Source: Tara Siegel Bernard of the New York Times
Throughout the US there are countless people who would love to buy a home, but continue to pay that rent check to their landlord every month instead. Why is this?
For the average aspiring homeowner, the largest obstacle to overcome is the down payment. Several companies, including San Francisco-based Unison, have found an opportunity in this challenge: shared equity.
Shared equity allows homeowners to split their down payment with an investor in exchange for a piece of the appreciation when the home sells.
How shared equity benefits homeowners:
- Increase buying power
- Retain some of your savings and buy a home
- Avoid costly private mortgage insurance and high interest rates
The average loan to value (the percentage borrowed to purchase a home) for a first-time homeowner is 92.6%. Homebuyers who borrow more than 80% of a home’s value upfront are seen as risky by lenders. Traditionally, they overcome this with unfavorable interest rates and mortgage insurance. Shared equity allows for buyers to afford a large enough downpayment to avoid these costs.
The downside? By sharing equity with a firm like Unison, a home buyer saves upfront but ends up giving up a cut of their proceeds from sale if their home has increased in value.
Regardless of whether you are the type to give up some of your equity to allow an outside investor to alleviate some of the capital-intensiveness of home buying, shared equity is catching on. Unison invested alongside 450 homebuyers last year, and they project to invest with roughly 2,500-3,000 more people in 2018.
Check out the full article to dig deeper into the mechanics of shared equity.
Source: Jon Murray of the Denver Post
Denver City Council unanimously approved zoning code changes preventing future development of sideways facing slot homes. The change has been a long time coming for some Denver residents but it will only affect future building permit approvals. There are several projects still in the pipeline that will be grandfathered in before the new zoning takes place. The change would require new developments to orient the building toward the street connecting it to the neighborhood better. Berkley, Jefferson Park, and West Colfax have the highest concentration of slot homes in Denver. They say a picture is worth a thousand words, in this article there are great before and after satellite views showing how the neighborhood has changed.
Source: Aldo Svaldi of the Denver Post
Denver’s popularity is in question for the first time in many years. After waves of people moved to the metro area in the last decade, the spark is starting to sizzle. Why? For many, it’s becoming too expensive and too crowded. Denver lead the way as the country rebounded from the Great Recession. Young workers flocked to Denver for job opportunities and recreation heaven. As the unemployment rate in the rest of the country has dropped, Denver’s luster is starting to fade. Median home prices are becoming out of reach, leaving natives and newcomers with thoughts of ditching Denver for greener pastures.
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: