Buyer Tips

To Build or Not to Build? A Telluride Real Estate Market Construction Update

Many of my clients have inquired with me recently about the options of purchasing an existing home or buying a lot and building a home to their specification. It’s a very interesting question in today’s Telluride real estate market. Please allow me to be clear that I’m talking about residential construction here, not commercial or condominium development. It also needs to be understood that I am talking in generalities and that each project will have unique factors and costs unique to its own.

The equation to understand construction cost is land + hard costs + soft costs = project total cost

The important factors to understand when evaluating new home construction in the Telluride market:

Availability of Labor, Services and Materials:

There are incredible home builders in the Telluride market. However, basic supply and demand is dictating an increase in construction costs due to the supply of qualified contractors. Workers are being drawn to Denver and other areas of the Western Slope where conditions and pay may be favorable. There is also a shortage of young people entering the trades.

Almost all the materials used for building homes in Telluride are now imported; lumber and steel from Canada are an example where proposed tariffs may increase the costs further.

Hard Costs

Hard Costs are the actual construction costs and can vary dramatically upon the size of the home and what quality of finishes, lighting and appliances are desired by the owner. These costs also depend on which municipality you choose to build in. In the Town of Telluride there may be workforce mitigation fees and historical preservation impacts. The Town of Mountain Village has very specific architectural guidelines such as a 35% stone requirement which ultimately preserves the overall consistency and property values of the community.

A general range of hard costs is between $450 to $600 sq/ft

If you are looking to build a mountain modern, contemporary home, Mountain Village, or Aldasoro Ranch may be the best options as their design guidelines are now more geared to this style of home.  

Soft Costs

Soft costs are fees for architectural design, engineering, and municipal development fees such as building permits, construction mitigation, water and sewer tap fees.

One important tip is to identify your builder early in the process and connect them with your architect to avoid over-designing outside your budget. Some builders and architects already have a great track record and comfort with each other to achieve this.

A general range of softs costs is 10% of the project total for architecture and engineering and 15% to 20% of the project cost for development fees.

Purchasing a Lot

There are currently 86 lots for sale in Mountain Village at an average size of .67 acres at an average price of $1 Million. One item to note is that I have seen recent engineering and architectural designs that work well with steep lots that can provide excellent land value and amazing views.

In the Town of Telluride, there are only 17 lots available for sale at an average size of .84 acres and an average price of $1.6 Million. Price is at a premium as the Town of Telluride is rapidly approaching build out.

Other options for vacant land two surrounding sub-divisions that provide amazing access, privacy and value. In Aldasoro Ranch, there are 16 lots available for sale at an average size of 3.3 acres and average price of $787K.

The Ski Ranches there are 6 lots for sale at an average size of 1.7 acres and an average price of $488K

New Construction vs Purchasing an Existing Home – The Bottom Line

A general range for total new construction costs are $700 to $850 sq/ft plus the cost of the land. In today’s market the cost of new construction may be similar to the cost of purchasing an existing home.

The question to ask is if the owner is willing to invest time in the process and then be OK with an up to 18-month construction timeline once municipal approvals are granted. The benefits of new construction are to design and enjoy a home of your dreams and there may greater appreciation potential for newer homes.

Please contact me for more information on vacant land and home construction.

 

Final New Tax Bill - Real Estate Effects Summary

Final Tax Bill Effects on Residential & Commercial Real Estate 12/20/17

 

Major Provisions Affecting Current and Prospective Homeowners

  • Tax Rate Reductions
    • The new law provides generally lower tax rates for all individual tax filers. While this does not mean that every American will pay lower taxes under these changes, many will. The total size of the tax cut from the rate reductions equals more than $1.2 trillion over ten years.
    • The tax rate schedule retains seven brackets with slightly lower marginal rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
    • The final bill retains the current-law maximum rates on net capital gains (generally, 15% maximum rate but 20% for those in the highest tax bracket; 25% rate on "recapture" of depreciation from real property).
       
  • Exclusion of Gain on Sale of a Principal Residence
    • The final bill retains current law.
       
  • Mortgage Interest Deduction
    • The final bill reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/17. Current loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap. Neither limit is indexed for inflation.
    • Homeowners may refinance mortgage debts existing on 12/14/17 up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount of the mortgage being refinanced.
    • The final bill repeals the deduction for interest paid on home equity debt through 12/31/25. Interest is still deductible on home equity loans (or second mortgages) if the proceeds are used to substantially improve the residence.
    • Interest remains deductible on second homes, but subject to the $1 million / $750,000 limits.
       
