How Will It Feel?

Denver and national interest rates

When one talks about a real estate market in sweeping terms, like “Denver has appreciated by 15% last year” that could be really misleading! True there are pockets of the market here that where prices were still so depressed from the 2009 time frame, and there was still enough inventory there that prices did explode, but not everywhere. Sometimes I can extrapolate with a percentage but most of the time, to find the true market value of your home, I have to do a market analysis, specific to your home. And sometimes you are right and others, not so much. The truth is selling a home at a price higher than the current market will support may take months for the market to get to your price range. So when pricing a home we all need to be careful to ensure your interests are best reflected in the marketing plan. Let’s talk before you decide to make a move in Denver or across the country. Keep Reading…

It has been said that change is the only constant. Most of the financial experts have been expecting interest rates to increase along with home prices. While homes, in most markets, have definitely seen increases over the past five years, the mortgage rates today are actually lower than they were a year ago. Denver interest

If the interest rates were to increase by 1% over the next year while homes appreciated at 6% during the same time frame, a $250,000 home would go up by $15,000 and the payment would be $211.53 more each month for as long as the owner had the mortgage. The increased payments alone would amount to $17,769 for the next seven years.

When facing a decision to postpone a purchase for a year, a legitimate question to ask oneself would be: “how will it feel to have to pay more to live in basically the same home a year from now?”

It is easy to understand that if the price of a $250,000 home goes up by 6%, it increases the price by $15,000. A slightly more difficult concept to realize is that if the interest rate were to go up by ½%, it is approximately equal to a 5% increase in price. A 1% increase in mortgage rates would approximately equal a 10% change in price. This means that if a home goes up in price by 6% and the interest rate goes up by 1%, it is equivalent to the price of the home going up by a little more than 16%.

Use the Cost of Waiting to Buy calculator to estimate what it might cost to wait to purchase based on your own estimates of what interest rates and prices will do in the next year.

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Denver: Getting Your Contract Accepted

<h3>31 years as a Denver Real Estate Broker provides the client with a huge database of EXPERIENCE</h3>When we approach a Seller with a contract through the Listing Agent in Denver we know it is likely that we could be in a multiple offer situation, depending on the price point of the home. My 31 years of experience has allowed me a level of knowledge that has recently gotten 2 contracts accepted in the most competitive price ranges we have here in Denver. Now I cannot guarantee everyone will have such success with their offers but I do know we will float to the top of the stack. Additionally, because about half of my business every year is on the other side, representing the Seller, I know how they respond to the “incentives” we offer and which are most effective. The information below is good, yet all real estate is local. And while it is all local, in Denver the game is pretty much the same across town. So make sure you check in with us before you try to make a move.

While all contracts must have certain required elements, mutual assent, consideration, capacity and legality, there are some things that increase its chance of being accepted.

Denver Realtor Negotiating a dealThe seller generally wants the highest possible price with the fewest inconveniences in the shortest period of time. In the same way, the buyer generally wants the lowest possible price with the fewest inconveniences in the shortest period of time.

The perspective of the principal can change depending on how these different parts of an agreement are structured.

  • Offer Price – While the price of the home seems to be the major point of contention in a home negotiation, the seller’s net proceeds and the buyer’s mortgage payment may actually be more critical.
  • Financing – 86% of buyers financed their recent home purchase as opposed to the 14% who paid cash. Some financing has higher fees than other types of financing and in some instances, sellers must pay the additional charges on behalf of the buyer.
  • Concessions
    • Seller-paid closing costs – paying all or part of a buyer’s closing cost requires less cash outlay for the purchaser and makes it easier or more appealing for them to buy the home.
    • Seller-paid buydown – prepaying interest to the lender on behalf of the buyer gives them lower payments for the first one, two or three years even though they must qualify at the note rate of the fixed-rate mortgage.
    • Personal property – seller may agree to include existing or new personal property like washer, dryer or refrigerator.
    • Improvements – seller may agree to make modifications to the existing condition of the home like floor covering, countertops, appliances, painting or other things.
  • Earnest Money – more money gives the seller a sense that the transaction is more likely to close while putting the least amount at risk is generally, more appealing to the buyer.
  • Timing – depending on which party is more flexible, sometimes an earlier or later closing or a position on occupancy can be an offsetting consideration that can balance the differing terms.
  • Contingencies or lack thereof – requirements that must be satisfied before the contract can be closed.

