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How New York City's New Rent Laws Could Impact You

You may have heard chatter over Rent Laws in New York City over the recent weeks, and wondering what is it all about? City Council recently met to conduct their annual meeting in Lower Manhattan to discuss this years rent guidelines. With over 65% of New York’s 8 million people being renters, these regulations will likely impact you or somebody you know. With mixed opinions on the board's decisions, let's dive into precisely what the board decided. 

Rent Regulation

One of the most significant disagreements to be resolved in this years meeting was the issue of rent regulation. Previously if a tenant were to live in a rent regulated apartment and their income was to surpass a certain amount, the apartment would become deregulated.

Now, if you live in a regulated apartment, your apartment will continue to remain regulated despite your financial situation. Additionally, the laws called for more apartments to be part of the rent-regulated system. Additionally, and notably landlords now only have the power to add up to $89 to an apartments rent in between tenants after a renovation, previously landlords had the ability to add up to $1000.


For Renters

For regular renters, this meeting was a harbinger of good as well. It was a common occurrence for troublesome tenants to be put on a “blacklist” by their landlord; this is now considered a misdemeanor. Additionally, more restrictions have been placed on evictions, giving the tenants more time to leave their apartment if evicted and creating a fine between $1,000 and $10,000 for illegal evictions on the part of the landlord. 

Other ways the new laws impact Renters include:

  • Security Deposits must be returned to the Tenant within 14 days of vacating the unit

  • At least 30 days’ must be given to Tenants if the Landlord intends to raise the rent by more than 5%

  • Tenants have 30 days to fix lease violations, up from 10

  • Application fees are limited to $20, even when a background check is included


However, the news was not so good if you are a renter of a rent-stabilized apartment with the board voting 5-4 to raise rents for the 3rd consecutive year. The increase will go into effect on renewal leases started on or after October 1st, 2019, and September 30, 2020. The increase will come at a 1.5% increase for one-year leases and 2.5% for two-year leases. While this is still an increase, it is rather small compared to the 14% increase that New York had seen in the ’80s.


The new regulations affect a wide variety of renters and landlords in positive and negative ways. Feedback from Landlords is that these laws are disincentivizing them to upkeep existing apartments given there may be a cap on how much they can increase rent after a renovation. However, tenant advocates see the laws in a positive light, saying that some of them were desperately called for. 


NYC Real Estate Tax Changes: What You Need to Know

We recently provided updates on the proposed Pied-a-terre tax that had the possibility of being passed in New York City. With the recent passing of the State budget, there has been changes to Real Estate Taxes in New York. Below is everything you need to know about the real estate tax changes as a result of the New York State budget.

Overview: The Pied-a-terre tax was not implemented. Instead, there is a newly revised and implemented Progressive Mansion Tax and Progressive Transfer Tax. This will impact those in the $2-$5M purchase range the most.

The Progressive Mansion Tax:

The new law applies to all closings that take place on or after July 1, 2019 except for those contracts that were entered into prior to April 1, 2019. This is specific to NYC contracts.

The new tax now has 8 tiers that have a higher Mansion Tax rate as purchase price escalates.

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The Progressive Transfer Tax:

In addition to the Mansion Tax overhaul, effective April 1, 2019, the Transfer Tax also received an overhaul.

For Residential purchases over $3 million, the NYS Transfer Tax increases from its current rate of 0.4% to a rate of 0.65%.

Additionally, for Commercial transactions greater than $2 million, the NYS Transfer Tax will increase from its current rate of 0.4% to 0.65%.

What Does it Mean for Me?

While no tax increases on property would be ideal, the above could be make less of a blow than the Pied-a-terre tax. The pied-a-terre tax would have positioned New York City as being not investor friendly and was also an annual charge -i.e. the property owner would have incurred this tax every year for owning the pied-a-terre.

As a Buyer, it is important to understand that, while yes, costs of gone up on certain transactions, these taxes are a one-time, upfront cost. The owner does not incur the Mansion Tax and Transfer tax on an annual basis as would have been the case with the pied-a-terre tax.

As was the case with the proposed pied-a-terre tax, the State has earmarked the additional revenue (expected to be $365 million) from the Progressive Mansion and Transfer Taxes to go to the failing MTA system in New York City.

