properties. Now, you can sit on your couch and view hundreds of homes with the click of a mouse.
In addition to home listings, there are a bunch of other technology tools to help you find the perfect home. These tools are easy to use, at your disposal and can help you make a better decision when purchasing a home. s
Many of us are familiar with Google Maps because we often use it for directions anytime we go somewhere. It’s also a valuable tool when buying a home. You can use the tool in several different ways. Most importantly, you need to know where the house is located and once you have the location of the home, you can easily calculate the distance to the airport, local schools and the closest grocery store.
Google Maps also gives you an overall view of the region when you pull back the view. You can locate the nearest park and get a sense of the community’s population density. You can use the street view feature in Google Maps to virtually drive around the neighborhood. This helps you better understand if the community fits with the type of neighborhood that you are seeking.
Local Property Search Tools
Most counties and cities have made property records easily accessible online. It’s not like the old days of going to the country courthouse and entering a room with hundreds of books with local property records. Now, you enter the address into a database, and the program pulls the property record. The listing contains recent sales of the property and the assessed value. These are valuable pieces of information when making an offer on a house. You want to better understand the owner’s selling position in the market.
School District Rating Sites
If you have or plan to have children, schools are an important part of the decision-making process when you buy a home. You want your children to attend well-rated schools. There are several school rating sites online — greatschools.org and a niche.com are two examples. All of these sites usually feature a grade and give parents the opportunity to comment on their experiences at the school. Most states also make the yearly report cards from standardized testing available online.
If you are actively looking for a house, you are going to open houses and your real estate agent is setting up viewings. You can easily confuse different houses that interest you. You should take picturesoft the houses that you visit. You want to focus on the features that most interest you and areas that concern you. You can review these pictures when you are serious about a house.
Mortgage Calculator Website
When buying a house, you are most likely going to need a mortgage. That means you need to know what it’s going to cost. A mortgage calculator can quickly calculate your monthly payment. You just enter the price of the house, the down payment, interest rate, and whether you are seeking a 30- or 15-year loan. The website will kick out the monthly payment, and that will let you determine if the payment fits within your budget.
Sex Offender Registry
You want to get a sense of your neighbors when you buy a house. You also need to know if the neighborhood contains anyone on a sex offender registry. Most states make the sex offender registry public information online. You can search by the address of a house you are considering buying and the website you let you know if anyone in the area is on the registry.
Community Billboard Apps
NextDoor and several other community billboard sites have become popular over the last few years. These are sites where people post concerns and observations about the neighborhood. They also post questions. You get a sense of the important issues in the neighborhood and whether there are things that should concern you. The app. is easy to download. Once installed, you search for the particular neighborhood and find the bulletin board. You can scroll through the different posts.
When you visit a house, you might want to write down notes and document your thoughts on a house. Evernote and other note-taking applications allow you to easily organize your notes. You can add photos and other information to the note, and the information can be tagged for particular keywords. That makes it easier to sort in the future.
Drones are becoming common in the real estate industry. Real estate agents use them to fly around a house, and the camera footage is placed with the listing. But you can also use a drone to gather more information about the house. You can fly a drone around the neighborhood to get a bird’s eye view of the neighborhood. You can record the flight and watch the video later. It’s just another piece of information to help you in your real estate purchase.
The new tax law that took effect in January includes several changes that have a significant impact on owners of second homes, including vacation homes. It’s a good idea for current owners and those who are thinking of buying a second home to familiarize themselves with the new law now. It’s not too soon to plan for your 2018 tax returns.
The news isn’t so good for families that don’t rent out their vacation homes because they probably won’t be able to deduct as much as they have in the past. However, those who use their second homes only or mostly for the rental income may do better than they did under the old law.
Deducting state taxes
The new law limits the total amount of state and local taxes you can deduct to $10,000 on a joint return for single and joint returns. The new limit covers sales, occupancy, income and property taxes, including taxes paid at closing on a new property. If you own a primary and secondary home, you will almost certainly exceed this limit. You will be able to deduct less-perhaps a lot less in property taxes than you did last year. The new limit on state tax deductibility will affect homeowners in high tax states more than others.
Mortgage interest deduction
Despite attempts to eliminate or seriously reduce its value to homeowners, the deduction for mortgage interest survived largely intact in the new law. The most significant change was the lowering of the limit on total amount of the cost of mortgage debt for all homes owned by a taxpayer.
