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Home prices aren’t set in stone; instead, their value can change depending on a few key factors—that’s what makes buying and selling real estate so fun! (Or frustrating, depending on your perspective.)
As a buyer or seller, you will likely hear two “prices” thrown about: tax-assessed value vs. market value. So what’s the difference?
While assessed value and market value may seem similar, these numbers can be different—typically, the value as assessed is lower—and they’re used in different ways. So let’s clear up any confusion, so you can use these terms to your advantage.
Casey Fleming, a former real estate appraiser and author of “The Loan Guide: How to Get the Best Possible Mortgage,” says the technical definition of market value is “the most probable price that a given property will bring in an open market transaction.” Or, in plain English, “It’s the price that a buyer is willing to pay for a home, and that a seller is willing to accept.”
Real estate agents are trained to pinpoint a home’s value in the real estate market, which is done by looking at a variety of characteristics, including the following:
A home’s market value is often a good starting point for determining all kinds of concerns that home buyers might have.
For one, listing agents use this value to help sellers come up with a fair asking price for their home. And, since buyers shouldn’t just trust what sellers say their place is worth, their own agents can also determine the home’s approximate value and come up with a different price that they think their clients should offer.
No number is right or wrong; the ultimate deciding force is what price a buyer and seller determine they are willing to shake hands on to close the deal.
When trying to understand a property’s assessment value, you must know who is assessing it and why.
Municipalities, mostly counties, employ an assessor to value real estate and levy property taxes on it.
To arrive at a value for tax purposes, the assessor looks at what similar properties are selling for, the value of any recent improvements, any income you may be making from, say, renting out a room in the property, and other factors—like the replacement cost of the property if, God forbid, it burns down in a fire (which sounds dark, but assessors are thorough professionals, who consider every possibility).
In the end, the assessor comes up with an assessment value of a home and deducts any tax exemptions for which you qualify. Then, that number is multiplied by an “assessment rate,” also known as “assessment ratio,” a uniform percentage that each tax jurisdiction sets that is typically 80% to 90%, to arrive at the taxable value of your property.
So if, say, the market value of your home is $200,000 and your local assessment tax rate is 80%, then the taxable value of your home is $160,000. That $160,000 is then used by your local government to calculate your property tax bill.
The higher your home’s assessed value, the more you’ll pay in tax. You can check with your local tax assessor for a more exact tax date for your home, or search by state, county, and ZIP code on publicrecords.netronline.com.
While a home’s value in the market can rise and fall precipitously, based on local conditions, assessed values are typically not as sensitive to fluctuations.
Some states, like Oregon, prohibit the assessment from being increased by more than 3% a year, “even if the market value goes up more,” says Nathan Miller, founder of Rentec Direct, a software company that educates property managers and landlords.
Don’t be upset as a property owner if your assessment is calculated at a lower amount than you’d figured. It doesn’t mean your property value is actually less.
Assessed value is used mostly for property tax purposes. A lower assessment means a lower tax bill. Home buyers and sellers, on the other hand, look more to marketplace value than at property tax data.
However, assessed value can come up when you buy or sell a home, because this number, unlike the loosey-goosey market value, is public knowledge contained in property records. So, rising assessed values bode well when home sellers try to justify their sales price to a buyer: “Hey, the assessed value is $310,000, and I’m only asking $320,000.”
Likewise, buyers can use assessed value to justify a lower price: “Hey, the assessed value is $260,000, and you’re asking for $300,000. What gives?”
But the thing to remember with values both market and assessed is that at the end of the day, the price of a home is the amount for which a seller is willing to sell, and a buyer is ready to buy. The only number that matters is the price a buyer and a seller agree on.
Source: realtor.com ~ By Lisa Kaplan Gordon ~ Image: Thought Catalog
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Let’s Discuss the 2025 Housing Market Thaw
The premise of a housing market thaw in 2025 is a compelling one, given the recent trends and expert predictions.
Here are some key factors that could contribute to a more favorable housing market in 2025…
However, it’s important to note that several factors could influence the market’s trajectory:
To make informed decisions about buying or selling a home in 2025, consider consulting with a real estate agent or financial advisor. They can provide personalized advice based on your specific circumstances and the latest market trends.
Would you like to discuss any specific aspects of the housing market, such as potential investment strategies, first-time homebuyer tips, or the impact of emerging technologies on real estate.
