Pikes Peak Homes and Land
Chris J Clark, REALTOR®
Phone (719) 464-5839


Understanding How Homeowner’s Property Taxes are Calculated

Property taxes are an essential part of homeownership, but understanding how they are calculated can feel like unraveling a complex puzzle. However, by unlocking the secrets of property tax calculation, homeowners can gain valuable insights into their tax obligations and make more informed financial decisions. In this article, we will demystify the property tax calculation process, providing homeowners with a comprehensive understanding of the factors involved.

Understanding Assessed Value – The first piece of the property tax puzzle is the assessed value of your home. Assessed value refers to the value assigned to your property by the local taxing authority for tax purposes. It is typically determined by professional assessors who consider various factors such as property size, location, improvements, and recent sales of comparable properties. Understanding how assessed value is determined is crucial, as it forms the foundation for calculating your property tax.

Individual states will adjust and publish the assessed value for the upcoming year.  This is usually done in advance of the tax rates being set by the different tax authorities.  The property owner will be notified of the valuation and may challenge it.  Reasons that could affect the valuation include material mistakes like square footage or others, the deteriorated condition of the property, comparable sales not known to the assessor, and other possible things.

In the assessment notification, there will be timelines for challenging, as well as specific information on the different remedies that may be available.

Knowing the Tax Rate – Once your home’s assessed value is established, the next step is to determine the tax rate which is set by local taxing authorities, which can be multiple ones like city, county, school, hospital, and other special districts. The rate is expressed as a percentage of the assessed value. Tax rates can vary from one jurisdiction to another, and they are often determined based on the needs of the local government to fund public services and infrastructure projects.

The tax rate usually varies annually and even if the property valuation goes up, it doesn’t mean that the property taxes for that year will necessarily be higher.

Accounting for Exemptions and Deductions – Many jurisdictions offer property tax exemptions and deductions that can help reduce your tax liability. Common examples include homestead exemptions, which provide tax relief to homeowners who use the property as their primary residence, and exemptions for senior citizens, veterans, or individuals with disabilities. These exemptions can significantly reduce the amount of property tax you owe. It’s crucial to research and understand the available exemptions in your area to maximize your tax savings.

There may be deadlines for qualifying for a particular exemption for a particular tax year.

Performing the Calculation – Now that we have the assessed value and tax rate, let’s put the pieces together and calculate your property tax. Multiply your home’s assessed value by the tax rate (expressed as a decimal) to determine the preliminary tax amount. For example, if your assessed value is $200,000 and the tax rate is 1.5%, your preliminary tax would be $3,000. Remember to consider any exemptions or deductions you are eligible for, as they will directly impact your final tax amount.

Anticipating Changes and Planning Ahead – Property taxes are not static, and they can change over time. Factors such as reassessments, improvements, changes in tax rates, or modifications to exemptions can influence your future tax bills. Staying informed about potential changes and planning can help you anticipate and manage fluctuations in your property tax obligations. Keep an eye on local tax policies, attend public hearings, and consult with local tax authorities or professionals to stay ahead of any potential changes that may impact your finances.

Conclusion – Understanding the secrets of property tax calculation empowers homeowners to make informed decisions and better manage their finances. By following this step-by-step guide, you can gain clarity on the factors involved in property tax calculation, such as assessed value, tax rates, and exemptions. Your real estate professional can be a resource to help you understand the process and provide comparable sales data and other recommendations.

Retirement Dreams to Reality with Rental Properties

Planning for a comfortable and secure retirement is a priority for many individuals. While traditional investment options like stocks and bonds play a crucial role, there’s another avenue that holds great potential, rental real estate. Let’s explore the 12 key benefits of investing in rental real estate for retirement, shedding light on why it is a smart strategy to consider.

Steady Passive Income – Rental real estate offers a consistent stream of passive income, providing a reliable source of cash flow during your retirement years. This income can serve as a supplement to other retirement funds, ensuring financial stability and peace of mind.

Inflation Hedge – Rental income has the unique advantage of increasing with inflation. As living costs rise, rental prices can be adjusted accordingly, safeguarding your purchasing power, and allowing you to maintain your desired lifestyle.

