Bernardi Buzz

With the recent ups and downs in the stock market, many people are not sure how to invest their retirements funds (IRAs, SEPs, 401Ks, etc.). It is possible to use retirement accounts to invest in real estate. A good rental property can generate 6 to 7 percent annualy from cash flow only (hopefully over time there would be appreciation in the property itself). As you might expect there are a fair amount of rules for using retirement funds for real estate investments, but it can be a great way to generate tax deferred income. There are also penalties if the rules are not followed. It is important to consult your tax advisor regarding your individual situation.

The first issue that may arise is establishing (or transferring) retirement accounts in a self directed account. Most brokerage firms cannot accommodate this situation and may not be familiar with the concept of self directed retirement accounts. There are firms that provide this service and can assist with the required paperwork. The second big issue is assuring that transactions cannot be considered to be “self dealing” — this can cover quite a few areas. Retirement accounts cannot be used to purchase property (or interests in property) that you or your direct descendents (sons, daughters, grandchildren,etc) or ascendants (parents, grandparents, great grandparents, etc.) already own. You cannot buy a property and then rent it to any of those same people (or yourself!).

Any property that you buy with your retirement accounts must show the owner as your IRA, SEP or other account. The rents must not be paid to you but rather to the “retirement account”. Most people use a management company and some of the companies that handle self directed retirement accounts will handle some of these “property management” tasks (for a fee). You can accept the checks but they have to be deposited into the “retirement account”. You also should not pay bills directly for repairs, etc and need to be sure there is enough money available in the retirement accounts to pay anticipated expenses from income and planned contributions.

We all know that property can be pretty expensive but there are ways to use leverage or be “partners”. It is possible to own real estate with other people as “tenants in common” — each party owns a percent of the property according to the amount invested. It can be possible for one party to sell their interest later without the other “owners” having to liquidate. It is also possible to obtain loans in the name of retirement accounts — this allows you to leverage your retirement funds. However, this approach can have substantial tax implications (UDFI/UBIT) that many accountants may shudder about.

We have several great investment properties listed right now — visit our website or call me at 303-402-6000 to discuss.

It’s always interesting to see what the new year will bring. The first quarter of 2011 is behind us and the sales results are in. In Boulder County, it seems that the market is stabilizing and in some areas showing signs of life. For the county as a whole, the average prices for homes sold are slightly better than last year and the number of homes sold is above 2009 but below 2010 — perhaps the result of last years tax credit??


Individual areas of the county showed some slight variations from the countywide trend. The number of homes sold in the plains east of Boulder increase in the first quarter compared to the last 2 years and the prices remained stable. The mountains took a big hit in terms of number of homes sold and average price. The cities of Boulder, Longmont, Lafayette and Louisville were all fairly stable compared with last year. To see the charts for the individual areas, visit the Sales Statisics page on our website.

Whether you plan to stay in your home for a number of years or are sprucing up your home for sale, home improvements projects can improve your quality of life and the resale value of your home. However, the flat (or in some areas declining market) has had some impact on which projects provide the best return on investment. In the past, remodeling kitchens and baths sometimes added to the value of a home dollar for dollar but that has not been the case in the last year.

The National Association of Realtors and Remodeling Magazine conduct an annual study of the costs for various projects and the “payback” in various areas across the country. In the study for 2010-2011, the projects with the highest rates of return were front door and garage door replacements. The third most cost-effective remodeling project was siding replacement – replacing existing siding with new fiber cement siding. Minor kitchen remodeling (new hardware, doors, new range/oven, new laminate couter, sink, faucet) ranked as the fourth most cost-effective project returning about ¾ of the price. Deck additions completed the list of the five most cost-effective projects.

The study did point out that homeowners frequently “over improve” their kitchens — adding too many high-end items for the overall value of the home. Homeowners that intend to keep their homes for longer periods may have better rates of return on bigger projects.

In these tough economic times. people want to save money any way they can. Some home sellers believe that selling their home themselves will net them more than if they use a realtor to sell their home. Studies of pricing have not born out this idea — quite to the contrary, studies have shown that homes listed by realtors net clients more even after paying the commissions.

While the bottom line is a big concern, there are several other reasons for using realtors. The amount of time involved in selling a home is substantial — forms, scheduling showings, preparing contracts and other documents, inspections, etc. The requirements and forms vary from state to state and frequently change annually. Homes offered as FSBO draw attention from all sorts of buyers — many who cannot afford the home or are looking for a bargain — realtors prequalify potential buyers helping to assure that lookers are serious and able to buy a particular home. Realtors can provide detailed market knowledge to be sure the home is priced correctly and provide detached perspective on the contract contingencies, closing costs, buyer requests, inclusions, inspection repairs, etc.

Every real estate transaction has its quirks and full time realtors have the experience to work through any snags that may pop up. For many people their home is their biggest “investment” — doesn’t it make sense to a least consult a professional?

There have been rumors circulating that the new healthcare bill will impose what amounts to a sales tax on real estate transactions starting in 2013. The rumors imply that all real estate transactions, including the sale of your primary residence, will be subject to this 3.8 percent Medicare tax.

This is NOT true.

