Borrowers beware...The Federal Reserve’s interest rate setting committee last month raised short-term interest rates, a move that will eventually impact all borrowers: from credit card users to car buyers to those looking to purchase or refinance a home or investment property.Don’t panic just yet, however. The Fed’s rate hike was small () and overall rates remain near historic lows. The Federal Funds rate—a very short-term rate that banks charge each other for overnight loans—is still under .75%More to Come.Still, the Fed’s move is not “one and done.”Fed Chair Janet Yellen and her colleagues at the central bank clearly signaled that they think the economy is healthy enough—with small but sure signs of inflation and wage growth—to withstand a very gradual path back toward a normal interest rate level. Fed watchers predict perhaps three more rate hikes in 2017, which, according to giant mutual fund company Vanguard, could take the Federal Funds rate to 1.5% a year from now.Of course the Fed does not set mortgage rates—they are determined in bond markets. But the rate the Fed does control can eventually influence mortgage rates, as can the Fed’s general outlook for the economy, which is closely linked to its rate setting.Mortgage rates are still near historically low levels, hovering just around 4.2% for a 30-year fixed loan nationally. Rates in the San Francisco area are a bit lower, right around 3.9%, on average. Multifamily, or apartment, loan rates are closer to 5% or a bit higher, though the rate you get depends on the terms, from the size of the loan to the money put down and the loan-to-value ratio.
Not very fast, at least that’s the current outlook. The Fed is expected to proceed with its rate hikes very carefully. Mortgage giant Fannie Mae sees rates rising very gradually through 2017.But that doesn’t mean property investors can ignore the Fed and the economic outlook. So, here is a list of things Bay Area landlords should think about as the Fed pushes rates higher:
Executive SummaryIt all adds up to an uncertain future—we don’t know what 2017 will really bring and no one else does either. But we do know this much: careful and opportunistic property owners/investors can make the best of it.They always do.
Real estate industry experts have expressed mixed emotions about President Trump’s proposed changes to the tax code. The changes will certainly affect homeowners differently than they affect real estate investors.In Part II of this three-part series, we break down the key components of the tax reform plan released last week by the Trump administration. This post looks specifically at how we think eliminating the estate tax, the alternative minimum tax, and most personal deductions will affect real estate investors.
The estate tax, otherwise known as the “death tax,” seems like a positive thing for real estate investors, who can now pass their real estate portfolio on to heirs without worrying about the portfolio’s value being whittled away by taxes.
This is another change that should benefit real estate investors. The was originally enacted in the 1960s to prevent wealthy people from using deductions to reduce their tax liability to nearly zero. For instance, Trump’s own tax return from 2005 revealed huge losses from real estate investments, which he deducted. Were it not for the , Trump would have paid next to nothing in taxes. But because the ignores most deductions, Trump wound up paying taxes at the 24% rate – still far below the top rate, but much higher than without the . Eliminating the would allow people in a similar situation to write off losses to reduce their tax liability once again.
At one point in time there was speculation that President Trump might try to eliminate the deduction. Thankfully President Trump, himself an avid real estate investor, came to his senses and preserved this deduction in the plan released on Wednesday.Any change to the deduction would have been terrible for the real estate industry. Really terrible. It would have been awful for landlords, investors and homeowners alike. Real estate is perhaps the most tax-advantaged industry, and the ability to write off mortgage interest payments saves owners thousands of dollars each year. Real estate investors have built their pro formas around the assumption that this tax advantage would hold. Changing the policy could dramatically impact a person’s return on investment.*****In Part I of this series, we shared why real estate investors should be cautiously optimistic about Trump’s proposal to consolidate tax brackets into just three and to reduce taxes for corporate and pass-through businesses.Stay tuned for Part III of this series in which we’ll analyze how we believe doubling the standard deduction and eliminating the investment income surcharge will impact real estate investors.
He made a promise on the campaign trail to cut taxes for individuals and businesses alike—and last week, the Trump administration unveiled a tax reform plan that would do just that. Treasury Secretary Steven Mnunchin and National Economic Director Gary Cohn briefed reporters on the plan at the White House earlier this week. Although details about the plan remain sparse, real estate investors should be cautiously optimistic about what's known about the plan so far.In this 3-part guide, we provide a rundown of the proposed changes, as well as a recap of how we believe the changes may affect real estate investors.
Generally speaking, this seems like a good thing. It will certainly simplify things for everyone who files. But in terms of impact on real estate investors, we do not believe this change will have a major impact one way or another.
The U.S. corporate tax rate is currently the highest in the industrialized world, which some say has caused a massive exodus of U.S. companies to lower-tax nations. Reducing the corporate tax rate to 15% would make it one of the lowest in the world. The goal is to incentivize companies to come back home.Again, we don’t see this change as having a major impact on real estate investors specifically. But on the whole, it seems like good policy to incentivize businesses to stay in the U.S. where they can grow jobs and strengthen the national economy. A strong economy usually translates into a healthy housing market.
President Trump wants to be sure small businesses and professional organizations receive the same tax treatment as corporations—and that means lowering taxes for “pass-through” businesses, as well.This would really benefit real estate investors. Pass-through businesses include everything from barber shops to hedge funds, as well as LLCs created to invest in real estate. Some say that President Trump is pushing for this change for his own benefit; he has more than 500 pass-through entities that contain his real estate holdings. In any event, reducing the pass-through tax rate () will certainly benefit landlords, real estate investors and other real estate-related professional service companies.*****On the whole, we see these proposed changes as being relatively beneficial to real estate investors. Stay tuned for Part II and Part III of this series, in which we look at other tax reform provisions and how those might impact the future of real estate.
Owning rental property isn’t always easy, but there are some serious tax advantages that come along with being a landlord. Yet surprisingly, most landlords don’t take full advantage of these tax benefits. Most write off standard tax deductions like mortgage interest, insurance and ordinary maintenance and repairs – and understandably, as these are the heavy hitters.But there are a number of other tax deductions that rental property owners either miss or don’t know about.
If you own rental property, you should always be looking for ways to maximize the return on your investment. Increasing cash flow is one strategy. Reducing expenses is another. Taking these valuable tax deductions is a great way to shield income earned as a landlord.Time’s a tickin’! The IRS filing deadline is just a month away (). Schedule a meeting with your accountant or tax attorney ASAP to be sure you’re taking full advantage of all possible deductions.