Monday, April 24, 2006

“It Didn’t Matter that I Didn’t Have a Down Payment, Otto Got Me a Loan Anyway. He’s My Mortgage Lender for Life”

I want to include this post card from one of my preferred lenders. I think you will find this very informative.

Dear Friend,

Recently a client was referred to me who was thinking about buying a property but she was unsure if they could buy a home because they didn’t have much money for a down payment. They had found a newly converted condominium complex and could buy a two bedroom unit for only $395,000. The problem was that they had only enough money for the closing costs plus a little extra. The developer had an on site lender but that lender was unable to work with anything less than a 5% down payment. The down payment and the closing costs were more than this young couple had.
Because of the many different lenders I work with, I was able to find a lender who was willing to accept a 3% down payment. I showed them that they could access their 401k without a penalty in order to buy their first home. With three percent from their 401k they had enough to buy the condo.
Since real estate is such a great investment I helped them develop a plan for their wealth creation. It’s a simple plan that will lead them to a great deal of wealth. They will keep this property for the next 7-10 years. Rather than sell it at that point they will draw out some of the equity and buy their next home. Property in our part of California tends to double in value every 10 years. After 10 more years they will repeat the process by purchasing a third home and renting out the second one. They will then have two rentals and a primary home. Three assets appreciating instead of just one.

Your Mortgage Lender for Life.

PS. If you know someone who thinks they need a giant down payment to buy a home, please refer them to me. I have solutions.

PSS. The secret to investing in real estate is “buy and wait” rather than “wait to buy”

Tuesday, March 14, 2006

What is a Lease Option?

1. A Lease Option?

A lease option is your contract/agreement to purchase the property at a specific price today, to be exercised at some time in the future.

When you enter into a lease option, you enter into a Lease agreement (Rental) for a stated period of time. The Lease agreement contractually allows you to buy at today’s price as long as you purchase at a specified date in the future. (Option)

Many sellers use Lease Options as a tax planning strategy. A Seller may wish to postpone paying taxes until a later date, or avoid a lender’s penalty for paying off a loan too early.

2. How do I know if a Lease Option is right for me?

Lease Options can be right for many Buyers especially if they are faced with special circumstances:

a. Buyer would like to own real estate right now, but may need additional time to clear up financial issues.
b. Buyer does not have enough money saved for the down payment.
c. Buyer is cleaning up credit and would like to buy at a lower interest rate than currently being offered with existing credit.
d. Buyer is purchasing the property for a specified length of time to capture possible equity appreciation.

3. How does a Lease Option Work?

With a Lease Option the seller gives up the future appreciation of the home’s value in exchange for the buyer option money (your down payment). In the meantime the seller has a great tenant (you) leasing the property at a rent that covers the sellers payments. The buyer has a guaranteed price and the potential appreciation of the homes value.

As a bonus to the buyer, the seller credits the buyer a portion of the rental payments towards their down payment when the buyer exercises the option to purchase as per the agreement.

4. What is the first thing I need to do?

There can be many hidden obstacles in a Lease with an Option to Purchase that may prevent you from owning the home of your dreams.

With over 30 years experience I am here to protect you from this possibility. Call or email me with your questions.

Tuesday, February 21, 2006

"24 - 36 - 60" Some Huge Numbers

Recently I was having lunch with a client to review their real estate holdings. We started discussing the merits of owning residential rental real estate and the long-term benefits of owning more than one property. Here's their story.

In November of 2003, my client decided to purchase a new residence closer to their business. I showed them how they could buy a new home with creative financing, and keep their original home for a rental.

However, we do not want to lose the tax-free benefits that the Internal Revenue Code 121 provides.

Look out if you make a mistake on this.

If you want to qualify for up to $500,000 tax-free on the profits of your principal residential sale ($250,000, if you are a single homeowner) then be sure you have owned and occupied the property as your principal residence for 24 of 60 months prior to the sale.

Here’s the kicker! You can rent the house for up to 36 months after you move, but if you don’t sell within the 36 month time frame… YOU LOSE your $500,000 tax-free sale exemption.

If you have any questions about making the right moves… consult your tax advisor.

Monday, February 13, 2006

“How Much is Too Much?”

Recently a client was referred to me who was thinking about buying a property, but she was unsure because property values have appreciated a lot in the past seven years. Her concern was that with values where they are, should she wait for prices to come down before she bought? Seems like a legitimate concern.