There are a number of types of income specifically EXCLUDED from the tax – municipal bond interest, distributions from IRAs, 401 Ks, etc, pensions, and capital gains from the sale of your principal residence (there are no capital gains taxes on gains up to 500,000 for couples filing jointly). The 3.8 percent tax will be assessed on unearned income (things like net investment income and capital gains) and/or on modified adjusted income if it exceeds $250,000 for a married couple filing jointly (the amounts vary depending on your filing status) – there are several calculations involved. Of course, your individual circumstances may vary and impact these general exclusions – contact your tax advisor.

While some people will potentially pay some taxes on sales of investment properties, etc, the average homeowner will not see any new federal “sales tax” (under any name) on the sale of their primary residence.

On a completely diiferent note, we have just published the statisitics comparing homes sales in 2010 to 2009 in our website. Visit our Sales Stats page to see what the results for each area in Boulder County

Despite all the doom and gloom on the news, we did not have a bad year in Boulder County real estate. While some segments of the market saw some ups and downs, overall it was a better year than 2009. While we do not quite have the final 2010 information, based on preliminary data there were more homes sold in 2010 than 2009 and the average price was higher.

The total number of homes sold was up about 3.2 percent from 2385 single family homes sold in 2009 to 2463 homes sold in 2010. Perhaps better news on the pricing side — the average price INCREASED from $417,664 in 2009 to $444,086 in 2010 — this is a 6.3 percent increase. The change in average prices did vary by location and as the final data comes in we will pass along the information for each city/location in the county.

What does this mean for 2011?? The interest rates are still very low and the inventory (homes on the market) has not increased. There have been some glimmers of hope in the local economy — improved vacancy rates for commercial space, hiring is improving, the housing rental market is strong, etc. For buyers, its still a great time to buy. For sellers, we are seeing serious buyers both coming from out of the area and movement within our local area. If you are thinking of selling this year, don’t wait to get started — we typically see serious buyers early in the spring. Call us now or visit our website — www.bernardirealestate.com — to request more details on the market for your home.

Many people think that the holiday season is a hard time to sell a home and put off listing their home until after the beginning of the new year. There are pros and cons to having your home on the market but the pros may well outweight the cons.

The obvious downside is accommodating showings around family gatherings and other social events. The upsides may be surprising. Many homes show very well with decorations up and feel more homey and inviting to potential buyers. Another plus is that people out looking are generally very serious buyers (who has the spare time to “shop” for homes this time of year!!). The most surprising fact may be that the “absorption rate” — the number of homes sold compared to the number on the market — is actually better in December than many other months. Generally the number of available homes (the number on the market) is less in December that most other months but the numbers of buyers is not proportionally less so the serious buyers have less to choose from.

I recently spoke at a conference of top European real estate agents held in Rome. Attendees included top agents from all over Europe — Italy, Spain, France, Germany and many other countries. Most of the attendees did not speak English and I gave my speech in Italian (a new language for me!!). While we all spoke different languages, the issues and concerns over the real estate market and the types of concerns raised by buyers and sellers stay the same in any language.
The housing markets in Europe have experienced similar problems to those in the US — owners with loans that escalated, declining values, tight credit, economic uncertainty. Sellers are concerned with declining values and longer times to sell. Buyers are concerned about missing the bottom — will the prices go lower, will interest rates go down a little more.
On the positive side, we all agreed that interest rates are GREAT right now and that there are many opportunities for buyers to get good values. Well maintained homes in good locations are still selling although slower. Move up buyers may not get as much for their homes as they might like but the deals on their new homes are making up for it. Investors can find good values and rental markets are strong. There seem to be indications that prices may be stabilzing in many locations — the markets in Europe are very local just like in the US.

In recent years, lenders have tried to convince consumers that borrowing money secured by your home is convenient way to solve short term financial problems or enjoy some special treats. These loans can take the form of a second mortgage or a line of credit. With a second mortgage, a specific amount of money is borrowed for a fixed amount of time and the payments start immediately. For the line of credit (frequently called a HELOC – a home equity line of credit), a maximum amount that can be borrowed is established but is only “used” as needed – so you could establish the line of credit and then borrow half the amount in six months. Payments start when the money is borrowed.

In some specific situations, these might be great options but there are some real disadvantages – especially in a flat (or declining) market. Taking out equity in your home in a declining market may make it difficult to sell should it become necessary – you might end up owing more than you can net from the sale. Chances are if you borrowed the equity in the home, you may not be in a position to bring money to closing.

Either type of loan will require payments – generally monthly. Many people use the borrowed money to reduce other higher interest rate loans (credit cards, etc). This is not necessarily a bad plan but if the balances on the higher rate loans (credit cards) start to creep up the cash flow situation could be worse than before.

One final caution, HELOCs are not treated the same way as purchase money home loans should borrowers find it necessary to consider bankruptcy or a short sale of the property. HELOCs are generally considered as consumer loans like credit cards and may expose the borrower to judgements for collection.

There are signs that the Boulder area economy may be starting to recover.    Many individual indicators are showing moderate improvement:

–the June unemployment rate for Boulder County is 6.6 — lower than the state and national rates and almost a percent better than last June (7.4),

–vacancy rates in all categories of commercial property (office, retail, warehouse and R&D) are less than last year,

–sales tax revenues are up,

–residential building permits are up compared to last year, and

–the median sales price for single family homes rose from 545,000 in June 2009 to 575,000 in June 2010.

My observation is that there are still buyers out there looking for homes — there are incoming relocation folks, some move-up buyers, and investors looking for income property.