Showing posts with label real estate. Show all posts
Showing posts with label real estate. Show all posts
Monday, September 30, 2013
When Does a $870,000 home cost less than a $800,000 home?
Would you believe that it can cost less to purchase and maintain a home that costs $70,000 more than a less expensive property? It is true. When could this possible occur? When the more expensive home is equipped with full electric solar, owned by the property owner.
I know that it is hard to believe, but the monthly out of pocket expenses for that $870,000 property is less than an identical $800,000 home that does not have solar. Take a look at the following comparison:
Without Solar 1
Cost of Home 800,000.00
20% Down Payment 160,000.00
Loan Amount 640,000.00
Monthly Pmts (4.25%) 3148.42
Monthly Property Taxes 800.00
Average Electric Bill 450.00
Final Monthly Payment 4,398.42
Cost of Home 840,000.00
20% Down Payment 168,000.00
Loan Amount 672,000.00
Monthly Pmts (4.25%) 3,305.84
Monthly Property Taxes 840.00
Average Electric Bill 450.00
Final Monthly Payment 4,595.84
Cost of Home 870,000.00
20% Down Payment 174,000.00
Loan Amount 696,000.00
Monthly Pmts (4.25%) 3,423.90
Monthly Property Taxes 870.00
Average Electric Bill 55.00
Final Monthly Payment 4,348.90
The charts above shows the monthly payments that will be made by a home purchaser when a house has solar, as compared to two properties that do not have solar. The assumptions are that they are substantially the same house in the same neighbor hood, the buyer is making a 20% down payment and the interest rate is 4.25%.
The monthly payment on the loan for the $800,000 house is about $275 less than the more expensive home, and the property taxes are about $70.00 less, for a total difference of $345 less than the more expensive property. However, the home with solar has electric bills, on average, of at least $395 less per month. The owner of the $870,000 home actually pays a total of $50 less per month.
Since the increase bank loan interest and the property taxes of the more expensive home is about $3,255 higher per year, that owner has a higher tax deduction. Depending on the income of the home owner, that could be $1,000 to $1,500 less is tax payments per year, actually increasing the monthly savings.
Unfortunately, this type of analysis is not given to potential buyers by their real estate agents, often times because they simply do not understand the actual savings. They will sometimes direct their client to a home priced a little lower, not realizing that they are costing their clients thousands of dollars per year.
An example would be two homes in South Livermore, one with solar and one without, but the same floor plans just a couple of blocks apart. The one with solar is on the market for $869,500 while the one without solar is on the market at $829,000. The less expensive home will cost almost $200.00 more monthly than the more expensive home. That number could increase, as electric rates continue to climb. The buyer of the less expensive home will actually lose $2,400 per year plus the additional tax deductions.
If you are in the market for a home and you come across one that has full solar installed, don't just compare the prices between two properties. Take the time to do an analysis of the overall savings that you might have with a solar equipped property. Ask the seller for a year if electric bills in order to see what they are actually paying. Don't confuse price with cost. You might be putting thousands of dollars into your own pocket simply by paying a little more.
Ken Koenen is a real estate and taxation attorney in Pleasanton. He is also a licensed real estate broker. He can be contacted at 925-924-0100 or by email at ken@lawken.com
Sunday, April 22, 2012
This is a partial excerpt from my book, "The American Dream Becomes the Global Nightmare." http://tinyurl.com/4s3exmd
When the housing market began falling, I shared my plan with many people. Part of that plan was, instead of bailing out the Banksters and their accessories on Wall Street, we could have distributed that $800 billion to the investors, who actually owned the loans. In exchange, they would agree to reduce the interest rates to a manageable 5% per annum. In real estate terms, this is known as "buying down the loan."
This would have reduced the number of foreclosures because fewer people would have been hit by the increase in payments when the interest rates adjusted under the terms of the loan. The "bailout" required on each loan, which would have been minimal, would be added to the balance of the loan.
I have heard all arguments from people at the time I made that suggestion. That wouldn’t be fair to those who were more careful in their purchase or put more money down, or that they did not want to help pay for the idiots who accepted these loan ters, and who were not deserving of owning a house anyway. "Why should they be helped, since they did it the wrong way?" I was asked.
The reality is that those people, who did not want to help those who had been taken advantage of or got caught in the lenders’ predatory lending scheme, have suffered just as much, if not more, with their lost equity and, in many cases, lost jobs. Let’s take a look at an analysis of who really lost when the prices started dropping and no one wanted to “bail-out” the buyers who made bad decisions. The scenario is that two people bought identical homes in the same neighborhood at a price of $500,000.00. Buyer A, whose credit was marginal and could only get a sub-prime loan, put nothing down and had 2 mortgages; one for 80% of the price and one for the remaining 20% of the price. Buyer B, whose credit was excellent and was able to make a 20% down payment, had only one mortgage at 80% loan to value.