 

As always, for questions about how taxes impact you, consult your qualified tax advisor who understands your personal financial sitaution

Pied-a-Terre Tax Looms Over New York City Luxury Real Estate Market

Thought taxes in New York City couldn’t get any higher? Think again. The Pied-a-terre tax is back on the docket, and it has recently gotten some major support that pushed it further along than what it was last a topic of discussion in 2014.

Ken Griffin made headlines when he purchased a penthouse at 220 Central Park South for $238 million, making it the most expensive home in the country. He plans to use the home when he visits his New York office. This headline also caught the attention of City Council who started discussion on the Pied-a-terre tax once again.

So, what is a Pied-a-terre and the proposed tax?

A pied-a-terre is a part-time second home occupied for less than half of the year. Often times, it is an investment for the owner and may not be occupied. Given that the owner’s primary address is elsewhere, owners of a pied-a-terre in New York are not subject to state or local income tax.

The current proposal has a sliding tax surcharge and fee for homes priced $5 million and over, with higher priced homes incurring higher fees. City and State officials cited that they feel this additional tax is necessary to fund the failing mass transit system in New York City.

 Cause for Concern

Regardless of whether you think it is fair to tax the rich disproportionately or not, a proposed tax plan should be assessed in regard to economic impact before being implemented. From a real estate perspective, there is cause for concern based on the proposal of a pied-a-terre tax in New York City.

International Buyers: International Buyers have already been on the decline in recent years, and the implementation of a pied-a-terre tax would likely prevent some would-be foreign buyers from investing in New York.

 Luxury Condos and Co-Ops: We would likely expect to see some sort of downtick in the luxury segment of the market. Just because a buyer can afford a $5 million apartment, does not mean they spend frivolously and love taxes. Why would they invest in New York when they could invest in another viable city that does not impose a pied-a-terre tax?

The luxury segment of the market has already been under pressure in recent years, so another tax could additional pressure that is not needed in this sector.

 New Development: An adverse impact on the Luxury Market would likely spill over to the New Development pipeline for luxury properties. If there is a decreased demand overall for properties $5 million and up, why would Developers be incentivized to build properties that may not sell? This, of course, would then have an impact on all the employment created within the construction sector when development is booming.

High Costs to Transact: New York City is one of the most expensive places to transact on property without the additional pied-a-terre tax. Costs associated with a real estate transaction in New York City include Transfer Tax, State Transfer Tax, Mortgage Recording Tax, Mansion Tax, and Real Property Taxes. Not to mention, under the new Federal Tax Code, the deduction of SALT has been eliminated.

 Overall, if the tax were to have an adverse impact on the real estate market for properties $5 million and up, we would likely see a reduction in value at the high end of the market. This may especially may be the case for properties that are already valued/priced near the $5 million threshold as Buyers will submit bids under $5 million to avoid the tax.

Image via Getty Images

2019 Outlook: What to Expect for the New York City Real Estate Market

New York City Skline

As we enter a new year, we welcome new expectations for the housing market as we think about the year ahead. Briefly looking back at 2018, the year started off on a different note than it ended, namely rates rose to their highest levels in decades by year’s end, and the market fully transitioned to a Buyer’s Market. How do we expect 2019 to pan out?

The year ahead is likely to be a bit tougher than 2018 and remain soft overall as a result of the Fed. Prices remaining at minimum stable would be a positive, and a small rate of price appreciation would be even better. When people see their home rise in value, they feel wealthier whereas declining home values can spark a feeling of an impending recession. Thinking about 2019, we identified 4 areas of focus 1) Interest Rates, 2) Millennials, 3) Inventory, and 4) Rentals.

Interest Rates

We anticipate that interest rates will continue to rise in 2019 given the strong economic fundamentals and low unemployment rate in the US economy. Rates may begin to approach levels that finally squeeze some folks out of the market and into a smaller home than originally planned. Rising rates may also encourage some would be “Trade Ups” to stay put. Increasing rates is likely to impact first-time buyers most heavily as increased rates means less buying power. From a larger, national housing market perspective, this could also contribute to slowing sales as Buyers grapples with higher mortgage rates and recent rapid price increases over the past few years. 

