Portland Real Estate Blog

Don’t consider this tax advice. Everyone’s situation is different and your accountant will help you develop your specific strategy. Investment property is a great place to protect you hard earned dollars.

There are four benefits to investing in real estate:

1) Income (cash flow before taxes)
2) Principle reduction (paying off the mortgage)
3) Income tax savings (self explanatory)
4) Appreciation (if you have the first three under control you are a real estate investor, if you are counting on appreciation to make your profits, you are are real estate speculator)

Without using specific numbers, consider a property that has a positive cash flow. The tenants pay rent, your mortgage and cover expenses. Your mortgage interest is tax deductible along with the depreciation on the property (which you have bifurcated with your account for the maximum advantage). At the end of the year, you show a loss for the property in the eyes of the IRS.

The IRS allows most people to shelter up to $25,000 of their “active income” earned from their job with passive losses from real estate. A self employed individual that is employed in a real estate related business (no W2 earners) over half of all their working hours and at least 750 hours a year is not subject to the $25,000 limit. Again, consult your accountant.

So in a nutshell: unless you like paying taxes, buy investment real estate. Not only will you be building towards your future, you’ll keep more money in your pocket each year. The earlier you put the property into service, the greater the deduction you will be able to create.

Somehow this didn’t get posted when I wrote in October:

Before I started to type this, I suddenly had to put the last 24 hours of water damage into context. Compared to the Gulf Coast, my water problems are minor. Last night, we discovered that the finished basement in our house had leaked with the first major rain of the season last week. Five days of damp had taken its toll. Carpet pad is great when it is dry but becomes a massive sponge when wet. The only real way to get it dry is to cut it out and replace it. That’s what I did this afternoon.

This morning we were greeted by water on the kitchen floor (two floors above the basement). Actually it was coming from the kitchen ceiling. Seems like the washing machine got moved upstairs and the drain hose disconnected from machine and you can guess the rest of the story. Water travels by gravity.

Meanwhile, over at the Lovejoy remodel project, John’s Waterproofing has installed a WaterGuard waterproofing system around the entire perimeter of the basement. Any water that gets in is channeled around the basement and out the drain. We will be able to finish the basement without any risk of future water damage. Cost: $5600.

For the last three years, I have been driving what could probably be termed as the worst late-model real estate car: a Nissan 350z two seat coupe. Featuring poor visibility, no in-car navigation, and a punishing sports car ride. But, boy was it fun to drive. We usually managed to make do sharing our other car, a Volkswagen Touareg, but occasionally had to rent or borrow a second four door vehicle when we had two sets of clients in town at the same time.

It took nearly a year to decide what we felt was the best Realtor vehicle. Four doors and built in navigation were non negotiable. Other factors:

Gas mileage: we’ve put 45,000 miles on the Touareg in 24 months. Forget the Hummer family!

Luxury versus economy: it took nearly 1800 hours to put 45,000 miles on the Touareg. That’s a lot of time behind the wheel and we feel that our clients deserve/expect to be driven around in something nice. Luxury wins out.

Size: the hybrid sedans are attractive but are really too small when you start thinking about putting four or five people in the vehicle at once. What they lack in luxury could be made up by the coolness factor of the hybrid technology. The 3 series BMW, the Acura TL and competing cars at this tier are a little crammed in the back seat as well. We had pretty much decided on an Acura RL a few months back as the best combination of features, price and comfort but then put the car buying thing on hold when we took on the Lovejoy remodel project.

SUV versus sedan: the Touareg has been a great “client” car. Its shortcomings come mainly at the pump, even for the V-6 model. It slurps premium gas. The thought of pulling up to the gas station in a second SUV was painful.

Today we took ownership of a Lexus RX 400h SUV. It seems to be the perfect real estate car in today’s market. It has the environmental benefit of the electric motor (no, you don’t have to plug it in) paired with the gas engine found in the Lexus 330. It pumps out more horsepower using less gas than the 330. In fact, at low speeds, it can run entirely on the electric engine which gives it higher EPA city mileage (31) than highway mileage (27) and trumps the Acura RL’s 18/26 predicted economy and the Touerag’s 16/20.

So only time will tell, but for now, our clients will get the benefit of that new car smell.

Disclose, disclose, disclose. I don’t think anybody has ever been sued for saying too much about the condition of a property or providing too much information. Due diligence works both ways and ignorance of something that you should have known will not serve as a defense later on. Real estate is often an individual’s largest purchase. Here is what you should read up on (all files are Adobe PDF stored on our server):

The Oregon Real Estate Agency Disclosure Pamphlet. This is a required handout by all real estate agents at “first contact.” If you haven’t seen it and are involved in a real estate contract, find out why.

The Oregon Property Buyer Advisory. What you, as a buyer, need to know about the process and inspections.

Lead Based Paint Pamphlet. If your house was built before 1978, the odds are, it has lead based paint present.

The OREF Residential Real Estate Sale Agreement. What sellers and Buyers need to know about the seven page Earnest Money Agreement.

Happy Reading.

The end of the year is getting close and we are as busy as we have been all year, a repeat of this time last year. It is myth that the market slows at this time of year. Our clients are buying and selling. This time of year, there may be fewer people in the market they are more serious than the summer crowd. They are buying and selling real estate for a reason. You have to be motivated to look at a house at 4:30 in the afternoon on a cold rainy day in December!

Some interesting stats about our clients in the last year:

54% from Oregon
32% from California
5% from Washington
9% from all other locations

48 out of 57 either bought or sold their primary residence

The average transaction was higher than the area’s market average

Just under 50% met us on the Internet. The majority of business was from the people we know and trust and that refer us to their friends.

We appreciate your continued support.

Happy Holidays!