How Depreciation Saves You Money

Claiming a depreciation expense allows you to take a dollar amount that equates to about 3.6% (residential) or 2.5% (commercial) of the value of an investment property building (excluding the value of the land) as an expense for a number of years (27.5 for residential and 39 for commercial) to lower your annual taxes due to the IRS. This means when you calculate your net income each year for a residential investment property that is worth $300,000 (excluding the land value), you would deduct $10,909 from your net profit number before you calculate your tax liability. This means you are not paying taxes on that $10,909 if you record your depreciation expense.

When you are ready to sell the property, taxes do become due on the amount you deducted each year but it is still best to take the deprecation expense. Even if you don’t claim the expense each year, the IRS will calculate your capital gains taxes as if you had.

To avoid taxes on capital gains when you sell an investment property, consider a 1031 exchange. If you plan to take your profit from one investment property and use it to buy a similar investment property this option might work for you. Speak to your accountant about this option and make sure you understand the requirements. There are various rules regarding the handling of funds and deadlines that must be met in order to avoid the tax implications.

(Please note this blog should not be construed as financial advice. It reflects my opinion and experience only, which might not apply to you. Always consult your accountant before you make financial and tax decisions.)

Get Motivated with a Chance at a Free Home Inspection – Valid for 2 Years

I am spreading joy this Fall and Winter and also building my email list. I am raffling off a free home inspection for every 20 new potential clients that join my email list between now and the end of the year. Each raffle winner gets a free home inspection (useful for buyers and sellers) as long as they complete a transaction with me within the next 2 years. Tell anyone who plans to buy, sell or invest in the next couple of years and they will thank you.

Also, don’t feel any pressure to wait two years. Spring market is over and every buyer and seller should consider the advantages of making deals in the Fall and Winter. Sellers are happy in the winter since buyers tend to be more qualified, serious and decisive. There is less wear and tear on homes from buyer traffic; and buyers have less home options to choose from so your property can truly stand out.

Buyers also have advantages in the Fall and Winter. Sellers tend to be more serious about selling and prices and negotiations tend to be more efficient. Buyers also have less competition from other buyers.

Everyone is more agreeable if they want to complete a move before the holidays. If you are not the ultra-competitive type, buying this time of year might work for you.

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3% Down Home Run Program with no PMI. Now that’s incredible!

My colleague, Ross Marlin, was kind enough to remind me today of the Home Run program for home buyers in CT. Here are the loan specifics, which are really fantastic and can save you thousands of dollars!

  • 3% down payment on conforming loans and 5 % on jumbo loans
  • No PMI (private mortgage insurance)
  • 2% of loan amount back at closing for closing costs
  • Rates on par with market rates.
  • 640 min credit score required (depending on loan amount and debt-to-income ratio )
  • Must own no other real estate at the time of closing. (Buyer does not need to be a first -timer)
  • Must take a free 8 hour Buyer Counseling class available at Bridgeport Neighborhood Trust. (But otherwise it’s standard processing, review of assets, income, etc.)
  • Ratios are firm but reasonable. If you can’t prove you paid your last 12 months of housing payments on time, it’ll be more strict but still reasonable.
  • For condos, the loan requires 5% down and the credit limit is 660.

Please feel free to contact Ross Marlin with any questions.

Ross P Marlin
Home Lending Officer
Citibank, N.A.
Cell:(203) 524-3939
Office: (203)-341-2019
NMLS Identifer: # 1070860




BNT is a Great Recource for First-time Buyers

I am a proud sponsor of BNT, Bridgeport Neighborhood Trust, because they provide buyer education and down payment assistance for qualified buyers in all of Fairfield County. BNT is also a leader in the re-developmment of urban communities.

Even if you are not quite ready to buy, BNT will help you create a plan to become ready.

For more information, check out the BNT Resource Guide.

My Client Made $94,000 on a Stamford Condo Property in 2 Years

Here’s an actual account of net profit that one of my clients made by just buying and holding a property in the last two years without making any significant improvements.

My client was renting in 2012, and I advised him to buy a short sale for $365,000 at the very end of the year in December. Two years later, he sold it for $485,000, making a total investment net gain of $94,000. Here are the details:

Purchase Sale Price: $365,000

Down Payment: $73,000

Interest Rate: 3.375%

Loan Amount: $292,000

Monthly P&I Payment: $1,291

Principal Paid Over 2 Years: $19,388 (In addition to the minimum required of $11,644, he paid an extra $7,744 by adding $323 per month)

Interest Paid Over 2 Years: $19,338

Transaction Expenses: $26,320

Common Charges Over 2 years: $19,344 ($806 per month included heat)

Net Proceeds After Sale at $485,000: $186,000

Actual Net Gain (accounting for down payment and principal paid Over 2 years):  $94,000 plus the additional tax savings on mortgage interest expense and property tax deductions.

Please note my client does not have to pay capital gains taxes if he occupied the property for two years.

Also, many analysts would say my client had additional expenses consisting of common charges and the interest expense. This cost of $38,000 was his true out-of-pocket expense to live in the condo for 2 years. This cost can be compared to what it would have cost him to rent the same property for two years, which would have been at least $72,000. This comparison has to be made since most people don’t live in luxury condos for free.

This analysis also assumes the down payment funds came from a savings account or similar account where interest would have been minimal. This lost interest has not been accounted for in this scenario. Please call with any questions, 203-570-2096.


New Private Mortgage Insurance (PMI) Rates Effective January 26, 2015

The following table shows the existing and new annual MIP rates by amortization term, base loan amount, and Loan to Value (LTV) ratio. All New MIP amounts set forth in this table are effective for case numbers assigned on or after January 26, 2015. (Source: US Department of Housing and Urban Development Jan 9 2015 Memo)

Base Loan Amt. LTV Previous MIP New MIP

Term > 15 Years

≤ $625,500 ≤ 95.00% 130 bps 80 bps

≤ $625,500 > 95.00% 135 bps 85 bps

> $625,500 ≤ 95.00% 150 bps 100 bps

> $625,500 > 95.00% 155 bps 105 bps

Term ≤ 15 Years

≤ $625,500 ≤ 90.00% 45 bps 45 bps

≤ $625,500 > 90.00% 70 bps 70 bps

> $625,500 ≤ 90.00% 70 bps 70 bps

> $625,500 > 90.00% 95 bps 95 bps


Can The Young Adults You Know Do A Rent v. Buy Calculation?

Often young adults don’t understand how to do “rent versus buy” calculations. Many people forget to take into account equity increases and tax savings. I am always happy to meet with anyone and walk through the math based on his or her lifestyle choices. Here’s an example based on a current listing I have at 140 Grove Street 4I. If you were to rent this unit now, it would cost $1500 per month which includes your heat expense. That is $18,000 per year.

If you were to purchase this property at an interest rate of 4.1% and 20% down on a purchase price of $180K, your annual interest expense in the first year is only $5,857 and decreases each year thereafter; and your property taxes are $2,179. The balance of your annual mortgage payment totaling $2,037 comes back to you in equity. Your common charges on this property of $365 per month are offset substantially by your mortgage interest tax deduction and property tax deduction.

The average rent in Stamford is $2500 per month or $30,000 per year. With the right strategy and savings plan, it is easy to spend less than that to live in Fairfield County or at least have something concrete to show for it in terms of home equity if you choose to spend that much or more. Take the time to do the math for yourself and your adult children.