Millennials

Millennials may be more at the forefront of the 2019 market than they were in 2018. This group could be a large driving force on the buy side of the market, especially for entry-level priced properties in New York City. The largest portion of Millennials will be ages 29-30 in 2019, a prime age for first-time homeownership. In a market such as New York, Millennials tend to be more affluent and savvy consumers, understanding the value in buying a property versus paying New York rent prices over the long term. Successful Millennials who have worked in industries such as Finance and Tech are likely armed with enough cash for a down payment.  Studio-1-bedroom properties priced below $2M are appealing to this group of Buyers. 

Inventory

Inventory is likely to remain elevated in NYC in 2019. New Developments continue to come to market and close, projects remain in the pipeline, and resale inventory will continue to come to market as well. This will be especially evident in the luxury sector of the market ($4M+) which has been experiencing a glut of inventory versus demand, a factor resulting in the shift to a Buyer’s Market. Average asking prices were inflated approximately 10% throughout 2018, and we expect the same to hold true throughout 2019. This means that Sellers had to take a significant reduction from Ask in order to get deals done. It is important to remember that deals get done when the price is right!

Rentals

Rent prices could likely see an uptick in 2019, attributed to the arrival of Amazon and increased demand. Amazon will bring with it a large number of high paying jobs, and thus increased demand from their employees as well as peripheral interest generated when a company such as Amazon picks a city as their home base. Google has also been discussing bringing a large number of net new jobs to NYC. Whether we see an increase in rent asking prices with concessions available or the dropping of concessions with asking prices remaining consistent resulting in a net effective increase in rent remains to be seen. We feel the latter is a probable scenario as landlords tend to drop concessions with demands increases as there is more competition for units. Additional rental inventory is something to watch in 2019 as it relates to pricing as this could be a factor that keeps a lid on rising rental prices.

What Does Amazon's New Headquarters Mean for NYC Real Estate

Amazon Long Island City

Amazon made a big announcement this week, officially stating they New York City would be one of two locations for their HQ2, naming Long Island City as the location. When headlines broke, everyone in the real estate industry began thinking – how will this impact NYC real estate, particularly Long Island City?

The arrival of Amazon will continue the development of Long Island City and should encourage the city to invest dollars into infrastructure such as the subway system which is in dire need and buses. With the arrival of the new Amazon headquarters comes and anticipated 25,000 new, high earning employees.

Prices Likely to Rise

Long Island City has had a housing development boom in recent years with the neighborhood continually becoming more residential and less industrial. We continue to expect new units to come to market in the neighborhood in the near term. Prices have been on the up, and in fact, LIC is the priciest neighborhood within Queens.

Amazon’s announcement means there will be inherent increased interest in the neighborhood which could push prices slightly higher rather quickly, especially in terms of rent demand. It is important to note that rents in LIC luxury brands somewhat mirror that of Manhattan rents, so prices may not skyrocket in the short term, however, increased demand may motivate landlords to remove concessions that are being found on many luxury rentals. There has been an absorption issue in Long Island City given the sheer amount of inventory that has come on the market in the neighborhood in recent years.  

Impact Not Confined to Long Island City 

Anticipate price impacts to be felt in other neighborhoods as well. The influx of employees may look to other neighborhoods that still allow for easy access to LIC such as Midtown East and the Upper East Side where they may find more bang for their buck.

Being priced out of the market is still a very large issue for the NYC housing market as wages cannot keep up with cost of living for many. Because of that, we expect that the largest increase in pricing may be seen in peripheral neighborhoods that are still up and coming such as Greenpoint, Brooklyn. A new influx of residents in neighborhoods such as this could push pricing higher.

 

More Players than Just Amazon

While Amazon is garnering much press and attention about the location of their second US headquarters, it is important to remember that there are other plays that can contribute to this as well. Google has stated they expect to nearly double their workforce in coming years. The arrival of Amazon could further establish New York as a tech center and attract everything from Amazon competitors to start ups. What does that mean? The influx of people as a result of high paying jobs could be greater than what will be from Amazon on its own.

Has the Second Avenue Subway Line Increased Real Estate Values?

