Tag: Golden Real Estate

You Can Defer Capital Gains Tax on the Sale of Investment Properties — Or Reduce It

Colorado owners of investment real estate have built up a lot of equity over the last several years through appreciation. Selling those properties outright would subject the seller to significant capital gains tax, but there are several strategies for deferring — and in one strategy reducing — that capital gains tax liability.

Many property owners have inquired about selling their investment property in a way that locks in their gains — including owners who are looking to exit the landlord business altogether. 

Whether your rental property is a single-family home, a duplex, other multi-family dwelling, or a commercial property, you may well be looking to cash out while values are high, but how do you do so while minimizing your tax exposure?  There are several strategies for doing so, but one that was created by the Tax Cuts and Jobs Act of December 2017 is particularly attractive, both for its flexibility and the fact that it allows for reduction of the deferred capital gains tax and elimination of future tax.

There are four exit strategies that simply defer capital gains tax obligations. They include the traditional Installment Sale, the Monetized Installment Sale, the Deferred Sales Trust and the Delaware Statutory Trust. By using one of these exit strategies, you can defer the amount of tax you pay on the sale of a rental property, putting your pre-tax capital to work elsewhere. A fifth tool, the Opportunity Trust Fund, created by the Trump tax bill, is likely to become every investor’s favorite. Let me explain why.

The Trump tax bill allowed states to identify “Opportunity Zones,” and Colorado identified 126 such zones, 40% of which are in the Front Range, including Denver and Jefferson County. Altogether there are now 8,700 Opportunity Zones in all 50 states, the District of Columbia, and in five U.S. territories.

If a new investment in an Opportunity Zone property — or in an Opportunity Zone Fund which invests in such properties for you — is held for 10 years, you pay no capital gains tax when you sell.

There’s a further advantage when you roll the capital gain on your current investment property into an Opportunity Zone investment, because you can sell your current property, take out your basis on that property tax-free, while rolling only your gain into an Opportunity Zone Fund. Your basis on the rolled-over gain is increased (and tax liability reduced) by 15% after 7 years, and your gain on the new investment is tax-free if you hold it for 10 years. I’m told that these tax benefits decline on investments made after 2019.

In this article, I’m only telling you what I understand from reading up on the subject, including at https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questionso. You’ll want to speak to your tax advisor before making any changes in your real estate investment portfolio.

I thank broker associate Andrew Lesko, who specializes in duplex and multi-family properties, for bringing this and the other tax-saving strategies to my attention. If you’re thinking about selling your duplex, triplex, townhome or condo, contact Andrew for a current market analysis at 720-710-1000 or visit www.DuplexAlerts.com, where you’ll find more details about all five tax deferral/reduction/elimination strategies.

If you have a commercial property to sell, call me at 303-525-1851 so I can refer you to a trusted commercial broker.

Security Devices Could Allow Sellers to Eavesdrop on Buyers During Showings

The increasing prevalence of smart speakers like the Amazon Echo and security cameras inside and outside of homes, has introduced the possibility that sellers could be watching buyers and their agents and listening to what they say during showings.

The Colorado Real Estate Commission considers the privacy implications serious enough that this year’s annual update class for real estate brokers includes a section on legal jeopardy and practical advice.

Imagine, for example, that a buyer is overheard by a seller telling his/her broker, “I must have this home. I’ll pay whatever I have to!” The seller would immediately have an unfair negotiating advantage over the buyer.

The next time you are being shown a home, consider the very real possibility that the seller is parked nearby, watching and listening on his smartphone as you walk through the home, monitoring everything you and your agent say.

Although Colorado is a “one-party consent state,” meaning that only one party to a conversation needs to know it is being recorded, the implications of such technology are serious.

Given that people have rapidly embraced the use of internet-connected video and audio devices, enabling homeowners to monitor the goings-on in their homes, buyers and their agents would be well advised to minimize talk about the property and their level of interest during showings. Don’t count on being able to spot the devices. 

