Real Estate Finance News

Real Estate Finance News Recap: October 2020

Here’s a quick digest of what happened in real estate finance last month:

+ Mortgage rates are holding steady at historic lows. Housing continues to propel growth and is helping to lift construction, manufacturing, and transportation industries that build new homes.

 

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Real Estate Finance News Recap: September 2020

Here’s a quick digest of what happened in real estate finance last month:

+ Violating the 30/30/3 rule may find some homebuyers overextended, unless they consider a few ways to get around it.

+ The average 30-year mortgage rate hit an all-time low of 2.86 percent in September, according to data released by Freddie Mac.

 

Have questions about what’s happening in real estate in your neighborhood? Let’s chat!

Interested in the Denver real estate market? Subscribe to our weekly emails to get more information like this.

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Getting down payment help now. Sharing home’s gain (or loss) later.

Source: Tara Siegel Bernard of the New York Times

Getting down payment help now. Sharing home’s gain (or loss) later.

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.

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Real Estate Investors Will Benefit From New Tax Law

Source: Jeff Johnson and Andrew Monette of Pinnacle Real Estate Advisors

Real Estate Investors Will Benefit From New Tax Law

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.

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