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The Second Avenue Subway line was a long time in the making and captured the New York Metro Area’s media attention for much of 2016-2017. Prior to the opening of the Second Avenue line, the Upper East Side was mainly served by the 4/5/6 subway line on Lexington Avenue. That meant many people living to the east of Lexington Avenue and toward the river had not only a hike to the closest subway, but also it was the only subway option. For this reason, some people preferred to take their real estate search to other neighborhoods with more access to public transit.

Values have Risen

The Second Avenue line on the Upper East Side has been open for a little over a year now with January 2018 marking the 1-year anniversary. So the question begs – has the opening of the subway had a positive impact for real estate in the neighborhood?

Research published by Streeteasy shows that prices in the Yorkville area of the Upper East Side rose year over year. This increase in both rents and sales comes at a time when the Manhattan market is cooling off in some respects. Sales rose 2% in price while rent rose 4% in the 12-month period. For the latter, this increase in rent prices was second only to the Financial District was has very large access to public transit and has been experience and economic rebirth in the post 9/11 era.

Increased Interest

A noticeable increase in interest has been observed in properties on Second Avenue and East because of the subway access. Within the Upper East Side, Yorkville has seen the biggest increase interest thanks to its affordability relative to other sections of the Upper East Side as well as its proximity to the new transit line.

Resale is not the only area seeing positive impacts from the Second Avenue line. Developers also bet on the area, breaking ground on projects before the line was completed and opened. Luxury developments in the area include:

·         20 East End Avenue

·         The Kent at 200 East 95th Street

·         Citizens 360 at 360 East 89th Street

·         389 East 89th Street

Those that took the risk and bought before the subway got a discount and are now reaping the rewards! We expect that the Upper East Side will continue to have a robust market with increased interests.

Second Avenue is home to many great restaurants and bars and new additions keep opening from food to fitness. Some favorite and notable locations along Second Avenue include:

  • Quality Eats
  • A La Turka
  • Maison Kaiser
  • Two Little Red Hens
  • Ripped

The Victoria Shtainer Team’s Exclusive Upper East Side Opportunities:

408 East 79th Street, 17AB

Convertible 5 Bed | 5 Bath | $7,395,000

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1355 1st Avenue, 6th Floor

4 Bed | 4.5 Bath | $6,495,000

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Escape the Cold: The Best of Miami Real Estate

For those in the Northeast East and Midwest, winter can be quite brutal and feel seemingly longer than any other season of the year. The winter season thus far has been brutally cold in New York City, yet those looking for an escape only have a 2.5-hour plane ride to be transported to sun and sand.

Miami is often times referred to as the 6th borough of New York City given the quick and easy plane ride. Some of the hottest developments are under construction or nearing completion in South Florida. Similar to New York, some of the biggest names in architect and design are backing these new projects in Miami.

Looking at the Miami luxury market, we see some similar themes to what we have previously shared for our outlook for the Manhattan luxury market. One of those is opportunity as a result of uncertainty. There is no doubt that cranes have been dotting the South Florida skyline from Sunny Isles to Brickell. Some of these projects have foreign investment, with a large proportion in Miami being from South America, which has caused concern for some as it relates to foreign exchange rates and the ability of those invested to maintain their stake and close. We do not feel overly concerned about this, but rather look at the opportunity of a Buyer’s Market that has resulted in South Florida and the opportunity to purchase some of the best product the area has seen at the best prices.

The Victoria Shtainer Team is pleased to market 3 of the most notable new developments in the Miami area – The Ritz Carlton Residences Sunny Isles, Muse Sunny Isles, and Echo Brickell.

The Ritz Carlton Residences Sunny Isles

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The Ritz Carlton Residences is a collaboration between some of the best names in the industry including development by Chateau Group and Fortune International, Architecture by Arquitectonica, design by Michele Bönan, and lifestyle services by the renowned Ritz Carlton Hotel Company. The property is situated on 2.2 acres with 250 feet of pristine beachfront. Rising 52 stories tall, the Residences will be a new landmark along the Sunny Isles shore, positioned between Bal Harbour and the Aventura Mall. The property will be managed by the Ritz Carlton Hotel Company, offering residences an unparalleled collection of lifestyle amenities and services. 

