Buying a Home

FIRPTA – The Foreign Investment in Real Property Tax Act of 1980

August 25, 2020 by khproperties Leave a Comment

The first time you hear someone say FIRPTA out loud (sound it out as if it was a word and not an acronym), you’re more than likely to think that person is making words up. Like many acts of the US government, FIRPTA has a much lengthier and descriptive name: The Foreign investment in Real Property Tax Act of 1980. The act allows for tax withholding and reporting when a “foreign person” (see below) sells real estate in the United States. FIRPTA puts the obligations for withholding and reporting onto the buyer, which can make it a little frightening if you’ve never dealt with it as a buyer. As with most things in real estate, it’s all a matter of asking the right questions and talking to qualified people who understand FIRPTA and know how best to advise you when you find yourself in this situation.

First, let’s define “foreign person.” According to FIRPTA, a foreign person is 1) an individual that is not a US citizen or a resident alien, 2) a foreign corporation that is not being treated as a domestic corporation, or 3) a foreign partnership, trust, or estate.

Under FIRPTA, a buyer must withhold a percentage of the “amount realized” (purchase price) and within 20 days of closing report and pay the tax to the IRS. The percentage is determined by several conditions. If the buyer is acquiring property that is not intended to be their residence, FIRPTA requires the buyer to withhold 15%. If the property being acquired is going to be the buyer’s residence, then the percentage of withholding ranges from 0-15% and depends on the sales price. Up to $300,000 it is 0%, over $300,000 and up to $1,000,000 it is 10%, and over $1,000,000 it is 15%. Like many IRS regulations, there are exemptions.

If you are notified that your transaction has triggered FIRPTA, you should call an attorney, CPA, or other tax professional, preferably one familiar with The Foreign Investment in Real Property Tax Act of 1980. As there are exemptions, these professionals can guide you through your situation and recommend what your next steps will be. In many cases, a consultation with a tax professional will allow you to know the seller may be exempt and you as a buyer can move to closing without any further action. Exemptions include a sales price of less than $300,000, a seller able to provide an Affidavit of Non-Foreign Status, a seller providing a FIRPTA Withholding Certificate from IRS, and when sellers are participating in a 1031 exchange and can provide the appropriate information about the sale in writing. As with anything of this nature, the laws and how they work can change over time and we are not tax professionals, so it is best to ask your CPA for tax advice.

In our experience, many of the title companies will provide access and a free consultation with a tax professional who can advise you on your next steps and whether or not you will need to withhold. Further time may be required if it is decided that withholding is necessary as there are rules and as you well know with the IRS, there will be forms to be filled out.

As it is tax related, there are penalties for not withholding the appropriate amount, not reporting it, and not reporting it within the allowed amount of time. And the IRS can tag on interest as well – so you really want to make sure you follow the letter of the law on this one (which is why we highly recommend a tax professional, particularly one with experience with FIRPTA).

While FIRPTA can seem scary at first, with a little patience and consultation with the right people, you can get through the regulations and successfully close on your new home or other property.

image courtesy of cafecredit

Beneficios de ser dueño de su propia casa.

October 18, 2019 by khproperties Leave a Comment

Felicidad: No hay nada que se compare a la sensación de tener su propio hogar. Puede arreglarlo, darle su propio estilo, tener un perro o un gato, e incluso plantar un árbol si lo desea. ¡Solo imaginarlo causa alegría!

Ahorro de impuestos: el gobierno recompensa a los propietarios de viviendas proporcionándoles excelentes beneficios en los impuestos. El interés pagado por su hipoteca y otros gastos relacionados con el hogar generalmente se pueden deducir de sus ingresos.

Apreciación: Hay un crecimiento de valor en las viviendas con el paso del tiempo; este aumento se convierte en ganancia cuando sea el momento de re-financiar o vender la propiedad.

Renta variable: tanto rentar como alquilar se puede comparar a pagar 100% de interés, pero cuando usted es dueño de una casa y cuenta con una hipoteca, una parte del pago se destina al saldo principal de su préstamo. Esto construye su capital y actúa como una cuenta de ahorros.

