The seller doesn’t get it! I’m reading from the end of an email chain in which the seller is blasting me for not taking his counter offer on a single family house. A few email messages ago he discussed ad-nauseum why I ” . . . really need to reset my expectations in this market.” The truth is that I’m not buying the deal for one simple reason: the deal has been stripped of it’s equity. I have no issues with a person wanting to make a profit. That’s par for the course. But if a property is not in Turn Key condition (requiring no work or upgrades) paying market price leaves me no upside potential in the property. NEXT! I’ve been around single family deals long enough to know when a seller has priced a property for a fast sale and when they are speculating. What’s a speculator. Here’s an example: A brand new remodeled home recently sells in your neighborhood for $500,000. The house was move in condition, no upgrades or repairs needed with all the latest shiny features, materials, etc. The seller has priced his outdated house with none of the latest features for $485,000. Yet when I look around the neighborhood the price for comparable quality and features is more like $450,000. As a contractor I determine that is would take a $25,000 investment to bring the outdated home to date with the $500,000 remodeled home. If I pay $485,000 I’m speculating that an extra investment of $25,000 will fetch an even greater price than the $500,000 newly remodeled home. However, if I pay $415,000 the $25,000 investment should bring me a $500,000 home for the cost of $440,000. This is a value-add strategy because I have “built in” $60,000 of equity by doing the upgrades. If I decided not to do the upgrades but still purchased the house for $415,000 another strategy is to sell the house for $450,000 (the value for similar outdated homes). This is the wholesaling strategy which would net a profit of $35,000 minus my costs to quickly sell the property. And as you can see from this example, if you can get an offer accepted at a discount you will have more options available should your plans ever change. Food for thought.
Picture twenty years from now. You and you’re families needs have changed. Maybe you had children that are grown and out of the house now. Maybe you and your significant other are quickly nearing retirement. That four bedroom house is really “a lot” of house to clean, maintain and pay the property taxes. And maybe you made other investments in real estate and those properties have appreciated as well. You bought the house at a time when real estate was considered cheap, realizing now that your house IS your nest egg and has grown three to five times the price you originally paid! If you considered downsizing your lifestyle the prospect of having to pay the tax on the gains you earned makes the idea seem impossible, right? I mean why would anyone pay so much in taxes on the sale of the home to downsize right before retiring and your dependable income disappears? The tax will deplete a large amount of money that you could have gone towards your retirement! For this reason it is a MUST to learn about selling your home using the Installment Sale method. Before I go too far, please remember that I am not licensed tax professional and I am not giving tax advice. I am a real estate professional and like you I get my tax advice from a licensed tax professional and pay them a fee for that advice. So if you need tax advice please see your tax professional BEFORE taking any action that could trigger a taxable event! That said, an Installment Sale is a method of selling your house now, and spreading out the taxable consequence over time. For example if you purchased your house for $100,000 and it is now worth $500,000 you have a basis in your house of $100,000 so any amount that you sell your house over and above that amount will have a taxable consequence. And the tax would be paid for the current year’s tax filing. However, if I offered to purchase your home for $700,000 with a $100,000 down payment and then pay you the remaining $600,000 over the next 30 years, we now have an installment sale. You may have hear of the term a “carry-back” which it is similar. In this example the seller is taking back an income stream for the next 30 years instead of all the money up front. The seller gets to spread out the taxable consequence over the next 30 years and the house is sold. What binds the buyer to pay this balance due? The purchase and sale agreement (which is the executed contract), the promise to pay secured by a promissory note and a deed of trust against the property. The deed of trust is the 1st position lien holder with rights to foreclose and take back possession of the property if the buyer fails to pay the remaining balance due.
Here are some additional resources to understand how the sale of you’re house can qualify for an installment sale. As always feel free to send me a message if you have questions about how this strategy can help you sell your home!
Skip the spouse, buy a house. Right? Recently the National Association of Realtors found that single head of household females were outpacing their male counterparts in the first time home buyer surge going on across America. The percentages from today’s infographic speak clearly to the fact that women value home ownership and are wiling to use a greater amount of disposable income to maintain housing ownership. In Australia, woman are outpacing their male counterparts also because they no longer need a guarantor for they are encumbering against the home they are purchasing (https://www.westpac.com.au/news/money-matters/2018/02/women-holding-the-keys-to-the-housing-market/). According to data released in 2006 by the Joint Center for Housing Studies at Harvard University, the three main reasons a single woman would buy a home are:
1. A strong desire to own her own home.
2. Needing more space or wanting smaller home.
3. Relocating closer to job, school or family.
And a 2012 blog post on Redfin revealed that women buying a home are more focused on whether they love it — 46 percent of women first evaluate a home based on this, compared to 24 percent of men. Fifty-four percent of women and 76 percent of men evaluate a property based on cost and value (https://www.huffingtonpost.com/2013/07/10/single-women-buying-homes_n_3573801.html).