Notable Features:

  • Each Residence has a private elevator lobby
  • Italian designed kitchens outfitted with Gaggenau appliances
  • Ceiling Heights clear 10 feet in residences and 13 feet in penthouses
  • Very extensive amenity and service list including cabanas with butler service, club level lounge and fitness center, housekeeping, yacht charter, and restaurant
  • Ocean, City, and Intercostal views
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We are pleased to market one of only a few of the crowning penthouses in the building. Penthouse 5002 is a full-floor 5 bedroom comprised of 6,085 interior square feet with 3,730 exterior square feet. 

Residence Features:

  • Ceiling height clearing 13'
  • Summer Kitchen
  • Enormous Terraces
  • Private Garden
  • Private Swimming Pool
  • Service Quarters
  • Italian designed kitchen with Gaggenau appliances including wine cooler and cappuccino maker

Muse Sunny Isles

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Muse, a monumental gem in the heart of Sunny Isles Beach, co-developed with partner S2 Development, offers the most unique living experience.  Soaring more than 650 feet high, this boutique residence will offer curated amenities and large living spaces exclusive to only 68 residents. With a focus dedicated to the highest level of luxury, comfort, and service, Muse is a boutique oasis, reflecting the grace and style of the discerning few who call it home. Muse offers residents’ unobstructed views and a variety of spacious floor plans from two to five bedrooms starting at 2,360 square feet. In addition, Muse consists of two- full floor penthouses with five bedrooms, four and a half baths, a den and a service suite totaling more than 5,800 square feet. With east and west views, these penthouses have been built for only two lucky buyers. The residences at Muse are delivered fully finished, with up to 12' ceilings with floor-to-ceiling windows, outdoor living spaces complete with summer kitchens, 2 private elevators with biometric technology, marble/wood floor throughout, and a midnight bar in master suites.

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Notable Features:

  • 12-ft ceilings with floor-to-ceiling windows
  • Outdoor living areas spanning 60 feet
  • Interior design by Antrobus + Ramirez
  • Wellness Living from renowned Deepak Chopra
  • Amenities include vanishing edge infinity pool, fitness center, resort-style poolside food and beverage service, and automated parking system

Echo Brickell

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Echo Brickell is the result of a first-time collaboration between conceptual designer Carlos Ott and the esteemed innovators at yoo Studio. With only 180 residences, Echo Brickell is the most exclusive architectural icon south of New York. Echo Brickell will further distinguish itself by offering larger floor plans than those that are typically found in the Brickell and Downtown condominium markets.  Featuring a variety of one-, two- and three-bedroom floor plans from the 9th to 42nd floor, 28 opulent penthouses will sit atop the highest floors of the sculpturesque tower. Echo Brickell’s state-of-the-art residences will redefine the standard of excellence for South Florida high-rise living. 

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 Notable Features:

  • Residences delivered fully finished with high tech security
  • Expansive terraces
  • Ceiling heights between 10-14 feet
  • Top penthouse designed by acclaimed architect Carlos Ott
  • Amenities include 4,000 square foot fitness center, spa, resort-style poolside food and beverage service, and pet walking services.

 

Interested in these properties or others in South Florida? Contact Us:

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2018 Outlook: What to Expect for the New York City Real Estate Market

2018 Housing Market Outlook

Many people have been asking what we expect for the Real Estate market in 2018. While it is a bit early to tell the impact of one of the major items at play in 2018, namely tax reform, 2018 looks to be favorable for the real estate markets largely due in part to a strong job market and strengthening economies globally. We have broken down our 2018 outlook into 4 key areas – tax reform, economic backdrop, inventory, and rentals

Tax Reform

The new tax law is likely to be the most impactful to the 2018 real estate market compared to our other key areas, and is a large element of uncertainty for the housing market. This sweeping overhaul with changes from personal to corporate taxes has provisions that are expected to impact real estate markets, especially in high tax states such as New York, New Jersey, and California.

The 2 changes to be most aware of in the bill are the capping of State and Local deductions to $10,000 and the reduction of the Mortgage Interest Deduction from $1MM to $750,000. Both of these changes could make owning a home more expensive than previously planned for some individuals and impact the amount being considered to mortgage a home.