Vida en comunidad: quienes son dueños de sus casas son más propensos a permanecer en sus hogares 4 veces más que quienes rentan propiedades. Esto brinda la oportunidad de conocer a sus vecinos y conectarse con su comunidad.

Educación: las investigaciones muestran que los hijos de los propietarios de viviendas obtienen puntajes más altos en exámenes y se gradúan en un porcentaje más alto que los hijos de inquilinos.

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Downpayments: How Much Should You Pay Up Front?

July 10, 2019 by khproperties Leave a Comment

If you’re going to be buying a home any time soon, you’re going to need to start thinking about your downpayment. Typically expressed as a percentage of the sales price, the downpayment is often one of the more difficult obstacles for people to overcome on their way to home ownership. You’ll need to budget your money and save up enough to make your downpayment, but how much will you need? You’ve probably heard the rule – you’ll need to save for a 20% downpayment before you buy a home. The logic behind saving 20% is solid, as it shows that you have the financial discipline and stability to save for a long term goal and it can also help you get favorable interest rates from your lender. Additionally, the bigger your downpayment, the less you need to borrow, so the less you’ll pay in interest in the long run.

But there can actually be financial benefits to putting down a smaller downpayment — as low as three percent – rather than parting with so much cash up front, even if you have the money available.

The Downside of a Small Downpayment

The downsides of a smaller downpayment are pretty well known. You’ll have to pay private mortgage insurance (often referred to as just PMI) for years, and the lower your downpayment, the more you’ll pay. You’ll also be offered a lesser loan amount than borrowers who have a 20% downpayment, which will put some higher priced homes out of reach for you when searching.

THe Upside of a Small Downpayment

The national average for home appreciation is about five percent. The appreciation is independent from your home payment, so whether you put down 20% or three percent, the increase in equity is going to be the same. If you’re looking at your home as an investment, putting down a smaller amount can lead to a higher return on investment, while also leaving more of your savings free for home repairs, upgrades, or other investment opportunities.

The Happy Medium

Of course, your home payment options aren’t binary. Most borrowers can find some common ground between the security of a traditional 20% and an investment focused, small downpayment. It’s always a good idea to talk with your Realtor and your lender to discuss the potential paths for you and to see what strategy works best for you and your personal needs.

image courtesy of AleXander Agopian

Things to Do After You Move In

April 30, 2019 by khproperties Leave a Comment

It’s move in day! Moving into a new home is an exciting time. So much to do; trying to remember where you put your spoons or your coffee mugs, running up and down steps, paying the movers, meeting the neighbors for the first time while your hair is sticking up and you look like you just rolled out of bed, calming the cat down because she’s probably freaking out right about now…whew. Who else is tired already? Now you’re probably daydreaming about decor and paint schemes and new furniture, but before you get into the fun stuff, there are some basics you should cover first.

Change the locks. Even if you’re promised that new locks have been installed in your home, you can never be too careful. It’s worth the money to have the peace of mind that comes with knowing that no one else has the keys to your home. Even if the sellers handed you all of their keys, you never know if they made one for their uncle that time he stayed for a week or the maid and their best friend has one “just in case.” Changing the locks can be a DIY project, or you can call in a locksmith for a little extra money. It’s also advisable to change the garage door code if you have a keypad entry. Not sure how to do it? Find your model and then look up the manual at ManualsLib.

Steam clean the carpets. It’s always a good idea to get a fresh start with your floors before you start decorating. The previous owners may have had pets, young children, or just some plain old clumsiness. Take the time to steam clean the carpets so that your floors are free of stains and allergens. It will also help freshen up the smell of the new place – it’s amazing how much odor gets trapped in those carpets! It’s pretty easy and affordable to rent a steam cleaner – most HEBs carry them as well as the big box hardware stores. Not in the DIY mood? Call a steam cleaning company and have them arrive before your move in day.

Call an exterminator. Prior to move-in, you probably haven’t spent enough time in the house to get a view of any pests that may be lurking. You’ve probably had a WDI inspection, but those only look for wood destroying insects. Call an exterminator to take care of any mice, insects, and other critters that may be hiding in your home. Here in South Texas we have a lot of creepy crawlies and a good, regular pest control service will help keep the insects at bay.