The new law “grandfathers in” or exempts mortgage interest on homes purchased before December 15, 2017. Homes purchased after that date will come under the new lower limit for the mortgage interest deduction. Thus, homeowners who already owe $750,000 or more in mortgage debt and buy a second home this year, they can’t deduct any of the mortgage interest incurred in the new purchase.
The new law increased the standard deduction to $12,000 for single filers and $24,000 for joint returns. Because of the changes in the deductibility of state property taxes and mortgage interest, homeowners who have little or no mortgage interest and buy a moderately priced second home this year on which they pay less than 12 months of mortgage interest may find that they are better off taking the standard deduction on their 2018 taxes.
Incentives to become a landlord
For owners who want to use their second homes only for the use of their family and friends and not to rent out, the new tax law will create a disincentive to buy a home. For those who plan to rent out their property, if only for a few weeks during the year, the new law may be a boon.
Most landlords “pass-through” rental income so that it’s taxed as personal income. According to the Nolo website, if the rental activity qualifies as a business for tax purposes, as most do, you may be eligible to deduct an amount equal to 20 percent of the net rental income. If you qualify for this deduction, you’ll effectively be taxed on only 80 percent of your rental income.
Second, rental properties (even a vacation home used by the owner for several weeks a year), may not fall under the limits on deducting state taxes and the cap on mortgage interest.
“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,” said Robert Gilman, a partner at New York-based accounting firm Anchin, Block, & Anchin LLP recently featured in the Wall Street Journal.
If so, an owner of a vacation home that’s rented out for two weeks or more can write off on a pro-rated basis all mortgage interest and state taxes along with all other operating expenses incurred by owning and renting the property, including maintenance, advertising, and repairs.
Finally, the new tax law includes a new tax deduction for individuals who earn income from businesses owned individually or by pass-through entities like limited-liability companies or partnerships.
“During 2018 through 2022, hosts will be able to use 100% bonus depreciation to write off in a single year the full cost of long-term personal property they use for their rental business. Bonus depreciation may now be used for both new and used personal property. It may not be used for real property,” writes Fishman.
Some economists forecast a drop in demand for vacation properties as a result of changes in the tax treatment of vacation homes. However, demand has remained strong in most of the nation’s vacation destinations.
Steve Cook is the editor of the Down Payment Report. He is a member of the board of the National Association of Real Estate Editors and writes for several leading Web sites, including Inman News. From 1999 to 2007 he was vice president for public affairs at the National Association of Realtors.
Picture this; you have a perfect image in your head of the home you are going to buy. It’s the first time you are buying a house and from the look of things, everything is going perfectly; you have narrowed down your search to a favorable neighborhood and made the necessary arrangement to own the home. Then you start noticing flaws that you could have avoided if only you had taken time to do things the right way.
This is a common story amongst most first time homeowners. To avoid falling into the same trap, here are temptations to avoid when searching for your starter home.
Not Hiring an Agent
Real estate agents are good at their job but they don’t come cheap. Instead of paying an agent, most first time homeowners decide to go it alone. The thinking here is that by foregoing the services of an agent, you can save a few bucks. You embark on open houses, hunting through one listing to the other.
This is usually a bad decision that puts many people at crossroads on which home to buy or how to bargain on a deal. Having an agent means that the leg work is reduced considerably, because not only do they have access to Multiple Listing Service (MLS) but they can also spot an overpriced home from a mile away.
Falling in Love at First Sight
When it comes to real estate, love, at first sight, is one temptation that can cost you dearly. Getting the right home requires due diligence. You should take it upon yourself to have the property inspected and appraised before you make a final decision. As a good measure, it’s advisable to at least view 5 houses to see how they compare.
Being unduly hasty to acquire the very first home that tweaks your interest can make you overlook important appraisal details. Information such as the actual market value of home, age of the home and its general condition could take time. Hurrying the process could mean waiving some of these key processes.
Relying on Your Family for Advice
The pride that comes with homeownership can cloud your judgment especially when it comes to getting advice. Family and friends can actually lead you into settling on the wrong home. This is because their advice is biased and will mostly reflect their own housing conditions.
As a first time homeowner, you may not be too choosy or hang-up on every small detail. This is not to say that you should skip the home inspection; however, there are some minute imperfections that you can deal with. Your family or friends may have an issue with such details and advise you against buying such a home.
