Is a Condominium Better than a Single Family Home?
The answer is it depends mostly on your needs. But, with condominiums, one must do more research and understand what is being bought (a community of multiple residences that share common area spaces) to determine if it really is better.
So, what’s important to look at when it comes to a condominium? First and foremost is to make sure that the Home Owners’ Association (HOA) is strong financially and management wise. The key is to read the HOA documents package from cover to cover and get some additional feedback from your real estate agent. Do a deep title search on the property to see if there are any liens or lawsuits.
Interview the property management company to see what they do, if there are many issues with late home owner dues, how much money is in the reserve fund, when was the last time they did a
reserve study, and what kind of insurance they having including liability, workman’s compensation, earthquake, etc.
Next, make sure you read the “Covenants and Conditions and Restrictions” package (CC+Rs) that is prepared and provided by law by the HOA. This package will reinforce your research. Additionally, it includes bylaws, Articles of Incorporation, the operating budget, reserve funding and schedule, insurance information, the minutes of the meetings and newsletters, memos, etc. You also might want to have an attorney that specializes in reviewing these documents read them and give you an opinion. It will be well worth the fee.
From first time homebuyers attracted to the affordability of a condo to the empty nester that is looking for hassle free living, a condominium is exactly the right answer. Additionally, some condominiums have amenities like 24-hour doorman service, pools, spas, gym facilities, etc. that provide extra benefits. Just make sure that you do your homework. You want to buy in a strong, well run, and adequately financed condominium.
Understanding the New Taxes Coming in 2013
The health care bill that passed in March 2010 has two new taxes starting in 2013 to help pay for it – an extra 0.9% levy on wages for couples earning more than $250,000 ($200,000 for singles) and a new 3.8% tax on investment income, which in effect adds a “payroll” tax on unearned income.
How does the 0.9% tax work? If a couple earns $350,000 under current rules, they owe 1.45% or $5,075 and their employer owes a matching amount (Medicare tax due). In 2013, the couple will owe an extra 0.9% on any wages above $250,000. For this example couple, that is 0.9% of$100,000 or $900. Their employers pay nothing extra.
How does the 3.8% tax on net investment income work? It is keyed to the “modified adjusted gross income” with a threshold of $250,000 for couples and $200,000 for singles. For example, a couple has $400,000 of adjusted gross income — $200,000 in wages and $200,000 in investment income. Thus, they have $150,000 of income above the $250,000 threshold and they would owe an extra $5,700 in taxes.
To better understand this tax, you need to understand what is considered investment income. Interest, except municipal bond interest, dividends, rents, royalties, capital gains, insurance annuity payouts, passive income, and even gains on the sale of a home above $250,000 (single) or $500,000 (couple) counts. The 3.8% will also be put on trusts and estates.
What is not taxed will be regular and Roth IRAs, retirement accounts, Social Security, life insurance proceeds, and veterans’ benefits.
What steps can you take to minimize these benefits? Examine both your regular and investment income. Look at a Roth IRA conversion as Roth withdrawals don’t raise A&I and aren’t considered investment income.
If you have a small business, consider a defined pension plan, as their payouts don’t count as investment income. If you are selling assets, consider an installment sale as it spreads out the income.
Lastly, life insurance may become more attractive as proceeds at death are not subject to this tax. That means that a taxpayer could buy a policy, borrow from it, and then settle up at death thus avoiding income tax on investment gains.
So, get ready for these new taxes in 2013.
More on Tax Credits
Tax expenditures are spending programs disguised as tax cuts that are directed to “help” specific groups. They cost an estimated $1.1 trillion this year and are the largest single part of the federal budget. They equal nearly as much as the $1.3 trillion deficit. They range from subsidies for housing and healthcare as well as anti-poverty programs.
Let’s look at an example involving the Pentagon and how they purchase planes. Instead of a $1 billion check for a new plane, the Pentagon often gives a company like Boeing a $1 billion tax credit. It looks like we are saving $1 billion in spending and simultaneously reducing taxes by $1 billion. But, in reality, the economic consequences are exactly the same as if we had written a check. Doing it this way, however, makes it look like the Pentagon spent less money however.
Here are some details on the top tax credits.