Potential for Appreciation – Investing in rental properties allows you to benefit from potential long-term capital appreciation. Over time, your properties can increase in value, presenting the opportunity for substantial gains and a higher return on investment.

Tax Benefits – One of the significant advantages of rental real estate is the array of tax benefits available to investors. Deductions for property expenses, mortgage interest, and depreciation can help lower your annual tax liability, effectively maximizing your income in retirement.  Tax deferred exchanges and favorable long-term capital gains rates are also significant advantages.

Diversification – Including rental properties in your investment portfolio provides diversification, reducing the risk associated with relying solely on traditional investments. Real estate often performs independently of the stock market, adding a valuable layer of stability to your retirement plan.

Tangible Asset – Unlike intangible investments, rental real estate is a tangible asset that you can see and touch. Owning physical properties provides a sense of security, especially during turbulent economic times, and serves as a valuable asset that can be refinanced without triggering tax on the mortgage proceeds.

Equity Buildup – As tenants pay down the mortgage on your rental property, your equity in the property increases. By the time you retire, you can have a significant amount of equity built up, offering a potential source of additional retirement income through refinancing, selling, or leveraging that equity.

Control Over Investment – Investing in rental real estate grants you control over your investment. You can make decisions regarding property management, rental rates, and property improvements, allowing you to align your investment strategy with your retirement goals and preferences.

Downsizing Options – Rental property investments provide flexibility and options for downsizing in retirement. If you own multiple properties, you have the choice to sell some and generate income while simplifying your responsibilities as a landlord.  Another option could be to sell your personal home, take the capital gain exclusion, reinvest the proceeds for more retirement income, and move into one of your current, smaller rentals.

Legacy Building – Rental real estate offers a unique opportunity to create a lasting legacy. You can pass down your property to your heirs, with the tax advantage of a step up in basis, providing them with a valuable inheritance and potentially securing their financial future.

Ability to Leverage – Investing in rental properties allows you to leverage your investment. By utilizing financing options, you can multiply your returns, potentially amplifying your wealth accumulation and retirement income.

Flexibility – Rental real estate offers flexibility throughout retirement. You have the freedom to adapt your investment strategy to match your changing lifestyle and financial goals. Whether it’s adjusting rental rates, exploring different property types, or exploring new markets, you can customize your approach to maximize your returns.

Investing in rental real estate for retirement can unlock a range of benefits that contribute to financial security, steady income, and a comfortable lifestyle. From passive income to potential appreciation, tax advantages to legacy building, rental properties offer a path to a blissful retirement. By carefully considering the advantages discussed, you can make informed decisions investing in real estate for your retirement.

Download our Rental Income Properties guide.  If you want more information, and your agent is not familiar with rental investments, we would love to work with you to better understand the opportunities.

The Best Rental Property Strategy for Beginners

Getting started on the road to rental investments is generally the most difficult obstacle for people without 25-30% down payment.  That is where buying the property as an owner occupant can be a huge advantage.

The first example would be to buy a home to live in with a minimum FHA down payment of 3.5%.  If you find the right seller, they may even participate in paying part of your closing costs.  This type of loan requires that you live in it, which if it is a single-family property, means you won’t be able to rent it while you are living in it.

There is no set period but after living in the property for a while, say a year or so, you buy another single-family home to live in but instead of selling this home, you rent it.  With rents as high as they are currently, it will probably even have a positive cash flow.

The rub may be in putting together another down payment and closing costs to acquire the second property.  There is no physical limit to how often FHA will allow this if there is a legitimate reason for moving like closer to work or family, better floorplan, safer area, or others.

FHA allows a buyer to buy up to a four-unit building on an owner-occupied loan if they live in one unit.  While the buyer may not have the income to qualify for the payment on a four-unit, the lender will consider the rents to be received from the other units.

In this type of situation, the cash flow from each of the three units could reduce the amount needed to pay for the portion of the home you occupy. FHA, VA, and Conventional all allow for owner-occupied financing for up to four units.