What they don’t know is that you could have gone through several homes before you settled on that one they are trashing. It’s advisable to only heed the input of those members who have been with you through the entire process.
Waiting Too Long For the Market to Shift
The housing market fluctuates through buyers’ and sellers’ markets. The two shifts are a result of supply and demand. When the supply of desirable houses is low, prices shoot upwards favoring sellers; on the other hand, a surplus causes prices to tank, a situation that favors buyers. What’s the importance of this information for first-time buyers?
Here is why: A common piece of advice that you will get when looking to buy a house is that you should wait for the prices to come down. This is sound advice but how long is too long- how patient should you be?
It’s hard to give a clear answer on this. The best you can do is keep yourself updated on the housing market. Keep tabs on the Housing Market Index specific to your location. By watching these trends, you can (to a certain degree) know when prices are low enough for you to buy.
While buying a house, most first time owners make mistakes by letting their emotions drive them. Temptations will make you approach a deal blindly; you go it alone or sideline your agent, settle on the first home that interests you, go with a family member’s advice or waiting too long for prices to fall. These temptations can lead you into making the wrong buy.
What You Don’t See Can Hurt You (If You’re Not Careful)
Buying anything sight-unseen is always a risk, but when the “thing” you’re buying is a house, then the risks are about as high as they can get. For starters, the home may have hidden problems that the buyer won’t know about until they see the property in person. For example: the roof could have leaks; the HVAC system may not work; or, there may be an insect infestation.
While a home inspection can help the buyer gain a better idea of what the home’s quality is like, it is in no way a guarantee that there aren’t going to be issues.
Despite this, many home buyers and investors are willing to take on the risks of buying a home sight-unseen. For some buyers, it is just the fact that they live some distance away from the property and they either don’t have the time to visit or need a home quickly because they’re relocating to the area. For an investor, buying a home without seeing it can sometimes wind up being a good move. Of course, investors usually ensure they include contingencies in their contracts to protect their financial investments.
But what can a regular homebuyer do to protect themselves when they’re in the position of having to buy a home without ever seeing it in person? Here are some tips to help ensure the home you’re buying is worth it.
Use a Reputable Agent
The agent you choose to work with will have a big impact on your satisfaction level throughout the process. Therefore, you need to do your research so you can find an agent in the area where you’re looking to buy – one who is experienced, knowledgeable, and well-respected.
Make sure you check their social media pages and online reviews from past clients. You can even ask them for references, preferably recent clients, to contact, so you can learn more about how strongly the agent works for his or her clients.
Take Advantage of Technology
There’s an unfortunate growing trend in the real estate industry in which the photos uploaded for display on online listings are manipulated via Photoshop or other editing software. Rooms are made to look larger then they are. Colors and textures are made more vibrant. Dark rooms can be illuminated by computer-generating artificial lighting effects. Therefore, what the buyer sees online is often not the reality they find when they finally visit the property.
To prevent this misrepresentation, use technology like FaceTime, Google Hangouts, or other video chat programs so your agent can give you a real-time virtual tour of the home. This will help give you a better idea of the size, scope, and quality of the home’s interior, exterior, and property.
Send a Representative to See the Property for You
If you have family or trusted friends living in the area, then you can ask them to visit the property and provide you with their honest take on it. If possible, send someone who knows your tastes, preferences, and DIY skills. The individual can also serve as the liaison between you and your agent.
Get the Home Inspected
A professional home inspection will go a long way toward you determining whether the home is a sound investment or a money pit. While a home inspector won’t be able to tell you if something is about to malfunction, they can let you know about the state of the roof, the HVAC system, the plumbing and electrical systems, and other common concerns. The inspection report will also serve as a strong negotiating tool if the home does have some problems that will need to be fixed before you take ownership.
Always Include Contingencies
When buying a home sight-unseen, you are the only party in the transaction that is taking a risk. Therefore, you need to protect yourself by including contingencies in your contract. This way, you will have more room to deal with any unexpected problems or negative information you uncover while doing your due diligence. In bad situations, a contingency can even help you walk away from your contract without accruing any excess costs or legalities.
