48 East Condominiums to be Zoned as a Hotel

48 East is the one of the latest and most unique condominium development projects to be approved in the Rainey Street District.  It’s unique because the Austin-based STG Design building will actually be zoned as a hotel, which will be powered by Airbnb.   

It’s confusing, but innovative. The concept is a 33-story, 239 unit building that combines the comfortable qualities of a short-term residential rental with the amenities and efficiency of a hotel. 

Once constructed, the building will offer units for sale in the price range of $300,000 for a 454 square feet studio to up to $1.2 million for a 1390 square feet, multiple bedroom condominium. Residents will have the opportunity to rent out their units via Airbnb for up to 180 days per year. 

Airbnb plans to charge 25% off the top and will provide “MasterHost” services at each property for items such as guest check-in, cleaning and linen service.  An added amenity will be local “Airbnb Experiences” for guests—events that involve hosts sharing their own takes on local culture and activities.

Condominiums can be purchased furnished or unfurnished and will feature additional features such as an extra lockable closet to store sensitive belongings and digital locks for keyless entry.    The building itself will include amenities available to all owners and guests, including co-working spaces, hotel-style food and beverage offerings, a spa-inspired fitness center, and a rooftop pool deck.

Property owners will be responsible for hotel occupancy taxes as well as property taxes and will not be allowed homestead exemptions on property taxes. 48 East is expected to open in 2021. 

What is your opinion of this condo/hotel/Airbnb concept?  Do you like the idea of a downtown condominium building built for short term rentals? Make your opinion known in the comments below!

Austin's Changing Skyline--Downtown Development in ATX

Austin skyline by 2020.JPG

Austin continues to boom. Business Insider says Austin had the second highest rate of job growth among the 40 largest metro areas in America, with employment rising 3.7 percent between February 2017 and February 2018. The most visible representation of our rapid economic development is our ever changing downtown skyline. Just think about this: of the 8 tallest buildings in downtown Austin today, not a single one of them existed 10 years ago!

According to the Austin Downtown Alliance, downtown will grow by 50 percent if it only completes projects currently under construction and those proposed for redevelopment. However, downtown Austin has the potential to double in size if it reaches its full build out potential in the next 5 years.

Below is just a glimpse of the developments that are shaping or will continue to shape the Austin skyline…

  1. 6th X Guadalupe St—when completed this will be the tallest building in Austin. 837 feet high & 66 stories of apartments and offices stacked atop each other. An acre of parks in the sky are in the plans for this skyscraper.

  2. The Independent— luxury high rise condominiums and currently Austin's tallest building, taking the title away from The Austonian, which laid claim to the tallest building in Austin for about eight years.

  3. The Republic at 401 W Fourth St, just south of Republic Square Park, will have 711,401 square feet of office and 21,463 square feet of retail.

  4. 70 Rainey—a 34-story skyscraper with 164 condos that tower over Rainey Street.

  5. 48 East Ave—a 33-story, 215 condo tower also located in the Rainey Street Historic District.

  6. Waller Park Place—more than 3 million square feet of residential, commercial and office space at Red River and East Cesar Chavez streets. This will be a big property—roughly the size of six Frost Bank Towers!

  7. Block 71—Indeed Inc. will lease the top 10 floors of this office tower under construction at the intersection of Sixth Street and Colorado Avenue.

  8. 5th & West—154 luxury condos that stand 37-stories tall.

  9. The Austin Proper Hotel—a 32-story luxury hotel and residential combo.

  10. Third + Shoal — an office tower near The Independent, the new library and Google’s tower — with tenants such as Facebook and Bank of America.

  11. 300 Colorado Office— at Colorado and Third Street will be redeveloped into a 32-story office tower with about 390,000 square feet of space.  Fourteen of the building’s 32 floors will be dedicated to parking. 

  12. ZaZa Tower—This 24-story tower on West Fourth Street near Lavaca Street will offer more than 200 apartments and more than 150 rooms at Hotel ZaZa. Retail stores will line the bottom of the building.

  13. Genesis Real Estate plans to build a 50-story apartment tower in the Rainey Street area on the site of the vacant Villas on Town Lake condos.

  14. Block 185— Google has leased the entire building. set to start construction in 2019. This building will take on a sail-like shape due to its proximity to Lady Bird Lake and Shoal Creek.

  15. 93 Red River—347 Units; 40 stories of Multifamily, Office & Retail including five levels of underground parking and seven levels of above ground parking.

  16. 405 Colorado—a 197,056 SF building with 12 stories of parking with 12 levels of office space on top.

How do you feel about Austin’s dynamic skyline and economic boom? Like it our not, our city is currently one of the most rapidly changing metro areas in the country, so we need to be prepared to flex and change with it, especially in the real estate sector.

How to Eliminate Capital Gains Tax

Today, a friend and I had a conversation about his real estate investment. He has owned the property for three years now, and we discussed his options if and when he sells his property. So I brought up a "1031 Exchange." To my surprise, he was unaware of the 1031 Exchange and its helpfulness. This is an important topic for those who own investment properties.

Section 1031 of the Internal Revenue Code is one of the most underutilized sections of the tax code. When an investor sells an investment property and subsequently buys a new investment property, the investor can defer the capital gains taxes on the sale of the original investment property. The gain is “rolled over” into the new property.

Step by step overview: To begin, an investor would meet with a qualified intermediary to discuss a potential 1031 Exchange. The investor sells the investment property #1. After the close on property #1, the funds go to an escrow account, controlled by the qualified intermediary, to be held until property #2 is purchased. The qualified intermediary then transfers the funds for the purchase of Property #2.

