When you begin your search for the perfect property, Cathy will help you gather all the information and professional help you need to determine what market you should be looking in.
Here are some of the issues to think about:
There are many factors such as tax benefits associated with real estate purchases that may allow you to invest more than you have considered. Cathy suggests her customers talk with a financial advisor in order to fully understand what they are able to afford.
Financing options for raw land are different from buying a house. Cathy will explain to you that institutions will allow you to borrow up to 50% of the cost of the land, and in some cases up to 90% for a house.
If you plan to start building immediately you can speak with a mortgage broker or bank about a construction or building loan package.
If you are mortgaging the property, there are many types of mortgages. Ask Cathy to tell you about the following options for mortgages. But always seek advice from a mortgage lender or bank.
Construction Loan
These are to finance improvements on real estate. Payments are made on a scheduled basis to the owner or builder or contractor for work that has been completed since the last installment. The interest rate is generally higher for a construction loan than it is for a house loan, as the risk is greater to the lender.
Takeout Loan
This is a permanent loan that a borrower takes once the construction is completed.
Blanket Mortgage
These cover more than one lot of land and are used frequently to finance subdivision developments.
The buyer and seller engage their own attorneys. They will make sure you are provided with all the necessary documents to facilitate the closing. Local attorneys may save you enormous time and money because of their familiarity with the zoning regulations, and the local real estate process.
Speak with your attorney, a financial professional, or a mortgage broker when determining the loan that will work best for you.
Also, keep in mind that there are costs associated with financing, that may include fees and/or points.
Closing costs and legal fees change depending upon whether or not you are taking a mortgage. If you are taking a mortgage the lender will give you what is called a "good faith estimate" of the closing cost. This is an itemized list of all the costs connected with closing. If you are not taking a mortgage you should discuss the closing costs with your lawyer.
Real Estate Transfer Tax [also known as the Mansion Tax]
- On improved property: This tax is 1% of the full purchase price over $1 million on improved residential property.
- Example: If you're buying a $2 million property with a building on it [that's improved property] the tax is $20,000
Mortgage recording tax
This is an excise tax for recording a mortgage in the real property records of a recording officer. This amount depends on the county. In Suffolk County the tax is 1.05% per $100 of the mortgage. But please confirm this with your mortgage professional, as there may be other tax amounts that are included, or credited for your property.
Local Tax
Community Preservation Fund. This fund was established in 1998 and is designed to set priorities for land preservation with farmland preservation the highest of priorities. The fund is built through a tax imposed on the buyers of property.
The tax that applies to the towns of Southampton, East Hampton and Shelter Island is 2%:
- It is taxed on the price over $100,000.
- Example: At a $2,000.000 purchase price for land (unimproved) the tax would be $38,000.
Tax Deferred Exchange (1031). A 1031 Exchange is a way for owners of business and investment real estate to buy other "like-kind" property and defer Capital Gains Tax.
To qualify as a "like-kind" exchange, property exchanges must be done in accordance with the rules set forth in the tax code and in the treasury regulations. The 1031 exchange can offer significant tax advantages. To make it work for you, you should be aware of the many guidelines for qualification. Here is an introduction to just a few of the guidelines:
Definition of "Like-Kind": Properties involved in the exchange must qualify for a 1031 Exchange. Not all properties can be "exchanged."
There are time limits that must be adhered to relating to:
- Length of time you have to hold the property before it can be exchanged
- Limit in the number of days you have to identify the property for exchange.
- Maximum days you have to complete the exchange.
You must identify a "safe harbor" for the financial transaction, so money never goes to you directly. Without the safe harbor, the money will be taxable to you. You will need to familiarize yourself with how a safe harbor works.
Please talk with a tax professional for advice and counsel.