Multi-unit acquisitions build the portfolio faster, but the problem is that local zoning laws may have restricted them to certain areas.  Some cities may have duplexes but not three and four-unit properties.  Properties with more than four units are not eligible for owner-occupied financing.

This approach could allow a person or couple to put together a sizable group of rentals with a minimum amount of down payment within a few years.  Interestingly, after investors have several properties, their equities grow to allow them to buy others and financing becomes easier because lenders are more confident with experienced investors.

The contrast to this approach is for a person or couple to buy a home to live in and as they start spending money on decorating and fixing it up, the ability to qualify for investment properties becomes more difficult.

To find out more about this type of strategy to acquire rental properties, contact your real estate professional.  You can also download our Rental Income Properties.

The Top 5 Benefits of Owning a Home

Purchasing a home can feel like an overwhelming project, but the long-term advantages of home ownership make it a smart investment to secure your future where the benefits extend beyond simply having a place to live.

Building equity is one of the most significant advantages of owning a home. As you make mortgage payments, your equity increases, and over time, your home can become a valuable asset to use the equity to finance home improvements, pay for college tuition, or even as a down payment on a second home.

Two factors determine equity; the home going up in value and the unpaid balance of the mortgage being paid down.  Appreciation is the increase in value expressed in an annual amount.  Homes have averaged 4% nationally for the past 50 years.  Amortization is the systematic principal reduction that occurs with each house payment made.

Another advantage of buying a house is the stability of housing costs. With a fixed-rate mortgage, your monthly principal and interest payments remain the same for the life of the loan, giving you predictable and stable housing costs. This can help in your financial planning.

Control over your living space is also a significant benefit of owning a home. You can make changes and improvements to your home to suit your needs and preferences without having to get permission from a landlord. This can help you create a space that truly feels like your own and can contribute to your overall sense of well-being and satisfaction.

Finally, home ownership also offers several tax benefits that can contribute to long-term financial savings. You may benefit from itemizing deductions for interest and property taxes that would exceed a person’s normal standard deduction.  Regardless of which deduction a homeowner takes, additional tax advantages apply to home ownership like an exclusion of up to $500,000 of capital gain for married, filing jointly taxpayers and $250,000 for single filers who meet the occupancy and use requirement.  

The long-term advantages of buying a house are significant, including building equity, stable housing costs, potential appreciation, control over your living space, and tax benefits. Although the process of purchasing a home can seem overwhelming, the benefits of home ownership make it worth considering. Ensure that you do your research, get pre-approved for a mortgage, and work with a qualified real estate agent to find the right home for your needs and budget.

For more information, download our Buyers Guide and Homeowners Tax Guide.

Talking Points to Identify an Agent

Having a list of talking points prepared before meeting with a real estate agent can be incredibly valuable in guiding the conversation and helping you make an informed decision about who will represent you in the sale of your home. Whether you’re a first-time seller or it has been a while since you last sold a property, asking these questions can reveal important information about the experience and expertise of your candidate.

Even if you already have a trusted friend who is a real estate agent, it’s still appropriate to understand how different issues will be handled. A true professional should not feel challenged to discuss these important concerns.

  1. Tell me about your experience and training.
  2. Do you work in real estate full-time?
  3. Are you a REALTOR� and a member of MLS?
  4. What is the average price of the homes you have sold and how many did you sell last year?
  5. Which neighborhoods do you primarily work?
  6. How many homes have you sold in my neighborhood?
  7. What is your list price to sales price ratio?
  8. How many buyers and sellers are you currently working with?
  9. Tell me about the positives and negatives of my home.
  10. How will market preparation and staging affect my sales?
  11. Describe your marketing plan for my home and if you will use outside professionals.
  12. Specifically address Internet exposure, open houses, and showings.
  13. Describe how you’ll keep me informed all along the way.
  14. Will I work directly with you or with team members?
  15. Can you provide me with three recent references?

It’s important to note that price was not included in the list of talking points. As the seller, you ultimately set the price, but the market and the buyer will determine the value. The agent can advise you about the proper range that will ensure activity and ultimately affect your final proceeds. This advice should be based on facts that are available to all agents as well as prospective buyers and appraisers.

