OUTDOORS TAX BREAK By JEFF STEWART, CCIM, SRES

FISHING PIER ON PRIVATE RANCH LAKE

If you are like a lot of my friends who have long saved for a vacation place at the coast or on the lake, soaring property taxes may have just about put that dream place out of reach. While I do not have a solution for high property taxes, I might have a suggestion that would fit the lifestyles of a lot of my outdoorsy friends and clients. Let me introduce you to cows and bees! In Texas we are fortunate that the State of Texas loves cows, bees, song birds and deer and taxes land accordingly.  All of which can play into a legitimate strategy for Texans to enjoy and invest in their own piece of the great outdoors without being taxed to the breaking point.

Whenever I mention the benefits of agriculture (AG) valuation to clients, most are quick to inform me that they are not raising cows, hay, or bees.  Fair enough, but leasing the grazing rights for a property qualifies and requires very little effort on the owner’s end.  I have yet to do it, but I understand that having bee hives also qualifies as AG on tracts up to twenty acres or so.

Of course, the other option is to secure a wildlife exemption.  This is much more technical, but my friends who have done it found it to be educational and interesting. Hunting and livestock are both allowed.  It is my understanding that the land must have had an AG valuation for the preceding two years to be accepted into the wildlife program.

So, why consider any of this? First as an example, besides farm and ranch land, what other $650,000 real estate investment (with no residence) is only taxed $175 in property taxes?   As a comparison, I looked up a lake house that recently sold on Lake Travis.  The tax appraiser put the value at $653,000 and the taxes were a whopping $10,116 per year.  In another year or two, the taxes may be $1,000 per month . . . for a weekend lake place!

Another thought is the ability to utilize a 1031 IRS tax deferred exchange.  Have a large capital gain in a problem rental property? A 1031 exchange would allow you to sell the rental and roll the proceeds tax-free into a recreational / investment property that is suitable for hunting, fishing, or camping trips.

If you would like more details on AG or wildlife exemptions do not hesitate to call me.

nformation About Brokerage Services (IABS) 

Jeff Stewart, CCIM, SRES  Broker Associate

jstewart@stanberry.com

Stanberry Realtors

Funding Retirement & College Expense By JEFF STEWART,CCIM

It is widely reported that a large percentage of Americans are woefully prepared to afford retirement.  Likewise, we read almost daily about the rising cost of college and the growing burden of student loans.  What can we do to insure we and or our children are not tripped up by these looming problems?  Clearly the short answer is to save more in anticipation of these challenges, but all too often real life expenses get in the way.  While certainly not a fit for many people, I still think rent property is a solid solution for many families with the right skill sets.

The advantage of owning rent property is three fold. First, it is a forced savings plan.  The amortized mortgage payment, paid for by the tenants, automatically reduces the loan balance. In a sense, it is a monthly savings plan. Second, despite economic ups and downs, a well maintained property in a good area should appreciate with time. Third, rent property is an excellent way to teach your children a number of very important life skills: evaluating prospective tenants, developing financial management, and learning about common residential repairs.

So how does one begin? Ideally it would be great to take a course, but I am not aware of one right off.  I would be willing to organize a short class if several of my readers were interested.  Otherwise I would suggest that anyone wishing to explore rental management to talk to me or another long-time landlord to see if it is a fit for you.

Obviously finding the right property is the next step. I suggest that investors find rent houses that are relatively close to home.  It is important to do a drive-by on a regular basis and it is helpful to be fairly close for showings. Like any real estate investment, location is the key. I always stress to clients that they need to also give as much thought to the eventual sale of the property as they do to the initial purchase.  Sometimes a “real deal” may cash flow, but be a real loser when it is time to sell out defeating the long-term goal.

Interested? So what to look for? As mentioned, location is key for the ultimate success. I avoid streets crowded with renters’ cars and with poorly maintained yards. (Don’t be one of these landlords!) Trees are a real plus. If the property does not have them . . . plant them and arrange for the tenants to water them. They will grow quicker than one might suspect.

