South Bay Real Estate News

Monthly market updates, plus other blog posts and information you might like.

Jan. 22, 2018

How Will the 2017 Tax Law Affect South Bay Real Estate Prices?

Manhattan Beach Pier

I've been getting a lot of questions about the recent tax changes and how they will affect our local South Bay real estate market, so here are my two cents on the subject after considerable research and experience on the subject. For starters, if you'd like to learn about the entirety of the tax law, here are my favorite articles for an overview: www.bloomberg.com and www.nytimes.com.
    The way I see it with regards to our local South Bay real estate market, we're going to be getting some direct effects, but also some indirect effects from the law. Let's start with the direct effects:
    Mortgage Interest Deduction - Currently deductible mortgage interest is capped to loan amounts of $1 million. That will now be limited to loans of $750,000 or less. Since we have high home values here in the South Bay, this will have a much larger effect on us than it will in many parts of the country. For example, if you're buying a home for $1.5M with a 4% APR mortgage loan, then you will be able to deduct $250k less of the mortgage interest than before. At 4% APR, that mortgage interest comes out to $10,000, and if you pay 33% taxes, then that comes out to $3,333 more that you'll be paying in taxes every year. Also, home equity loan interest is no longer deductible for anyone.
    State and Local Tax Deductions - Previously, you could deduct the amount you paid for state and local income taxes, including property taxes. You may now deduct only up to $10,000 total for all combined. Consider this: If you buy a $1.5M home, your property taxes alone will be assessed at $15,000 for the initial year. Even without taking state income tax into account, you'll already be paying more in taxes. When the state income tax is added it is even more substantial.
    Indirect Effects - while the changes above are what most real estate folks are talking about, I'm not so sure that in the end the indirect effects may not have a greater effect. Relocating expenses, alimony, tax preparation expenses, losses for most fires and floods, and some investment fees are all no longer tax deductible. Also, taxpayers will more quickly find themselves in higher marginal tax brackets due to the change to chained CPI.
    Also, because the individual mandate has been removed, most insurers are predicting a sharp rise in health insurance premiums.
    Lastly, and not actually related to this, recently China announced that they were going to stop purchasing US debt. [and here is a great article on the subject: bloomberg.com] while this may indeed have been a political ruse, this -- along with a red hot stock market -- have caused mortgage interest rates to rise.
    Analysis - I find it hard to believe that all of these combined won't have a noticeable effect on South Bay home prices. Fortunately, however, we're starting from a red hot market these last few years. I think this will put pressure to return to a more balanced market here in CA, which could be a relatively good thing for some people - especially for first time homebuyers. However, I'll be keeping my eye on interest rates; if they go up above 4.5% or even 5% (does anyone even remember those days) then we'll definitely have cause for greater concern.
   I hope this info helps, and feel free to contact me if you have further questions or insights. -- Ed Marill
   Further reading and source material: abc7.com, forbes.com, mercurynews.com, mansionglobal.com, ocregister.com, manatt.com, cnbc.com, businessinsider.com
    

Feb. 3, 2017

How to sell a home with leased solar panels

Let me start by saying I love solar panels. I'm a staunch environmentalist, and obviously anything we can do to cut greenhouse gases and become less dependent on foreign oil is a good thing. Plus the cost of solar panels has gone down substantially, so even from strictly a financial perspective, solar panels is a wonderful investment.

Up until a few years back, the only way to purchase a solar panel system was to purchase it outright and finance it privately, which meant that few people wanted to go forward because it would be years before they'd see a return on their investment.

To lower the cost of investment and to increase sales, solar panel companies began offering financing options including leasing out the solar panels. This worked well, and along with the lowered cost and increased awareness, solar panel sales have skyrocketed.

The problem that we're having now is what to do if you want to sell your home and you have leased solar panels. Many real estate agents have run into problem with not knowing how to handle the situation, and deals have fallen apart strictly on this issue alone.  If you talk with many real estate agents, you would think that solar panels are a horrible decision for the value of your home.  In my opinion, that couldn't be further from the truth.  With a little bit of work, your home will be no more difficult to sell, and in the eyes of some buyers, your solar panels can make the difference between you and a competitor's home in your favor:

  1. The first option obviously is to go ahead and buy out your contract. Most solar companies will allow you to pay off the balance and complete the purchase. This can be done via a home equity loan if needed with the intention of paying it off at closing. The key to this option is to market the property so that potential buyers know the benefits of having solar panels. Show them the numbers. It may very well mean acquiring some brochures from the solar panel company and providing them when buyers tour your home. You should especially include a summary of your electric bill along with what the bill would have been without the solar panels. You may not recoup the entire cost of the solar panels, but you should come close.
  2. The second option is to pass along the lease and have the buyer of your home take it over. This is a bit more complicated as you're now selling two items, your home and solar panels, and some buyers aren't going to want solar panels. Again, the key is to educate the buyer. Regardless of how they feel about environmental issues, solar panels are usually a wise financial investment. However, your average home buyer has no idea how the numbers work out, so it's your duty (or your agent's) to educate the buyer and break down the numbers for them so they can see easily how they will work out in their favor. Again this includes a combination of some brochures from the original company and breaking down how the financial numbers in your particular case breakdown.

For any additional questions feel free to call or email us and we'll be happy to show you some samples we've done for clients breaking down the financial numbers so a buyer can see at a quick glance the savings they'll be getting on their home.

Posted in Green