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Are you tired of homeownership?

Written by Louise Bolger on . Posted in Business, Castles in the Sand, Real estate | Development.

Everyone who has owned prop­erty – whether it’s a condo or a single-family home or investment property – has had those days when you have no idea why you’re doing this. Isn’t renting easier, less stressful and maybe even less expensive? Well, if you ever thought about renting, you’re probably thinking about it more after last year’s hurricane season. But not so fast.

Renting rather than owning has its own set of positive and negative attributes. Rent­ing gives you the flexibility to move, change jobs or get out of bad weather. Renting is usually less expensive with upfront costs, certainly far below a house downpayment. There is less responsibility relative to main­tenance; usually, landlords make repairs and replace mechanical malfunctions, a fixed payment at least for the term of the lease and no surprise appliance replacement costs or storm damage to repair.

The flip side of the coin is that you’re not building equity for the future by either paying off a mortgage or accumulating appreciation. Depending on your age and lifestyle, this may or may not be an issue. Landlords can raise rent upon the lease renewal to whatever the market will bear. Lack of control as it relates to personaliza­tion or modification of the property is a problem for many people; also, the always unknown of what a landlord has in mind for the future use of the property. There are rent vs. own calculators online if you need hard numbers on a property you’re thinking of renting.

There is also another way to rent rather than own; one way is the rent-to-own option. This arrangement is nothing new and typically is designed to help first-time owners to get a foot in the door of home ownership. Rent-to-own agreements put aside a portion of the buyer’s/renter’s monthly rent payment to use as a down payment on the ultimate purchase of the property.

Another option is the lease/purchase, which obligates the buyer to purchase the home at a pre-negotiation price at the end of the lease, or a lease option at the end of the lease, which allows the buyer the option to purchase if they want. Both lease purchase and lease option contracts have the ability to set aside a portion of the rent for the future transaction. Builders frequently offer the rent-to-own ability for new construction as a way to get people into vacant homes and mitigate the builder’s carrying cost.

These techniques are now also being used by buyers who have adequate funds and ability to purchase a home. Buyers in this category are choosing to rent under one of the rent to own options and hold on to their money for invest­ment purposes. This has become more popular as part of the fallout of increased mortgage rates, making borrowing money more expensive with the hope of reduced rates in the future.

All of these transactions are complicated and may be risky for both renter/buyers and seller/landlords. Legal advice is vital, and every detail of the arrangement needs to be clearly spelled out. Who pays the taxes and insurance, who is responsible for lawn maintenance, is the property furnished and who is responsible for wear and tear on the furniture, I could go on, but the point is the devil is in the details.

So now that we’ve all lived through what we’re hoping was the worst hurricane season ever, do we still want to own or rent? The answer to this question is highly personal and very difficult to decide. I for one am reserving my answer to this question till Nov. 15. Stay safe.

Castles in the Sand

Homeownership still a great deal

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Benjamin Franklin was the author of many memorable sayings, and one of the most memorable is, “There are only two certainties in life – death and taxes.” In spite of the very volatile times we’re living through, I’m adding one more: “Homeownership is still the best financial investment for the average person.” It also offers the best tax breaks, not to mention the best way to build equity.

There is a fire raging in the real estate market all over the country. With mortgage interest rates under 3%, those who have secure jobs are racing to either buy a home, if they can find one, or refinance their existing home.

This is happening even though the 2017 tax overhaul made the mortgage interest deduction irrelevant for many homeowners. These individuals have calculated that the standard tax deduction is more advantageous than taking their mortgage interest deduction, even adding in their previous state and local tax deduction.

Nevertheless, there are still plenty of deductions available for homeowners. Even though many homeowners are opting for the standard deduction, which is now $24,880 for a married couple filing jointly, getting to that number with 3% mortgage interest is difficult unless you’re purchasing in a higher price range and have other deductible expenses.

The problem with higher price point mortgages is the cap placed on them. For new mortgages issued after Dec. 15, 2017, homeowners can deduct up to $750,000 on mortgage interest debt. For mortgages issued before then, the cap is $1 million of mortgage debt, which is grandfathered. This rule also has stipulations regarding second homes and unmarried homeowners, so check with an accountant before making decisions.

Refinancing now is also very attractive, but if you refinance and cash out a portion of the new mortgage, you may not be able to deduct all of the interest, unless you can prove the extra cash was used as a home improvement. Home equity loans also fit into this category and interest deductions can only be used for substantial improvements to your home. Again, this could be a moot point if you are opting to use the standard deduction.

With a lot of people moving from cities, boat and RV loans are also getting popular. So, can the interest on these be deductible? Well, like everything IRS-related, it depends. In order for these to qualify for a deduction there must be cooking, sleeping and toilet facilities, then of course the interest deduction is still subject to the two homes requirement.

Home office and home remodels because of working from home are also something that seems relevant now. Home offices are not deductible if you are employed by someone else. However, if you are self-employed, you can make a deduction for a space in your home that is used on a regular basis and used exclusively for your business. Don’t ask how this is verified should you be audited. Interest for remodeling for a business you run from your home can be deducted, but like any business, it can affect the cost basis of the house when it is sold.

Finally, there are some new regulations regarding IRA and 401(k) withdrawals. Congress has loosened the rules for people affected by the pandemic, allowing a withdrawal up to $100,000 without paying the 10% penalty right now. This cost can be spread over three years or pay it back in full at a time when your finances are in a better place. Although this does not directly affect your home, it could improve your overall financial position until after the crisis.

Homeownership can still ease your tax liability and will probably be the best investment you ever make – even now. Stay safe.