CHAPTER SEVEN SINGLE FAMILY HOUSING: PRICING, INVESTMENTS, AND TAX INVESTMENTS

Demand - Single Family House Prices Population Growth Household formations Employment Household Income Interest Rates Federal Income Tax Policy Cost of Renting

Tax Treatment of Personal Residence Interest deductions –Primary residence –Second residence Maximum interest deductions –Acquisition debt- $1,000,000 –Home equity debt- $100,000 Points on mortgage loans Real Estate taxes Capital gain exclusion

Tax Treatment of Second Residence Interest Points- amortized No capital gain exclusion Vacation homes- special rules

Advantages of Renting Flexibility Lack of down payment Credit quality of resident Risks of ownership Maintenance “Bubbles” in house price

Pricing Property: Appraisals Market or sales comparison approach Cost approach Income approach

Sales Comparison Approach Adjustments for –Time –Location –View –Design appeal –Quality of construction –Age

Sales Comparison Approach Continued Adjustments continued: –Condition –Size –Quality of interior –Functional utility –Type and condition of systems; i.e., HVAC –Sale or financing concessions

Cost Approach Value of land plus estimate of improvements Depreciation –Physical depreciation –Functional obsolescence –External obsolescence –Curable vs. incurable

Income Approach Gross rent multiplier Difficult to use for single family residential properties