The chart below demonstrates that those who didn’t want to “bail out” the irresponsible homebuyers were the ones who were hurt the most. By resisting the help to those who were irresponsible, they took their own equity and threw it away without even realizing it.
Buyer A Buyer B
Purchase Price - 2006 $500,000.00 $500,000.00
Down Payment $0.00 $100,000.00
1st Loan $400,000.00 $400,000.00
Interest Rate 2.9% pmt, 6.5% actual 5.5% fixed
Monthly Payment $1,664.92 $2,271.16
2nd Loan $100,000.00 $0.00
Interest Rate 6.5%, Interest only
Payment $541.67 None
Present Value $375000.00 $375000.00
Out of Pocket Loss Nothing $100,000.00
The big loser is the guy who was responsible, and put down 20% and had a fixed loan. He, in most cases, was the one who was most vocal against those who had been irresponsible, and took on more than they could handle or didn’t pay attention to the terms of what he was signing. The lenders took Buyer B’s $100,000.00 down payment; while the irresponsible Buyer B only lost the place that he was living in on the lender’s investment.
No one, including the banks and the government, took the time to look at the BIG picture.
When the housing market began falling, I shared my plan with many people. Part of that plan was, instead of bailing out the Banksters and their accessories on Wall Street, we could have distributed that $800 billion to the investors, who actually owned the loans. In exchange, they would agree to reduce the interest rates to a manageable 5% per annum. In real estate terms, this is known as "buying down the loan."
This would have reduced the number of foreclosures because fewer people would have been hit by the increase in payments when the interest rates adjusted under the terms of the loan. The "bailout" required on each loan, which would have been minimal, would be added to the balance of the loan.
I have heard all arguments from people at the time I made that suggestion. That wouldn’t be fair to those who were more careful in their purchase or put more money down, or that they did not want to help pay for the idiots who accepted these loan ters, and who were not deserving of owning a house anyway. "Why should they be helped, since they did it the wrong way?" I was asked.
The reality is that those people, who did not want to help those who had been taken advantage of or got caught in the lenders’ predatory lending scheme, have suffered just as much, if not more, with their lost equity and, in many cases, lost jobs. Let’s take a look at an analysis of who really lost when the prices started dropping and no one wanted to “bail-out” the buyers who made bad decisions. The scenario is that two people bought identical homes in the same neighborhood at a price of $500,000.00. Buyer A, whose credit was marginal and could only get a sub-prime loan, put nothing down and had 2 mortgages; one for 80% of the price and one for the remaining 20% of the price. Buyer B, whose credit was excellent and was able to make a 20% down payment, had only one mortgage at 80% loan to value.
The chart below demonstrates that those who didn’t want to “bail out” the irresponsible homebuyers were the ones who were hurt the most. By resisting the help to those who were irresponsible, they took their own equity and threw it away without even realizing it.
Buyer A Buyer B
Purchase Price - 2006 $500,000.00 $500,000.00
Down Payment $0.00 $100,000.00
1st Loan $400,000.00 $400,000.00
Interest Rate 2.9% pmt, 6.5% actual 5.5% fixed
Monthly Payment $1,664.92 $2,271.16
2nd Loan $100,000.00 $0.00
Interest Rate 6.5%, Interest only
Payment $541.67 None
Present Value $375000.00 $375000.00
Out of Pocket Loss Nothing $100,000.00
The big loser is the guy who was responsible, and put down 20% and had a fixed loan. He, in most cases, was the one who was most vocal against those who had been irresponsible, and took on more than they could handle or didn’t pay attention to the terms of what he was signing. The lenders took Buyer B’s $100,000.00 down payment; while the irresponsible Buyer B only lost the place that he was living in on the lender’s investment.
No one, including the banks and the government, took the time to look at the BIG picture.
Sunday, May 1, 2011
The Rest of the Short Sale Story
I read a story about short sales in today's local newspaper. Although it was accurate, it told only half of the story. As a real estate and tax attorney, I have consulted with about 300 homeowners regarding the legal and tax ramifications of short sales and foreclosures.
What is missing from the story is 1) why we went from zero distressed properties to 45% of the properties being in that situation, 2) why the banks (in reality servicing companies) drag out the short sale procedure, sometimes without a sale being made, and 3) how they are still defrauding the government and taxpayers with the after sale or foreclosure documents they file with IRS after the transaction. I cover the first two in my book, “Greed-American Dream Becomes the Global Nightmare.” The last one is a new twist to the puzzle.
1. The reason that the number of distressed properties has increased is solely attributable to the actions of the Federal government and the lending institutions. The problem could have been nipped in the bud had different actions taken place in 2007. The banks, which created the problem with their weapons of mass destruction (easy credit, subprime loans, and mortgage-backed securities), handled the problem like they had for 100 years: foreclose and sell the property quickly at below market value, just to get it out of their portfolio. That worked fine in the past, when there were down payments and verification of income required on home loans. However, there were millions of loans that had been made in which there was no equity.
