New Construction… Now What?

The purchase of a new construction home is exciting, with lots of time for anticipation of moving in to your new home. It feels like the builder rep becomes your new best friend, you get to pick out your packages and upgrades so everything can reflect your style (if the home isn’t already built or spec’d of course!), so with all of the excitement it’s important to keep in mind that there are pitfalls that you’ll want to avoid along the way.

Builder-Specific Contracts

Most if not all builders in the area use their own purchase contract forms. Why? Because it allows them to closely control the process, while being very forgiving to the builder and not very friendly towards the homebuyer. Example, there’s often a clause that the builder can delay construction for any reason and must simply begin the construction process on your lot within one year. That does not read that they’ll hand over a fully constructed home in one year, but merely start the build in one year. Regardless of when they tell you that the expected completion date is.

It’s extremely important to know and understand the contract terms that you’re signing and what your rights are if something goes wrong. Many builder contracts mandate the use of arbitration instead of legal action in a court of law. It’s important to know what this means before you find that you need to sue the builder. This might seem like something that wouldn’t happen often, but there are some very good lawyers here in Charlotte that spend their days only litigating with residential new home builders.

If you decide that the contract is too skewed in the builder’s favor and don’t want to agree to the contract there is little that you can do to still purchase the home. Using their contract is like the price of admission to the ballpark just to play the game. If you want the house, you will have to take on the risk.

Homeowners Inspections – pre and post drywall

Even if you’re buying your home new, there could still be issues that you would want to be aware of before closing, so I always, always, always recommend having an inspection done. And not just one inspection for new construction but TWO. The first is called a pre-drywall inspection. This is when everything has been framed, utilities have been installed and the walls are just about the be closed up. Having an inspection completed at this point allows the inspector to view areas of concern that are normally hidden behind drywall, meaning that they can see more potential issues. Just because a home is new doesn’t mean that it was built correctly, so buyer beware.

Once everything is completed I recommend having a traditional homeowners inspection. This is when the inspector will go through and look at everything they can to ensure it was built the way that it should’ve been. They will also find things like loose door molding and other random things that you’ll want the builder to fix prior to closing.

Environmental testing

Though a house might be new there’s still good reason to test things like water quality and whether or not the home has high levels of radon gas. Even if a geographical area isn’t know to have issues with radon there are some building materials that may be included in the house that might spike levels and that’s an important thing to know before you move in. Example, granite, though trendy in both kitchens and bathrooms, can be known to emit high levels of radon, so know your stuff and get a test.

First Year Warranty

Many builders will offer a warranty on their homes at the 12 month after closing. The builder will do a walkthrough with the owners and fix anything that may have broken or settled during the first year that you’ve lived there. This is another GREAT time to get a full home inspection. This gives you a full report with issues listed and pictures provided for the builder to then go and fix. I recommend scheduling a home inspection around month 11 so you’re prepared for the builder’s walkthrough. I also recommend keeping a running list of items you corrected taped to the inside of a kitchen cabinet. You might forget about that kitchen cabinet that doesn’t close quite right and miss having it fixed without you needing to call a fix-it person.

Sales Process

For builders this is a business, and they treat it as such. They are very savvy, so it’s important that you have someone on your side to represent you and your interests. Plus, it’s good to have someone that understands the builder’s sales process. Sales people have quotas to meet on a monthly and quarterly basis, so sometimes there’s more wiggle-room in the price than people realize. They have a purchase price listed but what they don’t tell you is that they likely have a range of prices they’re willing to accept if it means making a sale. You’ll have more luck negotiating on price if you buy already built inventory home, but if homes are slow to sell they might make an exception if you’re looking to go under contract on a to-be built home. You never know, so ask! And if you have any questions or changes that the sales staff agrees to, be sure to get it all in writing before signing and giving your deposit.

Investor Offers

Charlotte is full of people looking for investment properties, whether it’s to rehab and resell, or to rent out and earn monthly income. It’s tough out there, so investors can be aggressive in finding and purchasing properties. Some will knock on doors and offer cash for a home, others will network to find people who are thinking of listing their home for sale.

