Profitable Properties
We help you with your commercial and residential properties, along with mortgage tips and real estate investing! Real estate is one of the surest ways to financial success if done right, and crippling monetary loss if done incorrectly. Don’t make costly amateur errors when it comes to home buying and real estate investing. It’s time to profit from property properly! Here are some tips to help you ramp up your real estate ROI:
Hot Housing Market
Home sales have been spiking during the Coronavirus pandemic as Americans took advantage of record low mortgage rates and flocked to the suburbs during the urban exodus. People and companies have also exited California, New York City, and other northeast states and relocating to warmer, lower tax, and less restriction states like Texas, Florida, Georgia, and Arizona. Unprecedented housing demand and low property inventories have pushed home prices to all-time highs. In recent months the median price of a home jumped 16% to $365K per house. But the Federal Reserve is expected to hike interest rates several times this year, which would lead to higher borrowing costs for home buyers. Mortgage interest rates have already been creeping up higher over the last several months along with overall economic inflation. While housing price growth should start cooling and more homes are starting to be built, real estate experts predict demand to stay strong for residential properties.
House Hurdles Hurting
The newly rising and record-breaking mortgage rates are putting the “more” into mortgage. It is a tough time to be a first time house hunter. In the past 2 years, inventory sank to a 20-year low just as home prices started hitting record highs. Now mortgage rates are above 5% — their highest level in a decade. Soaring rates are making it more expensive for buyers to borrow money for a home loan, if they are lucky enough to win a bid in the first place, going up against all cash offers above asking price. Some homebuyers are even competing against foreign investors or investment firms. Though rising rates are already starting to cool demand, experts expect housing prices to stay high for another year or two. Some economists even worry the United States is at risk of another housing bubble which will pop with a lot of pain for the economy.
People Priced Out
The rise of “fractional real estate” spotlights the overpriced, under-supplied housing market — but will the boom bust? Bingeing “Selling Sunset” while scrolling Zillow listings under $100,000 (spoiler: not many). The median price for a previously owned home sold in April hit a record $391K,000 up 15% from a year ago. Despite soaring mortgage rates, low housing supply is keeping ownership out of reach for many Americans.
Now some startups are offering a way to get in on the housing boom — minus the house. You’ve heard of fractional shares, and now the new thing in property is fractional real estate. You own a percentage of a property (think: a time-share where you never get to chill). Split the bill(ding): Jeff Bezos-backed Arrived just raised $25 million to let people buy shares in single-family rentals with “as little as $100.” Startups like Fintor, Fractional, and Pacaso have also popped up to make real estate more accessible through co-ownership. While still small, the rise of fractional home ownership underscores how many people are priced out. Over the past year, US home prices have risen 20%. But as the Fed raises rates, the situation may be shifting: Interest up: The rate on a 30-year mortgage has jumped from 3.7% in February to nearly 5.5%, the highest level since ’09. Some homebuilders may be starting to worry that would-be buyers are sitting out.
Existing-home sales fell for the third straight month in April, with more slowdowns expected. In their earnings forecasts this month, Zillow and Redfin also suggested the market is cooling. Still: Pension funds are increasingly investing in real estate investment trusts (REITs) — a vote of confidence in the sector. Housing is hitting a wall. There is a reason higher borrowing costs aren’t sinking prices: brutally low inventory. There are only 1 million homes for sale in the US. Cue: the average home gets snatched up within 17 days. Some fear we may be heading into a housing bubble, though mortgage lenders now have strict debt-to-income ratios to protect against an ’08-style crash. As rates rise, fewer people will be eligible (or willing) to take out loans. Yet home prices won’t cool until supply improves, which could take a while.
Rental Property Depreciation And Leverage
When you own rental property, depreciation is your best friend. If you own a rental, you should look at your depreciation options. Yes, even though your property is going up in value, you get to take depreciation as a deduction! The crazy thing is that this year, one real estate investor could have only an $18,000 deduction. And another could have a $100,000 deduction! Without spending a dime more! How is that possible? You may be using the wrong depreciation method for your taxes. I get it! There’s so much to know about real estate tax. You are already trying to run a business after all. How should you be expected to know all of this tax stuff? The thing is, you are not expected to know all of it. Your CPA should be the one who knows it. They should be bringing this up to you each year. You shouldn’t have to figure it out on your own. Let’s chat and see if we can help get things straight for you. If we can’t do anything for you, that’s fine. But at least you’ll know about rental write-offs to ramp up real estate ROI.
Leverage can also be a powerful tool in every real estate investor toolbox. But like any tool, it’s most effective when you know how and when to use it. And while it has its advantages, acquiring properties with debt doesn’t come without risk. We discuss tips, methodologies, and considerations for using leverage with regard to your overall property portfolio on the Best Business Builders Blog. So make sure to subscribe to discover the financial strategies and trade-offs involved with leveraging real estate, and how it can help you access idle equity, lower taxes, or increase cash flow!
