REAL ESTATE INFO
It is sometimes hard to look at the mortgage
bill when it comes in and not flinch a little. But the benefits,
especially when you live in Southern California, thegreatest commodity
market there is, not to grin a little arrogantly. For our dollars we
Investment return. And
not only on the equity we build with improvements, not only on the
appreciation we get to keep as the values continue to go up, but
leveraged , meaning that if your home appreciates 10% and
you have only 25% in equity and the rest is mortgage, that 10% is
still all yours, and your 25% investment is returning to you a total
of 40% return on your money!
Income tax savings.
Absolutely deductible from your income earned every years is the
total of the annual interest on your mortgage (up to $1,000,000
mortgage amount or the original purchase mortgage amount + $100,000
new mortgage, whichever is less) and the total amount of your
property taxes. In the early years of a mortgage this is about 90%
of your monthly payment and makes a substantial difference in our
net income/tax status.
Stability. It is
possible to plan, since you know your housing costs and occupancy.
Savings for the Future.
Just making the payments on the mortgage builds equity, money that
you can depend on should you ever need to. And yes, we in San Diego
may have a little more than the friends and relatives in other parts
of the country, whose prices are more sluggish in appreciating.
Roots. One of the
reasons our government made tax deductions for homeowners decades
ago, is that having a (place of our own) enhances our attachment to,
sense of belonging and sense of responsibility for the home,
community, town or city, state and even country we live in.
Sociologists find that children are much more confident and happy
when they have a sense of their own place.
Freedom and _expression
of individuality. When you rent, you are always subject to the
judgments of your landlord. When you own, you can, within zoning
and neighborhood restrictions, develop and dress your home to suit
your personal tastes and needs. And the money you put into doing so
goes into your pocket, not someone else's.
Control. You decide
when, you decide who, you decide how much. No landlord tells you to
move. No landlord tells you what to do or not do. And over time,
you silently increase your control, so that someday, when the
mortgage is paid off, the property can become your retirement nest,
all paid for and done the way you wish it to be.
Contingent offers are a fairly normal part
of the residential sales world. Most buyers are living somewhere when
they go to buy a home. Realtors, escrows, and lenders are all familiar
with these transactions and know exactly what and how to do it. Buyers
and sellers are not. Sellers, predictably, prefer offers without
contingencies for sale, because this contingency in effect adds the if's
and but's of another entire transaction, which must close in order for
the seller's deal to close. Usually therefore a seller will agree to a
contingency sale if he is given a little compensation...usually a little
higher price or something else. Seller's with difficult to sell
properties will often accept a contingency. Many buyers can avert
contingency purchases by arranging "interim" or "bridge" financing to
carry them for 1-3 months from the close of the new property to the
closing of the sale of the old property. This adds the dollars to their
cost that might otherwise go to the seller for allowing a contingency.
Contingency offers generally carry a
"72-hour Clause" as part of the agreement, under which clause the seller
has the right to continue to offer the property for sale and, if he
receives another acceptable offer, to issue to the Buyer a 72-hour
notice to release his sale, financing and other contingencies and prove
he can perform or release the contract within 72-hours. Since a
NON-contingent-for-sale contract has a 17-days for inspections and
financing and all other investigations period under which the buyer can
withdraw with no loss of deposit, I generally try to make the 72-hour
clause effectible AFTER the release of all other contingencies, but I
don't always get my way.
The point of a contingency is to
protect a buyer's deposit. so as long as any contingency stands the
buyer is protected from loss. Generally, a contingent buyer would be
smart to obtain a good deposit from HIS buyer so that if he has to
default because his buyer defaults, the deposit lost is effectively
paid by his buyer. And risks are always more or less in any specific
situation, the only sure escrow, we say, is a closed one.
GETTING THE BEST (DEAL) IN TODAY'S
Girl Scouts and Boy Scouts are right. It is
always best to be prepared. If you are a buyer in today's housing
market, it only makes sense. When the good ones are gone in a matter of
several days, to take advantage of the BEST opportunities a buyer
needs to be prepared, act fast, know where he can be flexible, and
understand the process.
Preparation means: 1. Starting with
a (Pre-Approval) letter from a reliable lender. This free,
no-obligation, information-full process will tell the seller your offer
is worth giving serious consideration because you CAN perform. It also
gives you the power of being armed with confidence and knowledge of the
financing options at your choice and how they suit your financial
picture. 2. Being familiar with the
community. Will the schools suit my children? Where will we shop? How
is the commute? Does the social, economic, and demographic structure
fit my lifestyle? What are the community concerns and benefits? Are
the worship, health, leisure and other issues in line with my
priorities? 3. Understanding personal and household priorities. This
is a great personal or family experience if you all share and
listen to each other's priorities.