In other words, the decision to list your home with a particular agent and company should never be based on the listing price suggested by a prospective agent. Trust a reputable agent to provide sound advice and guidance throughout the selling process.  You may find more helpful information in our Sellers Guide.

Protect Your Belongings with a Home Inventory

As a homeowner, you’ve likely invested a significant amount of time and money into furnishing and decorating your home with items that are important to you. Unfortunately, unexpected events like natural disasters or burglaries can result in the loss or damage of these belongings.

That’s why it’s important to create a home inventory to document everything you own. This can help ensure that you’re properly insured and can help speed up the recovery process if the worst were to happen. Here’s how to construct a home inventory.

First, gather your supplies. You’ll need a camera, a notebook, and a computer or storage device to keep track of your inventory.

Next, start in one room of your house and systematically go through all your belongings, one item at a time, focusing on the more expensive items. Take a photo of each item and make a note of its make and model, serial number (if applicable), and the date and location of purchase. Don’t forget to include the purchase price or current value of the item as well.

If you’re using video, the image and description are on one medium.  It’s helpful to have someone assist so that one person can shoot the video while the other is holding the object and describing it.

It’s important to be as detailed as possible when creating your inventory. This means opening drawers, cabinets, and closets to take photos of everything inside. Be sure to also take photos of any valuable items that may not be stored in your home, such as jewelry or collectibles.

Once you’ve completed your inventory, make sure to store it in a safe place. This could be a secure digital file, or a physical copy kept in a safe or off-site location.

Having a home inventory can make the claims process easier and less stressful. It can also help ensure that you’re properly insured and can help you recover quickly from a loss. In the case of theft or burglary, this kind of detailed report can be helpful to the police in recovering your property.  So, take the time to create a home inventory and protect your belongings today.

Download a Home Inventory to help you with the process.

Avoid Taxes by Keeping Track of Improvements

Keeping track of capital improvements to your home can help you avoid taxes later down the road when you sell it.

Some homeowners don’t even consider such a thing because they are aware of the capital gain exclusion of up to $500,000 for married homeowners and $250,000 for single filers.  Possibly, the gain in a past sale didn’t exhaust the limit that has remained the same since 1997.

Today, homes are much more expensive and appreciation in the past few years has been exceptionally high.  It is now possible and maybe more likely, based on the price of the home, for a homeowner to have gains more than these limits.

A $250,000 home in 1997 based on an annual appreciation of 4% would be worth almost $700,000 today.  Capital improvements made to a home raise the basis, or cost, of the home which will affect the gain on the sale.

Improvements must add value to your home, prolong its useful life or adapt it to new uses.  Repairs, not considered improvements, are routine in nature to maintain the value and keep the property in an ordinary, operating condition.

The addition of decks, pools, fences, and permanent landscaping add value to a home as well as new floor covering, counter-tops and other updates.  Replacing a roof, appliances or heating and cooling systems would be considered to extend the useful life of the home.  Completing an unfinished basement or converting a garage to living space are common examples of adapting a portion of the home to a new use.

Other items that can raise the basis in your home are special assessments for local improvements like sidewalks or curbs and money spent to restore damage from casualty losses not covered by insurance.

There can be multiple ways to create a capital improvement register.  Homeowners could use a spreadsheet where they record the date, description, and the amount of each improvement while they own the home.  It is also necessary to keep receipts for the expenditures and cancelled checks for proof.

Just keeping the receipts and cancelled checks would be helpful and could be sorted through by yourself or an accountant at the time of filing the tax return after the sale of the home.  Since most banks don’t return cancelled checks any longer and the sale could be years after you’ve closed an account, it would be prudent to acquire a ‘substitute check” which is a paper copy of the canceled check.  Another option that may be available through your bank is to download a picture of the cancelled check.

For more information on Capital Gains and Section 121 Capital Gain Exclusion, download IRS Publication 523 and our Homeowners Tax Guide which includes a capital gains register.

