Real Estate Network
Invest in Your Future, Invest in Your Lifestyle Why Now Is the Time to ‘Move Up’
Compliments of your local Top 5 in Real Estate Network® Member
Invest in Your Future, Invest in Your Lifestyle Why Now Is the Time to ‘Move Up’ Today’s real estate market represents one of the greatest opportunities in our lifetime to move up to that home you have always wanted. Maybe it is a larger home. Maybe it is a home in a better neighborhood. Maybe it is a home with a bigger yard and a swimming pool. No matter what your definition of “move-up” may be, what was once out of reach can now be firmly within your grasp as home prices drop across the country. Add to the equation the recent expansion to include moveup buyers in the home buyer’s tax credit, and you are left with the chance to benefit both financially and from a quality-of-life standpoint by “moving up.”
What It Means to ‘Move Up’
While “moving up” traditionally connotes purchasing a home that is more expensive, the term is actually defined in a variety of ways. Moving up is based on the home buyer’s perspective and can, therefore, mean: 8 Purchasing a more expensive home 8P urchasing a home of similar value to one’s current home but with more desirable features (i.e., a finished basement; an extra bedroom; a home office; green efficiency; a cul-de-sac location) 8P urchasing a home of similar value to one’s current home but in a neighborhood or region where appreciation is higher No matter what constitutes a move-up for a particular homeowner, one factor is always a constant: A move-up home is a sound financial investment that, when handled properly, will add to your short-term and/or long-term financial portfolio. Some people, in fact, will move up for the tax advantage alone, especially in the coming months while the move-up tax credit is in effect. Others will move up for the home’s expected appreciation as the real estate market starts to stabilize and then climb. Either way, purchasing a move-up home in today’s market of lower home prices is a prudent financial decision any way you slice it.
Why Move Up Now? Is It As Simple As the Price?
Many Times, It’s Not
Even in the best real estate market, putting off a move-up purchase often has irreversible consequences—the home you have your eye on may be snatched up by another buyer or the price may rise significantly in the next year…or even in the next few months. In today’s market, however, waiting to move up may mean missing a once-in-a-lifetime opportunity. While the real estate market is still confronting a difficult road ahead in terms of full recovery, most economists agree that prices are stabilizing or will soon level off,
depending on your region of the country. Even the hardest hit areas of the country, in fact, are experiencing price stabilization. What’s more, the current home buyer’s tax credit for move-up buyers requires buyers to close by June 30, 2010. This unique window of opportunity will not be open for very long. When it comes to moving up, time is of the essence! Do not be one of the thousands who will regret not taking advantage of current circumstances. Many homeowners will choose not to pursue this move-up opportunity due to a simple lack of information—a lack of understanding on how to embark on a move-up purchase and a lack of comprehension regarding the many benefits a move-up has to offer. Based on their experience and proven results in the marketplace, Members of the Top 5 in Real Estate Network® are fully versed in how, when and why to pursue a move-up home purchase. Top 5 Members are prepared to help such buyers examine the positive and negative implications of any real estate purchase and to take advantage of real estate opportunities when they arise.
