Written by DCist contributor Rob Birgfeld
This week, the Post ran an article focusing on the trend of young home buyers eager to make a quick dollar — or escape the landlord and build some equity — through investing in real estate.
The story profiles a variety of twenty-somethings from around the metropolitan area who have purchased or sold homes, sometimes relying on somewhat creative financing schemes including loans from parents and adjustable rate mortgages. The trend is so widespread that the National Association of Realtors says home buyers between the ages of 18 and 34 made up 39 percent of total purchases last year.
Several DCists have ventured into the treacherous waters of the D.C. real estate market (while others prefer squatting and couch surfing) and have experienced the frustration of being over-bid, have had to live through the painful wrangling with a building management company, and been forced into absorbing the real estate lingo. And although there has been lots of talk about a real estate “bubble,” there are some signs D.C. could prove an exception to the rule — our region has the third best job market of any metro region in the country and the area’s real estate market continues to see some of the highest appreciation rates in the country.
One thing to be sure of if you do decide to invest in real estate: Live in your “investment” for at least two years. DCist’s resident tax experts tell us that the federal government imposes a very significant tax on gains from the sale of property, and while capital gains are taxed at a lower rate than ordinary income and non-capital gains, they can still end up costing you tens of thousands of dollars. But there is a solution: the government provides an exemption to those who have owned and lived in their home for two out of five years before the sale.
If you qualify for the exclusion, you can exclude up to $250,000 of the profit from the sale if you’re single and up to $500,000 if you’re married and filing jointly. So unless you intend on partnering with the IRS on your next real estate coup, make sure you’re comfortable with actually living in your “investment” for at least two years. Or, worst comes to worst, set the place on fire and collect on your insurance. We kid.
And now, time for reader input. Is area’s real estate truly “bulletproof”? Is is too late to get in? Has anyone been priced out of anything but the outermost suburbs? Can this growth continue?
Leave us your thoughts.