The training and experience of a skilled negotiator can benefit both buyers and sellers to save time, avoid difficulties and bring all parties to an agreement. Your real estate professional should be able to help you structure a good offer and negotiate a win-win situation. (Pete Doty, Denver Realtor, is a Certified Negotiation Expert, a designation from the National Association of Realtors).

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The Right Questions – Littleton Realtor

Littleton Realtor says the right questions are key to a successful move

While working in Denver as a professional full time Realtor over the last 31 years, I have been blessed by three distinct types of clients: Those who already know and trust me due to past experience or a referral, those that have connected due to some kind of advertising, and those that are just “Interviewing 3 Realtors” and have already decided on the one. I ask a lot of questions during the interview because I can only help someone move from Denver to Littleton if I know what is important to them…it could be schools, activities, church, or even architecture. Folks who are buying a home typically want to know “how much home can I buy?”, “how much money will I need?” “how long will it take?” “how much will you cost me?”. A Seller in Denver typically wants to know “How much will I take away?” (much better than what does it cost or what are your fees?) and how long do you think it will take?

Asking the right questions will lead to the answers that help you determine which agent to use for one of the largest investments that most people make…the purchase or sale of their home. Littleton Realtor

Rudyard Kipling wrote the verse “I keep six serving men, they taught me all I knew; their names were what and why and when and how and where and who.” Prefacing your questions with one of these words can help you get the information you need to make a good decision about the REALTOR® you use.

  • How long have you been selling homes and is this your full-time job?
  • What designations or other credentials do you have?
  • How many homes did you and your company sell last year?
  • What is your average market time compared to MLS and your top competitors?
  • What is your sales price to list price ratio?
  • When will you report to me on the progress of my transaction?
  • Who can you recommend for service providers like mortgage, inspections, repairs and maintenance?
  • Why do you want to work with me?
  • Where are the biggest opportunities to expose my home to the largest market?

Finding the right person to represent you is a little like the person who ordered a lobster dinner at a restaurant. When the waiter brought out the meal, the lobster only had one claw. The customer asked why it only had one claw and the waiter said: “I don’t know; I guess it was in a fight.” The customer looked at him and said: “then, bring me the lobster who won.”

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Opportunity LOST – Denver Real Estate

Denver Real Estate Rents Have Peaked

Being in the Denver Real Estate Market on a daily basis gives me a bit of a unique opportunity to report to you. According to a reliable source last year at this time there were 17 homes for rent in Highlands Ranch. This year over 70 are for rent. The rent prices above $2000 per month are primarily responsible for this increase. And while sale prices have gone up some neighborhoods simply have not kept pace with all of Denver. Two bedroom condominiums are especially in demand to buy and those prices continue to accelerate while higher end homes can be seen to languish. The important bit on this may be when you put your rental “into service” and then when you sell it for capital gains tax purposes. If your Denver area rental fits below, you may wish to sell it sooner than you thought. READ ON!

In the last few years, some people who were unable to sell their homes, rented them instead. The market has improved in most places and the home may easily sell now and possibly, for a higher price.Denver Highlands Ranch Rentals

Even though the opportunity to sell in the near future might not change, there could be another opportunity that could quickly disappear for some homeowners.

Most homeowners are aware that there is a capital gain exclusion on the profits of a principal residence of up to $250,000 for single taxpayers and $500,000 for married taxpayers filing jointly. The rule requires that you must own and use the home as your principal residence for two out of the last five years.

A homeowner can rent their home for up to three years and still be eligible for the exclusion. As an example, if they had owned and lived in it for two years and then rented it for two and a half years, they would need to sell and close the transaction before the remaining six months expired.

