Real Estate Correction?
We still have no idea when. The other question is “How much will it correct?” – We can’t answer that one either because properties are skyrocketing in price. As of April, the median price has risen 21%. The faster it rises, the harder it’s going to fall.
Nearly every buyer here is from California. Once Californians can’t sell their property, the real estate here in Vegas will go off a cliff. California home sellers are tied to forbearance and the CDC eviction moratorium. It’s super difficult to sell a home when you can’t get rid of a tenant. I know. I have one of those right now where an investor can’t sell her house because we can’t get the tenant out of there. Then there are the owners who are not paying the mortgage while the market goes up. There is no incentive to sell the property. YET. When the forbearance ends you can set your watch for foreclosures 90 days from that date. However, this will just signal the start of the avalanche, the bottom will take years to materialize.
1031 Exchange In Jeopardy
There is a high probability 1031 exchanges will be significantly changed with the Democrats in control. There are four main components of Biden’s tax plan to unpack that may affect investors:
Potential Elimination or Modification Of 1031 Exchange. If the new tax proposal eliminates the 1031 exchange, investors may lose the ability to fully defer taxes at the time of sale. It is unclear at this junction if a full or partial deferral is under consideration.
Capping the Amount of Capital Gains Tax Investors Can Defer to $500,000. This would mean investors can only defer the first $500,000 of capital gains tax they would see at the sale of their property. Any taxable capital gains above the $500,000 level would be taxed at potentially the newly proposed capital gains rate (which we speculate will be around 40%; exact amounts are fluctuating).
Increase In Long-Term Capital Gains Tax. Additionally, there is a proposal to increase long-term capital gains tax rates. Those earning over $1 million may pay 39.6% instead of 20% top rate in capital gains taxes. At that rate, capital gains are taxed at ordinary income tax rates.
Elimination Of Step-Up In Basis. Also up for review is to eliminate the step-up in basis at death tax benefit. The step-up in basis allows an investor to pass property to their heirs at the fair market value (at the time of death) rather than at the original purchase price.
If you plan on doing a 1031 in the near future. Now is the time to pull that trigger before you pay through the nose.
Clark County Short Term Licensing
There are many bills out there aimed at investors. Fortunately, many of the evil ones died but the most recent one that will have a significant impact on the short term rental market. If you are currently licensed in Las Vegas, Henderson or North Las Vegas, the new AB 363 will not affect you. Investors who have property in Clark County MAY be able to become licensed. When licensing officially opens, it will be a bloodbath because there is a minimum of 660 foot rule in that ordinance. Of the 8,000 unlicensed short term rentals in Clark County, it is likely that 4,000 short term operators will be thrown under the bus. If your properties is not in the city, not in an HOA and you want to become licensed, reach out to us soon.
We were not able to do inspections last year because of the ridiculous Covid thing. In the last few months we have been doing many inspections and trying to get back on track with current leases. We didn’t want to do new leases until we had a chance to make sure tenants inside were not being naughty. We also wanted to get past the rough patch of the economy. We did find a few piggies who will get 30 day notices before the government throws another stupid rule at us. For the good tenants, we have been suggesting modest rent increases. If we have not got to you yet, please be patient.
There are a ton of features we love about Appfolio which is the web based platform we use to track a zillion details on properties. However, there is one flaw that drives us to drinking and is a constant source of irritation among our clients. We settle accounts on or about the 15th of the month. Appfolio automatically generates a report starting on the 1st. If a maintenance event occurs after the 15th, our clients have no idea what happened and the event doesn’t appear on either the previous report or the current report. We call these “Mystery Maintenance Events”. The only elegant solution is to settle at the end of the month but about half our clients would go off the rails if we delayed payouts. Therefore the only solution is to generate a report from the year start date manually for clients who reach out to us. If you get a mystery maintenance event, don’t hesitate to ask us for a manual report with a year start date.