The Top Four Tax Credits
Tax credits given to employees for employer paid health insurance ($177 billion)
Mortgage interest deductions ($104 billion)
The earned income tax credit, which is a direct payment program for the working poor ($57 billion)
Corporate Tax Credits
Special Blue Cross / Blue Shield deductions ($690 million)
Oil and gas credits to oil companies ($1.18 billion)
Credits to railroads for maintaining railroad tracks ($70 million)
Capital gain exclusions for small businesses ($170 million)
Tax Breaks for Social Programs
Tax incentives for the preservation of historic structures ($470 million)
Deductions for endangered species recovery programs ($20 million)
Deductions for charitable contributions– not including health and education ($43.8 billion)
Exclusion for foster care payments ($400 million)
Tax Breaks for General Items
Exclusion of reimbursed employee parking expenses ($3.1 billion)
Exclusion for employer provided transit passes ($530 million)
Tax Breaks for Select Groups
Exclusion for disability compensation and veteran death benefits ($4.37 billion)
Additional deductions for the elderly ($2.6 billion)
Credit for child care ($2.2 billion)
Special deduction for teacher expenses ($160 million)
Exclusion of parsonage allowances ($620 million)
The tax credits amount to quite a large number. Cutting them by just 1/3 would reduce the national debt significantly.
Sources: Office of Management and Budget; Joint Tax Committee
The First Offer, the Counter Offer – What Works, What Doesn’t
In today’s real estate market, counter offers are pretty much the norm. Usually, the first offer is not the offer the seller is looking for and so they will issue a counter offer detailing the terms and conditions they want in the contract.
The first key is to understand whether you are in a negotiating environment, where you can set the terms and conditions, or a competing environment, where the highest and best offer wins. The type of environment makes a big difference in how you structure the first offer and subsequent counter offers.
The best approach is for your real estate agent to work with you in advance to determine what the environment is like (one or multiple offers), what your first price offer will be, and then what type of back up offers you are willing to make. That way you are prepared. Once you put in a first offer, be patient and wait until the seller counters.
Sometimes, it becomes a cat and mouse game and if the seller does not respond right away, it is okay to take a breather. In fact, sometimes it is best to let the listing sit on the market for a while and then put in another offer later. If you do this, make sure that you know that there are no other offers and that the risk to this approach is that another buyer could enter the picture who is willing to pay the seller’s price.
If you are trying to avoid a counter offer situation, be strong on the first offer – get a pre-approval letter, include your FICO score, and put in less terms and conditions with your offer. Include a letter to the seller thanking them for the opportunity to present the bid and tell them about yourself, your family, and what you like about their property. Show your financial strength with proof of funds for the down payment and your ability to close.
If there are multiple offers, remember that the seller can only accept one offer in primary position. Multiple offers are occurring today – even in the still correcting, low-inventory, high-demand markets like Palo Alto, Cupertino, some parts of San Francisco, parts of San Jose, Burlingame, Novato, Fremont, Richmond, Hayward, Gilroy, Sacramento, San Luis Obispo, Carmel, etc.
You will be able to pin point these areas via your real estate agent who will look at inventory levels, days on the market, recent sales, price to listing ratios, and finding out how many offers were placed on recently sold properties.
If it will be a multiple offer situation, you need to make your first offer your best offer and in an effort to protect yourself against having to bid too high, you might want to include an appraisal contingency in your purchase offer.
Generally, an appraisal contingency allows you to withdraw from your purchase contract if the property does not appraise for the purchase price. At the same time, remember that banks are very conservative today on appraised valuations, so if the property does not appraise for the purchase price, you may need to increase your cash contribution or down payment if you still want to purchase the property.
Expect that there will be two or three go arounds in a regular transaction and if it is a short sale or foreclosure property, it could take 2-3 months or more and many counter offer rounds to get to a common agreement over price and terms. In today’s market, values are still moving – some higher and some lower, so paying the right price is more complex and requires more time.
That is not bad or good. It is just a reflection of current market conditions. And, on the positive side, interest rates are the lowest in the last 58 years and valuations are on average 26% lower than in the peak in 2006.
How Long Before You Can Buy After a Foreclosure?
Foreclosures really affect your credit and ability to borrow. In fact, it could be 7-8 years before you can get a mortgage to buy a home again.And, credit scores are only one component of a decision by an underwriter. They will also look back to see if you just
walked away from the home while you could have kept paying the mortgage or if the foreclosure was the result of a job loss, health issue, etc. The reason makes a difference.