Also, to avoid possible breach-of-privacy litigation, sellers should consider disabling such devices when putting their homes on the market or, at a minimum, placing a notice on the front door advising visitors of the presence of monitoring devices that might be active.

Rita and I have a Ring video doorbell on our house, and we love it. It rings on Rita’s cell phone, enabling her to see and speak with the visitor. Chances are, the person at the front door would think we are home, even if we are not, which is advantageous from a security standpoint. This feature accounts for the rapid adoption of Ring and other brands of internet-connected video doorbells and security cameras.  Not everyone is a fan of these devices, as some believe that if your doorbell faces the street you could be violating the privacy of someone walking or driving beyond your front property line. (That was a point made during the annual update class which our agents took last month.)

In the update class our agents were advised both to warn buyers that sellers could be watching and listening, and to ask sellers during listing appointments whether they have video and audio recording devices in their home and, if so, to advise them of the implications of their use.

What are the legal arguments? A buyer’s lawyer would argue that a buyer, alone in an unoccupied house with his broker, has a “reasonable expectation of privacy.”  A seller, on the other hand, can claim a legitimate interest in monitoring – and even recording — the activities and conversations of strangers in his home, as the possibility exists that someone could be casing the home for a subsequent burglary.

It’s likely that these arguments will play out in front of judges in the not-too-distant future, at which point we’ll have case law to guide us. Until then, both buyers and sellers should understand that the issue of privacy is real and that the use of eavesdropping equipment could put sellers in legal jeopardy.

Some Home-Selling Advice Is No Longer Valid; Let’s Review the Literature…

On January 30th, Realtor.com published an article with the catchy headline, “That’s So 2018!  The Most Outdated Home Selling Advice You Should Now Ignore.”  I found it interesting to compare the author’s conclusions with my own opinions, many of which I have shared here before. Here is the author’s list of outdated home-selling advice that should be ignored, along with my response to what she wrote:

1) Wait for spring to sell your house.  I have written numerous times that winter can be the best time to sell a home, and it’s nice to see how other real estate writers have reached the same conclusion, albeit only recently. The writer for realtor.com made the same arguments I’ve been making for years — that there are fewer competing listings at this time of year, yet there are still many active buyers.

2) Price your home high and leave room to negotiate.  This, for sure, is not your best strategy in a seller’s market and even less so in a balanced market like we’re beginning to see in many areas. One agent she quoted in her article said it well: “If you’re not priced at the market, or at least very close, you’re not going to get that many people in the door to begin with. Price your property to sell.”

3) Sell your home as is.  The writer said this may have been true in the now-fading seller’s market, but argues that today’s millennial buyers in particular want a home that doesn’t need any work done on it.  I addressed the topic of what you should and should not do in last week’s column. Read it at www.JimSmithColumns.com or at www.GoldenREblog.com.

4) Amateur photos of your home are fine. The writer states that your smartphone pictures may have been all you needed during the seller’s market, but that you now need to invest in professional pictures. When it comes to high quality images, Golden Real Estate agents used magazine-quality HDR photos on all listings throughout the seller’s market, so this comment doesn’t apply to us.  However, the writer also promoted 3D tours of the home such as those using Matterport equipment, but I’m not a fan.  At Golden Real Estate, we believe it’s much more useful to produce a narrated video tour of a property. We’ve been doing narrated video tours for a decade or more and continue to be surprised how few other brokers have adopted the practice. And the Osmo camera we recently purchased makes those videos even more professional-looking. It’s equivalent to using a movie-quality Steadicam!

