Predicting this year’s Superbowl winners

January 25th, 2008 Bill

The playoffs are done, and the finalists - and their fans - are heading here to Glendale, Arizona for the final battle of the season.  We’re expecting over 150,000 visitors in the Phoenix area during Superbowl.

I admit to being a bit of a bandwagon-jumper, especially when the Chargers are involved and still in the running toward the end of the season.  Being a transplanted San Diegan, I held onto that little bit of hope for a real miracle, but ’twas not to be.

However, I think I can predict - without fail - the winners of this year’s Superbowl season.

You see, I’ve been watching the activity lately - and it’s definitely been heating up.  But I’m not referring to the players, the teams, or the playoffs.  I’m referring to the rental activity for folks that are renting out their property in the Phoenix area for Superbowl week.  I haven’t confirmed anything personally, but what I’ve heard - and what my wife Laura has found surfing some of the vaction rental sites - are rental rates of $10,000 — $15,000 — $25,000 for the week!  I’ve even heard of some as high as $60,000 to $70,000, but those are few and far between, and I’m sure are for very premium properties with extensive amenities.

Now, if you’re talking about something that is already a rental property, this is a nice rate to run through your LLC or other rental entity, but is “just” more rental income to put on the tax return.  But if this is your primary or vacation home we’re talking about, then the deal is really sweet.

It’s not often we get to hear about something that is truly TAX-FREE.  But in this case, the Superbowl winners I referred to earlier are folks who have figured out a way to rent their home by maybe taking a vacation trip, staying with relatives during Superbowl, or they have a second or vacation home they’re renting out.  These folks are playing the TAX-FREE rental game: IRS says any rent you receive for renting your home fewer than 15 days per year is comletely TAX-FREE! 

Think about it.  Some of my neighbors are going to cash in on $10,000 or more TAX-FREE for renting their home out for 5 to 7 days.  To net that from a wage-earning job, you’d have to gross nearly $16,000 for the week, after stripping out your retirement contribution! (I don’t know too many wage earners making W-2 income of $830,000.)

Okay, so now I can hear the “yeah, so?  I’m not in Phoenix.”   But you don’t have to be.  This tax-free deal isn’t just during Superbowl.  It’s not just in the Phoenix valley.  Do you live in a tourist destination area?  Do you have a mountain cabin or an ocean-front condo for your relaxation time?  If your business plan includes reaching the point where you can have a personal retreat or vacation home, where would it be?  Are you a ski addict with a mountain condo in Big Bear or Mammoth?

I remember rollerblading in San Diego every summer, and being amazed at what tiny condos on Mission Bay were fetching for a weekly rate during the summer.  Most of those, of course, were investment properties.  But if part of your plan is increasing your income and minimizing your taxes, keep ALL your options open.  Opportunities abound - we just need to know where to look.

Until next time, pass the nachos and have a great day!

Posted in tax deduction | 3 Comments »

Market Bailout

January 23rd, 2008 Aaron

This week has already been a crazy week for the markets. What markets; all markets. Monday, India’s benchmark stock index plummeted 7.4%. Hong Kong’s Hang Seng index dropped 5.5%; the biggest percentage drop since 9/11. Tuesday morning the Dow opens down 464 points. That my friends is a down market. Then along came the Fed. In an unprecedented move, the Fed cuts the Fed Funds Rate (short term rates) .75% to 3.5% mid session. The market has built in a 70% chance the the Fed will cut the another .50% next week. This is an aggressive move by the Fed to save the U.S. economy which has been beat silly by the mortgage meltdown and credit crissis.

So how will this impact our housing market slump. Likely, not enough. The Fed Funds Rate affects short term rates, i.e. car loans, credit cards, and home equity lines of credit. Yes, if you have a home equity line of credit, your rates are going down, substantially. That will provide some relief. Homeowners that have adjustable rate mortgages that are begining to adjust, may not adjust up as much as previously feared. Most adjustable rate mortgages adjust by other short term rate indexes like the LIBOR and treasury index, which are also trending down. That may stall or reduce the amount of foreclosures to come. Long term rates are falling (lowest in 3 years), but that is due to the 10 year T-Bills. The yield on the 10 year T-Bills have fallen sharply, but this may be due more to the sell off in the stock market than the cut in the short term rates. Don’t get me wrong, I am not complaining. At the rate we are going, we may be headed toward another refinance boom; but let’s not get carried away yet…

If the government wants to bail out the housing market it needs to start with Conforming loan limits; currently $417,000. This move alone would fuel homeowners ability to buy and refinance into good mortgages at low rates. Congress has been pushing for this for some time. The President has already shot it down once before. A $800 refund will not help correct this housing market and credit crisis which is putting pressure on global markets. That simply encourages the lower income class to spend more. We need to encourge and enable people to invest, not consume at Walmart.

