Income and Investment Property Buying Tips

The Crested Butte and Gunnison area offers many possibilities for Income and/or Investment Property. I have extensive experience assisting clients looking for Income Property, I would welcome the opportunity to assist you with your purchase.

This page is intended to provide useful information about real estate held for investment. There are tax and expense considerations, so check with your tax advisor.

Considerations

Income Property -or- Second Home – what are your objectives? Do you want a retreat for you and your family in the mountains, purely income property or a combination of both. There are limitations on personal use of real estate held for investments.

Cash Flow – if you choose to rent your unit out, don’t expect the income to exceed the expenses with a typical 80% mortgage, this rarely happens, but the cost of ownership can be reduced significantly by renting the unit out when you are not using it. And, if you increase the down payment to reduce debt service you can reach a positive cash flow. A good "estimate" of the income can be derived from a thorough analysis of the rental history for the property you are considering as well as the area it is in. The costs will be easy to identify. The major cost possibilities are: debt service with your new mortgage (principal and interest), taxes and insurance, home owners association dues and maintenance fees, homeowner assessments for planned improvements, property management fees and rentals commissions.

Rental History – a good "estimate" of the income and expenses can be derived from a thorough analysis of the rental history for the property you are considering as well as the area it is in. The costs will be easy to identify. The major cost possibilities are: debt service with your new mortgage (principal and interest), taxes and insurance, home owners association dues and maintenance fees, homeowner assessments for planned improvements, property management fees and rentals commissions.

Location – a good location will improve the chances of your unit being rented. The better the location the more costly you can expect a unit to be. Some good locations are: ski-in/ski-out, on the free bus routes and close to the entrance of Beaver Creek.

Purchase Price – will predominently be a function of size, location, ammenities and condition.

Earnest Money – should you submit an offer to purchase a property you will be expected to extend "earnest money" to show your "good faith" in the transaction. If your offer is accepted the earnest money will be applied toward the purchase at closing time.

Transfer Tax – many of the communities in Crested Butte have a Transfer Tax that is paid at the time of closing. This tax varies from about 1-2% and who pays the tax is negotiable.

Up Front Costs – when you submit a contract to buy an available unit your earnest money will later be used to offset the purchase price or down payment. These will be costs associated with title insurance and with any new mortgage; your mortgage company will give you a best estimate of their charges and your title insurance company will give you a preliminary settlement sheet that outlines all costs.

Tax Implications – consult your tax advisor on your situation. If you are selling an investment property and purchasing another investment property, consider the advantages of a 1031 Exchange; if you are eligible, you will defer capital gains taxes and apply all your equity to the purchase of the new property.

Financing and Loan Qualification – I recommend that you talk to a mortgage company first and obtain pre-qualification for the maximum amount possible. This does not obligate you to purchase at that level, but if you find something priced above your initial parameters you do not have to obtain re-approval.

Furnished Units – some units listed for sale are furnished and the sales price reflects these assets.

Personal Use – consult your tax advisor on personal use of income property. There are rules that you must follow to keep your investment qualified for tax purposes.

Appreciation – no one can predict what will happen in the future, we can only report on the past. Most properties in Crested Butte have been appreciating quite nicely for the past 4-5 years. Most of the 1990s’s saw property values remain fairly flat. You can view recent sales activity by visiting my Market Data Reports page at my web site.
http://www.crested-butte-real-estate.com/crested_butte_real_estate_market_data.html

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