Helpful Buyer Info

Will you need multi-generational housing in the near future?

Will you need multi-generational housing in the near future?

Back in the good-old days it wasn’t uncommon to have what was called “doubled-up households,” that is, homes that had at least one extra adult who was not enrolled in school and wasn’t a spouse or partner living in the home. Often it was a relative from the “old country” renting out a room, or providing house cleaning or baby sitting in lieu of rent. Many times it was an aged parent who shared in raising the kids and cooking meals.

It made a lot of sense then and according to the latest Census results, it’s making a lot of sense now.

According to the Census, in the years from 2000 to 2009, multi-generational households have increased by about a third. A couple of current scenarios are that adult children move home in a tough job market and elderly parents living long enough to be unable to care for themselves and having to move in with their children.

So how does that relate to real estate? It’s my opinion that this is a real force in the curent and near future housing markets,  and that homes that can be adapted for multi-generational living will appeal to a growing market and be particularly desirable properties.

If you’re renovating or building new you might want to include these three things:

Privacy but proximity – In design terms, this is called diversity with unity. You might want to include a separate entrance, a first-floor bedroom with wet bar/kitchenette, and a combination sitting room/dinng area. In the rest of the house a large, open kitchen/breakfast room/family room is the ideal layout for shared family times.

Flex spaces – If you’ve ever had an old-fashioned Swiss Army knife, you’ll know that well-designed tools/spaces can serve multiple purposes with a minimal effort to change them. Flex spaces are just that, they are spaces that can be easily transformed to function for different purposes and ages over time. If you’re renovating your living room/sunroom, while you’re at it you might want to consider how to transition them over time into a home office, then a space for an adult child who moves home for a while, then an in-law suite, then back to an entertainment area.

Design for the physically-challenged – When I was in design school many moons ago, the hot idea was to create environments that are usable by all people. It was called “Universal Design”.  A few easy things to include when renovating/building that will make it much easier for anyone to get around are:  Hallways that are wide enough to accommodate a wheel chair (usually 4′ will do it) with 36″ wide doors;  thresholds that are level with the surrounding base plane surfaces (called “zero-entry”); a full bath on the first floor that has a stand-up shower (no tub to climb over to get in), a 5′ square open space in the middle (the turning radius of a wheel chair), and no base cabinet under the sink; and light switches mounted a little lower on the wall (people tend to get shorter as they get older).

Multi-generational living usually requires more space, which is very good news for homeowners with bigger houses to sell. It also requires people to move out of their smaller houses into bigger ones, which is good news for first time buyers looking to get their hands on a starter home. So all in all, I think it’s a really great thing for real estate.

1031 Exchanges Can Save You Taxes

1031 Exchanges Can Save You Taxes

What is a 1031 exchange?

Under section 1031 of the Internal Revenue Code, a real property owner can sell his property and then reinvest the proceeds in ownership of like-kind property and defer the capital gains taxes. To qualify as a like-kind exchange, property exchanges must be done in accordance with the rules set forth in the tax code and in the treasury regulations. The 1031 exchange can offer significant tax advantages to real estate buyers. Often overlooked, a 1031 exchange is considered one of the best-kept secrets in the Internal Revenue Code.

Who should consider a 1031 exchange?

If you have real property that will net you a gain upon sale (generally property that has been substantially depreciated for tax purposes and/or has appreciated in fair market value), then you are exactly the person who should consider a 1031 exchange.

There are 5 tax classes of property:

1) Property used in taxpayers trade or business.

2) Property held primarily for sale to customers.

3) Property which is used as your principal residence.

4) Property held for investment.

5) Property used as a vacation home.

Section 1031 applies to the first and fourth categories, and potentially the fifth category. Business use is defined as, “To hold property for productive use in trade or business.” Property retired from previous productive use in business can be qualifying property. Investment purpose defined as real estate, even if unproductive, held by a non-dealer for future use or increment in value is held for investment and not primarily for sale. Investment is the passive holding of property, for more than a temporary period, with the expectation that it will appreciate. Property held for sale in the immediate future is not held for investment.

What are the 1031 exchange rules?

The real property you sell and the real property you buy must both be held for productive use in a trade or business or for investment purposes and must be like-kind.

