April 10, 2022

What's a REIT?

A REIT (Real Estate Investment Trust) is a company that owns, operates, or finances income-producing commercial and residential property. The income is generated predominately through leasing activities, but mortgage REITS that provide real estate financing earn money through the interest charged on their mortgage. Most REITs are listed on a publicly traded stock exchange, but some are unlisted or private. This article focuses on listed, public REITs.

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Posted in Investors
April 2, 2022

Tax Benefits of Owning Real Estate

Real estate ownership provides multiple tax benefits. Some become available when a property is sold, and some are in effect every time you file an income tax return. Let’s start with the savings you can incur when you sell a property.

 

Selling

The IRS provides two different avenues property owners can use to build wealth when they sell real estate. The first way allows primary homeowners to receive tax-free sales proceeds. The second method provides investors the means to defer the payment of any capital gains tax.

 Primary Residence

One of my videos (https://bit.ly/CapitalGainsVideo) presented an in-depth discussion on a capital gains tax exemption when someone sells their primary residence. If you own and live in the home for two of the past five years, you can walk away with $250,000 of the profits as tax-free money if filing singly and $500,000 if filing jointly.  

Investment Property

Another one of my videos (https://bit.ly/1031ExchangeVideo) discusses indefinitely delaying the payment of capital gains tax when investment property sells. This is accomplished through a 1031 exchange that enables someone to roll over the proceeds of one investment into the purchase of another like-kind property. An investor can mix and match sales and purchases of vacant land, residential (1-4 units), and commercial property. However, they cannot roll over the proceeds into purchasing artwork, stocks, or any other type of investment. They must exchange real estate for real estate.

 

Annual tax return

Tax advantages are different for owner-occupied and investment properties. Own both types and reap the benefits. In some cases, taxpayers must itemize the deductions to obtain maximum benefit.

Primary Residence

  • Property tax

 

  • Mortgage interest (max $750,000 mortgage debt)

 

  • Home office ($5/sq.ft. up to 300 sq. ft. for unsalaried freelance homeowners)

 

  • Mortgage points for the year of purchase

 

  • HELOC (for home improvement) interest

 

Investment Property Property tax

  • Hazard, liability insurance

 

  • Mortgage interest – no limit

 

  • Property management fees

 

  • Routine maintenance repairs

 

  • Depreciation ((Value of structure at time of purchase – value of land)/27.5 years residential and 39 years for commercial.) One way to value land is to look in the county tax record. Depreciation is recaptured when the property’s sold unless it’s exchanged.

 

  • Advertising expenses for rental properties

 

To take full advantage of these deductions, be sure to keep good records. Consult with a CPA if you have any further questions.

 

Posted in Everyone
March 24, 2022

Reverse Mortgages

There are a few different types of reverse mortgages, but the most common one is FHA’s Home Equity Conversion Mortgage (HECM). It is called a reverse mortgage because the loan balance increases over time instead of decreasing. A HECM loan converts some of the equity you have in your home into cash. These cash payments can be distributed as a lump sum, monthly, or a credit line to be used on an as-needed basis. The various types can be combined. The beauty of the monthly payout is that the borrower can continue to receive payments for as long as they live in the home. If they die while still receiving payments, the money doesn’t have to be fully paid back (with a few exceptions to be discussed later).

 

 

Eligibility

The property must be a primary residence, 2-4 units, in good condition. If it is a condominium, it must be FHA-approved (which currently would eliminate most of South Florida). Borrowers must be 62 or older, and any existing mortgage lien must be paid off at closing. A credit report doesn’t matter unless the borrower has a history of defaults on a government loan. The borrower must have sufficient resources to continue to maintain the property and pay property taxes and insurance.

 

Amount

In addition to interest rates, the amount of available money depends on a few other things. The life expectancy of the borrower is a determining factor; the older the borrower, the more money they may receive. The value of the home is also important; the lender will use either the appraisal value or the FHA mortgage limit ($970,800 in 2022), whichever is lower. The type of distribution also affects the total amount. A credit limit can’t be exceeded, and a lump sum won’t be renewed. A monthly payment, however, can continue until death or relocation.

