To sell or not to sell? 🤔

Today’s top stories…

• Selling your house now? 11 crucial factors to consider

• How to make the most of the IRS’s soft spot for real estate investors

• "Forever renters" are on the rise, even among high-earners

• 🔥 Deal of the Day + Pool 🏊: 5 bd | 4 ba | Murrieta, CA

Today’s mortgage rate (30 Yr. Fixed): 7.02%

Sell or Stay Put? 11 Crucial Considerations for Today's Market (According to Experts)

Sellers, take advantage of the current market conditions. Low inventory and slightly lower interest rates have increased buyer demand, making it an ideal time to sell, especially if you're downsizing. However, if you're not in a rush, consider waiting until summer to list your home, as a potential decrease in interest rates could lead to higher net profits.

High interest rates mean less competition for buyers. You can secure your dream home with protective measures like appraisals and inspections, and refinance later if rates go down. Just make sure you've found the right home before making a move, as limited inventory means fewer options with desired features.

Boost your home's value with smart improvements such as fresh neutral paint, upgraded flooring, and enhanced curb appeal. Kitchen and bathroom renovations or even smaller upgrades like replacing appliances can also increase your home's worth. Work with a local real estate agent to ensure you don't overspend on improvements.

When budgeting for a new home, consider not only the monthly mortgage payment but also the down payment, closing costs, moving expenses, and ongoing maintenance costs. Aim to keep your overall debt at 43% or less of your gross income. Personally, I wouldn’t go over 30%.

If you need to build funds for your next down payment, consider renting out your current home and moving into lower-cost housing temporarily. This strategy works best if you have a low interest rate on your current mortgage.

For those with lower credit scores, finding a co-signer with better credit can help secure a more favorable interest rate. Additionally, ensure you have at least 10-15% equity in your current home to cover the loan payoff and closing costs before selling.

Above all, be patient. Whether you're working on improving your credit score or waiting for a less competitive market, giving yourself enough time can make a significant difference in your home buying or selling experience.

How the IRS Treats You as a Real Estate Investor

Let's talk about how the IRS treats you and your investments. While tax liabilities vary from person to person, the tax code is designed to incentivize certain behaviors, such as running a business and investing in real estate.

The Tax Reform Act of 1986 established that losses from rental real estate are considered passive unless the taxpayer "materially participates." Material participation means doing the majority of the work for your business, allowing you to deduct losses from other income. To qualify, you must meet one of the seven IRS tests, such as participating in the activity for more than 500 hours or being the primary participant. This is nearly impossible to do if you have another job and the IRS knows that.

Deductions are legitimate business expenses, like repairs or new carpets. Capital improvements, such as a new roof, are treated differently and must be depreciated over their lifespan. For example, a $14,000 roof with a 27.5-year lifespan can be expensed at $509.09 per year for 27.5 years.

Active participation is a less rigorous standard, requiring only bona fide management decisions. The limit on loss deductions is $25,000 if married filing jointly, with a phaseout starting at $100,000.

Real Estate Professional Status (REPS) and the short-term rental loophole are other ways to pay less in taxes. REPS requires 750 hours of participation, while the short-term rental loophole only requires 100 hours. Your best bet is filing jointly. One example is a couple where one person is a real estate agent and the other is a software engineer. Use the RE agent’s REPS to reduce the engineer’s W2 income. (always consult a tax pro)

Remember, while tax advantages are appealing, don't let them dictate your investment strategy. Focus on making sound investments that align with your goals and risk tolerance.

"Forever Renters": This Real Estate Developer Says There's "No Such Thing" as a Starter Home in Big US Cities

Real estate developer Jordan Pestronk has noticed a growing trend in major U.S. cities: high-earning Americans, even those making over $150,000 per year, are opting to rent instead of buy homes. Pestronk's company caters to these "forever renters" by offering spacious, well-appointed apartments with monthly rents ranging from $4,000 to $8,000.

These luxury rentals are designed for older, more sophisticated tenants who desire adult aesthetic styles and child-friendly amenities such as splash pads, indoor playrooms, and outdoor playgrounds. Many families with small children are choosing to live in these apartments, finding the cost favorable compared to homeownership.

Despite the appeal of these high-end rentals, housing affordability remains a significant issue in the U.S. According to the Joint Center for Housing Studies of Harvard University, an annual income of approximately $117,000 is needed to afford a median-priced home, while the median household income in 2022 was only $74,580.

The rental market also presents challenges, with 50% of American renters considered cost-burdened, spending more than 30% of their income on rent and utilities. This figure represents a 3.2 percentage point increase from 2019.

The housing crisis has contributed to a record high in homelessness, with 653,100 people experiencing homelessness as of January 2023. The number of unsheltered homeless individuals has also reached a new record, surging by 48% from 2015 to 2023 to 256,610 people.

As the housing market continues to evolve, it is evident that affordability remains a pressing concern for many Americans, whether they choose to rent or buy.

🔥 Deal of the Day! 🔥

Price: $969,900

Address: 39776 Baird Ct, Murrieta, CA 92563

This meticulously renovated and spacious home offers a blend of luxury, practicality, and entertainment options, making it an exceptional vacation rental choice; its no-HOA, family-friendly location, versatile living spaces, and backyard oasis with a pool and new spa cater to both relaxation and enjoyment, complemented by solar savings and smart home features, all set in the desirable Temecula Valley Unified School District.

Airdna data:

Estimated monthly payment: $6,144/month (if financed)

Estimated monthly revenue: $7,400/month

Cashflow excludes additional operating expenses. Always confirm local regulations, HOAs and permits before purchasing a property.

See you tomorrow!

✍️ Brett