I am all for more woman becoming homeowners. Neighborhoods that are predominantly owner-occupied tend to be maintained better, safer and maintain higher asset values. Want to learn more about becoming an owner for the first time? Send me a message at firstname.lastname@example.org Today!
The headline read “U.S. stocks plunged to their lowest levels in nearly three years Monday, and the Dow Jones industrial average suffered its worst point-loss in history…” That day in history was September 17th, 2001 (http://money.cnn.com/2001/09/17/markets/markets_newyork/). Imagine trying to market time a stock investment the week before? Whether your investing in stocks or real estate, planning is the process that prepares consumers for the possibility that timing works against them. If you look at the chart above you can see how home prices in southern California topped out in July of 2007. County wide, prices lost as much as HALF their values by April 2009 with the median home price finally recovering by 2017. Good planning is how you get through the tough times so that your not forced to sell if the market sells off. For example, imagine if you had purchased a house in June 2007 and then one of the following happened to you:
- Loss of a job/income
- Health emergency not covered by insurance
- Auto accident not covered by insurance
- Home repair not planned that drains savings
- Tax levy from the IRS or State taxing board
- Legal settlement not covered by insurance or savings
- Family emergency not covered by savings or insurance
I could go on with this list but each of these items can severely impact a homeowners ability to pay the mortgage. And consider this, NONE of these factors are market related! They are all issues that happen in LIFE. It goes to say “Plan for the worst, hope for the best.” Homeowners who carefully plan out the monthly payment including taxes and insurance are less likely to struggle during the tough times because they have “plans” in place to take care of such emergencies. For example, private disability insurance can protect a homeowner from the possibility of becoming unemployed from a disability. Drafting a will and living trust can make the process of losing a loved one a little more manageable to deal with a families daily affairs. An umbrella insurance policy can cover owner liability and certain potential lawsuits claims. Hiring a qualified CPA who is also designated as an enrolled agent(EA) can protect a homeowner from the potential conflict of filing a frivolous tax return. Home warranty programs can cover home repairs that are costly and unforeseen. The same goes with product warranties that are sold as “extended warranties” from resellers. Boosting an auto policy coverage can ensure that an unforeseen accident doesn’t leave a homeowner in massive debt from health care bills. This is just a short list of plans are designed to address unforeseen emergencies, not market pricing. Yes it’s still possible to buy a home at the top of the market. But, by working with a professional you can structure a plan to ensure that if the market turns, you still have a roof over your head, enough money to pay your mortgage and avoid being forced to sell your home. Need a plan? Contact me and I can help you get started!
I wanted to follow up my last discussion about mortgage assistance. All week I have been speaking with potential new home buyers who have shared down payment affordability concerns. The California Association of Realtors has recently shared this link which I want to pass on which can help potential home buyers with additional resources to find down payment assistance. CLICK HERE: http://bit.ly/2orSGPP
In 2017 home prices in California were priced right at market more than 2/3 of the time. WAIT? Is that what this data is telling us? Well . . . YES! If you look closely at the percentage of homes in 2017 that sold above asking price was 32.9%. That also means that 67.1% of the homes were price at or below market. One of the greatest challenges for home buyers is feeling comfortable long after the escrow closes and the movers have left that the price paid for that new home was a deal. Isn’t it? For most homeowners their home IS the largest asset they may ever own in their life so it strikes home, no pun intended! Although the data in this share today indicates California is getting to be a very warm market, at least for those that already did buy they can rest assure they at least paid a market price. And if they didn’t, there was a good chance that another buyer right around the corner probably would have. Unsure if now is a good time to buy or sell a house in California? I can help! Feel free to message me to learn about options that are available to you!
As always, check with your tax advisor about how any changes in the tax laws will impact you. Need a tax professional referral? I’ve got you covered! Two years ago I hired an excellent tax professional in LA that I have been very satisfied with and can refer to you. Just send me a message!
