Would-be to Should-be in Denver

When I counsel a new or first time buyer here in Denver, or even a seasoned seller buying their next home I often hear “we just don’t know” where, what kind of loan, how quickly, etc. There aren’t answers for some questions until you get your feet wet and start looking but the financing is often the easiest. Here are some thoughts about turning your “we shoulda” into your “we did”!

Some would-be buyers have emotional reasons to own a home like having a place of their own where they can raise a family, feel safe and secure and enjoy their friends’ company. Other buyers’ dominant reasons might be financial in nature such as building equity or lowering their cost of housing.Denver

Regardless of what might be motivating people to want their own home, it is easy to justify that now is a good time to purchase. Let’s look at a $250,000 example using a FHA loan.

The total payment will be about $1,835 dollars a month. If the payment is lower than the rent a person is paying, that should encourage a person to continue investigating.

In this example, when you consider the monthly principal reduction, the monthly appreciation and the tax savings, even with money added for monthly maintenance, the net cost of housing is less than half the total house payment.

Considering all those advantages, the would-be buyer is spending over $1,100 per month more to rent than it would be to own. In a year’s time, they would lose close to $14,000 which is more than the down payment of $8,750 required on this price home.

Most would-be buyers understand that a home is a big investment but they may not understand the advantage of the leverage caused by the low down payment mortgage. The benefits extend beyond a return on the down payment but to the value of the home.

In this example, the $8,750 down payment grows to an equity of $73,546 in seven years based on 2% annual appreciation and normal amortization on a 30-year loan. If you calculated that as a rate of return, you’d be challenged to find anything that could compare with it.

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To see what your numbers might look like, check out this Rent vs. Own. If you need any help or have any questions, contact us. Part of our greatest satisfaction is helping would-be buyers understand why they should-be.

Most new home builders honor the Realtor Client relationship in Denver however, I would need to be with you on your first or second visit to the builder’s site. Best advice I can give you is carry my card with you and present it to the builder representative and say “this is my Buyer’s Agent”. Do not sign or fill out any forms. If you find you want to buy something right now! call me and I will do my best to get there to make sure you are well covered. Those of you out of Denver it is a bit harder, but I might find a good Realtor to help you too. Best practice is to call me with your questions.

There are pages of resources at DenverRelocation.com for all buyers

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An Alternative to Paying Tax Today

There can be a substantial amount of capital gains tax due upon the sale of an investment property in Denver, both the IRS and the State of Colorado. Often an investor will use a 1031 exchange as a tool to defer those taxes. Read on…

The cartoon character Wimpy would say that he’d gladly repay you Tuesday for a hamburger today. Some real estate investors say a similar thing to Uncle Sam to be able to hold on to their proceeds from the sale of an investment and agree to pay the tax later. Denver

The benefit of a 1031 exchange is that it allows the investor to defer the tax due from the sale into the replacement property. This allows more money to be reinvested. In the example shown, the investor has 27% more to invest now by deferring the tax into the future.

The property to be exchanged must be like-kind which means real estate for real estate. Rental property can be exchanged for other rental or investment property. Personal-use properties like a first or second home are not eligible for exchanges.

There are some critical dates that restrict the validity of the exchange. The investor must identify the replacement property within 45 days of the sale of the relinquished property. The replacement property must be closed within 180 days of the sale of the relinquished property.

  • The replacement property must be equal to or greater in value, equity and debt than the one being relinquished.
  • All net proceeds must be used in acquiring the replacement property.

There are specific rules involved in constructing a valid tax-deferred exchange. There are three professionals that should be involved: a tax advisor, a real estate professional and a qualified intermediary who will assist in the acquisition and transfer of both the relinquished property and the replacement property. Additional information can be found in IRS Publication 544.

If you would like to talk about moving your Denver real estate holdings into something closer to home, or closer to where you intend to retire, lets talk about using the 1031 exchange as a legal, and very cost effective way of doing it. There are some tricks and having a good Realtor lined up in the destination city is critical to the smooth running of the exchange. And it does not cost a buyer anything to participate in the exchange. We can get the first leg started here in Denver for you. Give me a call…or visit www.DenverRelocation.com.

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Lower the Rate – Deduct the Interest

WOW, this is so true…I know I have had issues with managing debt and found the use of a line of credit could help immensely! So make sure to read through and at the bottom, I will have a resource for you here in Denver to use to get a home equity line. You can use the same line of credit to get your Denver home ready to sell! What a great tool for a home owner who still has the laminate counter tops and wants to up-grade them.

Credit card debt in America is back to levels prior to the recession. The average credit card APR is just under 16% according to CreditCards.com Weekly Credit Card Report. Denver RatesHomeowners have an advantage over renters when it comes to getting their arms around debt issues.

