With Terry Story, 29-year veteran Real Estate Agent with Keller Williams in Boca Raton, FL
New Home Expenses
Terry Story starts Real Estate Round-Up by updating us on what new homeowners are buying for their homes these days. Unexpectedly, the #1 item is furniture, followed by appliances (which are often not included in new homes), and expensive remodeling projects with an average spend of about $11,000 in the first year of homeownership. New homeowners also spend an average of about $4,000 on furnishings after they move in.
Steve reminds listeners to factor in these additional new home expenses, over and above closing costs and other fees.
Moreover, when homes—new or old—come with appliances, homeowners often want to upgrade to a nicer refrigerator, change to a stainless steel look, etc., so it’s best to factor in the costs of changes you likely will make after you move in.
In addition, older homes often require upgrading, such as new plumbing, repainting, or more extensive structural repairs or alterations, so add in and budget for possible unforeseen expenses. For instance, a new roof could cost about $30,000 and last a good 15 years, so factor in putting aside about $2,000 a year if you buy an older home.
When you go to buy a home, remember that it will cost you a lot more than your initial closing costs and obvious expenses.
Liability For Parties
Steve wants Terry’s advice on liability insurance if someone gets injured, such as on a bounce house at a kid’s birthday party. Terry believes party hosts should make sure they are protected against expensive lawsuits by checking the coverage in their home insurance policies, even if they’re hiring a third party to bring in and set up the bounce house.
Party hosts should read the manufacturer’s warnings and rent from a reputable dealer which ideally would carry liability insurance.
Impact Of New Taxes On Real Estate
Switching gears, the new tax law will impact real estate related deductions in 2018. For instance, interest may only be deducted for mortgages up to $750,000. Terry doesn’t believe this would be an issue for larger homes because those purchasing multi-million-dollar homes often have multi-million-dollar down-payments, so their mortgage borrowings are small. For example, somebody buying a $3 million home may get a $1 million mortgage and take mortgage interest deduction on the first $750,000, leaving them with non-deductible mortgage interest on just $250,000. This, Terry believes, will not hold people back from buying homes. Moreover, $750,000 is high enough relative to the average home price nationwide and should not slow down home sales.
The other big change is the removal of state and local tax deductions which will hit a lot of coastal states such as New Jersey and California. This could prompt a few people to move to places with lower state and local taxes, but Terry believes other factors, such as proximity to family or quality of life, weigh more heavily on relocation decisions.
That said, she sees the state and local tax deduction clause as a definite plus for sunny Florida!
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Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent Terry Story. Terry is a 29-year veteran with Keller Williams located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: Hey, part of the pleasure and excitement of buying a new home has to do with getting it just the way you want it.
New furniture and everything like that. So, Terry, what are new homeowners buying for their homes these days?
Terry Story: You know, the number one item is furniture, followed by appliances and then remodeling projects. Of course, remodeling projects are your most expensive projects. But interestingly enough, they spend an average of about $11,000 the first year of homeownership.
Steve Pomeranz: Yeah.
Terry Story: And then spending an average of about 4,000 on furnishings alone.
Steve Pomeranz: Yeah, so I want to stop you there. So remember, everyone, when you go to buy a house, you’ve got all these closing costs, all this up-front stuff, and maybe you’re scrambling to cover all that.
But don’t forget that when you move into a new house, you know, you’ve got to put curtains up, blinds.
Terry Story: Yes.
Steve Pomeranz: And you need furniture so try to remember that there’s going to be some further expenses, and Terry is saying that on average it’s about $11,000 a year.
Terry Story: And interestingly enough, I mean, it depends on where you live but in this example, they’re talking about window coverings $215. Around here that’s one window.
Steve Pomeranz: [LAUGH] Yeah, so it’s an average.
Terry Story: I’m looking at these numbers and I’m like, Wow!
Steve Pomeranz: These are averages, a sofa would cost how much?
Terry Story: $700 for a sofa. You know, a dining room table and kitchen furniture for $345?
Steve Pomeranz: Well, it’s an average, these are averages.
Terry Story: These are averages.
Steve Pomeranz: Yeah, so they’re common.
Terry Story: But appliances are really expensive and people don’t realize. They say, well, why do you need appliances if you’re buying a new house?
Well, believe it or not, especially if it is a new house, a lot of times they don’t give you the refrigerator, they don’t give you the washer and dryer. If you buy an older home, a lot of the times the appliances don’t match, some are stainless steel, some are different colors.
Steve Pomeranz: Yeah, plus if you are making this home your own, you may want your own, you know good looking big refrigerator.
Terry Story: Exactly, so appliances are more pricey than you think.