Find the Home You Want on Homes.com
Homes.com offers home listings for every city in the United States. So, if you are looking to relocate, we can help you find the home of your dreams in your soon-to-be new city. We can even match you up with a preferred seller’s agent in the area where you’re looking to buy. Give us a try today and see for yourself why so many buyers find their homes with Homes.com.
Carson is a real estate agent based out of Phoenix, Arizona. Carson loves data and market research, and how readily available it is in today’s world. He is passionate about interpreting these insights to help his clients find and buy their perfect home. Carson got into the real estate industry because he loves the feeling of handing over the keys to a new home to happy clients. In his free time, he works on his backyard bonsai garden and spends time with his wife, Julia.
Do you like to surf Homes.com to check out the most expensive homes to see how the “two percent” lives? Do you daydream about owning a luxury home yourself one day? Or have you earned enough to afford the very best and you want to see what’s available?
Luxury homes are different in more ways than just price. The luxury market is a distinctly different marketplace from the rest of residential real estate. Here are five notable facts concerning buying and selling luxury real estate that might surprise you.
1. There are Several Different Definitions of a “Luxury” Home
For many years, the Institute for Luxury Home Marketing set a $1 million value as the dividing line between luxury properties and less expensive homes. As property values have risen, so has the dividing line. The institute now updates its “luxury home threshold” annually to adjust to any changes.
Luxury real estate professionals also realized that, since property values vary from market to market, the definition of “luxury” should reflect local market values. A million-dollar home would certainly qualify in Chicago, but not in Beverly Hills. Today, the most widely accepted definition of luxury real estate is the “top 5 percent of the local market.” Some agents also recognize an “ultra luxury” market which includes only the top 1 percent of the market.
Still, defining “luxury” differently in every market causes problems for calculating luxury data at the national and international levels. Christie’s Real Estate, which operates around the globe, sets the bar for luxury properties at $2 million. Other national and international organizations do the same. If you are searching for a specific market, it’s a good idea to find out how “luxury” is defined.
2. Luxury Homes Take Three Times Longer Than Average to Sell
3. Luxury Sellers are More Likely Than Average Sellers to Cut Their List Prices
Another reason that luxury sales take longer to sell is that their owners often purposely list their homes above market value and are willing to wait months for sale. After months have passed, they may lower the price. More luxury sellers than average sellers end up accepting a price lower than their list price. The list-price-to-sale-price ratio for all sellers last year was 99 percent while the list-price-to-sale-price ratio for luxury sellers was 97 percent. Two percentage points may not seem like much, but in May 2018, the average difference between median list and sale prices for luxury homes amounted $245,000 (97.62 percent LP/SP).
4. The Inventory Shortage That is Affecting Most Markets Today Does Not Exist at the Luxury Level
The causes for the current inventory shortage — strong demand from millennials, the conversion of millions of affordable homes into rentals and lack of new construction — do do not exist at the luxury level. Luxury homes are more profitable for builders, so many markets are flush with higher-end developments. Full inventories in most luxury markets result in market dynamics that are different than lower-priced homes. In May 2018, total existing home inventories were 6.1 percent lower than the previous year. The Institute for Luxury Home Marketing reported that 25 of the top 52 North American luxury markets were buyers’ markets, and only 16 were sellers’ markets. Despite the difference in supplies, year-over-year prices for both luxury homes and all existing homes appreciated at the same rate, 4.3 percent.
5. Luxury Listings Can be Difficult to Find
Many luxury sellers, especially celebrities and wealthy owners with children, don’t want interior photos, addresses and other information about their homes available to the public. They are concerned about compromising their security and privacy. Instead of listing their homes on the MLS, they use brokers who specialize in “pocket,” or off-market listings. These brokers may show exterior photos, prices, and general locations of their pocket listings on their websites, but they will not include interior shorts or addresses. Instead of marketing prospective buyers, these brokers may hold open houses and invite a select list of agents who specialize in wealthy customers.
These five facts are just the beginning of the differences between luxury and lower-priced real estate. If you are in the market now, make one of your first steps to hire a real estate agent who specializes in luxury properties where you want to live. If you’re not quite there yet, but you want to be ready for winning the lottery, Homes.com has many homes to see.
Steve Cook is the editor of the Down Payment Report. He is a member of the board of the National Association of Real Estate Editors and writes for several leading Web sites, including Inman News. From 1999 to 2007 he was vice president for public affairs at the National Association of Realtors.