Key Questions to Ask Before Passing Your Home to Heirs
Greene & Sievers • March 4, 2025
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A balcony adds so much to a living space. Especially in an apartment if you don't have a yard, it can serve as a place for coffee in the morning, a place to read a book on a sunny afternoon, or even a place to set out a few herb plants. But safety is paramount, especially when it comes to balconies and decks. Two new key pieces of legislation, SB 721 and SB 326, address this concern by mandating inspections of Exterior Elevated Elements (EEEs) in multi-family buildings. Here's a breakdown of both bills and their key differences: Similarities: Focus: Both SB 721 and SB 326 aim to ensure the safety of residents by requiring regular inspections of EEEs like balconies, decks, walkways, and stairways. Inspection Requirements: Both bills require inspections to be conducted by qualified professionals like architects, structural engineers, or licensed general contractors. The inspections will assess waterproofing, structural integrity, and overall safety. Timeline: The initial inspection deadline is January 1, 2025, for all covered buildings. Subsequent inspections will occur at regular intervals – every six years for SB 721 and every nine years for SB 326. Differences: Who They Affect: SB 721 applies to landlords of buildings with three or more multi-family dwelling units that are at least two stories tall. Think apartment buildings. SB 326 focuses on condominium and townhouse associations for similar multi-unit buildings. Frequency of Inspections: SB 721 requires more frequent inspections, happening every six years compared to SB 326's nine-year interval. Estimated Inspection Cost: The cost of an inspection can vary depending on factors like the size and complexity of the building, the number of EEEs, and the inspector's qualifications. However, estimates typically range from $300 to $500 per balcony, with additional fees for inspecting other EEEs. It's important to note that for homes with HOAs, the management company, not you, is responsible for organizing the inspections and associated repairs. Overall, both SB 721 and SB 326 are crucial steps towards ensuring the safety of Californians living in multi-family buildings with balconies and other EEEs. Understanding which bill applies to your specific situation (landlord vs. homeowner association) is essential for complying with the inspection deadlines. For more details and resources: California Department of Housing and Community Development (HCD): https://www.hcd.ca.gov/ (Look for information on SB 721 and SB 326) California Architects Board (CAB): https://www.cab.ca.gov/ (Provides a directory of licensed architects who may conduct inspections) California Structural Engineers Association (CSEA): https://seaosc.org/ (Provides a directory of licensed structural engineers who may conduct inspections)
Did you know that you can use 1031 exchange funds for renovation expenses? I was recently chatting with a client who owns an investment property and was considering a 1031 Exchange – swapping a new property that's "like-kind" for an existing one, while deferring capital gains taxes. I shared something they were not familiar with, which was they could actually use a portion of those exchange funds for renovations on the new property. It is specifically referred to as an improvement exchange. By doing this they could potentially: Defer capital gains taxes on the sale of their existing property, by reinvesting the proceeds into the replacement property and improvements, allowing their money to grow tax-deferred. Increase the new property’s value by using sale proceeds for improvements on the replacement property. This can also result in higher rental income or a larger profit when you eventually sell. Customize the replacement property to perfectly suit your investment goals. It's important to remember that this is a complex tax strategy. There are strict time constraints, the replacement property must be "like-kind," and working with both a 1031 Qualified Intermediary (A neutral third-party middleman, facilitating the exchange process and ensuring compliance with IRS regulations) and a tax advisor is crucial for a smooth and compliant tax-deferred exchange. If you would like to learn more about this strategy, contact us via e-mail at Team@greenesievers.com to schedule a time to meet. We can also put you in touch with a 1031 specialist who can further explain the details of this approach.
“Marry the House, Date the Rate”: Finding Creative Financing Solutions to buy when interest rates are up (like a 3-2-1 Buydown) Just like when you marry someone, there are foundational things you need and then there are things you want, which often change. Similarly when buying a home, the purchase price is fixed, but interest rates change. I was in an office meeting last week and an agent mentioned that 80+ groups of people attended their open house, another agent received 38 offers on a property, and homes are going way over asking. All this activity is driving home prices up, and once interest rates come down, I can only assume demand will continue to increase as well as housing prices. When speaking with clients, I have been suggesting that they speak with their lenders about finding creative financing options, such as the 3-2-1 buydown. A 3-2-1 buydown is a temporary mortgage interest rate reduction strategy, which allows a buyer to qualify for a higher mortgage. This approach lowers the interest rate for the first three years of the loan by 3% in the first year, 2% in the second year and 1% in the third year - then the rate goes back to the original rate for the remaining term of the loan. This strategy is beneficial for homebuyers who are expecting interest rates to fall in the next few years and want to save money on their monthly payments in the meantime. Here is an example of how a 3-2-1 buydown would work for a $1,000,000 home loan with a 5% down payment and an initial interest rate of 6.75%: Year 1: The interest rate would be reduced to 3.75%, resulting in a monthly payment of approximately $4,938. This is a savings of $1,762 per month compared to the original monthly payment of $6,700. Year 2: The interest rate would be increased to 4.75%, resulting in a monthly payment of approximately $5,494. This is still a savings of $1,206 per month compared to the original monthly payment of $6,700. Year 3: The interest rate would be increased to 5.75%, resulting in a monthly payment of approximately $6,082. This is still a savings of $618 per month compared to the original monthly payment of $6,700. Year 4 and beyond: The interest rate would revert to the original rate of 6.75%, resulting in a monthly payment of $6,700. It is important to note that the 3- 2-1 buydown is typically paid for by the seller of the home (as opposed to a price reduction), or a lender and it is not available from all lenders. Additionally, it is important to make sure that you can afford the monthly payments after the buydown period ends. If you would like to learn more about this strategy, contact us via e-mail at Team@greenesievers.com to schedule a time to meet. We can also put you in touch with a lender who can further explain the details of this approach.