Family Values
Imagine this real estate financial scenario of a Tax deduction for you and a Tax-free income for Mom and Dad. It doesn’t have to be Mom and Dad. The tax-free income can go to your brother or sister, or your best friend. To make this work, you need to have a business reason to travel and stay overnight at the “Mom and Dad Hotel”. Say you travel to a convention, rent your parents’ guest room for five days, and pay them $1,000 fair rent. You deduct the $1,000 as a business travel expense. Your parents have $1,000 of tax-free income. Maybe you also pay them money to fix the roof or upgrade the hot water heater. You have a choice: deduct the cost of staying at the big hotel downtown, or deduct the cost of staying with your friends or family. Either way, the choice of location does not change the fact that you are on a tax-deductible business trip. The side benefit is that doing this right creates tax-free income for your friends and relatives for their property. Yes, there are some rules that you want to make sure you follow here to be clear with the IRS or other tax agencies. But you can still do it! The lesson here is that this is just the tip of the iceberg! This is just one creative thing that you could be doing. One creative thing that your CPA should be bringing up to you during your quarterly meetings. You are having quarterly meetings with your CPA, correct? If not, you should have those to discuss properties, taxes, write-offs, and “hotel” stays. And you need to have those meetings with someone who will find these little gems for you. The thing is that most of our strategies save a lot more money than this one. We have some heavy hitters! You are not expected to know all of it.
Home Improvement Is Heating Up
Everyone knows that since the pandemic forced people home and housing prices soared, home improvement projects have exploded. It was already on the rise for years with HGTV and copycat shows gaining popularity. Home-improvement chains saw monster sales during the pandemic as we spent weekends building Zoom-worthy home offices. Now the experts are taking over. Home Depot’s professional business has topped DIY sales as homeowners outsource their paint jobs and other projects to contractors who actually know what they are doing and spend much more. Recently, retail rival Lowe’s raised its sales forecast, partially thanks to a significant spike in pro product sales. As long as there are fixer upper shows and red hot home values, the property improvement sector should continue to flourish.
Be Careful Buying Sight Unseen Or Without An Inspection
For many people, their home is their most valuable asset and also their biggest source of expenses. Once you’ve lived in a home for a while, you get to know the ins-and-outs, the good, the bad, and the ugly. You become acquainted with your home in a way that’s far different from anyone who comes to visit, and it goes without saying that no living space is without its flaws. Spotting the signs of tough-to-remedy cover-ups is key. You don’t want to miss a major issue, and while you should always get a professional home inspection, you can also investigate for yourself. If there are scented candles lit everywhere or an unusual number of plug-ins, this could be a sign the homeowner is hiding a hard-to-remove odor such as pet urine, a cigarette smell or an overbearing damp, moldy aroma. Be cautious when all you can breathe in is air freshener. If there are rugs, tables, or other removable items in odd places, check underneath. There could be an area of the floor that is particularly concerning. You may also want to check above drop ceiling titles for faulty pipes or electrical issues.
The same goes for the outside of any home or property. If there are outdoor furnishings that are randomly placed here and there, try to figure out why. Either the homeowner is confused about acceptable curb appeal or there is a trouble down below. Spots, stains, excessive rust, or a black substance growing in an unlit area are all cause for concern. There may be some major issues that need to be taken care of before the house is handed off. Do a thorough review when you’re walking through any real estate.
Also when it comes to home improvement projects or areas to inspect, consider these fix-it areas: Bathrooms require the best bathroom remodeling contractors. Flooring needs awesome floors and carpeting contractors for installation and repairs. Epoxy flooring is another option for adding new and modern flooring in your home transforms the house. And of course an efficient plumbing system in your home is critical for smooth operation. Without these factors, a house or property isn’t optimizing its value.
Open Up Your Property And Profit
Need to have a bigger space but don’t have time to relocate to a new home? Fear not. There are a few things you can do to your current home to maximize gathering space on limited real estate. Declutter the rooms guests are most likely to use. This normally includes the kitchen, dining area, and living room. If you want to gather in a finished basement too, include this on your list, and tidy up each of these spaces before anyone arrives. Designate a place ahead of time where food and drinks will be served and keep this separate from where you plan to have your guests sit or stand. If this means using a hallway or the home’s entryway, go for it. This way, everyone can serve themselves and meet up in a separate spot. Your guests will likely arrive in jackets and will ask where they can place these while inside. Ensure they’re out of the way by using a bedroom for any outdoor wear, which is easy enough to enter when they want to grab their things. These are a few ways to maximize space on your property that may otherwise seem too small to accommodate crowds.
Learn more about how we can ramp up your real estate returns by contacting us right now.
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