A strong housing market, a booming economy and continued overall growth in
Jacksonville has led to a boost in home prices.
Now many homeowners who have accrued equity in their homes are choosing ways
to invest that money. The changes in federal tax laws in May 1997 have allowed
homeowners to do more with their equity without facing tax penalties.
Generally, home values appreciate at a rate of about 3 to 4 percent annually,
but in some areas of the First Coast, home values appreciate at a higher rate,
according to a private firm that tracks the sale of new and existing homes.
And that has given many Jacksonville homeowners new options. Some use their
equity to move into a larger or new home or move into a desired school district.
Some are using equity to pay for a child's education, or, due to tax law
changes, they're using it to finance a trip or to buy a car, boat or
recreational vehicle.
"While there is no exact formula or master plan, homeowners generally view
their equity as a major portion of their assets," said Don Shamblin,
vice-president and managing broker at Watson Realty in Jacksonville. "However, I
have seen more homeowners use their equity as an income source when the time
comes to retire and move into a much smaller place or even rent a condo or
apartment."
Equity is the difference between the sales price minus expenses and the
mortgage balance.
For instance, if a homeowner has a home worth $100,000 and a mortgage debt of
$80,000, the gross equity is $20,000. However, if the home was sold and the cost
of disposition including attorney fees, real estate commissions and other
closing costs total 10 percent of the sales price -- a typical amount -- the net
equity would be $10,000.
In some cases, homeowners grow equity by virtue of being the first to move
into a neighborhood. As a subdivision is built out, the builder increases the
prices. Also, being able to make a significant down payment reduces the mortgage
balance and thus provides for equity.
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The Smiths took the equity they gained in the homes they lived in before they
married to buy this house in the Ashford Wood subdivision. The Smiths are buying
the 3,018-square-foot home with the expectation that it will appreciate in value
and they will have accumulated equity when Paul retires. That is when the couple
plans to move to Pennsylvania, which is where they have family ties.
-- Don Burk/Staff--------------------------------------------------
One family's story
Paul and Diana Smith of the Northside took the equity they gained in the
homes they lived in before they married to buy a new house in an emerging
Northside neighborhood.
(Paul had $32,000 worth of equity in his home; Diana had $32,500 in hers.)
The Smiths are buying the 3,018-square-foot home with the expectation that it
will appreciate in value and they will have accumulated equity when Paul
retires. That is when the couple plans to move to Pennsylvania, which is where
they have family ties.
"We are figuring that we will live here for seven to 10 years," said Diana
Smith. "This house is really too big for just the two of us, but it is an
investment. With us having grown children, who will come and visit, it will be
plenty of space."
Priced at $164,000 with upgrades, the Smiths bought the largest house in the
subdivision for a relatively cheap price compared to other parts of the First
Coast.
"The key is to buy the biggest house for the cheapest price," said Ray
Rodriguez, owner of Real Estate Strategy Center of North Florida, Inc., a
company that analyzes real estate transactions.
That's because the large house will bring about the largest return in an
emerging neighborhood where home values are expected to dramatically rise.
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Bennie and Bettye Wester used equity from previous homes to purchase their
current home in Queens Harbor Yacht and Country Club.
-- James Crichlow/Staff--------------------------------------------------
Appreciation
Rodriguez said certain areas of the city offer varying appreciation rates
based on the amount of retail and office development expected to take place in
that area.
He said it makes the area more attractive because residents can live, work
and shop in close proximity to home.
"There is basically nothing that you can do to your house to make it
appreciate in value," he said. "The factors are external."
For instance, home prices have increased by 9.5 percent on the Southside over
the past year, based on statistics from the Real Estate Strategy Center of North
Florida. In 1999, the average home price in the Southside was $130,000; this
year, the average price is $147,916.
Buying into the Southside, which is considered a niche market, adds to the
built-in equity that a homeowner enjoys because there is a demand for homes in
the area.
A niche market is characterized as a neighborhood that has built-in
amenities, such as a neighborhood being near a hub of retail and office
development, the beach and Intracoastal Waterway or in an area where growth is
expected.
On the contrary, the increase in the average price of a home in Arlington
increased by 2.9 percent over the past year from $121,597 last year to $125,181
in 2000.
Arlington is not considered a niche market, according to Rodriguez.