 It will be a wild ride for the housing market in 2008. If the current administration can’t get it right, home values will continue to slide, but at least they will help you buy your favorite latte at Starbucks. We can only hope that the next administration can get it right.

Posted in mortgage | 1 Comment »

Declining Markets & FHA

January 10th, 2008 Aaron

“Declining Markets,” the new bad term in the mortgage banking industry. The Fannie Mae and Freddie Mac guideline changes as it relates to “declining markets” goes into full effect on the 15th of January.

“When a property is located in an area identified as declining, Fannie Mae will now require the lender to offer financing at LTV and CLTV ratios that are five percentage points below the maximum ratios allowed for the selected mortgage product. For example, when the highest LTV allowed for a particular mortgage product is 100 percent, maximum financing would be 95 percent if the subject property is located in an area identified as declining.” - Fannie Mae

Declining markets are typically identified by the County. Although, if the appraiser or the appraisal review makes comment that the market is declining, loan to values may still be reduced regardless if Fannie Mae has identified the County as declining. Make sure if you are qualifying for a new mortgage, everyone, i.e. loan officer, appraiser, and even the underwriter, is clear about this guideline change. It is substantial and will likely effect most of you in the future.

Fortunately for owner occupied borrowers, there is great anticipation that in the next 60 days, FHA will raise loan limits to $417,000 (currently $263K in Maricopa County - Phoenix) and require a down payment of 1.5% vs the current 3%. FHA is not effected by Fannie Mae’s guideline changes.

I will keep you posted on all the new changes in the mortgage industry. More importantly I will let you know how to maneuver around them. I am in an environment were it feels as if underwriters are paid based on declines vs approvals. Off goes the tie, on goes my helmet. Off to battle I go.

Posted in mortgage | No Comments »

Happy New Year for Real Estate

January 8th, 2008 Aaron

We made it! Cheers to 2007 being behind us. With all the negative events effecting the housing market in 2007, we can only anticipate that 2008 will be a happy new year. One week in, it appears that it may not just be wishful thinking. 2008 is ramping up to be a good year. January looks as if it is going to be one of our best months in the mortgage and real estate business. Buyers are coming back into the market. First time home buyers are entering the market looking for after holiday deals in real estate. Investors too are coming back. Not only are there great deals in housing, but there is also a sense of urgency. 100% financing is still available (no, not for investors), but for how long. Rates continue to drop; nearing 2 year lows. Many believe we are nearing a bottom (Phoenix market). This combination is creating a wonderful environment for buying and selling homes.

It is unlikely that the housing market is at the bottom, but we may be close. Most predictions see a bottom to come in late 2008 or early 2009. That being said, I believe you will begin to see a higher volume in home sales in the near future. As the real estate inventory decreases, home prices will stabilize. Picking the absolute bottom will be a difficult thing to do. And after a year hiatus, I too am looking for investment properties again. The only problem now, is there are so many to choose from. Just this last weekend I looked at three properties, all at 75% of current market value; and they even cash flow! When is the last time you could say that?

 Later this week a will give an update on some exciting new opportunities from FHA, and mortgage guideline updates. Until then, happy New Year and happy house hunting!

Posted in first time home buyers, mortgage | 1 Comment »

Creative Financing for Investment Properties

December 18th, 2007 Aaron

The days of 100% non owner occupied financing are long over. Buying investment properties with other peoples money (mortgage lenders) on some get rich quick program left many investors with highly leveraged properties that are bleeding into foreclosure. 100% non owner financing helped propel hundreds of lenders out of business who where caught with defaulting mortgages and an undervalued asset. It was irresponsible lending at its finest; and the consumers borrowed recklessly. Now many housing markets are left with thousands of homeowners and investors alike in some stage of foreclosure. But as the dust settles, there is opportunity everywhere. Through creative legitimate financing and discount buying, purchasing investment properties with little money out of pocket is once again available.

 Wholesalers are purchasing distressed properties for substantially discounted prices. Many homes are purchased for 60%-65% of current market value. Wholesalers will offer these properties to investors at 70%-75% of current market value. If the investor uses conventional financing to purchase the property, the investor will be required to put 20%-25% down in order to obtain good interest rates and terms. To overcome this obstacle, the investor can use “hard” money loan(s) to purchase the property; in is some cases borrow up to 100% of the acquisition price. Hard money for these types of transactions are typically for a term of 30 days at 18% interest, no points.

