Category: Real Estate

We love this time of year! The flowers are blooming, the sun feels great, and the horses love love love to get out on the trails. Real estate in our area is booming due to the recreational opportunities throughout the year – hiking, biking, fishing, and tube floating in the summer, skiing, snowboarding, snowshoeing, and snowmobiling in the winter. Fortunately/unfortunately, Kittitas County’s secret is out and demand for Cle Elum’s homes have been flying off the market due to our access to recreation and the amazing sunny days.

Continue reading “Horsing Around in Cle Elum? You better believe it!”

Many real estate markets across the United States are currently experiencing low inventory. Several factors contribute to low inventory in markets, but the largest driving factor right now are low-interest rates — buyers want to take advantage of these rates before they rise and are eager to enter the housing market.

However, many homeowners already have low-interest rates on their homes and may not be keen on selling and moving. Navigating a market with limited inventory can be an extra challenge, but it can be done successfully when following this advice:

1- Be Financially Secure

Take the appropriate steps to have your financing secured before you go to look at houses. Get a mortgage pre-approval and have all the necessary documentation ready to send into your lender. Do not enter the housing market until you are fully financially prepared with a solid down payment and a reputable loan. This will help you stand out to sellers when you make an offer on a house. 

2- Be Realistic About What You Can Afford

Most homebuyers do not buy the perfect house. The truth is the average home buyer does not have an unlimited budget and therefore must make compromises on their home purchase. Keep an open mind while looking at houses and understand that the goal is to find a home that meets all of your needs and most of your wants. Be open to making changes to a home to create the exact home you are looking for. 

3- Avoid Looking at Houses at the Very Top of Your Budget.

In low inventory markets, houses tend to sell over asking price due to competition amongst buyers. Therefore, it is wise to stay away from homes that are at the absolute top of your price range. If you are approved for $350,000 it is wise to look at home $340,000 or less which will allow you to bid a little higher on a house. Also, you won’t fall in love with a house that ultimately, you won’t be able to buy. 

4- Put Your Best Offer Forward

In low inventory markets, it is critical that you put your best offer forward. Most likely, you will be competing against other offers, therefore, there typically isn’t a lot of negotiating that goes on. 

5- Be Ready To Move

Real estate markets with low inventory turn over quickly. Most buyers and sellers have contingencies on other contracts that restrict the amount of time before they can close. The average contract length is shorter and requires you as a buyer, to be ready to move quickly. Start packing and researching your moving options while you are looking for options, so the moving process is as seamless as possible once you’re under contract. 

Purchasing the home you want is possible even in a market with limited inventory. Be prepared and manage your expectations throughout the process and ultimately you will find a home that you love. 

According to Benjamin Franklin, there are two things certain in life: death and taxes. The good news is that there are many tax benefits associated with homeownership. The below tax benefits may be utilized by homeowners, but you should ask your accountant how these may be applied to your situation. 

Home Owner Tax Deductions

Each year homeowners are allowed to deduct the interest payments made on their mortgage loan from their federal taxable income as well as the amount paid in property taxes. Under the new Tax Reform and Jobs Act, there is no longer an income elimination for mortgage interest deductions. However, there is a cap of $10,000 on the amount of property taxes that can be deducted from federal taxable income. 

Another possible deduction is your mortgage insurance premium. This also can be deducted from your taxable income if your adjusted gross income is less than $109,000 married filing joint, or $54,500 filing separately. 

Taxes and Selling Your Home

Purchasing real estate is often called one of the best financial investments because the equity you gain on a personal residence is tax-free…with restrictions. Homeowners do not need to pay tax on income received from a home sale as long as they’ve lived in the home for the past 2 years, or have resided in the home for 2 out of the last 5 years and if they have made less in profit than $250,000 if filing single, $500,000 if filing jointly. If sellers meet these requirements, it means they do not have to pay taxes on the profits from selling their house, although there is additional math involved to verify if anything is owed. 

Tax Deductions While Buying a Home

Many new homebuyers question whether or not they can itemize closing costs on their tax return. Most closing costs are not tax-deductible. Pre-paid interest and discount points are the only two that can be deducted. The pre-paid mortgage interest can be deducted all at once, but under the new Tax Reform and Jobs Act, discount points must be prorated over the term of the loan. 

Home Repairs and Renovations

The expenses from home renovations and repairs are not tax-deductible. You may be able to deduct these expenses from your business income if you operate a business out of your home and hang onto those receipts as expenses for improvements may be deducted when determining capital gains. Additionally, the interest paid on a home equity loan can be deducted on your tax return, but only if the proceeds from the loan were used for repairs and renovations on the home. 

Homeowner Expenses That Are Not Tax Deductible:

• Closing costs such as Appraisal Fees, Title Insurance, and Credit Report Fees.
• Down Payments or Earnest Money Deposits
• Homeowners Insurance
• Homeowner Association Fees
• Transfer Taxes
• Utility Costs

Speak with your tax professional about which deductions you are eligible for and whether or not it is in your best interest to itemize the various homeowner costs on your tax return this year.

If you are considering purchasing an income-producing property, whether to be used as a short-term or long-term rental, it’s important to keep in mind that the rent (potential income) received is usually the most-attractive part of ownership — along with anticipated appreciation. However, your expenses will typically take a huge bite out of that income, so the potential gross income is not as important to your bottom line as the potential net income. 

Below are some of the general expenses that accompany owning both short-term and long-term property rentals. These lists will provide you with a framework to discover everything you can about a property’s historic expenses before purchasing, so you can make sure the real income and expenses fall in line with your expectations: 

Remember, real vacancy rates will also take a bite out of income! 

Something else we haven’t accounted for here are the tax benefits of owing an income-producing property. Although you will want to form a tax strategy with your accountant, make sure he or she fully understands how to use the tax code to your best interest. 

One other thing to keep in mind as you calculate potential income and expenses is that time is usually on the side of the investor. The amount received in rent usually increases per year, while expenses may not increase as rapidly, and if any mortgage is at a fixed rate, that amount won’t increase at all.

It is important to get the full financial big picture on a property before moving forward. If you are just beginning to think about an investment property, let’s discuss! There are plenty of available opportunities here in the Cle Elum area.