If there was a $200,000 profit in the home that didn’t qualify for the exclusion, a 15% long-term capital gain tax of $30,000 could become due depending on the tax bracket of the owner. With some careful planning, the tax could be avoided. Awareness of the time frames and the right team of tax and real estate professionals could save a considerable amount of the homeowner’s equity.

Should you sell your rental home NOW? Only a complete evaluation of price will tell you. Call Pete at 303-880-5585 ext 3 Today.

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Retirement Funds Denver Home Purchase

Sometimes we miss the finer points of how to buy a home as a principle residence, help the kids buy their first home, or even a rental property in Denver. And certainly, we have heard too many stories about the all cash buyer and asked “where do they get their money?”. Simple answer: RETIREMENT FUNDS. Lots of folks now know you can create a self directed IRA that allows real estate investments and we have some clients who have done that with fix and flips. Certainly the Denver rental market has been on fire, but seems to be cooling in the higher price ranges. But maybe it is time to make a move into a home that is not so big, but you do not want to sell your house first, or you may want to buy a 2nd home in the mountains, or a retirement home, or help their grand children get a start in home ownership. Read on for some great ideas…

For the person who has good credit and income but not enough money for the down payment on a home, their qualified retirement program could offer them some help. The rules are different depending on whether it is a 401(k), a Roth IRA or a traditional IRA.Denver real estate

Up to half of the balance of a 401(k) or $50,000, whichever is less, can be borrowed by the owner at any age for any reason without tax or penalty assuming the employer permits it. There can be specific rules for loans from 401ks that would determine the repayment; interest is usually charged but goes back into the owner’s account. You can consult with your HR department to find out the specifics.

A risk in borrowing against a 401(k) comes if your employment ends before the loan has been repaid. The loan may have to be repaid with as soon as 60 days to keep the loan from being considered a withdrawal and subject to tax and penalty. Even if you continue with the same employer, failure to repay the loan could be considered a withdrawal also.

Roth IRA owners can withdraw their contributions tax-free and penalty-free at any age for any reason because the contributions were made with post-tax income. After age 59 ½, earnings may be withdrawn as long as the Roth IRA have been in existence for at least five years.

Traditional IRAs have a provision for first-time buyers which include anyone who hasn’t owned a home in the previous two years. A person and their spouse, if married, can each withdrawn up to $10,000 from their traditional IRA for a first-time home purchase without incurring the 10% early-withdrawal penalty. However, they will have to recognize the withdrawal as income in that tax year. For more information, go to IRS.gov.

Another interesting fact about this provision is that the taxpayer making the withdrawal can help a relative includes children, grandchildren, parents and grandparents.

If you want more information to clearly understand the issues involved relative to your specific situation, talk to your tax professional or consult www.IRS.gov.

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Littleton Real Estate Investors…a Lower Tax Rate

Littleton rental owners get better tax rate

Over the years we are privileged to have all kinds of conversations with Littleton home owners and friends in Denver about taxes and rental properties. Sometimes it is about the capital gains they would pay or the way we might use a 1031 exchange to assist in deferring taxes on a “like-kind” exchange. Some times it is just the property taxes and how they are paid in arrears in Colorado, or even how a home buyer might increase their take home pay by reducing their withholding taxes. Yet the below is a fairly simple explanation of how a rental property is taxed when sold. For more specific guidance make sure to give us a call and we can connect you with a good CPA or maybe suggest some strategies to help you make a move into a dream home using your rental properties.

During campaign season, it is not unusual to hear a candidate criticized because they make a lot of money but pay little in income tax. While it might not seem fair, taxpayers are allowed to arrange their affairs so that they minimize the amount of tax paid.Littleton tax brackets

Salary, wages and commissions, along with interest and dividends are taxed at ordinary income rates which can range from 10% to 39.6%. However, capital gains rates, for property held more than 12 months, are much lower ranging from 0% to 20%. Taxpayers in the 25-35% brackets pay LTCG rates of 15%.

The profit on rental property enjoys the lower long-term capital gains rates as compared to the profit on “flipped” property which is taxed at ordinary income rates.