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So, you’re curious about hopping into the real estate investing game, and you’ve heard that a real estate investment trust (REIT) is a great way to enter that space. Well, that definitely can be true!
REITs are a passive landlord’s dream since they don’t require you to perform constant maintenance on a property or find new tenants every couple of years—unlike traditional real estate investing. But even though REITs are sometimes a great investment, they can just as easily flat-out suck.
To help you avoid falling into a trap, we’ll break down exactly how REITs work and what they are in the first place. That way, you can confidently decide whether investing in a REIT is a good option for you. Let’s hop in!
A real estate investment trust, or REIT (pronounced “reet”), is basically a mutual fund that buys real estate instead of stocks. REITs have a special tax status that requires them to pay at least 90% of their profits back to the shareholders.1 This payment is called a dividend. If they follow this rule, then they aren’t taxed at the corporate level like every other type of business.
All REITs have to meet certain requirements to qualify:
There are also rules around how much of a REIT must be invested in actual real estate properties and how much of the gross income from a REIT must be generated by real estate.
From investing advice to wealth management, find a SmartVestor Pro who speaks your language.
There are a handful of different types of REITs out there, which can make things feel even more complicated. So let’s unpack the differences.
Equity REITs are the most common. They own and manage properties, and most of them are specialized, meaning they only invest in specific types of real estate.
Some of these types include:
Equity REITs make money for their investors in three main ways:
Mortgage REITs borrow cash at short-term interest rates to purchase mortgages that pay higher long-term interest. The profit is in the difference between the two interest rates.
Confused? Don’t sweat it—mortgage REITs are complicated. Hopefully, looking at an example will make things a little clearer. Here’s what a typical mortgage REIT looks like in practice:
To make as much money as possible, mortgage REITs tend to use a lot of debt—like $5 of debt for every $1 in cash, and sometimes even more. Plus, the interest rate on those short-term loans could increase, leading to smaller profits than expected—or even a loss.
All of that makes mortgage REITs extremely volatile. And investing in debt is always a bad idea because it introduces way too much risk into the equation.
If you do invest in REITs, stay far away from this variety.
Now, some REITs aren’t publicly traded on national stock exchanges. Non-traded REITs might still be registered with the Securities and Exchange Commission (SEC), but you won’t find them available for trade on the stock market.
A big risk here is that it can be very hard to know the value of a non-traded REIT until years after you’ve invested. So if it’s a dud that’s losing your money, you won’t know for a long time. Another knock on these REITs is that they usually come with higher up-front fees—sometimes totaling around 10% of your investment—that can significantly lower the value of your investment.3 Yikes!
A private REIT is neither registered with the SEC nor available for trade on stock exchanges. If you invest in one, be prepared to forget you had that money. They’re usually illiquid—a fancy term that means an investment can’t be easily turned back into cash. To get the best returns, you probably won’t have access to the money for a long time, which makes it very difficult to get out of a private REIT once you’re in one. It’s not as easy as selling a mutual fund.
For a private REIT to work for you, you’d need to be in a group that isn’t milking the REIT for their profit and driving up management fees—leaving nothing on the table for investors. To sum it all up, this is risky stuff. Beware.
A hybrid REIT is basically a combination between an equity REIT and a mortgage REIT—meaning the fund has company-owned properties and mortgage loans as well.
This may sound like a smart and balanced way to invest in REITs. But in many cases, hybrid REITs lean more heavily toward one type of investment over the other. This means you need to be very careful when looking at hybrid REITs—especially if they look more like those mortgage REITs we talked about earlier that borrow a lot of money to try to generate profits for investors. That’s a dangerous game—one you should try to avoid.
Just like with most investments, investing in REITs has both risks and benefits. Let’s walk through the biggest ones:
There’s no secret formula here—anyone can invest in a REIT by simply purchasing shares through a broker, a REIT exchange-traded fund (ETF), or a REIT mutual fund. Basically, it’s the same process you would go through if you were buying mutual funds or single stocks.
But that’s only if the REIT is publicly traded. For a non-traded or private REIT, you’d have to purchase shares through a broker that’s associated with a non-traded REIT.
It depends. REITs have come a long way over the past decade, and now they’re a legitimate way to invest in real estate if you have no interest in being a landlord. But they’re not for everyone, and there might be better ways for you to invest in real estate.
