The highest property taxes in the nation and new federal limits on deductions have scared many homebuyers from New York's tony Westchester County. Now, some have discovered a workaround — buy multifamily.
Purchases of two- to four-family houses surged 28% in the third quarter from a year earlier, Miller Samuel Inc. and Douglas Elliman Real Estate said in a report Thursday. As investment properties, the houses aren't subject to the same limits on deductions that have sent sales of single-family homes tumbling.
The median price of the 160 two- to four-family properties that changed hands in the quarter jumped 12% to $525,000 as they flew off the market in the suburban county.
"Multifamily has been selling like hotcakes, and the only reason why more are not selling is because people aren't putting them on the market," said Candace B. Evans, a broker with Houlihan Lawrence. "Tax-wise, they're very desirable."
It's been a tough year for single-family home sales in Westchester, home to many of New York City's commuting professionals. Years of escalating prices have made buyers slow to commit to deals, for fear of overpaying. Then, federal rules approved in December drove the cost of owning even higher by limiting how much of the area's sky-high property taxes can be deducted from federal returns.
The new law set a $10,000 limit on deductions for state and local levies — and in Westchester, annual property-tax bills of $35,000 to $50,000 are not uncommon. The mortgage-interest deduction was also capped, to loans of $750,000, putting another damper on home sales in pricey areas.
Sales of single-family homes in Westchester dropped for a fifth straight quarter, falling 0.5 % from a year earlier to 1,921 deals, as inventory continued to mount, according to Miller Samuel and Douglas Elliman. Contracts — a more-accurate measure of current demand — were down 6.9% to 1,039, Houlihan Lawrence said.
Multifamily home sales went in the opposite direction — and they went fast. At the current pace of deals, it would take 4.6 months to sell all the two- to four-family homes that were on the market at the end of September, the quickest rate for a third quarter since 1995, Miller Samuel and Douglas Elliman said.
It's not just investors who are scooping them up. Douglas Elliman broker Glorianne Mattesi said many of the multifamily buyers she sees plan to call a portion of the property home while renting out the rest. A two-family house she listed in New Rochelle for $539,000 drew 15 bidders and eventually went into contract for $550,000, to first-time homeowners who intend to live on the ground floor, she said.
Multifamily homes that are strictly rented out for income are considered an investment and face no caps on deductions, said Shannon V. Daly, a certified public accountant in Greenwich, Connecticut, whose firm, Tucker Tax, has clients in Westchester. Buyers who want to occupy one portion of the home and rent out the rest can do so — and only the part they live in would be subject to the deduction limits.
"If you're sitting there saying, 'I want to own but I just can't make the math work,' this is another way you can do it," Daly said. Before, "there were enough benefits to just owning a home that you didn't have this searching. Now, people are asking 'Are there better ways?"'