Steve Pomeranz: Yeah, so that’s something to always remember. Houses have hidden costs and even the annual maintenance on a home—what an accountant would call depreciation—when you have bricks and mortar, the bricks and mortar and the insides, they’re always in a state of very slow deterioration. So, they have to be replaced, whether it’s a roof or repainting or whatever, over a period of time. Now you may not do it in any given year, you’re not going to replace your roof, obviously, every year, but after 15 years, you might have to. So if a roof costs $30,000, you divide that by 15. So really, in a sense, you need to kind of put away $2000 a year.
Terry Story: That’s right.
Steve Pomeranz: As kind of a depreciation expense. Not that everybody’s going to do something like that.
But it’s important to keep that in mind, so when you go to buy a home, remember, it’s more expensive than you think.
Terry Story: That’s right.
Steve Pomeranz: Okay, all right, let’s move on here. I love this one, this was I think from the Sun Sentinel and it’s a question that was posed.
“We’re having a party for my kid’s birthday, and she wants it with a bounce house and other outside attractions in our backyard. I’m concerned with my liability if someone gets injured at the party. What are my rights?”
Terry Story: That’s an excellent question, and you should be concerned. You rightfully should definitely check out your insurance policy.
It’s expensive to be sued. And if somebody is injured, you do have some responsibility in it. Even though you’re hiring a third party to bring the bounce house over and set it up, it’s important to look over your policy to make sure you’re covered for those types of things.
It’s liability, and that’s why you carry insurance. And you shouldn’t be afraid to hold an event just because you might get sued. You just have to take precautions and know what your insurance covers, just be smart.
Steve Pomeranz: So, in the case of a bounce house, you want to read the warnings from a manufacturer, you want to rent from a reputable dealer because you don’t want to get some kind of piece of junk that someone’s kind of bought at a junkyard or something and brought to your house. You really want to be careful. And keep the adults out of the bounce house.
Terry Story: [LAUGH] Yeah, I have some stories about bounce houses.
Steve Pomeranz: [LAUGH] Yeah, so you want to be very, very, very careful. So, Terry, 2018 is now going to have a different look to it because of the new tax law that was signed last year. And, especially with regard to real estate, a couple of things are happening, especially with the mortgage deduction.
Let’s talk a little bit about that.
Terry Story: Sure.
Steve Pomeranz: You know, so there’s a limit in terms of mortgage deductibility up to $750,000 mortgage. You deal with moderately-priced houses and kind of upwards from that. You think that’s going to have much of an effect on the real estate business in South Florida?
Terry Story: You know, no, I don’t, and I’ll tell you why. If you think about it, 750,000 is a large mortgage amount and those that are purchasing, say $3 million homes, $2 million, $3 million, $5 million, whatever number it is above that number, so many of them put very large amounts of money down.
Steve Pomeranz: Yeah.
Terry Story: So, this is what I see typically. Somebody’s buying a $3 million home; they may get a $1 million mortgage. So, then you’re looking at they’re able to deduct the first $750, so you’re only talking a little bit above that. That’s not going to hold anyone back from buying a house.
Steve Pomeranz: I totally agree.
Terry Story: So, 750 is a good number if you look at the masses. So it’s not affecting that many people and that’s the way I view it.
Steve Pomeranz: All right. So really, you think just from the street point of view, that it’s not really going to have much of effect.
I mean, the exclusion was $1 million. They just lowered it to 750.
Terry Story: Right. So, I don’t even think anyone is going to notice. I just don’t think it’s going to have any impact at all.
Steve Pomeranz: The other aspect of the tax law is the deductibility of state and local tax.
And I think we all know that that’s going to hit a lot of the coastal states in the country, talking about the northeast, in particular, and we’re talking about New Jersey and Pennsylvania, those kinds of states, also California and other high-tax states. And it seems to be a natural conclusion to think that some of those people eventually are going to kind of get up and move down to these lower tax states.
Is there any talk in your industry, amongst your colleagues, about that?
Terry Story: I think it’s just going to take some people off the fence that were debating whether or not they were going to make the move. And that might be just enough incentive for them to go ahead and make a move.
When people make a decision to make a move, they’re factoring in all kinds of things. They’re factoring why they live, people coming from the Northeast, for example, they may want to stay up there because of their family, their ties. Those that decide that they come down here, their kids are grown, they’re out of the house mostly. They want to come down here for the sunshine.
Steve Pomeranz: Right. So, it’s a quality of life thing; it’s not so much something with taxes, they don’t affect that much.
Terry Story: Right, but it’ll definitely put a plus column and should benefit us here down here in Florida.
Steve Pomeranz: All right, my guest as always is Terry Story, 29-year veteran with Keller Williams located in Boca Raton, Florida, and she can be found at terrystory.com.
Terry Story: Thanks for having me, Steve.