Recently I heard from some customers that rented a home in a very nice neighborhood that they want to begin the process of stepping up into home ownership. But there was one problem. When my customer’s spoke with their mortgage lender they were told they would need a seasoned down payment in order to qualify for the mortgage. Although it is not uncommon for lenders to want to see a home buyer with some skin in the game, there are programs today that can even help with a home down payment! So what is a seasoned down payment? Simply put, its the amount of money that is in your bank account that will be used to cover the down payment and has been in your account greater than 2-3 months. The reasoning behind the seasoning requirement for this article is not important because what my customer needed is to find the amount of money they don’t have saved with the amount the lender demands to qualify for the mortgage. The loan my customer wanted was the First-Time Home Buyer loan which only required to have 3.5% of the purchase price in their savings account as a down payment. Having only been able to save up 1% of the amount (because my customer is renting an expensive house) I told them about programs that are available that could help them obtain a grant towards the down payment. And best yet, would not have to pay the grant back! Not everyone will qualify for a grant, but just typing in “house down payment assistance” yielded no less than 2 million results! Although no one has the time to research (nor will they need to) I am familiar with at least 20 programs in Los Angeles that home buyers can research to determine if they qualify for a house down payment grant. It is important to note that no matter what direction you chose for down payment assistance, it is vital to communicate which program you chose with the realtor your working with so that when your offer to purchase is submitted that appropriate closing deadlines are planned so that you have enough time to receive the grant funds to fund your escrow. To become more familiar with down payment assistance this Freddie Mac resource written by Danny Gardner is a perfect first step to understand the options home buyers have available to them. Go here—–> http://bit.ly/2od7yBQ
Every once in a while I get blown away by a new product or service. As I write this I want to let readers know I am NOT an affiliate or getting paid by New Balance in any way to praise this product. In real estate I am on my feet a lot so I appreciate any footwear that makes it easier to get through the day. So I wanted to share my experience with these kicks from New Balance because they ARE crazy good! A good friend of mine has been loyal to New Balance for some time know as I always preferred Saucony. But I recently noticed something about my Saucony sneakers. Over time the sole “caves in” on me and doesn’t hold an even shape. My first pair of New Balance kicks were purchased last year and I was impressed how well they held up. I wasn’t even in the market for a pair of sneakers the day I bought these as I was in the store buying baseball cleats for my son when I noticed these gel-comfort sneakers. I can definitely say after two weeks they haven’t felt uncomfortable once. Even though I visit properties often I always power walk for at least 45 minutes a day. I love power walking for the added benefit of just reducing stress from the day and an opportunity to talk with friends and family. Even with that much time on my feet I don’t feel foot fatigue or any stress on my joints, heel or knees. I’ll update you in six months but for now these are great sneakers for all us road warriors.
The internet is full of strategies on how to invest in raw land and why its so important. Seldom do I see n author breakdown a simple strategy of how to exit land holdings to upgrade to an real estate income or growth opportunity. Here’s the conundrum: after paying off all your debts early in life you were finally able to save. A family member tells you about a great land investment opportunity so you need to act now! The land is cheap, taxes are minimal, and maintenance nearly nonexistent. Then a decade goes by. “What’s happening with your land” your family member asks. Nothing. It’s sitting there doing nothing. Sure maybe it appreciated . . . a little. So what now? You decide you would like sell or exchange the land to get a better return on your money. But how? It’s not worth much. HERE’S a solution most experienced investors have shared with me. Think of your land holding like a checkbook. But your not done there. Instead they say, go for the 3 Times Trade. Here’s what that means. Let’s say your land property has a value of $25,000. Next, you find a list of houses selling for $100,000. Three times the value of the land. Next, make offers to sellers till you find one that will accept your land as a down payment for the house. Next, bring your purchase and sale agreement to your banker, mortgage broker or private lender. Request a mortgage for $75,000 to close on the remaining deal. Why would the lender be willing to make this loan? Because the seller is already giving you credit for the land as a $25,000 down payment! The house is only 75% mortgaged leaving 25% of the house in the clear. You just turned the land into $25,000 of equity!
Another way of using this formula if you want a less expensive house si to go for the 2 Times Trade. In this example your land is worth $25,000. Next, you make a list of houses worth $50,000. Next, you find a seller that will accept your land as a down payment. Next, you bring the purchase and sale agreement to your lender and request a $25,000 mortgage to close on the house. The first $25,000 represents half down in this transaction which means you are turning the land into . . . $25,000 of equity! Why would the lender do this? Because you are only mortgaging the house by 50%. Most lenders will see this as a great deal because when you close you will have 50% equity in the house!
New possibilities now become available with the house that weren’t available with the land. Renting, house-flipping, Air B&B, home squatting just to name a few! These are two quick examples of how to exit out of land and step up to another asset class of real estate.
If you know of someone sitting on a piece of land and they aren’t sure what to do Share this article with them!