Basic money management suggests that higher rate debt be replaced with lower rate debt. Credit cards, personal cars, boats, motor vehicles and other personal property, typically have interest rates higher than that of real estate loans.

Borrowing against a person’s home usually provides the lowest rate of financing. Refinancing a home mortgage to take cash out to retire personal debt is one option. Another would be to secure a home equity or HELOC, home equity line of credit.

An alternative advantage of borrowing against one’s home is that the interest may be tax deductible unlike the interest on most personal debt. Qualified mortgage interest includes acquisition debt which can only be used to buy, build or improve a principal residence and up to $100,000 of home equity debt which can be used for any purpose.

Managing money is a critical life skill that people need to master. While the goal may be to become debt-free, paying the least amount of interest possible can be a good first step. Owning a home provides an asset that allows for options not available to tenants. Seek professional advice to determine your best course of action.

Denver has some great sources for lower interest rate home equity loans or even a re-finance for your mortgage. I do have some experience and would be happy to share my knowledge and experience, so drop me a note at pete@DenverRelocation.com. Or if you want to re-finance that home in Denver go to https://www.DenverRelocation.com/lenders.shtml.

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Denver Rentals are IDEAL

Think about it…until the very recent past the best return you have seen on most any investment has been about 3-4% while real estate in Denver has appreciated at about 10% per year for the last 6 years. On top of that your investment at the most for rental properties has been between 20 & 35% of the value when you bought them. That means you would have been leveraging others money to increase your own. In short, your 30% investment has earned 100% of the appreciation. That is a great return!.

Rental homes are the IDEAL investment because they offer a higher rate of return than other investments without the volatility

Denver real estateof the stock market. With certificatesof deposit and bonds at less than 2%, people need an alternative investment that they understand and with a reasonable amount of control.

In this case, IDEAL is an acronym identifying the advantages of rental properties.

  • Income from the monthly rent contributes to paying the expenses and a return on the investment.
  • Depreciation is a non-cash deduction that shelters income for some investors.
  • Equity buildup occurs with amortized mortgages because each payment is composed of interest owed and principal reduction to retire the loan by the end of the term.
  • Appreciation is achieved as the value of the property goes up.
  • Leverage can increase the return on investment by using borrowed funds to control a larger asset.

These individual benefits working together make rental real estate a good investment for today’s economy. Increased rents, high rental demand, good values and low, non-owner occupied mortgage rates contribute to positive cash flows and very favorable rates of return.

To find out more about how rentals might complement your current investment plans,contact me.

And lets add a bit to the equation….some of you may be thinking this has been a nice long run and it is time to sell those rentals. I just had a customer buy a rental from a client with no pressure and a fair price. Let’s talk about selling those assets and how we could use a 1031 exchange to help you. To see a timeline for the process go to www.DenverRelocation.com/selling.shtml

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Save the Cost of Mortgage Insurance

This 80-10-10 loan has long been a favorite of mine in Denver, as is the adjustable rate loan that is fixed for the first 7 years. Most of the time folks can either payoff the 10% second mortgage with an equity r-finance because the Denver Real Estate market has had values increase, or they will need to move before the first rate adjustment. Good Counsel is important. See the bottom of this post for good Denver Lenders.

During the banking crisis in the Great Recession, certain types of mortgages were unavailable that are once again being offered. Fortunately, the 80-10-10 mortgage is one of those making a reappearance and it can save borrowers a considerable amount of money. 80-10-10.png

The objective of an 80-10-10 mortgage is to avoid the expense of mortgage insurance for buyers wanting a 90% loan. A buyer can obtain an 80% first mortgage and a 10% second mortgage with a 10% down payment and not be required to have private mortgage insurance.

For example, a buyer could put $30,000 down on a home priced at $300,000 and get an 80% first mortgage without mortgage insurance. The borrower could get a second mortgage, either through the same lender or a third party.

In the example, the 80-10-10 would save a buyer $193.71 per month which can be a considerable amount of money over a ten-year period. The interest rate on the second loan will be higher than the first because there is more risk.

Helping buyers make better choices is a valuable service real estate professionals can provide. Having the right tools and information can make the decisions easier to understand. Using an 80-10-10 calculator, you can see what the savings might be for your situation.