 

Cost

FHA loans are costly. In addition to paying an up-front mortgage insurance premium at closing, the borrower accrues a monthly mortgage insurance fee.

 

Foreclosure

A reverse mortgage has some of the same conditions as a purchase loan. The borrower must keep the home in good repair, pay property taxes, and maintain homeowner’s hazard insurance. The last of these may be one of the more common reasons for foreclosing. When the homeowners previously paid off their mortgage, they might have chosen not to continue the hazard insurance. Policies can be costly, and the borrowers might be tempted to stop making the payments when they have a reverse mortgage.

 

Loan Pay Off

When a borrower decides to sell a home with a reverse mortgage, the proceeds of the sale will pay off the loan balance. If market value is less than the balance, the borrowers may be able to negotiate a short sale.

 

When the last borrower dies, the heirs have a few choices. They can sell the house, and the proceeds will pay off the loan. If the proceeds are insufficient, they will never be required to pay more than what is gained from an arms-length sale. They can sign the deed over to the lender and walk away, or they can allow the lender to foreclose without a deed-in-lieu. Reverse mortgages are non-recourse loans; the heirs or borrowers are not responsible for paying the difference between the loan balance and a lender’s sale proceeds. The FHA reimburses lenders for any losses they incur on FHA loans. If the heirs want to live in the home, they can purchase the property at the amount of the loan balance or 95% of the appraisal value, whichever is lower.

 

If the borrower is absent from the home for mental or health reasons for more than a year, the lender can call the loan due.

 

 A reverse mortgage can be a gift for some senior citizens, but interested parties should read all they can about it before listening to a lender’s sales pitch.

 

 

 

 

Posted in Everyone
March 19, 2022

Exchange Home Equity for Cash

Equity in a home is the difference between the current value of the property minus the mortgage loan balance. This calculation can be a significant amount of money in a rising real estate market. Likewise, you'll have a lower loan balance if you've owned your home for a lengthy time. This debt reduction will also increase your equity as long as home values have increased.

 

So how can you use this increasing home equity to your advantage? There are two ways: a home equity line of credit or cash-back refinancing.

 

Home Equity Line of Credit (HELOC)

  • Equity of at least 15% and can get a line of credit for 85% of that
  •  Home is the collateral for the loan, and the lender can foreclose if unpaid
  • Homeowners don't have some of the protections that purchase mortgage loans offer. The lender can call the loan due-in-full at any time. This happened during the recession that started in 2008 at the same time that credit card lenders were reducing existing credit limits. Dire situation for many people.
  •  HELOC money is tax-free if used for home improvements, repairs, or remodeling.

Cash-Back Refinancing

A refinance is a loan that pays off the existing mortgage balance, originates a new loan, and returns cash to the homeowner. The amount of cash depends on a new appraisal's estimate of value and the loan balance on the current loan.

  •  Based on a new appraisal, many lenders require the homeowner to maintain a minimum of 20% equity in the property.
  •  Cash available: new home value x 80% - loan balance = cash-out amount. For example, a new appraisal is $300,000 and the loan balance is $150,000. Plug in the numbers:

 

$300,000 x .8 = $240,000

$240,000 – $150,000 = $90,000 cash-out

 

  • The cash back is 100% tax free and can be used for any purpose.

 

 

Posted in Everyone
March 6, 2022

Fort Lauderdale Beach

Fort Lauderdale beach is a 7 mile stretch of soft sand with 20 lifeguard stands staffed with men and women dedicated to keeping the visitors safe. Ft. Lauderdale is just one section of the area's 23 miles of endless beaches, all with their own special charms.

