We’re all would-be interior designers and contractors in our own HGTV world. We like to think of our significant others in hot-ass overalls covered in paint smudges, having a drink together and talking shop after a weekend of DIY home improvements.
But you have to own a house first.
SoCal real estate may seem unattainable, but it’s not so unrealistic. It is reasonable to be in the market for your first home. And it’s even normal for people to invest in second and third properties for additional monthly income and tax incentives!
How many stories have you heard about your parents buying a house for a mere $50k, 30 years ago? And now it’s worth what?! Well, friends, we call that a perk of the real estate game. Success in real estate may be confusing at first, but it can provide a path to wealth and peace of mind.
What first-time home owners often don’t realize is that the government incentivizes us to buy houses. They do this in a variety of ways, including (very generally):
Credits– Credits are free and reduce the amount of money you owe in taxes, dollar-for-dollar. If the credit is larger than what you owe in taxes, you can get a refund for the difference.
Deductions– Deductions are comprised of money you spend that reduce your taxable income. If you made $70k last year and had $10k in deductions, you only pay taxes on $60k.
Deferrals– Deferrals postpone the taxation of income from the sale of certain property. A 1031 exchange is when you sell a home you currently own and use all the proceeds to buy another home. The money you got from the sale of the initial home is not taxed because you’ve immediately reinvested it.
Exclusions– Exclusions allow certain profits from the sale of a property to avoid being taxed. If you make a profit by selling your main home, up to $250k (or $500k for married couples) of that profit is not taxed at all.
A combination of these and other incentives can make the net cost of owning less than the rent tenants pay each month. So if you’ve been paying a couple thousand for a one-bedroom at the beach for years, call a Realtor and let’s get you a home.
Real estate professionals work on commissions, so you can time-vampire them and it won’t cost you anything to get the ball rolling. A good Realtor can concisely answer your questions, go over the buy/sell processes and weigh options specific to your situation. They will connect you with a trusted lender who is critical in determining what price range you can afford and should be looking in (an often-overlooked step).
Of course the market could crash on the same week your boss fires you in front of your ex (who is doing better than you now, somehow) while simultaneously your favorite puppy gets her paws covered in gum! At risk of sounding a bit hipster, Hemingway once said, “I am an old man and have known a great many troubles, but most of them never happened.”
So, if you plan to be a homeowner, or intend to invest in real estate, it’s time to start taking steps. Step out of your comfort zone– and your rental– and use the resources at your disposal. Calculated risks and exploring unknown territories is sometimes necessary to find what you’re looking for. Take advantage of these tax and financial incentives, build up some equity over time, and let’s get those economic libidos humming! Let’s not live vicariously through those hotties on HGTV.
Camden DeLong is an estate planning attorney based in Long Beach, CA. A large part of his practice is dedicated to helping people buy, sell and exchange properties according to their family and financial goals. Camden passed the California Bar in 2011, is well-traveled and agrees with you that most ‘lawyer jokes’ are true. Contact Camden at www.delonglegal.com.