To find good advice from a local Denver lender, as well as resources for buying a home in Denver, go to www.denverrelocation.com/buying.shtml

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Important Estate Documents

While I am not an attorney, quite a bit of my recent Denver work has been helping folks get interests in the right place for the right time. As an example a gentleman owned a piece of land and wanted to sever the minerals. As a landman working in Denver knowing “how” was only part of the issue. The “when” became more important over time. And working with attorneys and the personal representatives of the estates is also critical. Sometimes it is right down to who can spend the money for the estate to get the carpet cleaned. One thing I have noticed is that having CO-PERSONAL REPRESENTATIVES can create huge timing issues for the estate if they do not have their tasks identified. So part of the letter of instruction below might include “Harry does the real estate, Melody does the personal property and Freddy handles the tax returns”. Check with your estate attorney on how this can be done and READ MORE BELOW:

An estate plan is a collection of documents to ensure that your wishes are carried out because of death or incapacity to make decisions for yourself. Spouses, minor children, adult children, property and investments can all be factors that should motivate a person to undergo the process.Denver

Will – this document specifies the way a person wants to manage and distribute his/her assets after their death. When a person dies without a will, the laws of the state where the person resided will determine the distribution of the property.

Durable Power of Attorney – this document grants to a designated person the authority to act on behalf of the principal in in legal affairs should the principal become incapacitated. Among other things, this would allow the attorney-in-fact to buy and sell property on the behalf of the principal.

Healthcare Proxy – this document grants that a designated person can legally make healthcare decisions on behalf of the principal when they are incapable of making and executing specific decisions stated in the proxy.

Living Will – this document directs physicians with respect to life-prolonging medical treatments in case they become unable to communicate their decisions.

Hippa Release – this document allows heath care providers to release your health care information to a designated person. Otherwise, they are required by federal law to protect the privacy of your health information.

Letter of Instruction – This document contains information and instructions about a person’s wishes upon death. It is intended to offer details on whom to contact and where to find important documents about personal and financial matters.

Requirements of these documents can vary from state to state and legal advice should be obtained. If you need a current estimate of value on real estate that may be involved, usually a price opinion from a licensed real estate professional will suffice. It would be my privilege to assist you with this at no cost or obligation.

Want to compare homes on-line, just to see?

Go to: http://denverhomes.denverrelocation.com/i/compare-homes

Depending on the county, a person who dies without a will needs to file a probate action in each county where he owns real property. So if you own land in Garfield County, Denver, and oil and gas right in Natrona County, Wyoming, you may need to probate them all so your heirs can receive their inheritance. Again, talk to your Denver area attorney for specifics. But know that a will is very helpful and probably the most valuable instrument listed above. Even with a will some actions will be required.

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Tax Benefits of Denver Home Ownership

One of the greatest benefits of owning a home in Denver is being able to get the tax break of deducting the interest on a home mortgage. In addition even the property taxes are deductible.

U.S. taxpayers have enjoyed specific tax benefits for home ownership since personal income tax was introduced by the 16th amendment in 1913. While these benefits may not be the primary reason that motivates a person to buy a home, they are still tangible and not available to tenants.Denver Home Ownership is not just a dream

The exclusion of capital gains tax on the profit made from a home is unique from other investments and provides homeowners significant savings. Single taxpayers can exclude up to $250,000 gain and married taxpayers up to $500,000 gain. During the five-year period ending on the date of sale, a taxpayer must have: owned the home for at least two years; lived in the home as their main home for at least two years; and, ownership and use do not have to be continuous nor occur at the same time.

Gain on the sale of a principal residence in excess of the allowed exclusion are taxed at the lower long-term capital gain rate of the owner.

A homeowner may take the standard deduction or itemized deductions in any tax year based on which will create the largest deduction. Property taxes and qualified mortgage interest are allowable itemized deductions.

Qualified mortgage interest is acquisition debt plus home equity debt not to exceed the maximum amounts. Acquisition debt is the amount of debt incurred to buy, build or improve a first and second home up to $1,000,000. Home equity debt is limited to $100,000 over the current acquisition debt on the combination of a first and second home and may be used for any purpose.

For more information, see your tax advisor or see IRS Publications 523, Selling Your Home and 936, Home Mortgage Interest Deduction.

You may hear that the HOME MORTGAGE INTEREST DEDUCTION is on the cutting block in Congress. I like it so encourage your representatives and Senators to keep the Home Mortgage Interest Deduction. Denver home ownership is expensive enough without this little bit of help.

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Pay Cash for Denver Home?