 Immediately after the property is purchased from the wholesaler by the investor using hard money financing, the investor begins a conventional refinance of the property off of appraised value to pay off the hard money financing. No equity can be taken out due to the refinance, but the investor can obtain interest rates on a 30 year fixed mortgage in the mid-low 6%’s (rate with depend on the current rate market, credit strength of borrower, and loan to value). The most aggressive rates will be at loan to values less than or equal to 75% loan to value. This may even apply to borrowers who are unable to qualify using “full” documentation loans. Using this strategy, many investors are able to purchase investment properties at 75% of market value, with great interest rates and terms, and with little money out of pocket. Most properties should break even or have a small cash flow.

The refinancing of the hard money loans is a tricky one. Although this type of transaction is allowable, lenders do not like it. Mortgage lenders want to see “blood” in the deal from the investor. That being said, until they make changes to the lending guidelines, investors and sophisticated mortgage lenders are taking advantage of it. If it is a good property, and a good borrower, then it is a good transaction. I would call that responsible financing; even if it is creative.

Posted in Investment Property, mortgage | 2 Comments »

HOUSING MARKET TAKES MORE BLOWS

December 13th, 2007 Aaron

Housing numbers are in, and guess what, it’s not looking good. Sing me a different song. Not for some time I am sorry to say. Phoenix, Arizona, my home town, will have approximately 50,000 home sales in 2007. That is about half as many homes that sold in 2005. First of all, we need to stop comparing everything to 2005. 2005 was an anomaly, commonly compared to the Dot Com boom of the 90s. A great year for my business, but unsustainable. Phoenix doesn’t need to have 100,000 homes sales to get back to normal; 70,000 would be just fine. Industry leaders believe we could start seeing those numbers by 2009 at the earliest. Phoenix is likely to rebound quicker than some markets; although that may be wishful thinking. The negative media spin is not helping anything, neither is government intervention.

 A nationwide housing rebound may take some time. There are many factors currently working against it. Tuesday the Fed cut short term rates by .25% sending long term rates, those that affect mortgages, soaring. Your credit cards may have become less expensive, but your new home will cost you more. Higher mortgage rates will slow home sales.

Due to declining home values, Fannie Mae is limiting financing in certain markets. Fannie Mae will reduce loan to values (LTV) by 5% in declining markets. That will effect many counties in California, Florida, Arizona, and throughout much of the Mid West. This reduction in the amount lenders will lend will further curb borrowers ability to purchase homes. 100% financing may be a thing of the past. That could be devastating to the first time home-buyer. Although it seems financially responsible on the part of Fannie Mae, it will also escalate our housing crisis. Eliminating buyers will not stabilize markets.

I will keep you updated on the ever changing mortgage industry and how it will likely effect the average homeowner. Interest rates are still at historical lows, and there are terrific deals everywhere. There are rougher waters ahead, but the volatility creates opportunity. Happy house hunting!

Posted in mortgage | No Comments »

No Mortgage Relief - Even on a Caribbean Cruise

December 4th, 2007 Aaron

How times have changed. In the last twelve months, mortgage brokers and loan officers have been reduced by the media to being nothing better than pond scum. Its was only a couple of years ago that a mortgage broker was a prized possession. I too watch the national news on a daily basis, but I stay strong, willing to weather the storm. Once the guidelines loosen and liquidity returns to the market, we will once more be in demand. People seem to have short term memories when it comes to borrowing money; especially on the cheap.

Last week I took a long over due vacation to the Caribbean on a cruise. It was my forth time on a cruise in the last decade, and I was instantly aware that I, a US citizen was a minority. Most on the tourists on this ship that sailed from Miami were Europeans. That had not been the case with my past cruising experiences. Although this seemed odd at first, I quickly realized and was later confirmed in conversations with fellow passengers, that this was a product of a depressed US dollar. Yes, they we traveling at a fraction of the cost that I was.

During our first “formal” dinner I had the pleasure of being seated with three English couples. They all touted how little this seven day cruised had cost them, when most US families had to save for over a year to pay for such extravagances. No more equity in their homes, so saving was the likely alternative. We all have our day in the sun.

The evening quickly deteriorated for me when the conversation turned to employment. I was the first to share. “Mortgage Broker!” cried one of the Englishman. “So it you that is taking down our banks.” As if I was solely responsible for the mortgage meltdown. “You mortgage brokers lend money to anyone,” he continued on. I slipped into a daze. I had managed to escape CNN for a week, only to be accosted by my fellow shipmates from England. I requested a new table for the remainder of the cruise. My party was seated at a new table, alone. It appeared that everyone, including the staff knew I was a mortgage broker.

It occured to me the not only the United States, but quite possibly the world had forgotten about consumer and corporate responsibility. Thankfully people seem to have short term memories when it comes to money, especially when it comes cheap.

