Category Archives: Millennial

Rental property owners save big money with this Scooby Snack

I spoke this week to a long time friend I made when I worked at Excite.com. Remember that early Internet portal?! Those were fun times. We share a common interest in real estate investing and in fix-flip projects. Both of us managed to work insane hours during the day and then spent weekends remodeling houses. There is a certain joy in that…but it takes its toll on the physical and mental health for sure! My parents worried that I’d never find someone and get married. I ended up marrying someone who also shares this interest in real estate.

Like many of us in the San Francisco Bay Area, my friend, Darlene, was able to cash out her Non-Qual stock options and use the proceeds to invest in real estate. She found some great opportunities in the Desert Hot Springs area and acquired several properties that she has renovated and is now renting. Score. What a great way to use her stock proceeds to generate more wealth.

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Darlene shared that she recently sold two rental properties and is looking to reinvest in more properties in that area. This is where my heart sank and my ears perked up…at the same time…which is interesting from a purely biological perspective. I have a very active body it seems. My biological reaction was a cringe from the heavy taxation Darlene had to pay and the resulting loss of wealth that could have potentially been avoided.

When Darlene sold her stock options she paid short-term capital gains tax which is very common. She took those proceeds and bought properties. Now, depending how long she owned those properties, she paid capital gains taxes when she sold those properties. She will also pay income tax on the monthly rent she collected. Like wow, Scoob, that’s a lot of Scooby Snacks to give Uncle Sam. Yes, it is….and some of it can be avoided. Step into the Mystery Machine and let me tell you how.

The taxable event of selling stock is totally unavoidable and is a right of passage for success in the Silicon Valley. Paying taxes on rental income is also unavoidable. However, taxes on real estate investments can possibly be avoided…or at least deferred… through a little trick called the 1031 Exchange. The 1031 Exchange is a tool designed to help real estate investors buy “better” and more lucrative properties with the added benefit of not paying taxes on financial gains from properties sold.

 

Here’s how it works…and it’s totes legal. Let’s say I own 5 single-family home properties that I paid $100K each for a total investment of $500K. I hold these properties over 10 years and each has appreciated by $100K for a total gain in value of $500K. Let’s say I decided to sell all 5 properties and take the gain of $500K. Partaaaaaaay! That’s solid money. But wait, Scoob, if I take the $500K gain and run, I will pay long term capital gains tax….and that amount will hurt. Not so partaaaaaaaay!

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Or, I can play this sale more strategically and use the 1031 Exchange to protect that $500K gain by buying an income property (up to 3 separate properties) of an equal or greater value…and not pay capital gains tax. Keep in mind that the purchased asset must be another investment property…and NOT a primary residence. For this example, I’d sell the 5 single-family homes and then possibly exchange them for a small apartment complex. Do this exchange several times, and there are opportunities to own big time real estate assets…and to defer having to pay capital gains.

The kicker on this type of transaction is that once the 5 properties are sold (or closed), I must identify the “better” property I want to exchange to within 45 days and close on the sale within 180 days. This can be tricky if inventory is low like in the San Francisco Bay Area. Be sure to work with a real estate agent who is well connected to other agents within your local area.

Ok…watch your step out of the Mystery Machine. There are lots of other games that can be played here that are well defined within our lovely, and I mean lovely, tax code and by the SEC. I’ll be share more in future posts….like should real estate be a part of a retirement portfolio. The short answer is, heck yeah!!!

Please leave a question or response directly on this post or Tweet me a question @ericdunstan.

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Beware the handsy Santa

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Yikes, is it December already?!
Our family makes the annual visit to see Santa at the mall.  I learned why this is my wife, Dee Dee’s favorite holiday tradition.  Well, it turns out Santa remembers us and is rather “handsy” as he expresses his appreciation of Dee Dee.  “Wow, you’ve got a real looker for a wife, Dad” shares Jolly Ol’ Saint Nicholas.  Of course, Dee Dee beams and the boys are really puzzled.
“What does ‘looker’ mean, Dad?”

“Just eat your candy canes, boys,” I reply.

Yes, this is my life and this actually happened.  I won’t be happy if Dee Dee wants to wait up all night for Santa on Christmas Eve.

Thank you all for your support and referrals as I build my real estate business.

I hope your Holiday Season is merry and bright.
– Eric

Tips for First Time Millennial Home Buyers

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Last month I was invited by Millennial thought leader, television and radio talk-show host, Chelsea Krost to participate in her weekly Twitter Chat, #MillennialTalk. She invited me to share my thoughts on what Millennials need to consider as they work towards buying their first home. What a fun event. We had a very active and engaged audience who asked several great questions. Buying the first home is overwhelming.  I hope my responses helped alleviate some anxiety and support the confidence of first time home buyers.