Acting Fast may require some critical
adjustments. 1) You can't make a quick decision if you are not versed
in the market, confident in your lender, and managed with related issues
like the sale or rental of your existing home. 2) Can you talk with
your employer about PRE-arranging permission to run out the door and
make up time later when your Realtor calls with (this is it!)
Flexibility can be a huge
negotiating factor. We have a client in a home today in spite of
multiple offers on the same home, because that client could say to the
seller, yes, we will close in 30 or 90 days, whenever you find a home.
We made a sale that was well under asking price because the buyer could
offer the seller completely (as is) including accepting all the
responsibility for termite, smoke detectors, hot water heater strapping,
toilet retrofitting and similar details that just were too (complicated)
for this particular seller with an entire life to move across country.
Another area of flexibility might be allowing the seller to close,
pocket his money, then rent back until job change is complete, new home
is finished, baby is a month old, etc.
Understanding the process, all the
above and all the after, means having a perspective on what is
(typical), what is (next), what is really important right this minute.
People lose chances, because they have to finagle their best nickel
right now, because they feel emotionally put out, because they lose
sight of their priorities in the rush to (win). While good counseling
is conesquential through-out the process, it is critical at this time.
A buyer's first job is to (Get the Accepted Offer). His next job is to
complete his knowledge of the property (too expensive and involved to do
ahead of time on every prospective property) and to refine the purchase
contract. And finally, to close, to fine tune, arrange and manage all
the details and created obligations. It is said that making money in
real estate is not in the Selling, but in the Buying!
WHY BUY A CONDOMINIUM?
They can be (but not always!) more
affordable. It's better than wasting money on rent, and it's a
start on the road to real estate investing.
Their appreciation is now rivaling
and sometimes surpassing that of single family homes.
It's a shared investment with a pool
of talent (you and other condo owners) who also have concerns for
their best ownership decisions, AND yes, those co-tenants can be
obstacles, so investigating the mood and mien of the population
before you buy is critical.
You can have the freedom and security
of your own home without worrying about the management and
maintenance issues that are yours alone in a single family homes.
With the housing unit you also get a
population of potential friends, and you immediately have something
If you are looking to fix and resell,
condominiums generally offer greater potential for cosmetic
distinction without the risks of structural issues.
SMALL INVESTMENT (2-4 units) PROPERTIES?
COMPETITION: Right now this is
the hottest commodity on the real estate skyline.If you own a single
family house or condominium, and it is empty, you have 100% vacancy.
If you own 2-4 units and one is vacant, you still have income. And
the economy of multiples gives you an increasing rate of return as the
number of units goes up.
EASY TO FINANCE: Financing for
up to 4 units is the same as single family financing, lower down
payments than larger properties, similar rates and terms. And 75% of
the scheduled income is generally credited toward your qualifying.
FEWER TURNOVERS: Tenants
historically stay longer than in large more impersonal complexes.
EASIER START: Small
rental properties cost less to acquire. First time investors are less
daunted. Learning the responsibilities on a small scale is easier.
Looking at the before-tax wealth
accumulation potential of three types of investments:
SAVINGS; If we invest
$100,000 in a certificate of deposit at 5%, our investment will grow
to $164,701 in ten years.
STOCKS & BONDS: If we invest
$100,000 in a mutual fund growing at 10% annually, our investment will
grown to $270,704 in ten years.
If we invest $100,000 (20% down
payment) in a $500,000 real estate investment, appreciating at 5%
annually, in 10 years the value of the property will grow from
$500,000 to $823,504. If we sell the property at that time assuming
8% costs of sale, and a mortgage balance of (having been amortized
for 10 of 30 years at 7%) $343,250, the proceeds will be
- 65,880 costs
Not calculated herein of course are
income and expenses during the holding period, which we assume would
at least balance out during ten years, or the tax benefits
during the holding period such as the paper-only depreciation
write off, both of which we assume would enhance the overall
benefits. “Leverage” means paying some equity to acquire the rights
to take the appreciation on the entire value. A Good Thing! AND at
this time capital gains on real estate may be deferred into an
Exchange, keeping your tax dollars at work in your investment earning