  • Deduction for State and Local Taxes
    • The final bill allows an itemized deduction of up to $10,000 for the total of state and local property taxes and income or sales taxes. This $10,000 limit applies for both single and married filers and is not indexed for inflation.
    • The final bill also specifically precludes the deduction of 2018 state and local income taxes prepaid in 2017.
  • Standard Deduction
    • The final bill provides a standard deduction of $12,000 for single individuals and $24,000 for joint returns. The new standard deduction is indexed for inflation.
    • By doubling the standard deduction, Congress has greatly reduced the value of the mortgage interest and property tax deductions as tax incentives for homeownership. Congressional estimates indicate that only 5-8% of filers will now be eligible to claim these deductions by itemizing, meaning there will be no tax differential between renting and owning for more than 90% of taxpayers.
       
  • Repeal of Personal Exemptions
    • Under the prior law, tax filers could deduct $4,150 in 2018 for the filer and his or her spouse, if any, and for each dependent. These exemptions have been repealed in the new law.
    • This change alone greatly mitigates (and in some cases entirely eliminates) the positive aspects of the higher standard deduction. 
  • Mortgage Credit Certificates (MCCs)
    • The final bill retains current law.
       
  • Deduction for Medical Expenses
    • The final bill retains the deduction for medical expenses (including decreasing the 10% floor to 7.5% floor for 2018).
  • Deduction for Casualty Losses
    • The final bill provides a deduction only if a loss is attributable to a presidentially-declared disaster.
    • The House bill would have eliminated the deduction for casualty losses with limited exceptions.
  • Moving Expenses
    • The final bill repeals moving expense deduction and exclusion, except for members of the Armed Forces.

Major Provisions Affecting Commercial Real Estate

  • Like-Kind Exchanges
    • The final bill retains the current Section 1031 Like Kind Exchange rules for real property. It repeals the use of Section 1031 for personal property, such as art work, auto fleets, heavy equipment, etc.
       
  • Carried Interest
    • The final bill includes the House and Senate language requiring a 3-year holding period to qualify for current-law (capital gains) treatment.
  • Cost Recovery (Depreciation)
    • The final bill retains the current recovery periods for nonresidential real property (39 years), residential rental property (27.5 years) and qualified improvements (15 years). The bill also replaces separate definitions for qualified Restaurant, Leasehold, and Retail improvements with one definition of "Qualified Improvement Property."
       
  • Qualified Private Activity Bonds
    • The final bill retains the deductibility of qualified private activity bonds used in constructing affordable housing, local transportation and infrastructure projects and for state and local mortgage bond programs.
       
  • Low Income Housing Tax Credit
    • The final bill retains current law. However, a lower corporate rate will negatively impact the value of the credits in the future, and will result in less low-income housing being developed.
       
  • Rehabilitation Credit (Historic Tax Credit)
    • The final bill repeals the current-law 10% credit for pre-1936 buildings, but retains the current 20% credit for certified historic structures (but modified so the credit is allowable over a 5-year period based on a ratable share (20%) each year).

Source = National Association of Realtors

The Ultimate Telluride Real Estate Buyers Guide

Interested in buying real estate in Telluride? Perhaps a mountain condo or multi-generational retreat? A property you can 1031 exchange into or a real estate and rental investment? Look no further for insights into the nuances of what it means to be a property owner in Telluride. It’s my pleasure to present the ultimate buyers guide for Telluride Real Estate.

What to Be Prepared For:

  • The 3% Real Estate Transfer Assessment:
    • Both the Town of Telluride and the Telluride Mountain Village Owner’s Association (TMVOA) have a 3% real estate transfer assessment almost always paid by the buyer. But before you fret, understand that these funds go for very important property value enhancing programs. In the Town of Telluride, the fund is used exclusively for Town capital projects. In Mountain Village, the fund runs and maintains the free public gondola, Dial-A-Ride on demand transportation for owners and guests, member social events and economic stimulus.
  • Understand Your Purchase Power:
    • If you are a cash buyer, you are in the driver’s seat. If financing, make sure to get a pre-qualification to understand how much property you can afford. We as Brokers have shown many dream properties that buyers fall in love with only to realize the lenders won’t back the purchase.
  • The Emotional Roller-Coaster:
    • Offers are submitted and countered. Competing bids may trump your offer. Dates for due-diligence, inspections and their resolutions can be an emotional roller coaster. Title and HOA document review are important part of the process. This is where a knowledgeable and committed broker understanding and representing your interests are worth their weight in gold. You will be well guarded against the risks of the process.
  •  Appraisal and Inspection:
    • Is the home you are purchasing worthy of the price and condition of the property? An independent appraisal is required if you are financing and is a good idea overall for your piece of mind.
    • After inspection, the deal can get tricky. What are you going to ask the seller to fix? What if they refuse? Many a deal has been undone by the inspection and subsequent resolution negotiations.
  • Home Insurance, Warranties and Title Insurance:
    • Your broker will have a list of trusted and recommended professionals to assist you with policies and coverage to put your mind at ease
  • Closing – Congratulations!
    • The final walk-through will give you the opportunity to make sure you’ve found the perfect property to fulfill your real estate objectives
    • Your closing costs and settlement charges will be clearly outlined in the closing statements. Applicable expenses such as property taxes, utilities and rental income will be appropriately pro-rated.
    • Your broker should provide you with a buyer’s checklist to switch utility billing, cable and internet services, rental management companies and property maintenance specialists.