The proceeds from the sale must go through the hands of a qualified intermediary and not through your hands or the hands of one of your agents or else all the proceeds will become taxable.

All the cash proceeds from the original sale must be reinvested in the replacement property – any cash proceeds that you retain will be taxable.

The replacement property must be subject to an equal level or greater level of debt than the relinquished property or the buyer will either have to pay taxes on the amount of the decrease or have to put in additional cash funds to offset the lower level of debt in the replacement property.

Is There a 1031 Timeline I Have to Follow?

Yes, there are two “Periods” you have to follow exactly.

The Identification Period … Within 45 days of selling the relinquished property you must identify suitable replacement properties. This 45 day rule is very strict and is not extended should the 45th day fall on a Saturday, Sunday, or legal holiday.

The Exchange Period … The replacement property must be received by the taxpayer within the “exchange period,” which ends within the earlier of . . . 180 days after the date on which the taxpayer transfers the property relinquished, or . . . the due date for the taxpayer tax return for the taxable year in which the transfer of the relinquished property occurs. This 180-day rule is very strict and is not extended if the 180th day should happen to fall on a Saturday, Sunday or legal holiday.

Can you buy/sell a house with a failed septic system?

Can you buy/sell a house with a failed septic system?

Although they are very common in Metrowest, not all homes have septic systems. A system that no longer functions as designed is considered “failed” and while they are always problematic,  they can be incorporated into a real estate sale and get you to the closing table in one of three ways.

First, you can undertake the work and complete it prior to closing, with a full sign-off from the Board of Health in the form of a Title 5 Certificate of Compliance. This is often the preferable course for all parties and a lender, if any, and this option will get you the highest selling price for your home. You will need a design and this takes time for testing holes and design approvals so plan accordingly. If you’re short of funds, some septic installers will begin and complete the work slightly before the closing date and get paid out of the seller funds at the closing. This would require you to agree to release the funds directly to the installer at the closing.

Alternately, Title 5 does not require that a system be in passing condition prior to the sale, but most lenders will not issue a mortgage until the failing system is upgraded or funds to perform the upgrade are escrowed.

So you and the Buyers can agree to put an appropriate amount of money in escrow guaranteeing that the system will be installed after the closing. The usual formula for calculating this amount is taking the median of three bids plus a 50% contingency reserve. Most installers are able to give solid estimates based on a design, but they will charge more it they hit ledge, or other unforeseen conditions, so the contingency is there just in case. Again, this would require you to agree to release the funds from the closing to the escrow account. The escrow funds are usually held by the bank’s conveying attorney who will pay the bill for the septic when it’s completed, and then return any extra money to you. Many lenders don’t allow septic hold-backs at all, so this option, while an excellent solution if you’re tight for funds, might limit your pool of buyers and thus extend your time on market, but it won’t affect the price you’ll get for the home. Here’s an example of how this might work: A home is on the market for $300K with a failed Title 5. A buyer agrees to purchase the property, and they both agree to put the septic repair money in escrow. The median estimate is $30,000 for the system. The buyer, at the closing, pays the seller 300K, and the seller then pays of his mortgage (100K, for example) and then takes 150% of the 30K ($45,000) and puts that in escrow with the closing attorney. The seller leaves the closing table with $155,000. The buyer then has the new system put in place, and it only costs $30,000. The buyer sends the bill to the closing attorney, who pays the installer, and refunds the difference ($15,000) to the seller. There are variations on how this unfolds, but this would be a typical scenario.

A third option would be to get the buyer to pay for the septic system, although this is less likely to occur. A buyer who agrees to assume the cost of replacing the septic system will factor the cost of replacement plus a contingency factor into his bid price for the property. If it costs less than he planned, he pockets the difference. This would most likely have to be a buyer who can pay cash for your home. Most municipalities will allow him up to a year to fix the septic system and update the Title 5. But if the septic system isn’t working, the Board of Health can require that nobody will be living there. Not many people can buy properties with cash, so counting on this option will severely restrict your buyer pool, exponentially lengthen your market time, and ultimately get you less money for your home. So, in summary, bottom line … marketing your home with a failed septic system will affect the property’s value and restrict the pool of buyers, but it has been done many times successfully and with the right agent (shameless plug for “me”) you can do it too.

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