5) Holding an open house is a must. The writer says open houses only serve the broker and not the seller, but I disagree. You’ll notice that almost every listing we feature in this weekly ad mentions an open house. Since we price our listings to sell, these open houses serve to magnify buyer interest in our listings. (Indeed, the listing I closed last Friday was to a buyer who came to our open house.)  Open houses also fit into our strategy of not selling listings in less than 4 days. Our time-tested process is to put a listing on the MLS on Wednesday, advertise it on Thursday (with an open house), and to advise agents and buyers who submit early offers that the seller will wait until after the open house to choose the buyer.  Using this strategy, prospective buyers typically bid up the price, which is an obvious benefit to our sellers.  An example is last week’s sale of our Wheat Ridge listing for $561,000, which sold on that 4-day schedule for $36,000 over its listing price.  

Holding open houses also fits into our belief that you never know what will sell a house, so you should try everything.

You Can ‘Sell High/Buy Low’ and Stay in Colorado

We Coloradans love where we live, and few of us would ever leave it for another place. Our climate appears to be responding less quickly than elsewhere to global climate change, which is, like it or not, yet another reason people are drawn here from other states.  This steady influx of new residents inevitably has the effect of raising local real estate prices.

But there are other beautiful places in Colorado which remain affordable and which are drawing metro area residents. Last fall, a client sold their Arvada home for $385,000 and bought a bigger home on two acres in Cedaredge for only $230,500. A colleague of mine bought a 6-acre parcel with a home and two outbuildings in that same town for $270,000.  If you don’t have to be in the metro area and like living in a quiet (and beautiful) rural community on the western slope, Cedaredge sounds like a great alternative.

I have a client who sold their Lakewood home for almost $600,000 and are currently renting. They’re looking at lower-priced homes around the state and are ready to pounce when the right one pops up. Now that our MLS (REcolorado) serves much of Colorado (including Cedaredge), I set up a search for this client based on price per square foot under $200, and they are considering quite a few properties outside our metro area.

As more and more out-of-staters find the Denver metro area to be a desirable (and more climate-friendly) alternative to their current home, more and more current residents are looking to leave for greener and more affordable locales. This is a trend that is likely to increase over the coming months and years.

For years I have explained to metro area homeowners that they shouldn’t be afraid of high prices if they are buying and selling in the same market. If prices are high, they’ll probably sell high and buy high. If they’re low, they’ll sell low and buy low. (That was my experience in 2012 when I sold a home for less than I had paid for it but also bought my current home for a fraction of what it is worth now). Ideally of course, you’d like to sell in a high market and buy in a low one, something that is certainly possible for those who are willing to relocate. It’s nice to know you can find that lower market within Colorado.

Remodeling Your Home to Help It Sell May Not Be the Moneywise Approach

Before putting your home on the market, it’s natural to ask for advice on what should be fixed or upgraded before doing so. Here’s how we re-spond when asked.

First, you need to know that every study we’ve seen shows that sellers almost never recoup 100% of the cost of remodeling, so you should only do so for your own enjoyment, years before you plan to sell. Don’t make updates expecting to get a higher price for your home..

Rita and I, or example, recently spent $40,000 to update our kitchen, and we love it! (It was done by Bonnie Kitchen Design in Golden, and we strongly recommend her!)  But that doesn’t mean our home increased its value and selling price by $40,000 or more. We made that improvement for our own enjoyment, just as we did when we spent $20,000 on our master bathroom several years ago.  Yes, it will increase the attractiveness of our home when we eventually sell it, but that will only be after years of happy enjoyment of those two improvements.

We’ll probably make additional improvements in coming years, but it will never be to dress up the home for sale. On top of not recovering the full expenditure upon sale, it’s a huge disruption of one’s life to engage in major renovations.

The most recent study I’ve read about cost vs. ROI (return on investment) was made by Remodeling magazine, as reported by RISmedia.