The Real Estate Sequence – And Why Your Move-Up Investment Will Pay Off
While the headlines of today may lead you to believe that investing in real estate is not a prudent financial decision, the truth is, real estate is still and will always be one of the most sound financial investments a person can make, as long as it is viewed as a long-term investment. Your investment may not pay off tomorrow, but the odds are extremely high it will pay off at some point in the future in accordance with market patterns. Before you decide to move up, therefore, it is important to understand that real estate values are cyclical, comprised of four basic stages: 1. R ising values. When there is a limited supply of housing inventory combined with a growing demand for housing, property values begin to increase. 2. Peak values. When demand cannot be sufficiently met due to increasing competition for existing properties, bidding wars ensue, setting the stage for property values to peak. 3. Increasing supply. As values and bidding wars peak, new construction rises to meet growing demand, increasing the supply of available homes on the market. 4. Decreasing values. This widespread development eventually leads to an oversupply of available homes, forcing competition among sellers and, consequently, decreasing values and a buyer’s market. As more buyers enter the market, sparked by attractive prices, values will eventually begin to rise again, marking the start of the next real estate cycle. Be aware that the real estate cycle does not affect all property the same way at the same time and there are always exceptions to the sequence. That is why it is critical to work with an experienced real estate professional who understands the housing cycle and how your particular home may or may not be affected. Historically, however, each time the cycle is completed, real estate values trend upward. RISMedia’s Top 5 in Real Estate Network® 1
Tax Considerations for the Move-Up Buyer Unlike other investments, real estate consistently offers an opportunity to receive favorable tax benefits, build equity and realize capital appreciation. Under the current tax law, interest on home mortgages is fully deductible up to $1 million. Interest on home-equity loans up to $100,000 is also deductible. If the home you purchase as a principal residence is of equal or greater price than the home you sold, and you lived in your previous home for at least 24 months, or your move is employment-related, you do not have to pay taxes on any gain you made on the sale. Tax on the gain is deferred. For a limited time, move-up buyers can also take advantage of the Worker, Homeownership, and Business Assistance Act of 2009, which extends and expands the first-time home buyer tax credit to include the move-up buyer. Here are some key facts related to the move-up buyer tax credit: 8E ligibility: A qualified current homeowner who wishes to move to a different home must have owned and resided in their residence for five consecutive years out of the last eight. 8S alary requirements: Single taxpayers with incomes up to $125,000 and married couples with a joint income up to $225,000 qualify for the full tax credit. Single taxpayers who earn between $125,000 and $145,000, and married couples who earn between $225,000 and $245,000 are eligible to receive a partial credit. 8A mount of credit: The federal tax credit amounts to 10% of the cost of the home, up to $6,500 for current homeowners. The tax credit is a true credit—it does not have to be repaid unless the homeowner sells or stops using the home as their principal residence within three years after the purchase. The tax credit is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if you owe no tax or the credit is more than the tax owed. 8T imeline: The credit is available for homes purchased on or after November 7, 2009 and before May 1, 2010. Home purchases subject to a binding sales contract signed before May 1, 2010 will also qualify for the tax credit as long as closing occurs by June 30, 2010. Individuals with specific concerns regarding taxes are strongly urged to consult a CPA, attorney or other qualified tax advisor.
Before You Move Up, Maximize Your ‘Move Out’
A successful move-up means maximizing the sale of your current home, a challenging task in today’s competitive buyer’s market. The proper marketing and merchandising of your home is critical to getting the best possible sales price. Working with a professional real estate agent, such as a Member of the Top 5 in Real Estate Network®, ensures that your home will not only benefit from effective marketing,
2 RISMedia’s Top 5 in Real Estate Network®
but from the agent’s strong negotiating and networking skills as well.
How to Add Value to Your Home When considering placing your home on the market, there are certain investments that will translate directly to your bottom line. Here, from the National Association of Home Builders, are the home improvements that yield the biggest return: 8 A Home Office Remodel With more and more people telecommuting in today’s difficult business climate, home offices are becoming less of a luxury and more of a necessity. Creating a state-of-the-art space for potential teleworkers is a surefire way to increase your home’s value. 8 Renovate or Add a Family Room A family room is an excellent way to make existing homes more like new construction. Take into account what homes in your area are like. People like to purchase homes that blend with other homes around them. 8 Replace the Roof The roof is one of the first impressions people have of a home. Replace an old roof or change the character of your home by looking into architecturally styled roofing tiles. 8 Landscape Your Yard Landscaping is also an integral part of your home’s first impression. A professionally landscaped yard adds value to your home and increases your living space. 