Laying the groundwork for the best mortgage

An empty mortgage application form with house key

With mortgage rates having doubled what they were in early 2022, getting the lowest rate possible could mean the difference in being able to buy a home or at the very least, makes it much more affordable.  Some people are waiting for rates to come down and while they are expected to come down some this year, most experts agree that they’ll never return to the three or even four percent range. 

There are things that a buyer can do to be eligible for the best rate available.  Obtaining the most favorable terms is based on the loan-to-value, your credit rating, and your ability to repay the mortgage.

While lenders can impose their own underwriting criteria, the basic qualifying guidelines are identified as the 4 Cs:

  • Capital – money and savings, plus other investments providing for down payment, closing costs, and reserves for unexpected expenses in the future.  It could also include gifts from family members, grants, and down payment assistance.
  • Capacity – ability to pay back the loan.  Lenders look at income, job stability, savings, monthly debt payments, and other obligations to approve a borrower for a mortgage.  They’ll ask for several years of tax returns, W2s, and current pay stubs.  Self-employed borrowers require additional documentation.  Some of the recurring debt can include car payments, student loans, credit card payments, personal loans, child support, alimony, and other debts which could include co-signing for another’s debt.
  • Credit – your credit history and score exhibit your experience for paying bills and debts on time.  While there are minimum credit scores for different types of mortgages, the best rates are only available to borrowers with the best credit scores.  Credit ratings are established over time and borrowers need to improve their scores before they need to use them.
  • Collateral … lenders look to the value of the home and other possessions when pledged as security for the loan.

Based on the Ability-To-Repay Rule, effective 1/10/2014, financial information must be supplied and verified; borrower must have sufficient assets or income to pay back the loan; and, teaser rates can no longer hide a mortgage’s true cost.  Even after a lender gives a loan approval to a borrower, they will generally run additional verifications a few days prior to the closing to make sure that nothing has changed that would affect their underwriting decision.

The financial preparation for homebuyers begins long before they start looking at homes.  They need to be aware of their credit by asking for copies of their credit reports from the three major reporting agencies: Experian, TransUnion, and Equifax. Congress mandated consumers be provided this free service through AnnualCreditReport.com.  Other websites may offer free services, but their real objective may be to encourage you to purchase additional services.

Once you’ve received the credit reports, read them to discover errors that could negatively affect your credit score.  The website will tell you the process of correcting the errors which includes notifying both the credit bureau and the reporting party of the error.

Most borrowers understand that payment history is the major contributor to a credit score; it is expected of borrowers to pay on time and as agreed.  Sometimes, borrowers are surprised to find out that if their borrowing approaches their available credit that it could actually hurt their score.

The credit utilization ratio is the percentage of credit used to that which is available.  If you had $10,000 credit available and your balance of a credit card was $2,500, the ratio would be 25%.  Ideally, lenders want your credit utilization to be below 25%.  Again, this could be one of the things you work on before you meet with a mortgage officer.

Once you have an accurate credit report and have saved for the down payment and closing costs, you’re ready to meet with a trusted mortgage professional who can take you through the process of preapproval.  They may be able to suggest things you can do to raise your credit score to be eligible for a lower mortgage rate.

All lenders are not the same and there is a significant difference with the online lenders who have limited counselling advice and working with a local mortgage officer you can discuss face-to-face what your situation is and if it can be improved.  

You may feel comfortable with more than one recommendation and your agent will be able to supply you with lenders who they are familiar with from their experience in situations like yours.

Handling an Appraisal Gap

An appraisal gap describes the difference between the sales price and the lower amount of the appraisal required by the mortgage being obtained by the buyer.  It becomes an issue if the seller is not willing to lower the price or the buyer is not willing to pay the difference in cash.

Looking at the issue from the seller’s perspective, “if the buyer wants my home and he can’t get the loan he wants, he’ll have to make up the difference in cash.”  The buyer might have a different view like “If an independent appraiser can’t justify the price, I’m not going to pay more than appraised value.”

