Living
Should I sell or hold onto my rental property?
Doing the math reveals surprising numbers
Earlier this year, I wrote about the question of renting vs. buying a home in D.C. In this column, Iāll address the other side of that equationāleasing out vs. selling a property.
Washington is a city with many small real estate investors holding one or two properties. Imagine that youāve owned a rental town home for a while that has suffered from deferred maintenance, and that now needs an overall facelift to continue being rentable. Youāre trying to decide whether to spend $100,000 on renovations or to sell the property as-is for its market value of $600,000. What should you do?
There is no absolute right or wrong answer to this question. Your decision will be informed by a number of factors:
ā¢Ā Your current financial situationāhow much do you need the full amount right now? Are you using the property for current cash flow? Do you have all the money for renovation or will you refinance with a conventional loan to get a $100,000 cash out or will you wrap your existing loan into a 203k loan (with the renovation cost built in)?
ā¢Ā Your long-term financial situationāare you planning to use the property as part of your retirement, whether for cash flow or for a nest egg to sell?
ā¢Ā Your tax situationāDo you need the property as a tax shelter? If you sell now, will you do a 1031 exchange or will you have to pay capital gains?
ā¢ Your patienceāDo you have the energy to manage a construction project (if only as the client of the general contractor) and all the many renovation design choices you will have to make?
From a purely financial aspect, the numbers are clear that you will do better to lease and hold rather than to sell and invest (unless itās in another rental property). Letās take a look at the numbers for a 15-year comparison, based on the chart here.
First, letās consider the sales scenario, which is quite simple: Letās say you sell the town home for the current market value of $600,000. With 8 percent selling costs (6 percent for brokerage fees and 2 percent for other fees, including the city transfer tax), that would leave you with net cash at settlement of $552,000. If you invested that cash in a fund paying 5 percent, after 15 years you would have $1,166,765.
Next, the rental scenario: For the sake of simplicity, letās say you already own the town home outright and you have the ($100,000) cash needed for renovation. Doing the renovation will take three months, so that means (3 x $2000=$6000) in lost rental income, but your renovated town home will be worth $675,000, so letās assume that you can now command $2700 in monthly rent for the renovated space. With monthly expenses and property taxes costing around ($1355), your monthly net operating income (NOI) is $1345. Letās say that your monthly depreciation on your property is ($1818), which subtracted from your NOI gives ($473) in monthly taxable income. For a 35 percent tax bracket, that translates into ($166) tax savings per month.
If you invest your $1345 monthly NOI (net income after operating expenses and property taxes) at a 5 percent rate of return, in 15 years you will have $359,525. Over the same period, you will have saved $29,805 in income tax. At that point, your rental property should have appreciated in market value to $1,426,750, assuming an average 5 percent increase per year. (For Washington as a whole, average sale prices have appreciated 6.4 percent over the last six years from December 2009 to December 2015.) In order to end up with a cash-to-cash comparison, letās say you sell the town home for market value at this 15-year point. With 8 percent selling expenses, that would leave you with $1,312,610. Adding together the 15-year value of the net operating income, tax savings, and net cash from the town home saleāand then subtracting the renovation cost and lost rental income during renovationāyou would realize a net gain of $1,595,941.
In this comparison, leasing and holding yields a 36.7 percent improvement over selling and investing. But remember, your circumstances may not be the same as those assumed in these scenarios. Your best option is to consult your tax adviser, as well as a Realtor knowledgeable in investment properties.
Happy hunting!
Ted Smith is a licensed Realtor with Real Living | at Home specializing in mid-city D.C. Reach him at [email protected] and follow him onĀ Facebook, YouTube or @TedSmithSellsDC. You can also join him on monthly tours of mid-city neighborhood open houses, as well as monthly seminars geared toward first-time homebuyers. Sign up at meetup.com.
Real Estate
Yes, Virginia, there is down payment assistance
Tax abatement, homestead deductions among options to research
Letās be honest ā the average person in the Washington, D.C. area has not been living under a rock, knows how to Google whatever they are looking for, and probably has plenty of connections in their graduate program, place of employment, or at their family holiday dinner who can help them figure out how to purchase a home.