According to that report the 5 projects with the highest ROI in the mid-range cost category are:

Manufactured Stone Veneer (94.9%)

Minor Kitchen Remodel (80.5%)

Deck Addition (Wood) (75.6%)

Siding Replacement (75.6%)

Entry Door Replacement (Steel) (74.9%)

The 5 projects with the highest ROI in the upscale cost category are:

Garage Door Replacement (97.5%)

Window Replacement (Vinyl) (73.4%)

Grand Entrance (Fiberglass) (71.9%)

Window Replacement (Wood) (70.8%)

Bathroom Remodel (60.2%)

Lastly, here are the 5 projects with the lowest ROI in the mid-range cost category:

Backyard Patio (55.2%)

Master Suite Addition (59.4%)

Bathroom Addition (60.6%)

Roofing Replacement (Metal) (60.9%)

Major Kitchen Remodel (62.1%)

Master Suite Addition (50.4%)

Bathroom Addition (58.1%)

Major Kitchen Remodel (59.7%)

Bathroom Remodel (60.2%)

Window Replacement (Wood) (70.8%)

So, clearly you should only remodel when it’s intended to be enjoyed by you for years to come. If you know you’ll be selling this year, we advise our clients as follows.

First, only make improvements that eliminate a defect or an issue which will turn off prospective buyers.  I call these “eyesores,” things that stand out like a sore thumb, and not things that are simply “dated” or out of tyle.

Here are some examples:

Do refinish hardwood floors that are seriously and obviously in need of refinishing.

Do replace carpeting that is seriously old, such as 1970’s shag carpeting, or carpeting that is seriously worn or stained. (Again, think “eyesore.”)

Do replace damaged countertops.

Do repair damaged walls and replace damaged doors that can’t be repaired.

Do replace those 1990’s glass-and-brass lighting fixtures. (They’re so unappealing that Habitat’s thrift store won’t accept them as donations!)

Do replace burned out light bulbs.

Do repaint (inside and out) where there is peeling or discolored paint.

Do replace rotted timbers on your deck, then power wash and re-stain or repaint as necessary.

Do improve curb appeal (always the first impression), including weeding and pruning and freshening the front door. (It’s true that red doors sell homes…)

Do have someone with “fresh eyes” walk through your house and identify other turn-offs. (Our stager performs that function.)

Do not replace undamaged countertops or bathroom fixtures just because they are “dated” — even those pastel colored bathtubs and sinks. (I tell buyers “You can’t buy these anymore!”)  The exception would be the toilets. A white chair height low-flow toilet can be replaced for a couple hundred dollars and installed by our handyman for $50 (but he only works for our clients).

Beyond the above advice, I tell my sellers to be strategic about major issues which they know need to be done. If these are likely to become inspection issues, don’t fix them prior to listing your home if they’re not the kind of eyesore which would deter a buyer from making an offer.

For example, I have a listing, currently under contract, which had damage to the concrete driveway. The seller was thinking he should repair it before putting the home on the market. We knew it would be an inspection issue, but by leaving it undone we could use it as a bargaining chip. Sure enough, we got under contract (well above listing price because of competing buyers), and the inspection demands included repairing the driveway. Because it was such a big expense, the buyer didn’t ask for a bunch of other repairs.  If the seller had fixed the concrete prior to listing the home, you can sure the buyer would have asked for those other repairs, but instead they were delighted that the seller agreed to pay for the concrete repair.

I have used the same strategy to save other sellers money on inspection items. For example, one seller knew that radon needed to be mitigated, but we knew that this issue (which we properly disclosed) would not deter buyers from competing for the home. Yes, it became an inspection demand, and the buyer was delighted that the seller agreed to mitigate it.

Your situation will be different, of course, and we are happy to meet with you in your home and discuss what’s needed and strategic to fix before listing. We consider such advice part of the free staging consultation we provide sellers.

Statistics Show a Slowing Real Estate Market — But Not at Golden Real Estate

The 4½-year-long seller’s market is clearly transitioning into a “balanced” market and may be moving toward a buyer’s market by 2020, judging from statistics garnered from REcolorado, the Denver MLS.

In December, for example, the median days on market for City & County of Denver sales was 20, the highest since Feb. 2014, and the ratio of sold price to listing price was 98.5%, up from 98.3% in November, but otherwise the lowest since Feb. 2012 — nearly seven years ago.