"There is no real major growth in Arlington. But on the other hand, Southside
is booming with the emergence of State Road 9A and the office development that
is taking place," he said. "Southside, like the Beaches, is a niche market."
Buying a house in niche areas, like the Southside and the Northside, is a key
to building equity.
Buy in growing areas
Darryl Tanner's wife, Angela, was totally against the purchase of the
Northside home they now live in.
Tanner could not blame his wife for her reaction to his decision.
After all, the house needed some work.
But those repairs have been done, and now the couple and their three children
are set to move from their existing home into a new house that is located just
down the street.
"I bought it as an investment," Darryl Tanner said.
The Tanners will take about $50,000 of equity from the existing home to the
purchase of the new home.
Their existing brick house, which is a two-story, four-bedroom unit off
Starratt Road in The Cape, is listed for sale at $149,900. They bought the house
for $96,000 in 1993.
The new house -- one with about the same amount of space -- will cost about
$135,000 to build.
The Tanners did not want to move away from their Northside neighborhood.
"The property values have just shot up in the area," said Darryl Tanner.
"This area is going to be the next Mandarin."
Taxes
Recent tax laws have made it convenient for homeowners to use the equity
gained in real estate.
Tax laws have changed dramatically during this past decade. A married couple
can now take up to $500,000 in tax-free equity upon the sale of a primary
residence, if they are filing a joint return.
They must have lived in the property for two of the last five years, and the
property has to have been the taxpayer's principal residence.
A single taxpayer can claim up to $250,000 in net equity tax free.
"This is a tremendous boost to taxpayers who have accumulated significant
equity on their homes," Shamblin said.
He suggest consulting with a legal expert for the best advice on how to
invest the equity.
"Anyone that has any real estate should use a certified public accountant or
a tax attorney. A tax attorney is the best of both worlds because they keep up
with the latest changes in the tax laws, which are some times revised and
tweaked from year to year. Some of the laws are so complicated because they are
written by tax attorneys."
Tax law changes have benefitted Victoria and David Robbins.
It has allowed them to build an undisclosed amount for their retirement fund
from the sale of real estate.
For the past 24 years, the couple has bought and sold houses and land.
They lived in some of the properties and others were bought solely for
investment purposes.
For instance, Victoria Robbins remembers she and her husband buying a piece
of land in a remote area near what is now World Golf Village in St. Johns
County.
"It almost seemed like a bad investment, but look at what is happening now in
that area," Robbins said.
She said they later sold the land for a profit.
The purchase of a pricey oceanfront condominium in South Ponte Vedra Beach is
their latest investment. Priced at about $750,000, the Robbinses, view the condo
as a real estate transaction that will add to their retirement coffers.
The strong demand for condos in the area has the couple estimating they will
be able to sell the condo for more than they paid for it, thus providing them
with more cash to funnel into their retirement fund.
"We don't invest in the stock market, but we do understand how property can
appreciate," Robbins said.
Tax laws are different for purely investment interest in real estate, and a
tax attorney can explain the ramifications.
Research
But whether the property is for residential or investment use, choosing a
location for a home can pay dividends in the future. Research is the key.
Bennie and Bettye Wester of Jacksonville, who are self-proclaimed
millionaires, have built their wealth by virtue of their real estate investments
and learning as much as they could about the properties they purchased.
Three years ago, the Westers paid cash for their $325,000 home located in the
Queens Harbor Yacht and Country Club located off Atlantic Boulevard. The house
would now sell for $500,000.
"The house increased in value after the first year we bought it," said Bettye
Wester said. The house is located near the entrance of the gated neighborhood
next to a lake and wooded walk paths.
But it took a lot of sweat equity for the retired couple to accrue their
wealth.
"We always expected to get 20 percent from our sales," Bettye Wester said.
"We would always buy in emerging areas."
The couple would take the equity from the sale of houses to buy other houses.
And things kind of snowballed to where they held several properties. In some
cases, they would rent the house until the value appreciated to a level where
they felt comfortable about selling to make a profit.
The Westers bought foreclosed property at auctions. Foreclosures are usually
sold below the market price and therefore can offer instant equity when the new
buyer buys the property.
"My husband went into an early retirement and we both built up our IRA
accounts so that we would never have to go to work again," Wester said.