But there were lessons learned as I was working in real estate, that, otherwise, I wouldnāt have even known to ask about. In other words, āHow do you know what you donāt even know?ā
For example:
- Some lenders can help you find ways to pay off certain amounts of student loan debt before going to settlement. Depends on the jurisdiction you plan to buy in.Ā
- Some down payment assistance loans are available in almost every state. Certain cities and counties have their own versions of this assistance. Some of these programs can be stacked up. Ā
- In D.C., and in many other places, you are required to get a home inspection if you are receiving money from the government to buy a home. That way they arenāt giving you (or lending you) money to buy what Tom Hanks and Shelley Long would call a āMoney Pit.ā (If you havenāt seen that movie, do yourself a solid and watch it.)
- Did you know that certain lending institutions have what are called āDoctorās Loansā for people with higher amounts of student loan debt? Ā
- Some jurisdictions have various types of tax abatement for first-time homebuyers.Ā Ask about topics such as āTax Abatementā and āHomestead Deductions.ā This will reduce your tax bill for a property that is owner occupied, OR delay paying property taxes for a set period of time.Ā
This is by no means an exhaustive list of topics to consider. But it is meant as an idea generator. There could be some programs where you live that would help you find a way to get into homeownership, get out of paying high monthly rents, and start socking away a monthly investment. Is homeownership for everyone? Probably not. But for some people, including many of the clients Iāve worked with, it was an easy way to put a large sum of money away monthly. Eventually that money could become a nest egg for leveling up their housing, taking the money back for other purposes, or just one of the tools in their tool belt of personal wealth building.
Joseph Hudson is a referral agent with Metro Referrals. Reach him at 703-587-0597 or [email protected].
Real Estate
What LGBTQ buyers, sellers need to know about new real estate rules
Regulations are reshaping how transactions are conducted
In recent months, the real estate landscape has undergone significant changes, with new rules and regulations reshaping how transactions are conducted. These changes affect buyers and sellers across the board, but LGBTQ individuals and couples navigating the housing market should be particularly aware of how these updates might impact their decisions and opportunities. At GayRealEstate.com, weāre here to keep you informed and empowered.
1. Transparency in Agent Compensation
One of the most notable changes involves how real estate agents are compensated. New rules aim to increase transparency, requiring agents to clearly disclose their commissions and how they are paid. For LGBTQ buyers and sellers, this means youāll have a better understanding of the financial side of your transaction, making it easier to avoid hidden fees or misunderstandings.
Tip: Make sure your agent explains their compensation structure up front. Working with an LGBTQ-friendly real estate agent through GayRealEstate.com ensures youāre connected with professionals who prioritize clarity and fairness.
2. Contracts Before Home Tours
In some areas, buyers are now required to sign a representation agreement before touring homes. While this adds a layer of formality, it can also help you establish a stronger relationship with your agent and ensure theyāre working in your best interest.
What It Means for LGBTQ Buyers: Choosing an agent who understands your unique needs is critical. Signing a contract ensures that your agent is committed to helping you find a home in a community where youāll feel safe and welcome.
3. New Protections Against Discrimination
Recent policy changes reinforce anti-discrimination measures in housing, which is particularly relevant for LGBTQ individuals. While federal laws like the Fair Housing Act prohibit discrimination based on sexual orientation and gender identity, some states have gone further by implementing additional protections.
How to Navigate: Familiarize yourself with your stateās specific laws, and rely on LGBTQ-friendly agents who are committed to advocating for your rights throughout the transaction process.
4. Market Conditions: Buyers vs. Sellers
The current housing market is in flux, with inventory levels, interest rates, and demand varying widely by region. Sellers may face longer listing times, while buyers could encounter more competitive environments in desirable areas.
5. Mortgage Updates for LGBTQ Couples
Lenders are becoming more inclusive in recognizing diverse family structures, but disparities still exist. Itās essential to work with lenders who understand your unique situation and ensure fair treatment during the mortgage process.
Advice: An LGBTQ-friendly agent can connect you with lenders who are sensitive to your needs and knowledgeable about programs that support equal access to home financing.
Why These Changes Matter
The new rules emphasize fairness, transparency, and accountability ā values that align closely with the mission of GayRealEstate.com. However, navigating these changes requires expert guidance, especially for LGBTQ buyers and sellers who may face additional challenges in the market.
Take Action Today
Buying or selling a home is one of the most significant decisions youāll make, and having the right support can make all the difference. At GayRealEstate.com, we connect LGBTQ buyers and sellers with experienced, LGBTQ-friendly agents who are committed to protecting your rights and helping you achieve your goals.