If a strategic decision was made to default, it will work against you. Underwriters will also look at your current situation – how much money you have in the bank, do you have a current job, what is your current income, etc. They compare that information with your past history – employment, payment history, etc., when assessing whether to give you a mortgage or not.
And, in the end, you will probably need a slightly bigger down payment and you may pay a higher interest rate to get the loan. However, it will be much easier for you if the default resulted from factors that were beyond your control. So, the lesson here is that while walking away may solve a current problem, a price will be paid in the future. Before you just walk away, explore all your options – refinance, loan remodification, etc.
Reductions in Home Prices
According to Zillow.com, 30% of the houses for sale nationally were reduced in price in June 2010. The reason for this is attributed to sellers having difficulty pricing their home against foreclosed homes that lenders are trying to sell (often at a discount of 20-30%). What does this mean for sellers? They need to get a handle on the current market condition, rather than what has happened in the past, and price their home to sell in today’s market.
What You Should Know About Making an Offer on a Short Sale
First, what is a short sale? A short sale is a home that is sold for below what the current owner owes on the property. And, at the time of closing, the seller does not have the means to make up the shortage.
Now, here are some things that you should know.
It used to be that a short sale would take up to six months or longer to receive an approval. Now, due to programs
like Home Affordable Foreclosure Alternatives (HAFA), the average time is 90 days. Still, every lending institution is
different, so it is important that you have an understanding of timelines, documents that are needed, etc.. Also,
choose an agent that is familiar with the short sale process. Additionally, find out which banking institution is
involved in the negotiation and approval process. Have your agent work with the listing agent to find out what the
average turnaround time will be.
Make your best offer using comparable sold properties in the area over the last 3 months (longer than that does not
reflect the current market) and the appraisal that the bank has done. Lenders want to minimize their losses, so if
you make an unfair low offer, it will most likely be rejected. What the lender wants is a strong buyer and a decent
and fair offer.
In your offer, don’t count on asking for repairs or credits. You will probably have to take the property “as is”.
Know if you are competing in a negotiating or multiple offer market – it matters as to the price you will have to offer.
With multiple offers, the bank will usually pick the highest and best offer.
In the end, if you have the time and patience and understand how to bid, short sales can be a win-win situation.
There is Sometimes a Pot of Gold at the End of the Rainbow
Everyone thought that when the Federal government stopped buying mortgage-backed securities in March of this year that interest rates on home mortgages would rise. They will probably by the end of the year, but in the meantime, our friends in Europe have given us that temporary pot of gold at the end of the rainbow– interest rates that have been falling instead of rising.
With Greece deeply in debt and Spain and Portugal close behind, not only are the European economies on a diet from spending, which will slow down their economies, but also the European Union and the International Monetary Fund has had to come in and provide a loan of up to one trillion dollars to assist them in paying back their debts.
As a result, the euro has dropped in value from 1.59 against the dollar to 1.22. In addition, investors are fleeing the euro and instead buying United States Treasuries, which results in the price of these bonds going up while their interest rates go down.
So, we are again enjoying interest rates that are the lowest they have been in the last twenty years. How low? Freddie Mac and Fannie Mae are quoting rates on some loans for qualified buyers as low as 4.84%– the lowest since December of 2009.
A one percentage point decline in mortgage rates can save you hundreds of dollars in payments each month and thousands of dollars over the years. It also means that you need less income to qualify for a loan. Additionally, for each percentage point that mortgage rates decline your purchasing power is greater.
How long will things stay this way? Pots of gold disappear pretty quickly so these rates will not last long. We will probably see rates begin to rise again in the later part of this year. Work the numbers with a qualified mortgage lender or real estate professional and enjoy what Europe has given us.
Why have home sales gone down in December, January, and February while the median price has gone up?
First, is what is selling. The foreclosure market in the Bay Area makes up about 37% of sales. While this is a lot, it is down from the peak in February 2009 where foreclosures made up 52% of sales. This decline translates into a lower number of sales. In fact, in many hot foreclosure/short sale markets, inventory is down to one to two months.
Second, many buyers front-loaded their purchases in September, October, and November 2009 because they thought the first-time buyers credit would expire by November 30, 2009. This left fewer buyers in December, January, and February to buy homes.
Third, the middle tier of the market is becoming active with many areas seeing multiple offers. The result is that inventory is being bought up faster than new inventory is coming to replace it.
