Category Archives: Property Investing

Is Condo/townhome Living Right For You? Factors You Should Consider.

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Living in a condo or townhome community with a high concentration of households on a small piece of land can present a unique set of factors. It’s important to be aware of these and consider them before making a decision to live in this type of community.

One of the main factors to consider is privacy. When homes are built close together, and with shared walls this can compromise privacy, as sound can easily travel between neighboring households. Additionally, if it’s a new development there is likely no mature trees or privacy landscaping, further reducing privacy between properties. Older condo or townhome developments often have mature landscaping, which contributes to increased privacy and noise control. 

Another factor is noise. With shared walls and shared outdoor spaces, noise can easily transfer from one home to another. Typical wood frame construction, commonly used in these communities, tends to amplify noise, making it even more of a potential concern.

Odors can also be an issue in close-knit communities. Each household has its own unique habits and preferences, which can lead to different types of odors, such as cooking smells, pet waste, smoke and more. If there are no rules or regulations in place to address these issues, or if the ventilation or construction methods are subpar, odors can easily transfer between units.

To mitigate these issues, it’s crucial to ensure that the community has clear Covenants, Conditions, and Restrictions (CC&Rs) or Rules and Regulations that all residents must adhere to. While rules may not be everyone’s favorite thing, they are essential in ensuring that neighbors are considerate and respectful of one another in these close proximity living situations.

Equally important is an active Homeowners Association (HOA) that enforces these rules. Without proper enforcement, rules become meaningless. An HOA provides a valuable resource for addressing any concerns or issues that may arise, sparing you from potentially uncomfortable confrontations with neighbors.

When considering a community, it’s also worth looking into the history and effectiveness of the HOA. The track record of the HOA in maintaining the community and enforcing the CC&Rs can give you a sense of their commitment to preserving the value and enjoyment of the property for all residents.

Mediterranean Villas: In comparison to other condos or townhomes, Mediterranean Villas stands out for its superior construction. These townhomes are built with Insulated Concrete Form (ICF) construction, which means the exterior walls and walls between homes are made of concrete instead of typical wood framing. This construction method significantly reduces noise transfer, odor transfer, and enhances energy efficiency. As a result, lower power bills can be expected compared to a typical wood-framed home.

Mediterranean Villas was established in 2001 and consists of 224 townhomes.  It has a reputation for being an all around great investment, and has always been a sought after subdivision. This too sets it apart from new construction offerings.

While older townhouses may have outdated finishes and systems, these can be easily replaced when necessary. The absence of CC&Rs, an inactive HOA, or a lack of a track record in a community are factors beyond your control. It’s important to consider these aspects and choose a community that aligns with your preferences both now and with the future in mind.

Planning for Real Estate Tax Deductions

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This time of year, people are thinking about their new year’s resolutions and beginning to get their taxes together for the April deadline. If you are renting or thinking about buying in the near future, there are many tax deductions that benefit homeowners that sometimes people don’t think about when weighing the benefits of renting versus owning:

Mortgage Interest Deduction – The interest homeowners pay to their lenders each year is deductible on mortgages up to $1 million. During the first several years of a loan, mortgage payments are interest-heavy which means the tax deductions for young mortgages can be substantial.

For example, for a median sales-priced home in the Tri-Cities ($212,300 as of October, 2013), the first 12 months of interest on a 4.6% loan can add up to $9,695. That interest can be immediately deducted from a taxpayer’s adjusted gross income, saving hundreds in tax liability for the first year alone.

Property Taxes – In states that have property taxes (including Washington State), those can also generally be deducted from the homeowners’ adjusted gross income. It is important to only include property taxes paid to the municipality – not to the lender as part of the escrow account.

Interest & Property Taxes on Second Homes – In many cases (depending on tax brackets and other IRS rules), the above two deductions can also apply to second properties. There are parameters to me met (such as the homeowner must stay at the home at least 14 days per year and it is not considered a rental property).

Home Equity Line of Credit Interest Tax Deduction – In the event a loan was secured against a home’s equity and the funds were used on “capital improvements”  to a home,  this interest may also be tax deductible.

Points for obtaining a loan – Points are usually a certain percentage of the loan and are either paid up front or over the duration of the loan. However, points are usually tax deductible over the duration of the loan period or in the year paid depending on if the loan is on a purchase or a refinance.

These deductions are presented as generalities only and you should confirm all eligibility with your tax professional.  There are additional tax deductions that may benefit you if thinking about a purchase. If you have questions, Jennifer Cowgill can be reached at (509) 947-5670 or jennifer@referredrealestate.com or Jessica Johnson at (509) 947-2230 or jessica@referredrealestate.com.

* Above figures are based on 2012 tax table supplied by the IRS

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Real Estate Investing: The Power of Leverage

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One question we get a lot is “how do I begin investing in real estate? Whether someone is considering a second home, a property to improve and sell, or a property to rent and hold, investors starting out need to understand the power of leverage.

Leverage is the term used when one may not have the cash on hand to buy something outright, so they borrow someone else’s money (usually a bank’s) to finance their investment. Certainly the loan is paid back with interest, but the asset purchased appreciates at the full amount of the investment regardless of what was borrowed.

Let us give you an example. Let’s say a new real estate investor wants to purchase a second home in our area at $200,000. He has 20% to put down, or $40,000. He borrows $160,000 from the bank at 4.5% interest for a 30 year fixed rate loan and he plans to rent out the home for $1,200 per month.

His principle and interest payment is $810 per month. Of course, this does not include property taxes or insurance, which can be estimated at another $233 per month. Additionally, it is smart to estimate repairs at least 1% of the  home value – in this case $2,000 per year.

At first glance, it doesn’t appear that the math works in this property owner’s favor as he is looking at a net loss in this case of $10 per month! And that is assuming that the property does not remain vacant, need major repairs, and he handles the rental himself instead of involving a property management company.

Here is where the value of appreciation and cost of living come into play.  Unless our investor refinances, his payments for the next 30 years will be $810 per month. However, during that time a number of other forces are at work. Rents rise each year. At an approximate 5% increase per year in rent, that $1,200 in income today will equate to $1,540 in five years. We can assume that property taxes and insurance might rise at that same rate, leaving our investor in a slightly better position monthly than his $9 net loss of five years previous.

Estimated Monthly Revenue and Expenses

Let’s take a closer look at the 10 year figures listed above. At a modest 5% appreciation, the property purchased today would be worth $329,402 in 10 years. If our investor decided to sell and walk away from the $453 in net profits per month, he could be looking at gross proceeds of $201,259 (as his loan at this point has been reduced to $128,143). This doesn’t take into account closing costs, but isn’t it amazing how $40,000 can turn into over $200,000 in a relatively short amount of time?

Additionally, savvy investors need to realize there is another perk of owning multiple properties  -interest deduction on taxes. The mortgage interest paid on your home loans is tax deductible depending on how your investments are set up. In the example above, $7,147 is paid in interest on the first year alone which could result in big tax savings!

If you are interested in learning more about how to leverage your next home purchase or real estate investments, please contact us: Jennifer at (509) 947-5670 or Jessica at (509) 947-2230.