Cash offers, sight-unseen, no repairs, quick close. There are definitely up-sides to selling your home to an investor. There are still some things that you’re giving up and some areas to be aware of along the way.

Remember: investors do this all the time. You don’t.

Before entertaining an offer from an investor, know what your house is worth, aka know what recent similar sales in the area closed at. Do your research online, call a few Realtors, and get some price opinions. Be upfront that you’ve already received an offer. Many Realtors will do a full presentation on listing your home including comps to try and win the listing if you elect not to go with the investor offer.

A good Realtor will graciously answer a few quick questions knowing that this is a people business, whether you sell with us or not. Keep in mind that real estate transactions can get very complex without warning, so even though you’ve received an offer it’s still a good idea to hire a Realtor to counsel and represent you in negotiations. If you have more than a quick question or two, I really recommend hiring someone. It won’t be free, but it will be worth it if something goes wrong.

Once you have an approximate idea on what you home is worth, you can better assess an offer from an investor. Some investors will tell homeowners that they’ll pay them the tax value for the home. Know that even though Mecklenburg County increased property assessments last year, this value is still below what a home would sell for on the market. Part of that is because the County struggles to move assessments up too quickly for fear of upsetting taxpayers and these assessments were done months or even years ago, so the value is outdated no matter what. Therefore, the tax value is artificially low and likely outdated, which is great for the investor and not great for the seller who would like to receive the best price.

If the investor is offering to purchase using cash that means that they can likely close quickly and they will not need to get approval from a lender. This means no bank appraisal to worry about and oftentimes a much smoother transaction. Because cash is so quick and much easier to close, they will often offer slightly below value. If you’re looking to close quickly without a lot of fuss, this can be well-worth the decrease in price.

Oftentimes, investors want to purchase a home ‘as is’ because they don’t really care what the condition of the home is. They have a team of people who will fix anything that comes up and quite honestly, they don’t want a homeowner making repairs that they could do cheaper and to their own specifications. This means a little more risk to the investor because they aren’t 100% sure what they’re buying, but it means no repairs to do and that the seller preserves their sale price by not having to compensate a traditional buyer in lieu of needed repairs.

At the end of the day, an investor offer is an offer and it’s important to weigh the pros and cons of the decision, and also to compare to other offers that may come through on the market if you were to list a home traditionally. Just because an offer knocked on your door (in this case, quite literally) doesn’t mean it’s the right one for you and your family. So remember to be as objective as you can in your evaluation, and do what’s best for you, your family and your particular circumstances when evaluating a market offer or an investor offer.

Tax Time is Coming!

It can be daunting to figure out what documents you need to give your CPA or tax preparer in regards to your home, mortgage and real estate investment properties, so I’m here to make your preparation a little bit easier by answering some common questions I get.

Q: I own a house that I live in full-time as my primary residence, what are the basic documents you need each year?

If you have a mortgage, you should get a form 1098 from your mortgage lender showing the total interest that you paid during the year in Box 1. If your lender pays your property taxes on your behalf (aka you ‘escrow’ for your taxes) then your real estate taxes for the year should also be on this form (check out Box 10).

If you handle paying your own property taxes then you’ll also want to locate a copy of your tax bill. If you can’t find the original copy that was mailed to you around September, then you can look it up on the county website by your address.

Q: I bought or sold my house in 2020, do you need anything additional?

Yep! We’ll want a copy of the Closing Disclosure (CD) that you signed at the Closing Attorney’s office when you bought and also when you sold. Your costs to close on the home may be deductible on your taxes whether you are the buyer or the seller in the transaction. Also, depending on when during the year you purchased or sold the home there may be some information relating to the proration of property taxes that we’ll need to take into account when preparing your taxes.