Please contact me for additional information and discussion on the Telluride home-buying process. To stay informed, check out my website at www.telluriderealestates.com and Like my Facebook page at Telluride Real Estate News. How can I assist you today?

Telluride 1031 Exchange

If you have a rental property and you are looking for a Telluride vacation home or if you already own a rental home in Telluride and you would like different rental property; perhaps a larger home or different location, or a property that can generate more income and you want to defer capital gains taxes and recaptured depreciation taxes a 1031 exchange might be a great option for you. Section 1031 has been in the tax code since 1921 and there is some talk out there about this being a chopping block item for the new federal administration so you may want to act quickly. 1031 exchanges can be complex and it’s important to follow the rules the IRS has outlined so when you’re ready to do a 1031 exchange, we’ll work with an attorney and your accountant to get this done.

There are many tax advantages to owning rental property, including depreciating the property and IRS code section 1031 allows owners to sell rental property and defer the taxes on any profit and recaptured depreciation.

Here’s how it works:

  • The exchange must involve two like-kind properties, one being sold and one being bought within a certain time frame.
  • Like-kind refers to the nature of the investment not the property form. (IE: one rental property for another would qualify).
  • You must identify the relinquished property as a 1031 exchange before the first sale is made.
  • The new replacement property must be at least the amount of the sold property to avoid paying taxes.
  • The new replacement property must be identified within 45 days and purchased within 180 days after the original property has been sold.
  • Once the original property has sold, the money is required by the IRS to be held by a qualified intermediary and all the cash must be used to purchase the new property.
  • You must take title to the new property in the same name as the original property.

The 1031 exchange can be an amazing tool for your investment properties. The process is intricate and complex. There are restrictions on owner usage and a minimum requirement for rental nights. Talk to an attorney or cpa about your specific situation and contact me to sell and buy your exchange properties.

Tips for Buying Telluride Luxury Real Estate

With attractive interest rates and real estate prices per square foot still below many comparable mountain towns, now is the perfect time to buy Telluride luxury property. The Telluride market is seeing momentum with more transactions and dollar volume in 2016 than the previous year. With more convenient air access into the Telluride and Montrose airports than ever before, an exciting master development plan just released by the Telluride Ski & Golf Resort and world-class alpine winter and summer lifestyle experiences to be had, now is the time to make a run at Telluride luxury property.   

Here are my Tips for Buying Telluride Luxury Property:

  • Make a list of your objectives. These questions are your preferred number of bedrooms and budget, your intended usage of the property, location, access and preferred amenities. Your real estate broker will guide you through this process.   
  • Finding the right broker who knows the Telluride luxury market is the best bet for finding properties that are for sale but that are not necessarily easy to find because of privacy concerns. An agent familiar with the Telluride market may have inside information about listings before they are listed for sale and the agent will be able to help you determine the market value of a luxury property. Most residential real estate is valued using market comparables - similar properties in the area that have recently sold. Valuing Telluride luxury properties can be a challenge since there are many tangibles and intangibles of a luxury home.
  • If you are financing your luxury property, it’s a good idea to obtain your financing approval early in the process. Some property owners may not even want to show their property to yet unqualified buyers.
  • Consult your tax attorney on the options you have to properly structure ownership of your property to your advantage. Some options include to hold your property in your personal name, in a corporation or in a trust. There may be additional tax advantages if you are renting your property while you are not using it.
  • Be sure to use your real estate agent to schedule a property inspection with an inspector who knows the special amenities these homes often contain, Ice melt systems, radiant heat, lighting, specialized mechanical systems, and the roof condition for the alpine environment are just a few.
     

With a careful and informed approach and the right real estate broker to guide you, now is the time to find and purchase Telluride luxury property. 

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