Through a 1031 Exchange, an Investor saves the capital gains tax and can invest that money into another investment property. This is a government incentive for investors to continuously invest in real estate.

6 points to understanding the 1031 exchange requirements.

1: Like-Kind Property
The first requirement for a 1031 exchange is that the old property to be sold and the new property to be bought are like-kind. "Like-kind" relates to the use of properties. As a result, the old property as well as the new property, must be held for investment or utilized in a trade or business. Vacant land will always qualify for 1031 treatment whether it is leased or not. Furthermore commercial property may be used to purchase a rental home or a lot may be sold to buy a condo.

Additional factors to consider:
• Primary residences can never be utilized in an exchange.
• Properties to an exchange must be within the United States border. Properties located outside the United States may not be involved in the exchange.

2: 45 Day Identification Period
The Internal Revenue Code requires that the new property be identified within 45 days of the closing of the sale of the old property. The 45 days commence the day after closing and are calendar days. No extensions are allowed under any circumstances. If you have not entered into a contract by midnight of the 45th day, a list of properties must be furnished and must be specific. It must show the property address, the legal description or other means of specific identification.

Up to three potential new properties can be identified without regard to cost. If you wish to identify more than three potential replacements, the IRS limits the total value of all of the properties that you are identifying to be less than double the value of the property that you sold. This is known as the 200% rule. Accordingly, more than three properties may be identified as replacements. However, if the taxpayer exceeds the 200% limit the whole exchange may be disallowed.

It is the responsibility of the qualified intermediary to accept the list on behalf of the IRS and document the date it was received. However, no formal filing is required to be made with the IRS.

3: 180 Days To Purchase
Section 1031 requires that the purchase and closing of one or more of the new properties occur by the 180th day of the closing of the old property. The property being purchased must be one or more of the properties listed on the 45 day identification list. These time frames run concurrently, therefore when the 45 days are up the taxpayer only has 135 days remaining to close. Again there are no extensions due to title defects or otherwise. Closed means title is required to pass before the 180th day.

4: Use of a Qualified Intermediary
Sellers cannot touch the money in between the sale of their old property and the purchase of their new property. By law, the taxpayer must use an independent third party commonly known as an exchange partner and/or intermediary to handle the change. The party who serves in this role cannot be someone with whom the taxpayer has had a family relationship or alternatively a business relationship during the preceding two years. The function of the exchange partner/intermediary is to prepare the documents required by the IRS at the time of the sale of the old property and at the time of the purchase of the new property. The intermediary must hold the proceeds of the sale in a separate account until the purchase of the new property is completed. The taxpayer is entitled to the interest of these funds and must treat the interest as ordinary income during the period of escrow.

5: Title Must be Mirror Image
Section 1031 requires that the taxpayer listed on the old property be the same taxpayer listed on the new property. If you and your wife are married and sell the old property than you and your wife must also be on the title to the new property. If a trust or corporation is in title to the old property that same trust or corporation must be on title to the new property.

6: Reinvest Equal or Greater Amount
In order to defer 100% of the tax on the gain of the sale of old property, the new property must be of equal or greater value. There are actually two requirements within this rule. First, the new property has to be of greater or equal value of the one which is sold. Secondly, all of the cash profits must be reinvested.

In reality, you may deduct closing expenses and commissions from the sale of the property being sold. If the property is being sold for $500,000.00 and the actual net amount after closing expenses is $465,000.00, the $465,000.00 is required to be spent for the replacement property.

A party who elects to do an exchange and take cash out may do so. However, any cash received will be taxed at the corresponding rate of ordinary income if held for less than one year or the capital gains tax if held for more than one year.


Debt-to-Income Ratio

Your debt-to-income ("DTI") ratio is a valuable number when purchasing a home, especially when financing the purchase. The easy part of DTI is what it means... the amount of debt you have vs. the amount of income you make. How is the DTI ratio used? What is an acceptable DTI ratio when purchasing a home?

Lenders look at DTI during their underwriting. It influences how much they will lend you. There are two main kinds of DTI; front-end ratio and back-end ratio. Both affect lenders' decisions.

Front-end ratio indicates the percentage of income that goes towards housing costs. The "D" in DTI stands for "Debt," but it covers more than debt, including taxes, HOA dues (if applicable), insurance, fees, and insurance premiums, all on top of the principal and interest payment.

Back-end ratio indicates the percentage of income which that goes towards all recurring debt payments, including front-end debts plus credit cards, car payment, child support, student loans, legal judgments, etc.

Currently, DTI limits are as follows:
Conventional loan limits 28/43
FHA loan limits 31/43
VA loan limits 41/41
USDA loan limits 29/41

(The first number represents the (%) limit of the front-end ratio/second number represents the (%) limit of the back-end ratio)

A couple's monthly income is $7,100 (gross monthly income or income before taxes). The couple has two cars, one car is paid off. The second car is financed with a minimum payment of $450 per month. They also use credit cards with minimum payments of $50 (total).

Considering a conventional loan, find their maximum PITI payment considering the couple's monthly income.
This question is a front-end DTI question. $7,100*28% = ~2,000

What purchase price can they afford given their monthly PITI payment? $2,000 PITI Payment = ~$310,000 purchase price

Does their total debt qualify under the conventional loan DTI limits?
$2,000 + $450 + $50 = $2,500 in total recurring debt
$2,500/43% = ~$5,814 They do pass the DTI back-end limit as their monthly income of $7,100 is above $5,814.
$7,100*43% = ~$3,050 Again, they do pass the DTI back-end limit as the monthly debt of $2,500 is below $3,050.