I’ve included the scripted Q&A transcript below from the chat session that took place on July 12, 2016 on Tweet Chat. I blew up my Facebook page that afternoon not realizing I had connected my Twitter feed. I got several texts from friends saying “Do you realize you made 1M + posts on Facebook?!” He he…sorry guys! I will be sure to disconnect Twitter from Facebook for the next #MillennialTalk event.

Enjoy and I hope you find the questions and responses informative! Please tweet me additional questions @ericdunstan. Tweet questions to Chelsea as well @ChelseaKrost if you’d like. She’s just great.

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Transcript from #MillennialTalk with Eric Dunstan on July 12, 2016

Q1 @EricDunstan I don’t want to settle down…why would I buy a home? #MillennialTalk

A1a. There are many benefits to owning a home vs #renting. #MillennialTalk

A1b. Sometimes owning a home can be cheaper and more beneficial than renting. #MillennialTalk

A1c. Having your own house means you can do what you want #MillennialTalk

A1d. Loan programs make it easier to buy a home #MillennialTalk

A1e. Depending on home, monthly maintenance can be limited…giving you free time #MillennialTalk

A1f. Each month your payment builds #equity in the home…giving you power to sell and buy a bigger home #MillennialTalk

A1g It also allows you to borrow against the equity to remodel (called a home equity line of credit) #MillennialTalk

A1h. There are many tax benefits in owning your own on. Talk to a financial advisor or CPA #MillennialTalk

Q2. @EricDunstan OK…what do I need to do to even consider buying a home? #MillennialTalk
A2a. Meet w/advisor & build #financial plan – there are several online services that help w/ this including LearnVest.com #Millennialtalk

A2b. Very important to understand money needed 2 buy a home & how long it will take 2 save enough money to make #downpayment #MillennialTalk

A2c. Think about your 5 yr plan for career, savings etc. If you plan to live in the area for 5+ years it makes sense to buy. #MillennialTalk

A2d #Realestate follows a 5-7 year cycle.  If not, consider renting to avoid being caught in a downturn. #MillennialTalk

A2e. Think through life style…what area to live fits your style?  Can you afford that area? #MillennialTalk

A2f  Sometimes 1st time homebuyers need to break into market in area that may not be perfect fit, #MillennialTalk

A2g They can eventually upgrade to target neighborhood once their current home #equity increases. #realestate #MillennialTalk

A2h. If buying home is a big stretch, consider renting a room to someone as a revenue source. #homebuyer #MillennialTalk

Q3. @EricDunstan I want to buy a home…now what? #MillennialTalk
A3a Get prequalified for a loan, understand how much of a house you can afford. #homebuyer #MillennialTalk

A3b Look at all the loan options; conventional/gov insured, fixed rate, adj rate, 30 yr or 15 yr. There are a ton of options. #MillennialTalk

A3c Sometimes seller financing is an option. The seller acts like the bank u make mo payments to them.#MillenialTalk

A3d. Interview at least 3 real estate agents and talk to 3 lenders #MillennialTalk

A3e. Start touring around neighborhoods, going to open houses, use online search tools- @Zillow #MillennialTalk

A3f Get to know your #neighborhoods..and the kind of house that fits you. #MillennialTalk

A3g Determine what kind of house you want. Single family?  Townhouse or condo? #MillennialTalk

A3h When you think through what you want up front…finding the right home is easier! #MillennialTalk

Q4. @EricDunstan How much do I need to put down as a downpayment for my home purchase and how do I calculate closing costs? #MillennialTalk

A4a   It all depends on your financial situation, income level and credit score. #MillennialTalk

A4b To get the best rate possible plan on putting down roughly 20% of the home purchase price. #MillennialTalk

A4c Putting 20% down can be a lot of $$. There are other options but you may pay a hire loan rate #MillennialTalk

A4d. For example, some government secured loan programs require just a 5% down payment #MillennialTalk

A4e Talk to a mortgage officer at a bank or a mortgage broker to understand what is best for u #MillennialTalk

A4e. Closing costs are tricky and vary by state/county. Plan on paying around 2-5% of home purchase price #MillennialTalk

A4f. Mortgage providers and title companies will provide estimated closing costs on home u buy #MillennialTalk

A4g. Don’t worry! You won’t be surprised with BIG costs in the end. #MillennialTalk

Q5 @EricDunstan Do banks have flexibility with interest rates and do you recommend any online mortgage services? #MillennialTalk

A5a Yes! Banks offer different interest rates based on type of loan…#MillennialTalk

A5b. …and on credit score, down payment and savings of applicant #MillennialTalk

A5c As far as online lenders, I’ve been hearing great things about #QuickenLoans and #LendingTree. #MillennialTalk

