real estate


I somewhat regularly post the best deals I come across in my Unreal Deals Blog.  My latest find looked great on paper and I was excited to feature it:

“My newest UnReal Deal is all about the acreage.

2 Bedrooms, 1 bath, 1232 square feet, plus a 58x 60 horse barn and 66.9 acres. That’s right SIXTY SIX acres. How much would you pay for all this? For a limited time, it’s yours for only $145,000.

Average price per acre for parcels 5 acres or larger is $3261, indicating a land value alone well in excess of $200,000. This proprety was just listed, by Tim Reid, RE/Max Bayshore properties, and while I haven’t toured it yet, it hit my radar and caught my attention.

Turns out on paper isn’t real life.  Yep, it’s got all those acres, and the house, and the barn, but the house is as bad as the agent let on in his comments, or worse.  The deck has…let’s call it debris… an inch thick on it.  The former owner sold all the top soil off of the land, and allowed contractors to dump old concrete and road construction debris out back.

Don’t take this to mean the agent was dishonest in describing the property.  By no means did he sugar coat it, but by getting caught up in the specifications of the property, I rushed to judgement.  This might still be an OK deal for the right buyer, but it’s not as UnReal as I had thought.

This is similar to the realization that many buyers face when looking at foreclosed properties- they compete on price alone.  Condition and history are unknown.  Nobody is loving them, keeping them feeling like a home.   The good news for buyers is that more and more sellers are taking competitive stances on pricing, bringing well cared for homes into the mix with foreclosures.

If you’re in the market, don’t limit yourself by telling your agent you’re only interested in foreclosures.  Just because the bank owns it, doesn’t mean it’s the best deal.

The passing of the $4500 “Cash for Clunkers” tax credit out of the House got me thinking. First, let’s not fool ourselves into thinking that this is serious efficiency legislation- yes, it puts an incentive on deciding upon a fuel efficient vehicle, and that’s certainly more palatable than forcing higher efficiencies and limiting consumer choice. But this is about getting auto sales moving more than anything. And as an old car guy (I grew up around my father’s Chrysler dealership) I cringe when I hear that the “clunkers” traded in would be “recycled”- it’s a certainty that some very serviceable vehicles are going to be taken out of circulation. That means they won’t be available for resale to those who can’t afford a new car.

Let’s compare this incentive to the $8000 first time buyer tax credit, shall we?

Average new-car transaction price has dropped to $27,941, according to The Wall Street Journal. This means that the credit given is 16% of the average price- a pretty healthy incentive, and no restriction on who can buy, other than you have to move up in efficiency.

Compare this with the 2008 US Median Sale Price of $198,100 (per this NAR report) and the $8000 First Time Buyer Tax Credit, and we’re looking at an incentive of 4%. Still very nice, thank you, but think what a bump in the tax credit, to say $15,000 could do. Especially if it were paired with revisions making the credit applicable to all buyers of primary residences!

Danielle Hale, a research economist with the National Association of REALTORS(R) put together this analysis that shows each home sale at the median generating $63,101 in economic impact. That’s an enormous number, and one that drives activity in all sectors of the economy.

My opinion: The current home buyer tax credit is a good thing, but it would be a much more significant force in helping clear inventory and stabilize values with the changes noted above.

Governor Signs Important REALTOR® Legislation:
Public Act 96 Provides Significant Tax Relief for Sellers;

Governor Granholm signed 3 significant pieces of REALTOR® supported legislation. First, legislation enabling home sellers to retain 2 principal resident exemptions for property still on the market after the seller has moved elsewhere in the state. The signing of this legislation is a huge step in aiding struggling sellers who have had homes on the market for over a year and have lost their principal residence status on that property.

House Bill 4215, now Public Act 96 of 2008 sponsored by Representative Ed Gaffney (R-Grosse Pointe Farms) enacts that the seller can retain an additional exemption for up to three years on property previously exempt as the owner’s principal residence if the following circumstances are met:

  • the property is not occupied,
  • the property is for sale
  • the property is not leased or available for lease
  • the property is not used for any business or commercial purpose

The Michigan Association of REALTORS® (MAR) was active in pointing out to lawmakers that the struggling economy in Michigan has forced several home sellers to relocate to other areas of the state, in some instances continuing to market a home that they have not lived in for over a year. As a result, the home was no longer treated as a principle residence and the homeowner lost the principal residence exemption. Retention of an existing homestead credit for an unoccupied home that is currently for sale would offer relief to sellers who have had to relocate for whatever reason. The MAR is grateful to Representative Gaffney for being receptive and following through on this very important piece of property tax relief.

Source:  Michigan Association of REALTORS(R)

I wrote an offer today on a house that’s listed for $19,900.  While it is beat up, it still is a house, on 1.2 acres, for $19,900.  As my friend Jesse said…”that’s like buying a car!” and it got me thinking.  The last time I sold a house in this price range was about 6 years ago, and that was a single wide mobile on a tiny lot in Thompsonville.  Don’t take this to mean that we’re back to pre 2001 levels across the board, but there are some great deals out there.

 So good, in fact, that Tammy and I are talking about selling our house.  We know we won’t net out what we might have hoped not long ago, but it’s all relative.  There are deals available that I’m having trouble passing on, and so we can make it up on a purchase.

 Word is starting to get out, and the really good deals don’t last for long before they’re snapped up. 

 I read an interesting analysis comparing and contrasting the foreclosure issue in Michigan and Ohio to that in California and Florida.  Here’s that article.

 Enjoy

I know, it seems to run counter to all we’re hearing about the real estate market, but some people still do realize a gain when they sell.  Today I had a client whose property I have listed ask me about how he’ll be taxed on his gain.  Seems he inherited the property some time ago.  The basics, I told him, are as follows:

Your gain is calculated by taking your net proceeds from the sale and subtracting your adjusted basis.  What’s your adjusted basis?  Well, it’s your basis when you acquired the property, plus any improvements, less any depreciation or partial sales taken.  In other words, its what you bought the property for, plus improvements (that you can prove) minus anything you’ve taken away from the property.

Once you arrive at this figure you can calculate your taxable gain- if you’ve owned it for more than a year, you’ll be at the current long term capitol gain rate.  Otherwise it’s taxed as ordinary income.

 So smart sellers want to know how to avoid this tax… For your home, there’s an exemption that may apply.  For investment properties, you can’t avoid it, but you can defer it by way of a 1031 Tax Deferred Exchange.  In a 1031 you’re rolling your gain over into a new property, as opposed to putting it in your wallet.  This isn’t a casual transaction, and requires an intermediary and some planning.

Now for the disclaimer.  The US Government has a habit of changing the rules for this sort of stuff, so make sure you talk with your CPA or financial professional to make sure you’re using what’s available to your best advantage.