Source: Jeff Johnson and Andrew Monette of Pinnacle Real Estate Advisors
Do you invest in real estate? If so, we have great news for you! The largest tax system overhaul in 30 years will benefit most real estate investors. Let’s shed some light on a few of the less apparent changes in the new tax code:
There will be no new restrictions on 1031 exchanges.
Unfamiliar with IRC Section 1031? It allows real estate investors to postpone paying taxes on gains, so long as those profits are reinvested into bundles containing property similar to the one they profited on. Keeping this section in place favors real estate investments over other opportunities.
Several changes were made to the way equipment and other improvements are depreciated.
For residential owners, nonaffixed appliances and furniture can be fully expensed in the first year. The same is now true for property that falls under MACRS with a life of 20 years or less, computer software, water utility property, and other qualified improvements. The last depreciation change the article mentions is the increased cap for immediate expensing of tangible personal property from $500,000 to $1,000,000.
A pass-through tax deduction, or bonus depreciation has been created.
This allows for sole proprietors and investors using pass-through entities to enjoy a 20% deduction on taxable income. A pass-through entity is one that allows investors to set up an entity to relieve liability of themselves, while “passing” their revenue through that entity to themselves before paying taxes at their personal rate.
As a result of the new tax code, the authors of this article predict a shift in investment from equities to real property both in the Denver market and Across the United States.
Source: Sally Mamdooh of the Denver Channel
While browsing listing sites for a rental property to call home, Stephanie and Matthew Leschen stumbled upon a Trulia listing they thought could be the one. A man claiming to be the listing agent sent the Leschen’s a security code to the home, and they went to tour the place by themselves. Several conversations and a $3,400 later, Matthew and Stephanie found out they were the victims of a rental scam.
Unfortunately, this is not the only instance of such a scam. Watch the video below to see the rest of the Leschen’s story, and incorporate our tips for avoiding a scam into your next search for a rental home.
Tips for avoiding a rental scam
Do your research.
Trulia, like many apartment listing services, is widely used and trusted. However, this does not prevent scammers from posing as real estate agents. View the listing agency’s website and verify their legitimacy by searching for reviews and testimonials from other independent sources.
Beware of agents who ask for money before they show you an apartment or home.
An “admission” cost for a showing or open house should be an immediate red flag.
Meet with a landlord or listing agent in person.
A legitimate agency will always be willing to send an agent or manager out to a property to meet with you.
Beware of unusually high fees or security deposits.
Application fees are commonplace in a competitive market. However, if you are asked to pay a security deposit that is several times higher than one month’s rent, or to pay fees that seem unreasonably high, this is cause for concern. A legitimate agency will clearly explain any and all deposits and fees for you.
Source: Travis Hodge and Craig Kalman of JLL Multifamily Capital Markets
Every aspect of the cost of living is rising in Denver, including the costs of labor and material to build. Within the next year, we have almost $5.5 billion in projects that are set to start, including the DIA project and I-70 expansion. Because of the scarcity of subcontractors, framers, and builders, the cost of labor alone has doubled. There is good news for developers and investors though: most projects are still under today’s replacement cost. And surprisingly, a labor shortage is what could keep the market in equilibrium.
Source: Jon Murray and Aldo Svaldi of the Denver Post
When Denver launched it’s affordable housing program in the early 2000’s, the city took on the responsibility of keeping up with everything involved in the transaction and making sure program rules were being implemented. In other words, Denver officials took on a big role that required a team to manage. But the Great Recession happened and between 2009-2012, budget cuts resulted in over 30 Denver officials being let go. This left the affordable housing program with one staff member. With inadequate staffing to run Denver’s affordable housing initiatives, there has been a lack of oversight from the city. The result? Some homeowners of affordable housing may be forced to sell.
Source: Aldo Svaldi of The Denver Post
$80,000. That’s the estimated amount that potential buyers need to make if they want to buy the median priced home in Denver. And that price in Denver is now at $425k ($395K for attached homes and $455K for detached), which corresponds to a 20% down payment of $79-91K. For now, Denver’s median family income is right above $80k. Can incomes keep pace with soaring real estate prices?
Source: Ed Sealover of Denver Business Journal
We desperately need more housing to make things more affordable around here and you would think that everyone would agree. To our surprise, there is a group that is actually fighting for more restrictions on residential growth for 10 Colorado counties, including Denver. Initiative 66 is attempting to regulate new housing by limiting the number of housing permits that can be issued.
Source: Sydney Bennet of Apartment List
Denver is officially one of 20 finalists for Amazon’s second headquarters. Some news sources, like the New York Times, even believe Denver is a likely pick. HQ2 would bring an additional 50,000 high-wage workers immediately, and 66,250 additional workers over a ten year period. That’s enough people to fill Mile High Stadium 1 1/2 times.
So what will happen in our already crunched housing market? Apartment List projected the rent growth for Denver would be between 0.8% and 1.1% per year. That’s an additional $7,700-11,500 more in renters will pay over a ten year period.
Even without Amazon’s HQ2, Denver will still experience significant job and rent increases as it becomes a thriving tech hub.
Read more of Apartment List’s full analysis on the impact of the proposed headquarters here:
Source: Ben Miller of Denver Business Journal
If you’ve already felt the financial pinch as a single home buyer in Denver, there’s now a report to confirm it. When you’re ready to buy a place to call home, plan on it taking an extra three years to save for the down payment over the national average. Another reason couples have it easier? 79% of homes in Denver are considered affordable for married couples versus a mere 17% being affordable for singles. The good news? It takes less than half the time to save for a down payment in Denver as it does in San Jose.
Source: Jon Murray at The Denver Post
The Denver Green Roof Initiative passed on November 7th by 54.3% of voters, and became effective on Jan. 1st. Here’s a breakdown of what this means:
Reduce Denver’s urban heat island effect from heat radiating issues. This happens when human activity causes urban or metro areas to become significantly warmer than surrounding rural areas.
Rooftop gardens on all buildings with at least 25,000 square feet and residential buildings over 4 stories. Depending on building size, 20-60% of available roof space have to have green-roof coverage (industrial buildings only have to have 10%). –
- Cost for developers.
- Fees that will be charged for buildings that get variances.
- Watering requirements in Denver’s already dry climate.
- The major structural alterations that will be required to replace roofs on buildings that weren’t built for green roofs.
* This replacement clause is one of the biggest reasons that this initiative faces so much opposition and it makes Denver’s green-roof initiative the strictest in the nation. Toronto and San Francisco are considered “green-roof pioneers” but they do not require existing buildings to replace their roofs, only new ones.
So what’s next?
The city is implementing the initiative but changes are to be expected. In May, the city will re-evaluate what changes need to be made and as of right now, the Denver Department of Public Health & Environment is putting together a task force to review the initiative.
Source: National Association of Realtors
The Tax Cuts and Jobs Act was finalized on December 20, 2017 and went into effect after December 31, 2017. So what does this mean for you, as a current or potential homeowner? We give a breakdown on important numbers for current and potential homeowners here:
- $750k = limit on mortgage interest deduction (for mortgages issued after Dec. 15th, 2017)
- $10k = state and local deduction for income, sales, & property taxes
- $12k = standard deduction for single filers
- $24k = standard deduction for married filing jointly
- $0.00 = personal exemptions
- 2 out of 5 years = how long you have to live in a primary residence to qualify for capital gains exclusion
- 15% = max rate on capital gains (generally speaking)