Fourth, many of these multiple offer situations are all cash deals (27% of all sales in February 2010). This means that the median price across the Bay Area is up over 20% from a year ago. Just remember that is not real appreciation – its simply the higher end markets selling again versus mostly the lower end last year. Yet, we can say that prices are really up in the Bay Area – not 20%, but 3-4% in real terms. Real estate is definitely looking better.
This is an excerpt from Carole’s monthly newsletter which contains great information on the Real Estate market of the Bay area and other helpful tips. Check out her site to sign up to receive her newsletter!
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Put Lead to Bed
In general, humans have a long history with lead. The Egyptians used it for soldering. The Romans used it to fashion pipes and for creating utensils and goblets. For quite some time, America and the rest of the mature world made use of lead based paint and it was as universal as latex paint is today.
Painters adjusted new paint by adding powdered white lead, presumably for a tougher finish. Additionally, we have used lead in print, gasoline, batteries, golf balls, canned food, and even children’s toys.
We loved lead for centuries despite its damaging health effects that were starting to be recorded. The Greek physician, Dioscorides, started documenting that lead exposure affected the mind and included symptoms like headaches, gastrointestinal discomfort, anemia, lethargy, tremors, slowing of growth in children, and renal diseases.
Finally, in the 1960s, the Center for Disease Control started to look into the effects of lead poisoning and worked to reduce the amount of lead in blood. Despite this work, it is estimated that approximately 4 million tons of lead-based paint remains in older homes and another 5 millions tons remains in our soil.
How does this apply to you? Now, there are laws in place to limit lead exposure.
- You must first abide by the usual precautions when working around pre-1978 housing where most lead-based paint is found. These precautions include containment, no aggressive paint removed without special HEPA vacuum tools, and proper clean up and disposal of lead debris.
- If you have an investment property, you must supply your tenants with a copy of the EHA brochure “Renovate Right: Important Lead Hazard Information for Families, Child Care Providers, and Schools”. You must also provide them with a lead hazards disclosure form.
- Also, beginning April of 2010, anyone working on a pre-1978 dwelling must be certified to do lead-safe work if there are underage kids or pregnant women working or living in the property and if their activities affect more than 6 square feet of interior lead-based paint or 20 square feet of exterior lead-based paint.
And, if you are trying to buy a pre-1978 property, have it checked out for lead based paint exposure both inside and out (and in the soil). That just makes good sense.
This is an excerpt from Carole’s monthly newsletter which contains great information on the Real Estate market of the Bay area and other helpful tips. Check out her site to sign up to receive her newsletter!
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The Most Common Defects That Prevent a Home from Passing a Home Inspection.
Buyers typically request a home inspection to determine the condition of a property. What is uncovered prior to the closing can often result in needed repairs, which can set off renegotiating the deal with the seller or in extreme cases cause a deal to collapse. The inspectors are not the enemy! They are simply there to report on the condition of the property.
The biggest and most common defects that can be avoided are:
Improper Electrical Wiring
This is usually done by homeowners or unqualified contractors. Think inadequate overload protection, wires tied together without being housed in a box, etc. All of these issues can cause major problems and are fire hazards. As a seller, get this kind of work done with a proper permit and by a licensed contractor. It will save you time and money in the end. And, most electrical issues are safety issues. So, be smart and get it done right.
Roof Deterioration
A roof that is old and damaged leads to leaks. If left un-repaired, a totally new roof is often the only fix and can cost on average almost $20,000. So, check the shingles and tiles on an ongoing yearly basis, clean gutters yearly, and trim back trees that could cause damage.
Improper Surface Draining or Grading
Water is a powerful force and can flow into a house because of poor drainage or grading. Basements and crawl spaces are the most vulnerable. So, assess how your home sheds water, watch for signs of water damage, and find the source.
Plumbing Problems
The biggest money drainer is dripping faucets. Leaking water can cause damage that can often be fixed by a part that costs under a dollar. In addition, shoddy plumbing work is cheap, but expensive in the long run–think mismatched piping materials, improperly installed water heaters, or rocking toilets. So, make sure your toilets are securely bolted, check faucets and valves periodically for leaks, and do the repairs when the problems are small.
General Condition
Often cracks, peeling, or dirty painted surfaces, broken appliances, and decayed caulking are found by inspectors, which can lead to costly repairs
Check these things on a regular basis and fix the issues early.
This is an excerpt from Carole’s monthly newsletter which contains great information on the Real Estate market of the Bay area and other helpful tips. Check out her site to sign up to receive her newsletter!
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