January statistics won’t be available until early February, but a study of the 403 homes sold in the first 21 days of January shows that the median days on market is even higher — 28 days — and that the ratio of sold price to listing price has dropped to 97.2%.

The number of sold listings in December was 783, the lowest for a December since 2011. This compares to more than 1,000 sales in every December from 2014 to 2017. The number of active listings for this December was 1,605, the highest for any December since 2013.

Now let’s look at Jefferson County statistics.

In December the median days on market for Jeffco sales was 24, and the ratio of sold price to listing price was 98.6%. Both stats were the worst (relatively speaking)  since February 2014, nearby five years ago.

As with Denver, a study of the Jefferson County homes sold thus far in January shows that the median days on market will remain above 20 and that the ratio of sold price to listing price will dip even further. With 307 sales thus far and another 308 listings under contract over 20 days, I predict that the number of sold listings will be the same as or higher than January 2018, when 553 Jeffco homes were sold.  The median sold price will continue to climb, though less quickly.

Given these statistics, you can imagine our surprise at how well our own listings have performed this month. 

For example, broker associate Kristi Brunel listed a home on a busy street (usually not a good selling point) for $520,000, which was above what neighborhood comps suggested. She got it under contract for 13% more in four days. There were 60 showings and 13 offers, but there were 20 or more other offers which weren’t submitted once buyers knew how high the bidding had gone. Saturday’s open house, just hours after Friday’s big snow storm, was so busy and with so many cars parked on the street that one neighbor asked Kristi if it was a church function!

I had a similar experience with another listing. I got multiple offers which bid up the home to 7% over its listing price within four days, and the open house was the busiest I can recall. A Golden listing of mine which didn’t sell in December sold readily in January for nearly its listing price, and a $1.1 million listing of mine in downtown Golden sold in less than a week with multiple offers driving the price up by $75,000 following an open house where I needed help to accommodate the flow of buyers. 

So you can understand why I don’t quite know what to make of the current real estate market — except perhaps that Golden Real Estate knows how to sell homes better than other brokerages!

What we do know with certainty is that there are many disappointed buyers who did not win the bidding wars on these Jeffco listings and that homeowners who think they should wait until spring to put their home on the market should consider doing so now — and with us!

As I’ve written in the past, there are multiple reasons why winter is a good time to list a home, but our experience with these few listings is surprising even me. But beware — the reason that the MLS statistics are not as good as our own experience at Golden Real Estate may be that other brokerages are not listing their homes at the right price and not providing the kind of marketing for which Golden Real Estate is famous.

Buyers are definitely getting wiser and not making offers on homes that are overpriced. Give me or one of our broker associates a call and ask us what we consider the right price to list your home. 

The Realtor Code of Ethics Exists to Protect You

You’ve probably seen the advertising, “Make Sure Your Agent Is a Realtor.” That’s because not all licensed real estate agents are members of the National Association of Realtors (NAR) and only members of NAR can call themselves “Realtors.” And only Realtors must swear obedience to the Realtor Code of Ethics and are required to take 4-hour biennial refresher classes about the Code.  (Note: All Golden Real Estate agents are Realtors.) The Realtor Code of Ethics has 17 articles that are divided into three categories. They are as follows.

DUTIES TO CLIENTS AND CUSTOMERS:

Article 1
Realtors protect and promote their clients’ interests while treating all parties honestly.

Article 2
Realtors refrain from exaggeration, misrepresentation, or concealment of pertinent facts related to property or transactions.

Article 3
Realtors cooperate with other real estate professionals to advance their clients’ best interests.

Article 4
When buying or selling on their own account or for their families or firms, Realtors make their true position or interest known.

Article 5
Realtors do not provide professional services where they have any present or contemplated interest in property without disclosing that interest to all affected parties.