If you sold your home we may ask you for a copy of the CD from when you originally purchased it. This can appear tedious, but please know that if we’re asking for this it’s very-very important. We’re calculating how much gain you earned on the sale of your home. If you sold your home for much more than you originally purchased it for, there are exclusions for the gain with the amount of the exclusion being tied to whether or not you’re married for tax purposes. We may also ask you for a listing of improvements you made to the house during the time that you owned it. These expenses can help to minimize how much of the gain you have to pay taxes on.

Q: I refinanced my house, how does this impact my taxes?

The costs you paid to close on the new loan may be deductible for tax purposes, so please provide a copy of the Closing Disclosure (same as above). If you took out a line of credit (also known as a second mortgage) on your home, the costs to set this up and the interest you pay might be deductible for taxes but only if you used the money to expand or substantially improve your home.

Did you take a LOC on your home to pay off credit card debt or something outside of home improvements? Then it’s not deductible on your taxes.

Q: I have a rental property, what do you need to include it on my taxes?

Assuming that you don’t own the rental property within another entity, the income and expenses will be included on your personal tax return. We’ll want a schedule showing all of your rental revenue and all of the related expenses you paid for the property during the year.

If you made any improvements or repairs that cost over approximately $500 and have a useful life greater than one year, (for example: a kitchen remodel, a new furnace, new roof, etc.) we’ll want a listing of those items and amounts paid as well. Instead of claiming the expense deduction all in one year, we will claim the expense ratably over the next few years that you theoretically use the improvement.

Q: I currently rent, does this impact my taxes?

Nope, renting does not give you any tax benefits. There are no writeoffs for renters like there are for people who own their home. This could be a really good reason to look into buying a home instead of dealing with increasing rental prices on a yearly basis.

Q: I have a question about real estate and taxes that you didn’t answer here. What do I do?

Reach out to your tax professional or shoot me an email at erincoffey@kw.com I will try to answer general questions as best I can. Please note that anything I say here is not to be construed as tax advice. If you have a question about your specific tax situation it’s best to reach out to someone who has all of your details, I’m only discussing general ideas and information here.

Broken Hearted

I’ve been going back and forth for the past few days about whether or not I would write about this here, and ultimately I’ve decided that this space is here for me to be a multifaceted and dynamic human with personal heartbreak and struggles behind my professional persona. As humans we bond through the common ground of our imperfections and our struggles, not our perfectly-curated social media lives. Isn’t it odd that we spend so much time stressing over perfection when it isn’t what brings us together in support of one another?

I’ve known for some time now that I would soon be losing Snoop Dog, my beloved Italian Greyhound that I’ve had since I was 19 years old. Knowing that a loss is coming doesn’t make it any easier to handle. On Sunday, the day I had been dreading came true and things moved much quicker than I had anticipated.

I thought that I would have control over timing and saying goodbye, but I didn’t. At 11am with him wrapped in our favorite blanket, laying next to me in bed as I made one of a million different phone calls of the day, Snoop stopped breathing and my world came to a crashing halt.

Snoop has been the constant presence in my daily life for over 15 years. Since picking him up from the breeder at 12 weeks old, he has been connected to me at the hip, usually quite literally. He has been my stage 5 clinger, best friend, cuddle buddy, partner in crime, chief invader of personal space, bed warmer, blanket stealer, the list can go on and on. He was the unwavering emotional support as I walked through the good and the bad of my life. I thank him every day for watching over me as I battled the most difficult depression of my life as I lost myself and my marriage, to then stand alongside me as I built myself back up again piece by piece. He was the only one with me each day and each moment in a little downstairs apartment in Asheville as the deepest, darkest emotions took hold of me and all I could concentrate on was continuing to breathe in and then back out again. He was the one thing that I brought from my old life in Rochester to my new life here in Charlotte.