Investments in rental homes generate income, provide depreciation for tax shelter, have equity build-up due to the amortizing loan, leveraged growth due to the borrowed funds and appreciation. The profits could be considerably higher than alternative investments and the profits taxed at lower rates.

The advantage is available to people who understand the tax laws and choose to arrange their activities so they pay a minimal amount of tax. The advantage is available to all taxpayers, not just the rich. In fact, implementing these types of strategies could lead to an increase in wealth.

Consider having this discussion with your tax professional.

If you want more information on the Littleton real estate market click here

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Increase Your Marketability Secrets Denver

Denver Real Estate Market perspective

As we start into a new season in the Denver real estate market, we start to see more sellers getting the “attitude”. That means one of three things: The prices are 7% above the last sale because “that is what I think it is worth and everybody’s house in Denver is going up that much!”; the availability is limited’ eg terms “showings only between 6 & 630”; and the condition is marginal “they can fix it up…I do not have to work to sell my house”. One sees this especially in the listings that expire off the market everyday. Truth is, in Denver every neighborhood has its own appreciation rate (price), and sometimes it is depreciation in the million plus range. And more truth: you cannot sell it if they cannot see it (available to show) and it still does need to be in top flight condition to sell as fast as we want. It also points out the value a full-time, professional Realtor can add to your efforts. Here is a perspective from my friend Pat Zaby:

The seller has three tools available to affect the marketability of their home: price, condition and terms. Price is the easiest to adjust for the competing properties, amount of inventory or market conditions. However, lowering the price is not necessarily the best decision when trying to maximize the proceeds of sale.

If a home is in poor or outdated condition, updating can be done to make it show favorably with other homes that are currently on the market. Sometimes, sellers rationalize not doing the work by saying they believe the buyers would rather make their own choices. The truth is that most buyers are using all their resources to get into the home and will have to live in its present condition until they can save enough to make the changes they want.Denver real estate market

Another reason to go ahead and invest the money and effort into improving the condition is that it is difficult for buyers to imagine the home any other way than its current condition. When comparing one home to another, buyers will sometimes refer to a home as the “stinky house” or the “old kitchen” which may put it at a disadvantage.

While price and condition are the main things that control the marketability, terms can be equally effective. Terms relate to financial considerations made by the seller to induce a buyer to make a decision to purchase their home.

Seller-paid points or closing costs, interest rate buy downs and owner-financing are examples of terms that may increase the marketability of a home because of the additional benefits they offer to buyers.

An example could be that a seller will carry a 10% second lien so that the buyer can get an 80% loan and avoid the expense of mortgage insurance. The seller gets most of their equity plus a fair interest rate on the loan that doesn’t have to be tied up for 30 years like the first mortgage.

Increasing the marketability of your home is a great conversation to have with your real estate professional especially to help you get the highest price in the shortest time with the fewest problems. Just be aware that not all agents may be as creative as some and not all are Realtors. To learn more about Pete Doty check his websites: www.DenverRelocation.com and www.petedoty.com.

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If you’re going to play, GET IN THE GAME

Denver Real Estate = Sellers Market

As we help buyers in this Denver real estate market the primary comment we get is there is nothing to buy (inventory is low). Once they decide to move and to make an offer they tend to disbelieve the statistics and make low offers where homes are selling in days (low days on market = full price or above). The reality pill tastes bitter when they loose their first dream home, and then their second. This is all price sector sensitive of course with some markets in Denver having more homes for sale due to their price range. To be successful today’s Denver buyer needs to be ready to go into battle and has to be well armed! We are happy to share some strategies that have proven to get the Seller’s attention and to bring your offer to the top of the pile, but read this first. Then give Pete a call!

If competition is a buyer’s biggest concern, for goodness’ sake, get in the game. In a new survey of close to a thousand home buyers conducted by Redfin, affordability is still the number one concern but due to low inventories, competition from other buyers is moving its way up the poll.

Denver real estate

When buying Denver real estate you have to be ready to compete

26% identified affordability while 19% mentioned competition and 15% mentioned low inventory as their respective top concerns.

To win, athletes study the competition to come up with a plan and buying a home is not different.

