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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OK Denver…What Would You Give?

It was not in Denver, but I got to watch Yogi Berra, Mickey Mantle and Roger Marris play in Yankee Stadium in the 1960’s with my dad. He let me eat everything I wanted and when Marris hit his 60th that day, I think I was in the toilet hurling, but will never give up that memory! And that is why folks buy homes in Denver…to build memories with their family. So, as you consider that move to, or around Denver, what would you give up? I think I agree with…

Yogi Berra who said he’d give his right arm to be ambidextrous. While most first-time home buyers are not going to that extreme, it is interesting to see what sacrifices are being made according to the National Association of REALTORS® 2016 Profile of Home Buyers and Sellers.Denver Home Buyer

  • 43% – cut spending on luxury or non-essential items
  • 34% – cut spending on entertainment
  • 27% – cut spending on clothes
  • 14% – canceled vacation plans
    9% – earned extra income through a second job
  • 7% – sold or decided not to purchase a vehicle
  • 44% – did not need to make any sacrifices

Forty-percent of first-time buyers experienced some difficulty during the mortgage application and approval process. Single, male buyers expressed a higher incidence of difficulty than single females and married or unmarried couples.

Pre-approval from a qualified mortgage lender before the home search process begins is still considered the best advice for all buyers who will purchase with a mortgage. Your real estate professional can make recommendations for a loan officer that could help you avoid unnecessary aggravations.

An experienced DENVER loan officer can save you so much in the process, just by helping you increase your credit score 20 points it could shave a 1/4 percent off your note rate when buying that Denver Home. They can also help you see where the down payment might come from. Make sure you get “pre-approved! Call one of these Denver lenders before you start to search for a home. http://www.denverrelocation.com/lenders.shtml. In addition to the right real estate Broker, the right lender are the keys to a good Denver Home buying experience.

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Denver Loans from Relatives for real estate

I do quite a bit of estate work here in Denver, and because of my title experience as a landman I often find the loans, deeds and other documents are un-intentionally fowled up by well meaning relatives. Also, we can often pass interests at the wrong time to our loved ones creating further taxable issues See my previous post about the basis of the “Inherited Real Estate“. But more often we find mom & dad “loaning” the kids some money to buy the house, collecting interest, and the kids NOT being able to deduct that interest. Read on…

Occasionally, when dealing with close relatives who might also become heirs, signing a note and handling the paperwork properly may seem like a needless effort but it could mean the difference in being able to take a legitimate interest deduction.Denver Real estate

Home mortgage interest is deductible only if the loan is a secured debt which involves the buyer signing an instrument like a mortgage or deed of trust that makes the ownership of the home security for the debt. That instrument must then be recorded or otherwise perfected according to state or local law and the home, in case of default, must be able to satisfy the debt.

In a family situation, a parent, grandparent or other relative may decide to loan a buyer the money to purchase a home because they have it available and it isn’t earning much in certificates of deposit. They offer to loan it for a rate equal to what a conventional lender is charging but without the fees.

While it may appear to be a win-win situation, there could be problems if things are not done correctly. Even if the borrower makes the payments, they are not entitled to an interest deduction unless three criteria are met: 1) sign a debt instrument specifying the terms 2) securing and record the debt properly and 3) the home is sufficient collateral for the loan.

It would be prudent to consult with an attorney before you sign the final settlement papers to be comfortable that both buyer and the lender-relative are complying with IRS regulations. For more information, see IRS Publication 936 – Home Mortgage Interest.

There are all kinds of attorneys with all kinds of specialties. If you need one that is 100% focused on real estate here in Denver to help you preparing loan documents or even mineral severance deeds, let me know so I can introduce you.

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Proof of Purchase – Your Highlands Ranch Home Burns

Back in the day when I was the Highlands Ranch area coordinator for neighborhood watch with Douglas County Sheriff (I think I stopped when Highlands Ranch got to 10,000 homes), this was one of the biggest issues for people recovering their goods after a loss in Denver. You know the land won’t be lost, and maybe the foundation will be useable, but in Denver, like Colorado Springs, the personal property, the art work, the silver from Granny, the trains in the basement or even the guns in the safe can all go up in smoke. You need to be ready and it is pretty simple, but read this first:

People who experience a personal property loss are usually asked by their insurance company for proof of purchase which can come in the form of a receipt or current inventory of their personal belongings.Highlands Ranch

Even the most organized people might find it challenging to find receipts for all the valuables in their home. If the inventory isn’t up-to-date, a homeowner might forget to add some items to the claim and may not recognize the omission for long after the claim is settled.

The inventory can serve as a guide to make sure a homeowner gets compensated for all the loss.

Photographs and videos can be adequate proof that the items belonged to the insured. A series of pictures of the different rooms, closets, cabinets and drawers are helpful. When video is used, consider commenting as it is shot and be sure to go slow enough and close enough to things becoming recorded.

For your convenience, download a Home Inventory, complete it, and save a copy off premise. Good places for your inventory could be a safety deposit box or digitally, in the cloud if you have server-based storage available like Dropbox.

Take out your camera phone and walk the house and note the special things on the video.Then save it to a safe place, and delete it from the phone…don’t give the bad guys a shopping list! If you want a printed blank inventory, just reach out to pete@DenverRelocation.com and I will get one to you. If you want to be part of Neighborhood Watch or want to start one, call your local law enforcement agency and ask for the community relations officer.

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