A5d #BankRate is another great source to compare mortgage rates #MillennialTalk

Q6 @EricDunstan How do I determine if I’m getting a good deal when purchasing my home? #MillennialTalk

A6a He he. That can be tricky. Work closely with a listing agent who knows the area you are buying in #MillennialTalk

A6b Agent should run analysis of sales price of homes sold over past 3 months #MillennialTalk

A6c Analysis reveals average sales price for home of similar square feet and lot size in local area #MillennialTalk

A6d Agent needs to bring local market knowledge and recommend offer price range…#MillennialTalk

A6e based on condition/location of property you want to buy compared to average price in area #MillennialTalk

A6f The best way to lock in a great deal is to buy the worst looking house in the best neighborhood #MillennialTalk

A6g The more opportunity for u to make your own repairs and add $$ value the better #MillennialTalk

A6h You want to avoid paying the highest price for a home in the area #MillennialTalk

Q7. @EricDunstan What suggestions do you have for negotiating the sale price when purchasing a home? #MillennialTalk

A7a This is all market specific. A great real estate agent can guide you based on location and market conditions #MillennialTalk

A7b Your real estate agent needs to learn motivations for why the home is sold by talking to seller agent #MillennialTalk

A7c Maybe home needs to be sold quickly because seller has a job transfer. If so, offer a quick escrow close #MillennialTalk

A7d Or maybe offer to buy home “as is” without asking seller to make repairs. This is risky so ask your agent for guidance #MillennialTalk

A7e Another option is to offer seller a free rent back which means seller has more time to move out once home sold #MillennialTalk

A7f The more you learn about what helps the seller the more impact on sale price. It also shows you want to create deal that works for everyone #MillennialTalk

A7g Of course cash is king. If u offer to buy home all cash with no loan the seller will be VERY interested in working with u on price J #MillennialTalk

A7h I see a lot of all cash offers in the San Francisco Bay Area #MillennialTalk

Q8@EricDunstan Is it better to buy a new or existing home? Which is normally the better deal? #MillennialTalk

A8a Great question. I just made an offer on a new home for a buyer and there are benefits and risks #MillennialTalk

A8b Again, it all depends on the market conditions, location of home and needs of the buyer #MillennialTalk

A8c Some people prefer buying a new home for everything is..well…new! Nothing needs to be repaired. #MillennialTalk

A8d Amenities tend to be the latest standards and technology #MillennialTalk

A8e. New home developments also have units reserved for gov sponsored affordable housing programs if buyer is qualified #MillennialTalk

A8f Typically new homes tend to be in planned communities with home owner associations which define what can/can’t be done to home. #MillennialTalk

A8g Understand these requirements. #MillennialTalk

A8h Be sure to understand any additional fees associated with these associations as well. #MillennialTalk

A8i One potential downside is on sales price. Developers have a price needed to recoup costs in building new development. #MillennialTalk

A8j This price may not reflect market conditions. #MillennialTalk

A8k Existing homes have been on the market a while and may be more influenced by market conditions and seller motivation. #MillennialTalk

Q9. @EricDunstan What kind of expenses can I expect with #homeownership? #MillennialTalk

A9a Build a home ownership budget #MillennialTalk

A9b. Understand fixed expenses of owning home – #mortgage, insurance, taxes, water, electricity, taxes, etc #MillennialTalk

A9c. Understand tax rate for your state; safe for your #taxes each month #homebuyer #MillennialTalk

Q10 @EricDunstan What do I need to keep in mind after buying my home? #Millennialtalk

A10a Don’t buy your home and forget!! #MillennialTalk

A10c. Keep an eye on monthly expenses…track over 6 months are adjust spending #MillennialTalk

A10d.  Look at #interestrates…if a rate is .5 less than your rate, consider #refinancing #MillennialTalk

A10e. Why should you #refinance?  The difference in rates can mean saving $200+ a month #MillennialTalk

A10f  Homes require regular upkeep – create a maintenance schedule #MillennialTalk

A10g.  Create a plan and #budget to make home improvements. #MillennialTalk

A10h The money to #remodel the home may be in the house…consider a home equity line of credit. #MillennialTalk

Q11. @EricDunstan What parts of the home to #remodel to gain the most equity? #MillennialTalk

A11a. Generally speaking, a remodeled #kitchen and #bathrooms always generate greater value in a home #MillennialTalk

A11b. Expanding a master bedroom/bathroom also increases value #MillennialTalk

A11c. If you are up to the challenge, adding a bedroom and/or bath adds value…but there are implications to consider. #MillennialTalk

A11d Taxes tend to increase when the home size is increased. #MillennialTalk

A11e. As you #remodel, consider how appealing the rooms, amenities, etc will be to a potential buyer. #MillennialTalk