I prefer hip roofs instead of gable roofs, and avoid Masonite siding – exposed gable roofs and Masonite siding require frequent painting. For flooring, I prefer porcelain tile instead of the popular vinyl plank . . . it holds up much better (keep spare tiles). For carpet on smaller units like duplexes, I have been very successful with short nap commercial glue-down type carpet installed over a thin pad. It cleans great and looks good for years.

For more landlord tips, you can find more articles I have written on the subject at SpeakingOfAustinRealEstate.com or call me at the office.  I am always available to answer questions.

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS) to prospective buyers, tenants, sellers and landlords.

JEFF STEWART, CCIM, SRES

Broker Associate  /  Stanberry & Associates

jstewart@stanberry.com

 

 

Zebra Mussels in Lake Travis By JEFF STEWART, CCIM

Just less than a year ago, Texas Parks and Wildlife announced that the dreaded zebra mussels had been found in Lake Travis. From personal experience, I can report that they are already making an impact.  So far I have not seen examples that are totally encrusted like the items I have seen in Google images, but it will not be long.  The photo above is of a 7″ rock I picked up on the shoreline at our lake place near Pace Bend Park.  As the LCRA releases water for spring irrigation, random clusters of zebra mussels can be seen on the newly revealed waterfront rocks.

Unfortunately, the small shells are razor sharp. I reached into the water to pick up an abandoned boat anchor and I now have five small cuts on my left hand.  A careful inspection also found that they are now appearing on our dock ladder (and I assume underwater bracing).  Contemplate that . . . and think of the potential cut feet and hands.

So, what does that mean to real estate values?  It is too soon to say for sure,  but I think it will definitely be an influence – especially if other nearby lakes are not similarly afflicted. In light of the skyrocketing property taxes, dealing with an infestation of crusty zebra mussels on cables and dock frames just makes for one more expense for waterfront homeowners.

Information About Brokerage Services (IABS) 

Jeff Stewart, CCIM, SRES  Broker Associate

jstewart@stanberry.com

Stanberry Realtors

 

Strategies For Moving Up By JEFF STEWART, CCIM, SRES

The single biggest challenge to homeowners moving up, and to a lesser degree . . . down-sizing, is how to do it without moving twice.  Few homeowners can afford to buy a replacement home without first netting the proceeds of their old home.  Moving from Point A to Point B in one move requires a thought-out strategy.  Let’s consider the options.

First, the obvious choice is to contract for the replacement property subject to the sale of the old home. So-called “contingency contracts” are seldom accepted by sellers in a red hot market like Austin.  Why should they, when they probably have ready and willing buyers lined up.

The second safe but labor intensive and expensive option is to sell, rent short-term, and then move again.  Besides the hassle, the risk here is locating a suitable replacement home.

A third option, one recent clients used with success, requires refinancing the existing home with a cash out loan.  My clients were fortunate enough to have mostly paid off their existing home. This allowed them to secure a cash-out loan against the old home, so that they could use it for a down-payment on the new home.  Clearly, they had to be able to qualify for both loans.  In this case, my lender coordinated both loans and facilitated a Frost Bank loan for the swing loan.  This arrangement allowed my friends to make a more relaxed transition and more time to prepare the first home for a good presentation.

Finally, one very successful option is to buy a builder product.  I have sold numerous new homes the past few years and it made my clients’ move much easier.  First, most builders will accept contingency contracts if the new home is in the early stage of construction.  This allows the homebuyer more time to prepare for the sale of the existing home.  In the situations where the existing home was highly sought after, we were able to pick and choose our buyer.  In several cases, we were able to negotiate a transaction in which we closed, but the new owners allowed the sellers to lease back a few weeks until the new home was completed.  Sometimes the stars have to be aligned, but this strategy worked well for my clients.

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS)  to prospective buyers, tenants, sellers and landlords. Please see the link above.

JEFF STEWART, CCIM, SRES

Broker Associate  Stanberry, REALTORS

jstewart@stanberry.com

WHOSE FENCE IS IT? By Jeff Stewart, CCIM, SRES

Of all the questions I routinely get, fence questions are at the head of the list. Generally, clients want to know, “Who owns the fence?” Since fences seldom last more than a few decades, or a lot less if wood, it is an issue that is going to surface on a regular basis.