 

Fort Lauderdale is known for its wide variety of restaurants and hotels located across the street from the beach. In addition, there's a lovely, shaded picnic area on the south end of the beach that many people may not even know exists. This area has a very large public parking lot with affordable rates and a busy marina situated across the street on the Intracoastal Waterway. From here, visitors can book a fishing charter, parasailing adventure, or a trip on the Jungle Queen boat for a tour of the waterway and a close-up look at the mansions and yachts.

 

Please go to https://youtu.be/8G7Fgil4O1k to view the video.

 

Posted in Everyone
Feb. 6, 2022

South Florida’s 40-Year Recertification Program

 South Florida’s Building Safety Program is in effect for Miami-Dade and Broward counties. It generally applies to all buildings greater than 3,500 square feet (2,000 square feet in Miami.) One-or-two unit residential homes are exempt. The program requires properties to be thoroughly inspected for structural, mechanical and electrical defects once they reach their 40-year anniversary and every 10 years after that.

The appropriate Code Compliance office sends a notification letter to the property owner that a deadline for the inspection is approaching. The owner has 90 days to complete the inspection and 60 days to complete repairs. Architects or engineers must be involved, and there are recertification companies that specialize in recertifications.

As good as this sounds, the June 2021 collapse of a Surfside condominium tower sent shock waves through the country. Preliminary investigations have determined that some townships may not follow up once the Notice of Required Inspections is sent to the property owner. There are reports that some HOAs never submit the completed inspection report back to the compliance office. Other reports have found that required maintenance affecting the stability and safety of  buildings have been indefinitely delayed either due to a lack of reserve funds and/or the residents' unwillingness to pay a special assessment fee. It has been suggested that this was the case in Surfside.

My previous blog reports on the tightening of loan funding in response to the Surfside condominium collapse and the fear that bad practices may be prevalent throughout the country.

Posted in Everyone
Feb. 6, 2022

Stricter Funding Guidelines for Condos and Co-Ops

On June 24, 2021, the Champlain South Tower condominium complex in Surfside Florida partially collapsed without any preliminary rumbles. Although there were no new red flags that day, the complex had a history of delayed maintenance repairs. A decision that the surviving residents will always regret.

More problems appear as buildings age. Broward and Miami-Dade counties address this by requiring a 40-year and 50-year recertification of the structural, mechanical and electrical systems in a building. Unfortunately, the contractors currently deliver the report to the property management company and not the city. After the Surfside, collapse investigators found communities that never submitted the findings to the city because the assessed repair costs were so high.

In response to the devastating tragedy in Surfside and the likelihood that delayed maintenance is common throughout the condo and co-op world, it is expected that the Florida legislature will issue new rules regarding mandatory disclosures of reserve funds and inspection results throughout the state. Meanwhile, Fannie and Freddie are determined to reduce their lending risk.

Fannie Mae announced its new guidelines in October 2021, effective in January 2022. In summary, lenders will need to document the financial and structural soundness of any residential building with more than five attached units. It is clear that they will not purchase any loans in the secondary mortgage market from condos or co-ops located in complexes with deferred maintenance issues. The burden of proof lies with the lender, and I expect that this will significantly lengthen the time it takes to obtain a mortgage loan approval.

Recommended best practices for lenders include the following:

·        Lenders should review the past six months of HOA meeting minutes and further investigate any mention of repairs, improvements, low reserves, negative cash flows, etc.

·        Lenders should obtain a copy of any inspection or engineering report completed within the past five years.

·        Lenders must ensure that appraisers document any special assessments and outstanding repairs that threaten the security and safety of the complex. (This will most like increase an appraiser’s turn-around time.)

Red flags may prevent unit owners from refinancing their mortgage loans or obtaining an equity line of credit. It may also force them to sell their unit for cash which may lower the offer price.