Article 6
Realtors disclose any fee or financial benefit they may receive from recommending related real estate products or services.

Article 7
Realtors accept compensation from only one party, except where they make full disclosure to all parties and receive informed consent from their client.

Article 8
Realtors keep the funds of clients and customers in a separate escrow account.

Article 9
Realtors make sure that details of agreements are spelled out in writing whenever possible and that parties receive copies.

DUTIES TO THE PUBLIC:

Article 10
Realtors give equal professional service to all clients and customers irrespective of race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity. Realtors do not discriminate in their employment practices.

Article 11
Realtors are knowledgeable and competent in the fields of practice in which they engage or they get assistance from a knowledgeable professional, or disclose any lack of expertise to their client.

Article 12
Realtors are honest and truthful in their communications and present a true picture in their advertising, marketing, and in other public representations.

Article 13
Realtors do not engage in the unauthorized practice of law.

Article 14
Realtors willingly participate in ethics investigations and enforcement actions.

DUTIES TO REALTORS:

Article 15
Realtors make only truthful, not misleading, comments about other real estate professionals.

Article 16
Realtors respect the exclusive representation or exclusive brokerage relationship agreements that other Realtors have with their clients.

Article 17
Realtors arbitrate and mediate financial disagreements with other Realtors and with their clients.

Life’s Transitions Are at the Heart of Most Real Estate Needs

In my 17 years as a Realtor, I have learned that most people’s real estate needs arise from life’s many and varied transitions.  These can include relationship changes such as marriage and divorce, a birth or death in the family, health changes, and other reasons for upsizing or downsizing, as well as job relocation, job loss, and changes in income. People also relocate to be closer to grandchildren or other family members.

Clients have come to us because of most or all of these “transitions,” but perhaps the most common is, sadly, divorce. When couples divorce, one option is for one spouse to buy out the other, and al-though the court (in a non-amicable divorce) might require a valuation by a licensed appraiser, often we’ll be called upon to give a “Broker Price Opinion” of the home’s value. I don’t charge for this service, nor do I think most agents would. If a sale of the home is necessary, of course we’re available to assist in that, and the proceeds can be disbursed as the couple or the court dictates.

Medical changes or uncertainty, which can affect people of all ages, often necessitate a home sale. We can help the seller of a multi-level home find a wheelchair accessible home or simply one with fewer stairs, and discount the commission on the sale of their current home when we earn a commission on their purchase. If the seller is moving to a rental such as in a senior community, we can refer them to a specialist in that field.

Marriage or simply the combining of two households is a happier transition, and, again, look for your agent to discount the fee, as we do, for selling your current homes in return for earning a commission on your new home together.

Empty nesters (and others) come to us on occasion wanting to downsize. They may want to use their new-found freedom to travel, and ask us to find them a “lock-and-leave” home such as a condo or patio home, where you have no maintenance responsibilities and it’s not obvious when you’re away.

Relocation is a big area of need, too. This is a good time to “sell high and buy low,” by moving from Denver to, say, Goodland, Kansas, where a recent client of mine was able to buy a bigger house using only the equity from the sale of their Arvada home.  Now they have no mortgage!

Seniors: Learn What You Need to Know About Real Estate

Last month’s column was about the risk seniors face of being scammed or conned out of their homes.

Let’s face it — seniors need to be careful and knowledgeable about real estate as they age. There are issues of downsizing as well as inheritance. And you need to know how real estate works, how to choose the best Realtor and know that he or she is working in your best interest.

At Golden Real Estate we have two agents who have earned the Seniors Real Estate Specialist (SRES) designation as a result of special training on a multitude of issues facing seniors. One of them is David Dlugasch, shown at right during his PowerPoint presentation to a group of seniors. The other is Kristi Brunel.  If you belong to a senior group that welcomes outside speakers, please consider calling David at 303-908-4835 or Kristi at 303-525-2520 and arranging for a live presentation.  You may learn something that could help you in the future.