A11f This is a hard one for many people who want to create a home the way they want. #MillennialTalk

A11g  However, in the event the home must be sold, it’s important to have a house buyers want to receive the highest purchase price. #MillennialTalk

Q12 @EricDunstan Where can we find more of your great info on #realestate and #homeownership? #MillennialTalk

A12a Thank you. I love sharing what I’ve learned. Please send me further questions through Twitter @ericdunstan or visit my blog at http://ericdunstan.com #MillennialTalk

A12b. Of course I will continue to post regular updates to your Twitter feed and blog #MillennialTalk


Owning your own home is totally doable

TIMG_5496he thought of owning a home never crossed my mind until my early thirties. I remember a myriad of limiting thoughts crossing my mind including, “there is NO WAY I can afford a home,” or “I don’t have the time or the money to maintain a home” or “owning a home is something you do when you settle down…and renting is still cheaper.” Looking back on those thoughts I can’t help but laugh. Yes, those thoughts are all legit, but SO NOT true.

I was 31 when I seriously considered buying my first home. Up until that time I did what all of my other friends did…rent an apartment with roommates. At that time of my life, I was in my last quarter of my MBA program at Santa Clara University. I was going to school part time and working full time as to not take on giant school debt. “Who has the time or money to own a home? All I do is work and go to school at night,” I remember thinking.

A roommate, Greg, told me one night that he planned to buy a house and asked if I would be open to renting a room from him once he found a home. Hmmm….clever. Seeing him go through the home buying process opened my eyes to how that “trick” is done. Greg found a home after a few months search and I rented a room from him at a price equal to what I was paying for the apartment…and he got all the financial benefits. I quickly realized if Greg could do it, so can I.

The first step in buying a home is to get your financial house in order and determine when you are ready to buy a home. Yes, this can be tough given the lack of financial education people receive these days. Or, if you totally “Kanye” your finances buying too many Yeezy shirts. One of the best things I did was meet with a certified financial planner (CFP). Financial planners will help you obtain a clear snapshot of your current financial health and help you identify short-term and long-term goals…including buying a house. Planners will also provide you the tools to get there.

Ask a trusted friend or parent for a referral or there are options available online. Alexa von Tobel created LearnVest to help people get control of their money. Be financially fearless! The service and tools are all available online and certified financial planners are available to work with people one on one to achieve their dreams. I’ve met Alexa several times during my time with a financial technology startup. She is really great and has a passion to help others. Believe me, once you understand your financial strength, the path to affording a home becomes clear. I think many of you will find the path a lot less difficult than you think. I know I did.

A second step in understanding the affordability of a home is the cost of ownership. This is a BIG factor I find many people don’t quite think through clearly. Getting your financial house in order to buy a home is focused mostly on getting approved for a loan to buy a house. This second step is focused on what’s needed to keep and maintain a home once you buy it. So beyond the monthly mortgage payment, homeowners must consider costs of home insurance, taxes, utilities, homeowners association dues (if applicable) and more. These home ownership costs are in addition to the typical living expenses we all have including cable, phone, Internet site subscriptions, going out, etc.

So how is this done? Build a budget! Building a budget helps identify and prioritize monthly expenses within the context of your financial priority…in this case, home ownership. Yikes, many people quickly realize the need to say “no!” to a Tuesday trivia night at a local bar. I remember making the decision to NOT buy a BMW so I can afford a home. I will be writing more about budgeting in a future post…and will maybe throw in some trivia for those needing a fix.

A third step in understanding home affordability is changing the mindset that it’s what people do who want to settle down. Or that renting is still cheaper. I recently wrote a post for TV and radio talk show host, Chelsea Krost, about the benefits of buying versus renting so check that out as a resource.

The shift in mind-set is up to you and it’s hard to change people’s thinking without a catalyst. What shifted my mind into wanting to own a home was my room mate Greg. He bought a home and I rented a room from him. He used my rent money to pay down HIS mortgage and gave HIM great tax benefits. Greg got to experience the many financial benefits of owning a home…and I paid him to do it. That relationship changed my mindset. “I need to look into this!” I remember thinking.

Yes, home ownership is scary. The more you understand how it’s done and the many benefits received the less scary it is. I argue the more EXCITING it is. Home ownership is one of the many things that make America great. It’s your property. You can do what you want with it…within reason, of course. Do laundry at midnight. Fry fish and stink up the house. Netflix all night with the sound WAY up. If you do it in your own house, no one complains to the landlord. Better yet, NO BODY CARES! To me, that’s the true benefit of home ownership.

My goal is to share with others the great opportunities, benefits and risks of home ownership to empower them to make their own decisions for what works best.

Please feel free to Tweet me with questions about this post @ericdunstan.


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