  1. Pay the difference in the appraised value and the purchase price in cash. 
    Solution – Assuming the buyer has adequate cash reserves and is willing to pay above appraised value, this will satisfy the lender.
  2. Decrease your down payment percentage to apply toward the appraisal gap.  It may trigger mortgage insurance which will increase your payment.
    $400,000 Sales Price with 20% down payment of $80,000; Home appraises for $390,000
    Possible solution … buyer could take $10,000 of the $80,000 he was going to use for the down payment and make up the gap.  That only leaves him $70,000 which is a good downpayment for this size home, but it may require that he pay mortgage insurance because the loan-to-value is more than 80%.
  3. Renegotiate the contract with the seller.  Assuming both parties are willing to negotiate on the terms, the seller could lower the price to the appraised value, or any other number of possibilities.
  4. Include an appraisal gap clause – Buyer and seller agree that if the appraised value comes in lower than the purchase price, buyer agrees to pay up to $XX,000 above appraised value, but not exceeding the purchase price.

    An appraisal gap clause addresses what the buyer is willing to do within the parameters included.  It provides limited comfort to both the seller and buyer to address the issue of the home appraising for a lower amount than necessary.  This clause provides a way for the buyer to compete in a seller’s market.
  5. Terminate the contract.

Appraisals can be a confusing but necessary part of the process when the buyer needs a mortgage.  I’m available to answer any questions and share our experience with you. Our goal is to be your source of real estate information.

Protect yourself with a new construction inspection

The wood frame of a new residential house.

Builders of new homes offer or are required to warrant their work for a specified period.  Municipal inspections are generally required during different stages to “ensure the life, health, safety, and welfare of the public” but even if something is missed, the ultimate responsibility for building to code belongs to the builder, even if the municipal inspector misses something.

There are four basic stages of residential construction including:

  1. The foundation stage begins with excavation, footings, foundation walls or slab, waterproofing, backfill, compaction and underground rough plumbing and electricity.  Municipal inspections are done prior to pouring the foundation while items are visible.
  2. The framing stage includes the wood or steel framing, exterior walls and roof sheathing, exterior trim and siding, windows, doors, and roofing.  Depending on the municipality, there could be inspections of the rough framing separate from the roofing. 
    Next in this stage comes rough plumbing including water, waste, and vent piping, rough electrical, rough mechanical, ductwork, wiring, and electrical panel installation.  Municipalities will usually inspect plumbing and electrical separately.
  3. The wall insulation and drywall installation are done and inspected depending on the municipality before tape and texturing are done. 
  4. The final stage of construction includes flooring, cabinets, millwork, countertops, tile, mirrors, electrical trim, plumbing trim, and mechanical.  Some builders will not install appliances and HVAC until the last stage to protect against theft.  Municipal inspections are made in the final electric, plumbing, and mechanical.

A “Final Inspection” is done after all the periodic inspections have been completed and passed.

Defects that manifest themselves during the warranty period are the responsibility of the builder.  Unfortunately, some things may go undetected until after the warranty expires leaving the repair expense as the sole burden of the buyer/owner.

A safeguard that the purchaser will not be out of pocket for repair expenses is a home warranty which shifts the liability to the warranty or service contract company.  This is a negotiable item that can be paid for by the builder or the buyer.  However, this warranty will have a time limit on it and to continue the coverage, the buyer/owner will have to renew it by paying the additional annual premium.

One more safeguard for the purchaser is to hire their own inspector, to conduct periodic inspections during the different phases of construction.  Unlike an inspection made on an existing home, the inspector will have to visit the site multiple times during the process.  For that reason, constructions inspections are more expensive.

When hiring an inspector for new construction, ask at what stages do they inspect.  A typical new construction inspection might be at the end of the foundation stage, another at the end of the framing and rough plumbing, electrical, and mechanical, and the final inspection after the home is completed.

A provision allowing a buyer to hire their own inspector for periodic inspections should be included in the sales contract.  Your agent can not only help you get that included but assist in negotiation of any issues that arise because of the periodic inspections.

If you value this extra level of protection in the purchase of a new home, it is important that you have your agent first accompany you to the models so they will be registered as your agent.