Posted in Everyone
Jan. 29, 2022

Condo vs Co-Op

Most Floridians are familiar with the pros and cons of owning a condo. On the plus side, you may have a heightened sense of security surrounded by so many neighbors and possibly security cameras and guards in the lobby and patrolling the grounds. Well-maintained communities with money in reserve are also easy to finance with a conventional loan. Owners receive a deed to their unit. Disadvantages to living in a condo include rules and regulations that may be an inconvenience to a property owner. These can include: no parking for trucks, no pets, no leasing, and any other restriction that’s voted in that’s not discriminatory. Maintenance fees can be high, especially near the ocean, since the salty air causes damage to elevators and anything else with metal. Condos are prevalent throughout Broward County.

While New Yorkers may be familiar with co-ops, most Floridians are not. To the best of my knowledge, all of the co-ops in Broward County are east of I-95, and most of them are on or near the Intracoastal Waterway. The majority of the buildings were built in the 1950s and 1960s. The disadvantages include everything on the condo list. The primary advantage to buying a co-op in Broward County is the price. Most sell at a discount because the majority of the properties have to be cash deals. The owners receive a proprietary lease which gives them the right to live in the unit, but they don’t own it. The co-op is essentially a non-profit corporation, and all the lessees own shares in this corporation. The board of directors can evict someone from “their” unit. Many of these units tend to change hands among family members without ever being listed in the MLS.

Here in Broward County, trying to close on the sale of one of these units can be an onerous task for the title company or attorney managing the closing process. Corporate docs may never have been legally recorded, no one on the board of directors can provide a copy of the rules and regulations, or the board of directors are all snowbirds and will only allow closings during the winter months when they are physically present on the site.

So, if you’re a bored real estate agent and want a new challenge, try your hand at selling co-ops. It’s just oodles of fun.

Posted in Everyone
Jan. 23, 2022

Emergency Florida Rental Assistance

Our Florida (Opportunities for Utilities and Rental Assistance) is a federally funded relief program for Florida landlords and tenants. Eligible applicants can receive assistance for rent payments and utility bills.

Landlords

Landlords can apply to receive past due rent and three months future rent. The total can’t exceed fifteen months of payments. Documentation includes:

    • Identification

    • Proof of ownership

    • Notice of late rent, eviction notice or court eviction filing

Tenants

The application process for renters is much more complicated. In order to be approved, tenants must provide the following documentation:

  • Suffer financial hardship. At least one adult member of the household must be eligible for unemployment benefits, had their income reduced because of Covid-19, had increased expenses because of Covid-19 or had other financial hardships because of Covid-19.

  • Copy of a lease or proof of past rental payments if there is no lease.

  • Proof or attestation of rental arrears. Tenant can provide late rent or eviction notices from landlord or court. Landlord can also attest that tenant has missed payments. If landlord doesn’t cooperate, tenant can attest that they’ve missed payments.

Utilities

Tenants can apply for utility assistance without applying for rental assistance. They’ll need to provide utility bills or proof of payment. There is no assistance for cable, telephone or internet bills.

 

For more information, go to: https://ourflorida.com

Posted in Everyone
Jan. 15, 2022

How to Find and Buy Fixer Uppers

Everybody’s looking for a good deal when it comes to buying real estate, and a home that needs repairs might be right for you. Whether you’re looking to flip it or live in it a while, the steps are the same. Find a home and then buy it.

How do you find a suitable home that needs repairs? Well, your friendly real estate agent can help with that. In our South Florida MLS, there are two “Special Information” fields that can be selected: Handyman Special and Potential Tear Down. A recent search yielded 25 properties in Broward County that matched these criteria. Prices ranged from $53,000 - $1,000,000.

Most of these listings will say cash-only, but there may be another option. There is an FHA 203(k) rehabilitation mortgage loan that allows a buyer to include the cost of repairs in the loan. These repairs can be minor or major. They can even include a teardown as long as the foundation remains in place. You can read more about these loans in a previous blog at FHA 203(k) Mortgage Rehab Loan (veritasrealestategroup.com).

If you’re interested, contact me, and I’ll set up a search for you.

Posted in Buyers