Whether youāre just starting your real estate journey or ready to make your next move, weāre here to help. Visit GayRealEstate.com to find your perfect agent and get started today.
This article is brought to you by GayRealEstate.com, the nationās largest network of LGBTQ-friendly real estate agents.
Jeff Hammerberg is founding CEO of Hammerberg & Associates, Inc. Reach him at 303-378-5526.
Real Estate
Your holiday home journey
Real estate decisions often tap into our deeper desires for connection
Thanksgiving and real estate share an essential theme: the importance of home. It is traditionally a time of gratitude, togetherness, and reflection. While its hallmark symbols may include turkey dinners, family gatherings, and autumnal dƩcor, it also invites us to think deeply about our values and who and what we hold dear.
For some people, the family home connotes a place of safety, comfort, and community. For others, visiting with family over the holiday can be a contentious and stressful ordeal best avoided. Countless of my friends have severed toxic relationships that can rival an exploding, deep-fried turkey. They have opted instead for dining out or hosting a gathering of food and football with like-minded people.
During Thanksgiving, the idea of āhomeā becomes particularly poignant. It is more than just a physical structure; itās where people gather, memories are made, and traditions are passed down. For those involved in real estate ā whether as professionals or as individuals embroiled in the market ā this emotional dimension of home is a driving force.
When buying a house, itās not just about square footage or the number of bedrooms. It’s about envisioning a Thanksgiving dinner in the dining room, imagining children playing in the backyard, or hosting friends in the cozy living space. Real estate decisions often tap into our deeper desires for connection, stability, and legacy ā values closely tied to the spirit of Thanksgiving.
Thanksgiving falls in the quieter part of the real estate calendar, with spring and summer being the traditionally hot seasons for buying and selling. Yet, for those who choose to list their homes in November, the holiday offers unique opportunities. Sellers can use Thanksgivingās warm, inviting atmosphere to their advantage, staging homes with seasonal touches like autumn wreaths, a cornucopia of fruits and nuts, the sparkle of a dining room chandelier, and the scent of freshly baked pies.
A well-decorated home during this time can evoke an emotional connection with potential buyers. A cozy environment can help them imagine spending their future holidays in that very space. Additionally, homes listed during the Thanksgiving season often face less competition, as fewer properties are on the market. This can lead to more serious offers from motivated buyers.
For buyers, Thanksgiving can function as a reminder of why they are on the hunt for a new home in the first place. Perhaps they are looking for a bigger space for a growing family. They may be downsizing to retire or to simplify life. They might be looking for home to accommodate both children and aging parents simultaneously. The holiday season underscores the importance of finding a home that aligns with lifestyle needs and future goals.
In our tight real estate market, buyers still face challenges such as limited inventory and higher interest rates; however, Thanksgiving encourages a shift in perspective. Itās a time to focus on gratitude for what is within reach ā whether itās finding a starter home, securing a dream property, or taking incremental steps toward long-term, financial goals.
Interestingly, Thanksgiving weekend has become an increasingly popular time for real estate research. Families can gather around the table and begin discussing the future, including moving to a new city, upgrading their home, or purchasing an investment property. Digital tools like web searches and virtual tours can help buyers and sellers stay connected to the real estate market without disrupting their Thanksgiving traditions.
Whether you are buying or selling, Thanksgiving offers an opportunity to reflect on the role of gratitude in real estate. For buyers, itās about being thankful for the chance to find a home that meets their needs, even if the journey is challenging. For sellers, itās a moment to appreciate the memories made in a home while looking forward to new opportunities.
For real estate agents and other industry professionals, Thanksgiving is a time to express gratitude to clients and colleagues, build stronger relationships, and highlight the human aspect of a business often driven by transactions alone.
If you are staying put this Thanksgiving, you have a chance to celebrate your current home, no matter its size or condition. Simple gestures like decorating with fall colors, rearranging furniture for a cozy feel, or preparing a special meal can deepen your connection to your space. Inviting neighbors, friends, or family to share in the festivities can reinforce the sense of community that makes a house a home.
Whether itās the home you currently have, the one youāre searching for, or the one you are leaving behind, each holds a unique place in your life story. Take stock of the journey so far, recognize the progress made, and look forward to the possibilities ahead.