8 Replace Old Windows Thirty percent of a home’s energy is lost through its windows. Replacing old windows with energy-efficient ones ups the overall quality of the house and saves you money on monthly utility bills. 8 Remodel Your Basement Do you have unused space that serves as a black hole of unused items…like your basement? Remodeled basements make excellent game rooms or guest suites, adding value to your home without adding space. 8 Paint, Paint, Paint It has been said over and over but can’t be emphasized enough. Hire a professional if you need help and keep the colors neutral if you’re looking to sell. 8 Remodel Your Kitchen Kitchens sell a home, and in this case, size does matter. But a kitchen remodel is a long-term investment; you’ll see payback 10 years down the road. Sometimes doing it yourself can save money, but always bring in a professional for the big jobs. 8 Remodel or Add a Bathroom A bathroom remodel can mean making the most of your current space by upgrading fixtures, flooring and lighting. Or add a bathroom and automatically increase the value of your home. RISMedia’s Top 5 in Real Estate Network® 3
Investing in Real Estate The move-up purchase is just one way to capitalize on current market conditions. There are several other ways to invest in real estate that can yield financial gain in any economic environment. Rental Property Rental real estate is property rented to others for an annual fee, usually paid monthly. It is the most common type of real estate investment, other than primary residences. Rental real estate can be a single-family home, condominium, multi-family residence, office building, office condominium or industrial property. Rental property is generally considered to have good potential for growth and be a hedge against inflation. If you intend to manage your property yourself, there are a number of tax benefits you will want to know about. Contact a qualified tax advisor for more information. Undeveloped Land and Syndication Undeveloped or “raw” land is one of the least expensive ways to invest in real estate. The purchase of undeveloped land as an investment in the U.S. has become more popular since the Tax Reform Act of 1986. Prior to 1986, individuals could improve raw land through subdividing, bringing in utilities and other predevelopment activities and receive tax credits. Financing for undeveloped land is sometimes available at lower rates. Real estate syndicators take raw land—either their own or property owned by a developer— and create plans for improvement, package it and sell it to investors, sometimes in the form of non-income-generating limited partnerships. These investment programs are designed to achieve returns in a relatively short period of time, and often require only small amounts of money. Syndications must be registered in the state in which they are sold—or with the SEC—if sales are interstate. Limited Partnerships Real Estate Limited Partnerships (known as RELPs) were very popular before the 1986 Tax Reform Act. Now, multiple deductions against earned and income credit are not allowed. Most RELPs are currently directed toward generating income, which can be offset
If you intend to manage your property yourself, there are a number of tax benefits you’ll want to know about.
4 RISMedia’s Top 5 in Real Estate Network®
with passive losses from previous tax shelters. For further information on the tax implication of RELPs, contact your tax advisor. Real Estate Investment Trusts Real Estate Investment Trusts (REITs) are purchased through stock brokerages. They resemble mutual funds and are an indirect investment in real estate. REITs pool investor money to invest in real estate equity or real estate loans. Some REITs further specialize in certain types of property and loans, such as shopping centers, hotels or office buildings, as well as residential property. REITs are required to pay 95% of the income they receive to shareholders in the trust. Equity Sharing Equity sharing is simply a way of sharing both the expense and the potential appreciation of a real estate purchase. Some lenders offer equity-sharing mortgages called shared appreciation or equity participation mortgages. Individuals can create their own form of equity sharing through partnerships. Consult an attorney before entering into any partnership.
Setting Your Real Estate Goals If increasing your net worth or building long-term security is important to you, then you will need to set goals in order to reach your objectives. Experience has taught us that without clear and well-defined goals, backed by a thorough knowledge of both what is possible and how it can be achieved, people will allow opportunity to pass them by. Assess your financial picture—you may see that you are already in a position to make some real estate decisions. Whether you are ready now or need to plan for the future, putting your goals in writing is a helpful first step toward attaining them. Then consult a professional, such as a Member of the Top 5 in Real Estate Network®, who can guide you through the best way to benefit from a real estate investment.
AN IMPORTANT MESSAGE FOR HOME SELLERS ABOUT RISMedia’s TOP 5 IN REAL ESTATE NETWORK® The Top 5 in Real Estate Network® was developed by RISMedia, the leader in real estate information systems, and is comprised of leading real estate agents from throughout the United States and Canada. Members represent a variety of highly respected international, national, regional and local real estate firms. Top 5 membership is based upon real estate professionals meeting a stringent series of requirements, including experience and results. Please contact me, your Top 5 in Real Estate Network® Member, for any and all of your real estate needs. Note: Not intended to solicit properties under contract or buyers or sellers under signed agreement with another brokerage. Authored by Allan Dalton, Co-Founder and President, Top 5 in Real Estate Network® © 2010 RISMedia’s Top 5 in Real Estate Network® RISMedia’s Top 5 in Real Estate Network® 5
Real Estate Network