  1. Ask what terms are important to the seller before you write the offer.
  2. Once you decide to make an offer, do it as fast as you can, hopefully, to be the only one the seller is considering.
  3. Make a good (or possibly, your best) offer in the beginning; you may never get a chance at improving it. In highly competitive situations, offer above the list price.
  4. Attach your pre-approval letter from a respected lender. This means you’ll need to get pre-approved before you even think about writing an offer.
  5. Have your lender call the listing agent to reassure them of your ability to qualify.
  6. Include a higher than normal amount of earnest money to show you are serious.
  7. Eliminate unnecessary contingencies.
  8. Write a personal, hand-written letter telling the seller what you like about their home and why you want it. Consider including pictures of your family.
  9. Minimize seller expenses paid for the benefit of the buyer.
  10. Shorten inspection times.
  11. Don’t ask for personal property.
  12. Be flexible on closing dates to accommodate the seller’s move.

Once you find your dream home, don’t take a chance on losing it. Write a winning offer that will be good for both the sellers and the buyers.

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Your Tenants Will Send Your Kids to College

Denver Parents, with children getting closer and closer to entering college, may also be feeling stress because they haven’t saved enough for tuition and other expenses. It’s estimated that the average cost for the 2015-16 school year is $32,405 for private colleges, $9,410 for state residents of public colleges and $23,893 for out-of-state residents.kids to college.png

If you started saving the year your child was born, you’d have to save $4,608 per year for 18 years at 5% to accumulate $129,620. If you waited until they were 10 years old, you’d have to save $13,574 per year to have the right amount. Saving enough can be difficult if you have a lot of time but if you only have a short time to meet your goals, it can seem impossible.

College costs.png

Student debt is one way to handle the tuition but many parents are reluctant to saddle their children with the obligation. Currently, there is more than $1.2 trillion in outstanding student loan debt to 40 million borrowers with an average balance of $29,000. Some economists suggest that this debt is delaying would-be buyers from making their first home purchases.

There is another way to pay for the education by making an investment in a rental property. Rents are continuing to rise, homes in owner-occupied neighborhoods are appreciating and the leverage due to borrowed funds can be a huge help in building the equity to pay the tuition.

Rent the home and maintain its condition over the years. As the loan amortizes and the value increases, the equity will grow. When your student is ready to start college, you’ll actually have several options.

You can sell the property; pay the tax on the gain at the reduced capital gains rate and fund the education. Another option would be to refinance and take the proceeds to pay for the tuition. This would allow you to continue to own the asset but would free your equity. Under current tax laws, it is a non-taxable event.

In effect, your tenants are paying to send your kids to college.

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The Obvious Alternative Investment – homes in Denver

Rental homes in Denver equal great income opportunity

Rental homes in Denver can be a natural alternative investment choice for homeowners because they are already familiar with houses. Maintenance on a rental is not that much different than on your personal home. The same plumbers, painters and other workmen can be used to make repairs. Denver Homes

Single family homes in Denver offer an investor high loan-to-value mortgages at fixed interest rates for long terms on appreciating assets with defined tax advantages and more control than other investments.

  1. High loan-to-value mortgages – most investments require that you pay cash but rental properties can be purchased with 20% down payment.
  2. Fixed interest rates – most commercial loans are based on a floating rate such as prime interest plus one or two percent compared to real estate loans as fixed rates for the term.
  3. Long terms – commercial loans are generally short-term such as six months or a year with the possibility of being renewed for another six months or a year unlike real estate where a 30-year mortgage is commonplace.
  4. Appreciating assets – real estate has a long-term history of going up in value.
  5. Defined tax advantages – many investments are taxed as ordinary income but rental real estate enjoys a non-cash deduction called cost recovery, the profits from sale are taxed at lower long-term capital gains rates or may be eligible for a tax-deferred exchange.
  6. Control – rental homes don’t require partners and afford the investor more options than investing in mutual funds and other traditional investments.

The demand for good rental homes in Denver is strong and the rents continue to go up in most markets. There are people who choose not to buy or cannot buy a home who would prefer to live in a single family home rather than an apartment.

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