Posted in mortgage, mortgage interest | No Comments »

Mortgage Reform

November 30th, 2007 Aaron

Last week a bill was voted on by the House that could have changed the mortgage lending industry forever. The bill’s title “HR 3915 Mortgage Reform and Anti-Predatory Lending Act 2007″ would lead many to believe that it was in the public best interest to pass such a bill. Reform was needed for that loosely regulated industry that is responsible for the housing crisis of 2007 and likely 2008. The unethical practices of mortgage brokers and loan officers offering all those “liar” loans, no money down loans, and lets not forget sub-prime loans that put us all into this mess. We need to tighten things up and go after those responsible for the decline in our home values. And who better than the Federal Government?

The “Mortgage Reform and Anti-Predatory Lending Act of 2007″ was the Government’s answer. If passed in it’s entirety, the bill would have delivered the knock out blow to the mortgage industry and to the already crippled housing market. The bill had the potential of eliminating stated income loans (income not verified). You may know these as “liar loans” if you pay any attention to the negative spin the media puts on this type of income documentation. Nevada, Minnesota, and Massachusetts has already banned stated income loans at the State level. This would prevent most self employed or high commission borrowers from qualifying for a mortgage. The bill also sought to prevent mortgage companies from being paid yield spread premiums which would have resulted in borrowers paying addition points/fees.

These items did not pass the House. Although there is a similar bill being discussed by the Senate. If a similar bill were to pass, the Government in attempts to protect the consumer, would put additional pressure on the housing market by reducing the number of people who could qualify for a home. Mortgage reform is needed, but not government intervention. Our lawmakers are not mortgage professionals, and the financial markets are extremely efficient. Keep an eye on your Representatives. What they are doing may prevent you from buying a home.

Aaron VanTrojen

Posted in mortgage | 1 Comment »

How the Affluent Manage Home Equity to Safely and Conservatively Build Wealth

November 28th, 2007 Aaron

On any given day I receive rate sheets from a couple of dozen banks and economic commentary and forecasting from several sources both inside and outside the mortgage industry. The economists rarely are in agreement so I try to look for themes and talking points that they do agree on. One of the themes that is losing momentum is the idea of owning a home “free and clear”. If you had enough money to pay off your mortgage, would you?

Most of us have been conditioned to own our homes outright with no mortgage. But thousands upon thousands of financially successful people who have more than enough money to pay off their mortgages refuse to do so. Why?

The old ideology preached to us by our parents and grandparents about mortgages is outdated. The rules of money have changed. We’ve changed. We no longer go to work for one company for 30-years and retire with a full pension. Statistics show that we only live in a home for 7 years and only keep our mortgages on average for 4.2 years. We move from job to job or create our own business, in other words we are more transient that any time in history.

Wealthy Americans, who are financially savvy, understand how to make their mortgages work for them. They put little down, keep their mortgage balance as high as possible, choose adjustable-rate and/or interest-only mortgages and most critical, they integrate their mortgage into their overall financial plan.

This strategy isn’t for everyone. If you lack discipline to save money, then this concept can be a financial train wreck. If you consume the difference between your interest-only mortgage payment and it’s fully amortized principal counterpart then game plan like this is counter productive to your overall financial health. If, however, you invest in the right opportunites, utilize the right deferred or even tax free savings instruments, and generally can treat the deferred principal payment strictly as investment capital, then this strategy is a home run. There are some outstanding resources available and worth your review in Diane’s books “Real Estate Investing Loopholes”, “Loopholes of the Rich”, and “Making Money in Real Estate”. In a matter of a few hours, you can go from novice to fluent.

It is also critical that you set aside an hour a year to review your mortgage with your mortgage broker/advisor. A check-up will insure that you are using the best financial instrument available and reconcile your plan with the actual results.

Aaron Van Trojen

Posted in mortgage, mortgage interest, wealth building | 2 Comments »

Welcome to HomeLoopholes!

November 19th, 2007 Diane

For many people, their home is their biggest asset. But, is it really an asset? It is usually the most expensive household budget item and costs more than many people can really afford It takes money OUT of your pocket…doesn’t put money IN your pocket.

I’m Diane Kennedy, a CPA/Tax Strategist, and for years I’ve shown my clients how to take advantage of the legal tax loopholes available for taxpayers. At TaxLoopholes, we cover those loopholes for business owners and investors. I wanted to do the same thing for homeowners.

Look for my posts along with some of my friends who specialize in helping homeowners turn that liability into an asset. Imagine…having your home pay you, instead of the other way around!

Posted in welcome | 3 Comments »