We are only 10 days into the New Year, so the impact of changes are still unclear. Q4 2017 activity was strong, and historically Q4 momentum carries in to the beginning of the following year. We see 2 possible scenarios that could unfold as a result of the tax changes:

  • Pace of sales slows at the beginning of 2018 as buyers might pause and speak to their accountants in an effort to try to better understand their new tax picture before making a purchase. In this scenario, we see downward pressure on pricing.
  • Volume and Pace of transactions from Q4 continues into 2018 as buyers may recognize that the uncertainty that may be instilled in some regarding tax reform creates opportunity, and they seize this opportunity. Additionally, buyers are likely armed with padded investment accounts and year-end bonuses.

Regardless of scenario, the largest impact of the tax bill is likely to influence buyers in the $1M+ to $5M price range.

Economic Backdrop

Moving into 2018, there are a lot of favorable economic indicators that create a favorable backdrop for housing. It is important to remember that the real estate markets are highly correlated to both the job and stock markets. Economies around the world are expected to grow in 2018 with some foreign economies outpacing U.S. growth – could foreign buyers increase in 2018?

Here in the U.S., the Fed increased their growth outlook for 2018 in their minutes released in December. Their notes utilize language that suggests a job market that will continue to remain strong, and, perhaps, grow slightly while being accompanied by rising wages. This is a positive for the housing market. Additionally, the Fed is currently suggesting 3 rate hikes in 2018 as Yellen’s term comes to an end.

The consensus among analysts is that equity markets will continue to rise in 2018. While the magnitude of the rise may not be as large as in 2017, gains will continue to add to already large investment accounts.

Inventory

We expect high inventory in the luxury market to persist in 2018, or increase with additional new condo inventory coming to market.  Developers are continuing to reshape the New York City skyline in partnership with some of the best names in architecture. Projects like 125 Greenwich and 262 Fifth Avenue will increase luxury condo inventory. Increased inventory at the higher end of the market will continue to pressure pricing at this level.

To remain competitive with the pool of wealthy buyers, we expect developments to continue to push the bar. Central Park Tower is a great example of this as they are trying to allure global titans to call the building home for their pied-a-terres or place to park money in the US market. Over-the-top amenities will continue to be the norm in both condo and rental buildings.

Rentals

The rental market peaked in 2017 after being on a march higher for quite some years. We all saw the rental market take a turn in 2017 with rents seemingly dropping across the board. We expect concessions to remain at all-time highs throughout 2018. Landlords will need concessions to lure tenants to their units. The continued pipeline of new inventory that will come on the market should cap rental prices from overly rises in 2018. However, the continued attraction of New York – labor market, culture, etc. will serve as a floor for rental prices so we do not expect any large scale drops in 2018. 

How the GOP Tax Proposal Could Impact Real Estate

GOP Tax Bill

The GOP Tax Reform efforts are garnering headlines across the board as the potential for a new tax plan could have impacts on personal taxes, business, and of course, housing. How will the current proposal impact real estate? At a high level, the current bills would have impact on taxes and mortgages, which in turn could impact the larger market if they skew incentives of buyers, sellers, and homeowners. In both the House and Senate versions, homeownership still looks advantageous as compared to renting, and homeowners will always build equity as a result of price appreciation.

It is important to think of the plan in the context of the entire housing market, not just the Manhattan. Median prices in Manhattan are incredibly higher than the national average, so there are always unique impacts of any legislation in a city such as New York. Both plans are more beneficial for buyers at lower price points, specifically sub $300,000. With both plans, financial benefits of homeownership decrease as home price increases.

Taxes:

Under both plans, tax liabilities for homeownership will generally go up. Some propose eliminating deductions while others do not. Remember, property taxes stay with the owner for the life of the property, they do not go away like a mortgage payment once it is paid off. Both bills propose nearly doubling the standard deduction which in turn will reduce the number of people itemizing their return.