My answer is not a legal one . . . it is a practical one . . . “It depends.” A number of questions come to mind when asked about the need for a new or repaired fence: Who paid for the last one? (Which side of a cedar fence has the “pretty side”? That is your first clue.)

Did the builder or developer put it up? (Probably shared.) Is it on the property line, or entirely inside the property line of one of the two tracts? Does it need repairs because a neighbor’s bull broke through or because of a flood? Regardless of the answer to any of these, I ordinarily suggest the same approach. Unless the neighbors have already had major conflicts, I urge clients to think of the fence as a joint project and offer to meet the other property owner “half way.”

With elderly neighbors, I have asked them to pay for materials and I have provided the labor (mine).  With more affluent neighbors, I usually ask them to simply split the cost of a new fence and we hire a fence company.  Just this week, I asked a ranch neighbor with construction employees if he wanted to provide the labor to repair our shared fence while I furnished the materials.  I have yet to hear back from him and he has his land for sale, so I may have to deal with the next owner or go it alone.  Sometimes fence replacement can take time . . . especially on farms and ranches where bulldozers are needed and the cost is tremendous.

In most newer residential subdivisions the fences are mostly on the property lines, but that does not always keep a neighbor from adding their own fence on their side of the line.  I usually see this as a result of a newly added swimming pool and a desire for the privacy of an eight foot fence.  In Austin, I understand that such a fence is a permit issue and that the neighbors have to agree to it; but I have yet to see that happen.

In short, I suggest to clients that they consider the fence as a shared item and to work with the neighbors towards a satisfactory result.  Unfortunately, that often does not seem to work. If diplomacy fails and one party truly needs a better fence to contain kids or pets, then the only answer is probably to go it alone.  This step can be tricky as well.  One has to ascertain if the other party is going to object to the removal of the old fence.  If so, the new fence will have to be inside the property line adjacent to the old fence.  Or one has to decide if it is worth the coming squabble if the old fence is to be replaced over the strong objections of the neighbors.  In that event, one needs legal rather than the practical advice I am offering here. Recently I  was involved in an episode where an attorney had to step in to prevent some misguided fence games. It prevented lots of problems. Know when to consult an attorney.

Jeff Stewart, CCIM

 

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS) 

to prospective buyers, tenants, sellers and landlords. Please see the link above.

Jeff Stewart, Broker Associate  /  Stanberry REALTORS.

jstewart@stanberry.com

 

 

 

 

EXCESSIVE CITY BUILDING REGS ARE NEEDLESSLY DRIVING UP HOUSING COSTS

Housing has been one of the two biggest problems in Austin in recent years. (Traffic, being the other . . . but you knew that.) Let’s talk about affordable housing.

I have been a residential and commercial REALTOR in Austin for over 40 years.  I am also a retired home builder and former general contractor.  During the 80’s Bust, I was the person who finished much or most of what Texas Commerce Bank repossessed in the Austin area. At different times, I was the Home builder Association’s liaison with the City Building Code Department and served on the Homeowners Warranty (HOW) inspector review committee where a small group of us tested, certified and oversaw the HOW building inspectors.  I guess I am saying that I am not a novice.

Admittedly, I have not remodeled a house in the past few years.  We are doing so now.  What a shock!!! I cannot believe the level of red tape and expense that the City has added in the last several years – all the while decrying the runaway cost of housing. At the risk of you zoning out, I would like to point out a few notable issues I have encountered:

  • The electrical.  We wanted to replace the old tan-colored plugs and switches and install GFIs.  The electricians swear to me that they cannot upgrade the switches and plugs without re-wiring for arc fault if they pull a permit.  With a permit, the City required a new meter box (they said it was NOW undersized), a new breaker box (they said the old breakers were unsafe), a new masthead (they said the old one was too low), and all new wiring (the old wiring was not on ARC Fault breakers).  It is a $10,000+ electrical contract AFTER we removed everything down to the studs so we could re-wire.
  • I wanted to replace the old atrium door. The city now requires a building permit to replace an exterior door, and the new energy code requirement means that instead of a good $400 door (which is in stock) we have to order a special door that takes 30 days and costs around $600-1300. Home Depot nor Lowes stocks anything like what the City code now requires.
  • Windows: this may fall under national code, but most of the bedroom windows were 2-0 x6-0s and are grandfathered unless replaced. If replaced, they have to be much larger.  It is a 100% brick house. This is a huge problem.  I have the same problem at my house. It is keeping me from installing better, more efficient windows. It seems like there should be a case made for grandfathering windows that once met code. (I have no problem with replacing the glass with safety plate, as required due to the close distance to the floor – that is not the hardship that tearing up brick walls and re-framing walls would be.
  • Termite treatment.  We had just treated for termites prior to finding out that we had to gut this house (two months ago). Now the city requires that we spray some kind of termite treatment on the bare studs before we sheetrock. Doing a pre-treatment is not a bad idea.  I used to do it for some buyers, but it is one more unnecessary cost that should be a free market buyer decision – like a cast iron tub vs. a cheap steel one. I use this as one example.
  • Trees- Reasonable tree regulation make sense.  We have gone past the point of reason. This house has an oak tree that the previous owner planted in the 70s. It covers the entire front yard and is protected as a heritage tree.  The plumber told me that if we replace the sewer line, we would have to take a tree permit and wait until the tree guy comes to look and tells us where we can trench.  OK.  I can live with that.  Then I find out that the trench could not be dug, but must be blown out with water or compressed air so that we do not harm the roots.  No word on how we were to fish the sewer pipe through the maze of roots. The sewer proved to be OK so I did not experience this, but others have.  I do not like the governor interfering in Austin codes, but on this I understand his point of view.  A little more moderation in enforcement seems due.

A while back we had a city code specialist speak at Stanberry & Associates.  I told him that I am of the opinion that excessive regulation is somewhat counterproductive. It is slowly driving more people to bootleg. People are flipping houses all over Austin.  Most are replacing the tan plugs and switches and exterior doors.  I guarantee you very few have done so with the require permits.  Those of us doing so legally are getting clobbered.

I have told this story to many people and they say that I should write a letter to the editor.  I think that would do little.  I know Austinites hear things like this every day, but the next time it comes up I hope you will re-tell some of this story.

I never dreamed that I would have to take a house down to the studs over the electric code  when the wiring was in no way hazardous fine and had been previously installed to code, or that it would cost over $1000 to replace an ordinary  sliding glass door.  And the city leaders bemoan the lack of affordable housing!

Jeff Stewart, CCIM        STANBERRY & ASSOCIATES                     jstewart@stanberry.com

JUNE AUSTIN MLS STATISTICS

Sales seem to have slowed as we hit the summer heat.  The statistics below indicate a slight softening in some aspects of the market, but it is important to not that these are lagging indicators.  These sales totals are for closings during the month of June, which means that they had actually gone under contract roughly 30 days or more before that.

AUSTIN-ROUND ROCK MSA STATS

Following are June 2017 single-family housing market statistics in the Austin-Round Rock MSA:

3,415 – Single-family homes sold, 4.0 percent more than June 2016.
$314,000 – Median price for single-family homes, 7.0 percent more than June 2016.
45 – Average days homes spent on the market, two days more than June 2016.
4,335 – New home listings on the market, 6.0 percent more than June 2016.
7,672 – Active home listings on the market, 19.0 percent more than June 2016.
3,148 – Pending sales for single-family homes, 9.0 percent more than June 2016.
3.1 – Months of inventory, 0.5 months more than June 2016.
$1,347,423,877 – Total sales dollar volume, 12.0 percent more than June 2016.