So how much appreciation is too much? At what point should rising property prices scare us of a coming “Bubble Burst”? Here’s a real life situation. A mother and father of my best friend purchased a home in 1981. They paid $350,000 for their home. I just sold it for his mom, because she didn’t need such a large property any longer. They held their property for 24 years and in that time they experienced average annual appreciation of 6.25%. That’s just 6.25% annually, barely over the national average. Hardly sounds like a bubble to me.

The nice thing about 6.25% appreciation is that the value of an asset almost doubles every 10 years. Imagine what that kind of compounding will do for your wealth creation. A property worth $500,000 today will be worth $1,000,000 ten years from now. That’s an extra $500,000 in the wealth column. His mom’s retirement is much more comfortable, because she and her husband bought real estate and held it for a long time.

My advice to my client was to buy and wait rather than wait to buy. Timing the market never works…Not in stocks and bonds and not in real estate. Had we all known what real estate values were going to do over the past seven years, we would have loaded up on more real estate. Now’s a great time to invest in real estate, whether its here in California, or in other states.

If you would like to see about investing in more real estate, either here or in other states, call me. I can answer your questions.

"Is Your ARM Broken?"

The Fed has raised interest rates 14 times since June 2004, each time by a quarter-point, bringing the cost of overnight loans banks charge each other to 4.50 percent.

However, for the first time in memory, 30 year fixed rate loans are lower than adjustable rate mortgages.

Rates on ARMs continue to rise while fixed rates remain stable. The Federal Reserve has raised the Fed Funds rate 14 times in the past 19 months more than quadrupling short-term adjustable interest rates. In spite of this, long-term fixed interest rates have failed to rise much at all. Because most indices are lagging, even if the Fed leaves rate alone, your ARM will continue to rise.

Inverted yield curve
As the Federal Reserve has raised short-term rates, it’s become more expensive to keep adjustable-rate mortgages. Usually when short-term adjustable mortgage rates go up, long-term fixed rates go up as well. But, confounding many experts, that has not occurred. The average 30 year fixed loan from Jan 2005 until Jan 2006 has increased from an annual rate of 5.24% to 5.79%.

The upshot is that ARMs are getting more costly than fixed rate loans. It appears that the advantage of an ARM over a fixed-rate mortgage is gone.

If you want more information regarding your current loans and would like an analysis, please email me or give me a call so that you can fix your ARM if it is broken.

Wednesday, February 01, 2006

Santa Rosa, Northern California Real Estate

"Is Now The Time To Take Some Money Off The Table"

Recently I was talking to a client of mine about what the future holds and what she should be doing with her real estate. Like many of us property owners in Sonoma County, she has a lot of equity. The question was what the next direction the market will take is. That presupposes that I know what the market is going to do. This I do know, real estate goes up in value over time. Real estate more or less doubles in value every ten years. But in the short term, it’s anyone’s guess as to what is going to happen.

In a prior life I worked as a Registered Investment Advisor, that’s another name for a financial planner. One of the things that I always talked to my clients about was diversification. It is important to diversify assets to protect your wealth against risk. Whether its stocks or real estate… diversification is a good idea.

So I told my client about how I diversified my real estate risk. I recently decided to take some money off the table here in Sonoma County. I owned a rental home in Santa Rosa on Vale St. So I sold Vale Street and bought a vacation home in Lake Conroe Texas. Lake Conroe is a gated lake community with three golf courses, yacht facilities, lighted tennis courts, fitness center and a country club. I can guarantee you that unless you’ve been to Lake Conroe, your impression of this part of Texas is wrong. Currently I am keeping this as a vacation home but if I chose to rent it, it would have significant positive cash flow with only 20% down.

Why Texas you ask. A recent National Association of Realtors survey recently identified 130 metro markets as least likely to have a real estate bubble. I do not believe that Sonoma County is on a bubble, but as a way to continue owning property and diversify my risk I chose to buy in one of those other markets. I still have my Fountaingrove home here but I’ve now got another little piece in another market. "By the way Texas property goes up in value too”. Last year property values went up eight percent.

If you want to investigate a little diversification in your wealth portfolio call me. I have a lot of information on how to continue maximizing your wealth while reducing your risk.