  • Senate plan proposes eliminating state and local deductions, including property taxes. The House plan will leave the ability to make deductions, but will cap state and local deductions at $10,000.
  • House Bill will result in nearly 1/5 of homebuyers experiencing a higher tax liability
  • Senate bill will result in all buyers and current owners seeing an increased tax liability

Mortgages:

The ability to deduct mortgage interest is one of the financial benefits of owning a home that, sometimes, can help in making it more efficient to own rather than rent. Currently, a homeowner can deduct interest on mortgages up to $1 million.

  • House bill will cut this deduction to $500,000 while the Senate bill leaves the deduction unchanged
  • According to CoreLogic, fewer than 3% of mortgages are over $500,000
  • it is not certain whether this would apply to new mortgages only, or also to existing ones BUT the version of the bill that the House passed would leave the deduction where it is for existing loans. Because of this, people might want to consider closing before year's end.

So how would these changes impact the market? Given the higher costs of homeownership in both bills, buyers may not purchase as expensive of homes as pricier homes generally come with higher tax liabilities which could be even higher now. On the other hand, current owners could be more incentivized to just stay put and not trade up to larger homes or move to cities where a job is as cities are generally higher taxed areas.

Overall, the largest impacts of the bills would be in high tax states such as New York, New Jersey, Connecticut, and California given the proposals to eliminate various deductions. Of course, the road to tax reform is long, and it is unsure what will be in the version of the bill that comes out in the end, if any.

 

 

What is BRRR? Everything you Need to Know

BRRR Real Estate Investing

We recently wrote about the most common questions we get surrounding real estate transactions. Along those lines, many clients ask us about investing in real estate as way to create a portfolio that generates passive income. There is one strategy that is particularly popular among real estate investors known as “Buy, Rent, Refinance, Repeat”, or BRRR. Owning a home is one of the biggest escalators to wealth and the BRRR strategy is a way to invest in real estate and increase the scope of an overall investment portfolio.

Why has this become such a popular strategy?

This strategy has become very popular, especially in the low rate environment we have seen. Lower rates translate to a lower monthly mortgage payment. Given that rents remain the same or increase year over year, a lower monthly mortgage payment means the owner if profiting more the tenant’s rent than with a mortgage with higher monthly payments.

The BRRR strategy is based on leverage, and thus not suitable for all. It is important to access your risk profile and determine your ability to take on additional debt in the form of mortgages is sustainable and wise. Because a mortgage is viewed as “good debt”, there can be tax benefits in having on. It is important to speak with a qualified tax adviser as to what you may be able to deduct in mortgage interest and how your property will be viewed by the IRS – investment or vacation properties can fall into different categories. We discuss that in more detail here.

What is this strategy based upon?

The premise of this strategy is to purchase a property (ideally at a discount to fair value to capture more equity), finance it, and find a tenant to secure cashflow on this property. Once a tenant is in place and the property is producing positive cashflow, the owner refinances the property which essentially takes the payment back out. Refinancing allows the owner to then roll these funds to facilitate the purchase of another property. The cycle continues from here.

By getting a mortgage at historically low rates, rental profits increase as your tenants' rent covers the cost of a (lower) mortgage payment, and you, as the owner, keep the difference. Income + price appreciation overtime can lead to nice profits.

What Implications Should I Be Aware Of?

It is important to understand that what works for one buyer or investor may not be ideal for you and your personal situation. It is easy to fall in the typical investment trap of “my neighbor told me that X is a good area to buy in so I bought there as well.” Arm yourself with a qualified team from a tax adviser to a real estate broker to you can ensure you are getting the best advice and insights in each area of the process.

Additionally, when it comes to financing and the products available, there are many options. Getting a mortgage product that is suitable for you is an important aspect of this strategy. Most investors hone in on a 15 or 30-year option, but explore all the products your lender of choice offers. Tradeoffs exist with both options such as speed of building equity, interest paid on life of loan, and interest rates. Your broker and knowledgeable Mortgage Broker will be able to help decide what option may be best for you and you real estate investment goals.

It is also important to recognize that there may be times where the rental market, and thus your ability to rent the property, may be challenging. Ensure that you can continue to hold the property in the face of it sitting empty until you can find a new tenant.

Interested in hearing professional stories on this strategy? Victoria was included in an insightful article published by The Real Deal where many top brokers talk about their successful real estate investment. Read the full article here: Brokers Place Their Bet .