Jeff Stewart, CCIM, SRES   Stanberry & Associates

jstewart@stanberry.com      512-327-9310

 

HOW TO RESPOND TO LOW-BALL OFFERS

 Low-ball offers are rather uncommon in a hot market like we have had in the Austin area the past few years, but they are not unheard of.  So let’s take a look at how one might choose to respond in hopes of eventually getting to a price where we might make a deal.

First, it is critical to confirm that the buyer is actually qualified for more than the low offer.  If the buyer is qualified for enough to make a better offer, I suggest to sellers that they consider taking an approach that is a little different.  Many sellers choose to refuse to respond to low offers, and others often respond with slightly less than full price counteroffers.  Neither approach is likely to move toward a contract. I suggest a third option, which is to send back a response on a form that is referred to as “Seller’s Invitation to Buyer to Submit New Offer.” I have found that this form is a more “gentle” way to refuse an offer, but possibly keep the buyer interested.  The form is not a counteroffer, and clearly says so.  It allows the seller to send the buyer a message that the offer has been refused, but has a space to outline what terms would be more acceptable. It still allows the seller to accept other offers. It is a refusal, but a refusal with the possibility of a dialogue.

Some personalities (and cultures) absolutely believe the first offer has to be an extremely low one.  Their motto is, “Hey! Nothing ventured, nothing gained.”  Sometimes it takes a seller standing firm, but without attitude . . . which I admit is difficult when it seem so personal because it is the home you have loved for years.

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS) to prospective buyers, tenants, sellers and landlords. Please see the link above.

Jeff Stewart, CCIM, SRES

Stanberry & Associates, REALTORS

jstewart@stanberry.com     jeffstewart.stanberry.com

Understanding the Real Estate Cycle By Jeff Stewart, CCIM, SRES

real_estate_investment-01

Today we have a pop quiz.  Please have a sharp #2 pencil ready.  I must say from the outset that the older generation will have a definite advantage when taking this quiz.  Extensive experience is a real plus in determining the answer to my one question quiz.

The graph at the top of this page is a well-known and widely accepted representation of normal real estate cycles. Real estate cycles are a fact of modern life. I admit, when I was in my twenties and thirties, I argued with my dad that the modern Texas economy was not subject to such trends.  People were moving here in droves and we were not “making any more land.” That was several recessions ago. Like the stock market, the overall trend is upwards; but we have had down times interspersed in there as well.

So your assignment today is to take your pencil and circle that point on the graph that best represents where you think we are today in the Austin real estate cycle.  Be honest.  The interesting part of this quiz is that we will not know what the correct answer is until we are well past the current stage, whatever that is. If you are expecting to sell or buy a property in the next year or so, this is more than just an academic exercise.

Having been through several lesser booms, but nothing as crazy as what we have experienced the last couple of years, it is my opinion that we are slightly past the “Euphoria” stage. In fact, I find it remarkable that the Austin economy has sustained the euphoric atmosphere for such a prolonged period. So what is the point of this discussion? Well, it may be helpful to discuss a few common sense strategies.

First, are you planning to sell a property in the next year or so? Depending on the stage you believe we are at  on the chart, now would surely be an ideal time to maximize the value while the market remains poised at the top of the business cycle.  But what about buying at the top of the market?  I get that question a lot now.  Good real estate deals can always be found at any point in the real estate cycle. The key is to fully understand the fundamental value of the property rather than relying on some pie-in-the-sky, hoped-for appreciation which may not come until the next business cycle.    When buying at the peak of the market, there is little room for error.  Incomes may be less than expected and hold times may be much longer.

When near the top of the market, it may be time to take a profit or at least diversify to reduce the rick of a soft real estate market. It was a real shock to me in the late 80s to discover that a diversified real estate portfolio was NOT different colored duplexes in South Austin.  Who knew?  I regularly have investors tell me that they like to keep their properties clumped in one neighborhood. That is certainly one strategy, but it comes with some risks.

In summary, it is time to make a careful judgment regarding our local economy and the real estate market.  It might be time to put a plan into motion rather than reacting after the fact.

Time’s up.  You may put down your pencils now.

 

Jeff Stewart, CCIM    Stanberry & Associates   jstewart@stanberry.com