First off, you should only consider investing in REITs once you’ve paid off your own home and you’ve maxed out your tax-advantaged retirement accounts—like your 401(k) and Roth IRA. Until then, stick with the four types of growth stock mutual funds we recommend for retirement investing, which offer the most balanced growth over time.
Second, REITs range from awesome to really bad, so you have to do your homework before you invest in one.
If you are going to invest in a REIT, an equity REIT is probably the way to go. Since they own and manage the properties inside the fund, they aren’t as risky as mortgage REITs. They’re also registered with the SEC (unlike private REITs), and they offer more transparency than non-traded REITs. Plus, you might find a handful that perform as well as good growth stock mutual funds.
Ultimately, you want to choose a fund with a long track record of strong returns that’s run by a competent group of investors. And no matter what, your REIT investments should be no greater than 10% of your net worth.
Source: ramseysolutions.com ~ By Ramsey Solutions ~ Image: Canva Pro
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Consider the advantages and disadvantages of using real estate to fund your retirement years.
Instead of buying, renting, or selling property yourself, consider adding real estate to your retirement plan through a fund.
Key Takeaways
When planning for retirement, real estate investments can help you build wealth and add additional income to your bottom line. Not only can real estate diversify your portfolio, can also act as a hedge against inflation.
There are plenty of ways to include real estate in your retirement plan, each with pros and cons. Some of the most common methods include:
If you have paid the mortgage for your current home or have built equity, you could sell it in retirement. The proceeds from the sale can be used to support you in retirement or you may choose to invest those funds to generate future returns.
“Evaluate the tax implications and the after-tax proceeds you’ll receive if you sell your real estate. Then compare that to the after-tax cash flow you can expect from other investment types,” says Dana Anspach, a certified financial planner at Sensible Money in Scottsdale, Arizona.
You can also reduce your living expenses in retirement by downsizing to purchase a smaller home that costs less and requires less maintenance, or renting an apartment.
Even if you sell your home, you’ll likely need other sources of income to support you in retirement. These funds could come from other accounts like a traditional or Roth IRA, 401(k), an annuity or a pension.
Another way to invest in real estate is by owning a rental property.
Consider the yield on this type of investment as it relates to your involvement in property management.
“Compare that to the results you may expect if you outsource responsibilities to a property manager. However, delegating to a property manager will not alleviate the cash flow impact from periodic repairs or loss of income if the property doesn’t have a tenant,” Anspach says.
Owning a rental property typically requires a large up-front investment. You may be in a position to pay in full with cash or use your savings to make a down payment and take out a mortgage. From here, you want to consider carefully whether the property’s rental income will be enough to cover its related expenses.
A drawback of owning and renting property is that the investment is typically not very liquid. If you have a financial emergency, selling the place quickly and receiving cash when needed might be difficult.
Even if you sell, you might not get the best price if market prices are lower than average in that area. You’d also have to consider any capital gains taxes that
If you live in an area where housing prices are expected to rise, you might be interested in purchasing multiple homes with the plan of selling them later for a higher price.
You could also acquire several properties with the intention to rent to tenants. As your income increases, you could build a real estate portfolio to help fund your retirement.
While owning properties may help increase retirement funds, there is often a great deal of work involved in finding places, acquiring them, making needed repairs or renovations and then renting or selling them.
The time requirement for real estate is typically much more demanding than other types of investments. Those who cannot commit much time might consider a more passive approach to investing.
When planning for retirement, real estate investments can help you build wealth and add additional income to your bottom line. Not only can real estate diversify your portfolio, can also act as a hedge against inflation.
There are plenty of ways to include real estate in your retirement plan, each with pros and cons. Some of the most common methods include:
If you have paid the mortgage for your current home or have built equity, you could sell it in retirement. The proceeds from the sale can be used to support you in retirement or you may choose to invest those funds to generate future returns.
“Evaluate the tax implications and the after-tax proceeds you’ll receive if you sell your real estate. Then compare that to the after-tax cash flow you can expect from other investment types,” says Dana Anspach, a certified financial planner at Sensible Money in Scottsdale, Arizona.
You can also reduce your living expenses in retirement by downsizing to purchase a smaller home that costs less and requires less maintenance, or renting an apartment.
Even if you sell your home, you’ll likely need other sources of income to support you in retirement. These funds could come from other accounts like a traditional or Roth IRA, 401(k), an annuity or a pension.
Source: money.usnews.com ~ By Aja McClanahan, Tracy Stewart and Barri Segal ~ Image: Canva Pro
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