The stories are true about Denver! Many buyers are paying cash for homes here in Denver. And not just the low end rentals but some very nice homes in the one million dollar range. I get the question “where are they getting their money?” Imagine owning a $2,000,000 home and having bought it in 1995. It is mostly paid off and you paid 600k for it? Well there is a lot of equity there and folks will use it to buy their principle residence and maybe a rental or two. Plus the capital gains treatment of selling a principle residence allows for some substantial gains, tax free. But before you decide to make such a move to be close to the grand kids or mom & dad, read on…

The National Association of REALTORS® reports in its 2016 Profile of Home Buyers and Sellers that 12% of all buyers paid cash for their home.Denver Home Buyer

Before paying cash for a home, a buyer should decide if they might put a loan on the home in the near future. It may affect the ability to deduct the interest on a mortgage placed on the home at a later date.

Homeowners can currently deduct the interest on up to $1 million of acquisition debt which are the borrowed funds used to buy, build or improve a home. Paying cash for a home establishes acquisition debt at zero. The only deductible interest to the owner would be home equity debt which is limited to $100,000 over acquisition debt.

Paying cash certainly seems like a simple decision but it may limit a homeowner’s ability to deduct interest on a future mortgage. You can get more information about this from IRS Publication 936 or from your tax professional.

Should you want to visit about investing in a home in Denver as a principle residence, or as a rental, we should talk.

When you want to move to a sunnier climate, we should visit about selling that Denver residence. Let’s plan a visit. Go to http://www.denverrelocation.com/contact.shtml

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Not Available for All Buyers in Denver

For years lenders in Denver have done a “loss leader” advert and were chastised in the Dodd Frank act for predatory lending. In this new atmosphere you need to be aware that they might advertise a rate that you can only get if you close in 10 days or any other reason. But now they have your loan application. Just so you know it is very difficult to get an appraisal that quickly. So my advice to you is to work with a lender you or your Realtor know.

Lenders regularly publish mortgage rates but they may not be available for all buyers. Denver

Imagine that the mortgage payment based on an advertised rate influenced a buyer to make an offer on a home. After negotiating a binding contract, this buyer makes a loan application and finds out that for any number of possible reasons, that rate isn’t available.

Even if the person does financially qualify for a loan at a higher interest rate, it will not be the payment that the buyer expected when the contract was negotiated.

Lenders evaluate several factors such as the borrower’s credit score, debt-to-income and loan-to-value ratios. These variables are used to assess the risk associated with the repayment of the loan.

While mortgage money is a commodity, it isn’t priced the same way items are that involve cash for goods. The lender puts up the money today based on a promise from the borrower to repay over a long term, possibly up to thirty years.

The simple solution to avoid surprises such as the one described here is to get pre-approved at the beginning of the home search process. Since pre-qualification does not mean the same thing to all lenders, call if you’d like a recommendation of a trusted mortgage professional.

If you want to talk with some trust worthy lenders go to http//www.DenverRelocation.com/lenders.shtml

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Six Reasons to Consider Rental Homes

Always a good investment, Denver’s rental market has paid for many a child’s college education. When buying a Denver area rental for the child early in their life the equity position by their 18th birthday can be substantial, allowing Mom or Dad to utilize that or the monthly income to subsidize the tuition payments. But here are some other reasons to consider buying a rental property in Denver…

Single-family homes offer an investor the ability to borrow large loan-to-value amounts at fixed interest rates for long terms on appreciating assets, tax advantages and reasonable control. Some of these characteristics are not available through other investments.Denver

75-80% loan-to-value mortgages are available on most residential properties up to four units. Comparatively, the stock market allows you to borrow up to 50% on a stock but if the price goes down, they will require additional cash to keep the ratio at or below 50%. If it isn’t available, your stock can be sold to satisfy the loan.

Real estate investors call getting a long-term mortgage putting an investment to bed. The fixed-rate and the 20-30 year terms are exceptions to loans for most other investments, if they’re available at all.

Real estate tends to go up in value over time. There can be a lot of variables that affect the price like supply and demand, condition and available mortgage money, in addition to the general economy.

Rental real estate has several different tax advantages. The profits are taxed at lower, long-term capital gains rates for investors who have owned the property for more than 12 months. While the property is being rented, investors are given a non-cash deduction based on cost recovery of the improvements. Tax deferred exchanges can also be available if specific conditions are met which allow an investor to postpone paying the tax on the gain.

It isn’t necessary to have a partner with mostly rental homes if the investor can qualify for the mortgage. This allows investor control to make all the decisions that an owner is entitled such as setting the rent, making improvements and determining when to sell.***

Rental real estate can earn a much higher rate of return than other available investments while providing income during the holding period. It certainly is worth investigating the possibility with a real estate professional who understands and works with rental properties.

***Often an IRA can be set up to buy real estate and a number of “Uncle IRAs” can join together, create a partnership or other agreement and buy much larger properties. You need the advice of 2 people here: a good Realtor and a good Accredited IRA custodian. I know both here in the Denver area.Call me.

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