Clean out the kitchen. If the previous occupants wanted to skip on some of their cleaning duties when they moved out, the kitchen is where they probably cut corners. Wipe down the inside of cabinets, clean out the refrigerator, clean the oven, and clean in the nooks and crannies underneath the appliances. If you’re feeling brave, see if you can pull out appliances like the refrigerator, stove/range, and dishwasher to get under and behind those. Be careful though, those appliances may be attached and can be heavy.

image courtesy of Genista

Which Down Payment Strategy is Right for You?

April 10, 2019 by khproperties Leave a Comment

You’ve most likely heard the rule or had one of your friends give you the advice: save for a 20 percent down payment before you buy a home. The logic behind saving 20 percent is solid, as it shows that you have the financial discipline and stability to save for a long term goal. As with any financial plan, you have to look at the pros and cons and determine which benefits you more both in the short and long term. It is always advisable to discuss with your lender and your CPA to see where and how you can maximize the benefits. Larger down payments can help you get favorable rates from lenders, but there can actually be financial benefits to putting down a smaller down payment, something as low as three and a half percent, rather than parting with so much cash up front, even when you have the extra money available.

THE DOWNSIDE

The downsides of a smaller down payment are pretty well known. You’ll have to pay Private Mortgage Insurance for years and the lower your down payment, the more you’ll pay. You’ll also be offered a lesser loan amount than borrowers who have a 20 percent down payment, which will eliminate some homes from your search.

THE UPSIDE

The national average for home appreciation is about five percent. The appreciation is independent from your home payment, so whether you put down 20 percent or three and a half percent, the increase in equity is the same. If you’re looking at your home as an investment, putting down a smaller amount can lead to a higher return on investment, while also leaving more of your savings free for home repairs, upgrades, or other investment opportunities.

THE HAPPY MEDIUM

Of course, your home payment options aren’t binary. Most borrowers can find some common ground between the security of a traditional 20 percent and an investment focused, smaller down payment. Your real estate agent can provide some answers and introduce you to a lender as you explore your financing options. Sitting down with the lender and discussing the finer details of your goals and your plans can help you make the best decision for you at this particular point in your life.

image courtesy of Mukumbura

A Few Tips for Online House Hunting

March 29, 2019 by khproperties Leave a Comment

House hunting online is a great place to start your search, but it can never replace good old-fashioned viewings of homes in person. Good listing agents will always be excellent at highlighting the best features of the home and drawing your attention, but always keep in mind there may be more than meets the eye. We all have to start somewhere with our searches and online is certainly a great place to begin – it’s why we built this website. To make the most of your time and efforts and in order to gather a well-rounded picture of online real estate listings, try to keep the following three things in mind during your online house hunting.

Stay up to date. When you are just beginning your search, make sure you find a site that feels comfortable to you and pulls up-to-date listings directly from the multiple listing service (MLS) where real estate agents actively post their most current homes for sale. Many online resources update less often or fail to remove listings that are off the market, making it more difficult to sort through the clutter. This has definitely improved over the years, but there are still some sites out there that let old data linger for far too long or don’t have the best, most reliable info. Might we suggest our easy to use search?
Pictures can be deceiving. Real estate photographers are experts at showing a home in the best possible light. Many use tools and strategies to boost appeal, such as wide angle lenses to make areas look larger and creative editing to make colors and textures really pop. Photoshopping grass or blue skies is common these days, so be aware that what you see in the photo may not be what you see when you step out of the car. Many real estate agents will avoid using photos that are not flattering or show unappealing parts of the home, like small closets or outdated bathrooms.
See it to believe it. Once you find what appears to be your dream home online, give us a call and schedule a showing. You want to take the opportunity to vet the home in person and explore every part of it before beginning the offer process. Your real estate agent will help you cover all your bases and will ask questions you may not have thought of. Take your time and get a good look – this might be where you spend the rest of your life, so you want to make sure it’s the one you want.