2018 ReEvaluating your Real Estate Investment Strategies

2018 Real Estate Investment Strategy
Your HOME is your largest asset...  Will 2018 be the year to buy, sell, hold or rent your property? Taking the time now to evaluate your real estate assets, will pay off in the future.

What was once a viable asset in your real estate portfolio may have changed due to the movement in home values, rental values and changes in the tax law.  Now is the time to find out if your real estate strategy is still on track....  

Good Information makes Good Decisions

The first step is to appraise the current market value of each of your assets. This is not necessarily what you paid for it or what you wish you could sell it for, this is the appraised value of the asset. There are a couple of excellent websites that can help you get a ballpark figure, but I recommend contacting a real estate professional who knows your local market to give you an opinion. Key questions they can help you answer include, how is the real estate market in your local area performing? Is the market trending with State and or National predictions? Is there development in your area that will increase values in your market or are there any negative factors on the horizon that might hurt real estate values. Once you know the current market value, you will have a benchmark to create a plan for that asset.

Is it time to SELL?

It could be time to sell...  Prices are up and we are evolving into a seller’s market as the buyers are back in full force. Many who lost their homes in 2009 or earlier are now buyers again creating a competitive market for sales and move-in ready inventory.  As the unemployment rate drops and consumer confidence increases, more buyers are entering the housing market and sellers are finding that they have more leverage in negotiating the prices of their homes.

Fueling this seller’s market are several factors that have unexpectedly converged.  For-sale listings are limited, which is pushing prices up, at the same time that mortgage rates still relatively flat, Canadians are slowly coming back and Millennial buyers are finally ready to buy!  

To Rent or Not to Rent? 

Is a full or seasonal rental strategy a way to increase the profitability of your real estate asset? Even your primary residence may be a rental opportunity. Some of my clients will rent out their homes for a few weeks each summer or during events, using the rental monies to pay for a much needed vacation. Or, if you own a second home, you may want to consider offering it as a seasonal or even fulltime rental. Elisa Schwartz of The Practice CPA, one of the Coachella Valley’s leading accounting firms says, “There are many tax advantages of vacation home ownership. Generally, the expenses of ownership become deductible in proportion to the amount it is rented, compared to the total that it is used. This is limited to your income, but it can allow you to deduct a portion of the HOA fees and other expenses which are not normally deductible. In addition, the interest and taxes are deductible if this is your second home”

Utilizing a second home as a seasonal rental has many advantages.  First, you can still set aside time for personal use and rent it out when you are not using it.  The second advantage is that the dollar amount for a seasonal rental can be very lucrative during the designated high season in your area.  Websites such as HomeAway and VRBO allow owners to rent out their vacation or second homes, while Airbrb and Couchsurfing take a more social media influenced method towards matching travelers with available space.  In many cases, just renting your second home for a few months of the year can cover the mortgage payment for the entire year.   This is a great way to move your second home out the “doghouse” category and into “cash cow” status.

If you are thinking about your home as a seasonal rental, I suggest you interview professionals in your area – either a real estate office that specializes in rentals or a property management company.  The percentage that these companies charge is justified in time savings to the homeowner. There is a lot involved with offering a seasonal rental, including HOA and City Restrictions and a good contract that protects all parties.

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You got to know when to HOLD ‘em

Once you have done your valuation and some market research, you may find out it may be best to hold on to your property. There are always tax consequences to consider and holding an asset an extra year could provide a significant tax savings as the asset moves from a short term gain, to a long term investment. It also may be a good time to buy. We are continuing to see prices increase and the overall market has been gaining in healthy ways. It may also be a good time to add another investment property to your portfolio.

Perhaps Thomas Jefferson put it best, "A right to property is founded in our natural wants." Even after a devastating housing and mortgage crash that resulted in millions of foreclosed homes and trillions of dollars of home equity lost, the majority of Americans have not given up the idea that ownership is representative of their economic dream.  

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