Anyone who knew Snoop, knew that he was so much more than a dog. He was a feisty ball of energy that would make sure I knew his feelings on everything and everyone that we encountered. He had a huge personality and he always stood his ground. He knew how to joke and be silly, and always made me laugh. He loved a good puzzle but would only perform tasks for treats, and even then they needed to be good ones. If they weren’t up to par he would let me know. He was the only dog I’ve known that could be passive aggressive when he didn’t get his way and it cracked me up. Every. Single. Day.

Last year as I noticed his physical decline I got him his very own pitbull. He was NOT happy about it and he let it be known until he realized 1- she’s soft and warm to cuddle with, 2- he could boss her around and 3- she came into our lives to takeover as my canine caretaker. He no longer had to push himself to keep a close eye on me and make sure that I was ok. She took over as my shadow as I worked on projects at my home, became my hiking buddy and my protector from fierce predators like the Amazon delivery guy and any man who dared to take me on a date.

Words cannot begin to describe how much I miss my guy and the vast impact he’s had on me and my daily routine. Even the simplest task of opening the fridge door to make breakfast has ended tearfully as he would’ve been right under-foot letting me know that he was present and ready to steal anything that he could possibly reach out of the deli drawer. It has only been a few days, but I know that this sadness will be lingering. I miss my guy and I miss the joy he brought to our home.

Rest peacefully Mr. Man, until we meet again.

Can You Flip? Or Will It Flop?

It’s amazing how much financial security that real estate can bring, and the popularity of HGTV show a very rosy and glamorous side of real estate investment. This gives many people dreams of buying homes under value, putting in some sweat equity and selling it a few months later for a nice profit. It’s like the American Dream… or is it?

With the tight market in Charlotte and such a high demand with new people moving here each year, finding a low-priced house in a good neighborhood that needs a little TLC is rare these days. A lot of the flips that garner big returns in a few months have already been flipped and re-marketed, so it’s important to branch out from the 3 bedroom/2 bathroom in a well-known neighborhood where grandma lived for 40 years and didn’t update.

Location

Once upon a time the neighborhoods like Plaza Midwood and NODA were the up-and-coming areas, but now they have clearly “arrived” and the prices of homes reflect this. So it’s time to branch out and look for the next great area. Yes, it is a bit of a gamble, but so was buying in South End circa 1990 which was once an industrial park fraught with environmental issues (curious? Brush up on your South End history here.)

Bottom line: What’s old is now new and what was once an EPA nightmare is now highly-sought after real estate. The next great neighborhood won’t look like much today, but buying in a lesser-known area where you see potential for gentrification could pay off big in the future.

Investment Timeline

While flips are often viewed as short-term projects and investments, there’s something to be said for a buy-and-hold property. Going along with the possibility of area gentrification, having a longer view on the investment and generating rental revenue both before and after the renovation could allow significant growth in the home’s value and a steady stream of income during that time period. Make sure you’re prepared to be a landlord or you find a great property management company to handle all of the ins and outs of tenant relations, maintenance and repairs, collection of rents and navigating the scary world of evictions.

Price Point

Flips don’t only occur in the 100k-250k range, though that’s where most people think of them. There are opportunities at all price ranges, even million dollar homes if you’ve got that kind of investment capital to spare. At higher price points the profit margins may be smaller, but they’re still there for savvy investors that are happy to stick to a budget and always plan for an unknown expense.

To find a home that is a good contender for a flip like this, look for a home priced under the median price for the neighborhood, like a 300,000 home for sale in a neighborhood that usually hovers around 500,000 for a home. The difference can often be one was updated to reflect current tastes and the other is in the same aesthetic it was when it was built, whether it was built in the 1980s or the early 2000s.

Oftentimes when a buyer purchases a home in a new construction community they are doing so because they don’t want to make updates or take on improvement projects. So, when they go to re-sell the home 10 years later there can be a dip in price because it looks and FEELS like a 10 year old home. Older paint, brass bath fixtures, and Formica countertops are all tell-tale signs of a below-market price home.

I believe that there are always opportunities in the real estate market, however, those opportunities may look a bit different from what you see on HGTV. Different markets, different factors, different strategies needed.

Happy flipping!