If someone then needed to sell their home in the same neighborhood, they were facing a fair market value of less than what they owed. At that time, getting a short sale through was next to impossible because the banks were not staffed with anyone to handle them, and they failed to look at the problem logically based upon the lack of equity in property, and that the manner in which they addressed the problem would simply make it worse.
2. In the vast majority of short sale transactions, the banks are not the lenders. The scheme that they put together was to make loans, package them into trusts, turn them into securities which they would get rated as AAA by Standard & Poor’s or Moody’s, then sell them to unsuspecting investors throughout the world. They made money creating the loans, selling the loans, and after the sale had maintained the right to service the loans, which provided them with ongoing income.
When a mortgage goes into default, the fee charged to the investor by the servicer is higher than when not in default. The longer the property is in default, the more money the servicing bank makes. If there is a modification of the loan, the banks do not get paid in a lump sum, but must wait for their payment, just like the investor. When there is a short sale or a foreclosure, the servicing bank gets paid immediately from the funds at the sale of the property, with the balance going to the investor. They have built in their own profit structure.
3. The latest fraud is that they are issuing fraudulent 1099’s to the previous owner, in such a manner that benefits the lender or the servicing bank at the expense of the taxpayers or the homeowners. I am in the process of preparing a lawsuit against Chase Mortgage based upon a fraudulent 1099-A. Chase foreclosed on a property and reported to San Luis Obispo County that the fair market value was $143,000.00. This reduces the property taxes that would be required to be paid to the County. When they issued the 1099-A, it showed a fair market value as $345,000.00! They then sold the property for $120,000.00. By doing this, they created a fraudulent $225,000.00 capital loss to offset other capital gains that they might have had, all at the expense of the taxpayers and the property owner, who was actually entitled to that capital loss, because it was investment property.
Although demand has been made to correct the 1099-A, and it has been reported by me to both IRS and the County Assessor’s office, nothing has been done.
I think it is important that people start demanding an investigation these issues by our elected representatives, Democrats and Republicans, why they are allowing our country and its people continue to suffer for the benefit of the stock market, which in no way truly reflects the health of the nation.
What is missing from the story is 1) why we went from zero distressed properties to 45% of the properties being in that situation, 2) why the banks (in reality servicing companies) drag out the short sale procedure, sometimes without a sale being made, and 3) how they are still defrauding the government and taxpayers with the after sale or foreclosure documents they file with IRS after the transaction. I cover the first two in my book, “Greed-American Dream Becomes the Global Nightmare.” The last one is a new twist to the puzzle.
1. The reason that the number of distressed properties has increased is solely attributable to the actions of the Federal government and the lending institutions. The problem could have been nipped in the bud had different actions taken place in 2007. The banks, which created the problem with their weapons of mass destruction (easy credit, subprime loans, and mortgage-backed securities), handled the problem like they had for 100 years: foreclose and sell the property quickly at below market value, just to get it out of their portfolio. That worked fine in the past, when there were down payments and verification of income required on home loans. However, there were millions of loans that had been made in which there was no equity.
If someone then needed to sell their home in the same neighborhood, they were facing a fair market value of less than what they owed. At that time, getting a short sale through was next to impossible because the banks were not staffed with anyone to handle them, and they failed to look at the problem logically based upon the lack of equity in property, and that the manner in which they addressed the problem would simply make it worse.
2. In the vast majority of short sale transactions, the banks are not the lenders. The scheme that they put together was to make loans, package them into trusts, turn them into securities which they would get rated as AAA by Standard & Poor’s or Moody’s, then sell them to unsuspecting investors throughout the world. They made money creating the loans, selling the loans, and after the sale had maintained the right to service the loans, which provided them with ongoing income.
When a mortgage goes into default, the fee charged to the investor by the servicer is higher than when not in default. The longer the property is in default, the more money the servicing bank makes. If there is a modification of the loan, the banks do not get paid in a lump sum, but must wait for their payment, just like the investor. When there is a short sale or a foreclosure, the servicing bank gets paid immediately from the funds at the sale of the property, with the balance going to the investor. They have built in their own profit structure.
3. The latest fraud is that they are issuing fraudulent 1099’s to the previous owner, in such a manner that benefits the lender or the servicing bank at the expense of the taxpayers or the homeowners. I am in the process of preparing a lawsuit against Chase Mortgage based upon a fraudulent 1099-A. Chase foreclosed on a property and reported to San Luis Obispo County that the fair market value was $143,000.00. This reduces the property taxes that would be required to be paid to the County. When they issued the 1099-A, it showed a fair market value as $345,000.00! They then sold the property for $120,000.00. By doing this, they created a fraudulent $225,000.00 capital loss to offset other capital gains that they might have had, all at the expense of the taxpayers and the property owner, who was actually entitled to that capital loss, because it was investment property.
Although demand has been made to correct the 1099-A, and it has been reported by me to both IRS and the County Assessor’s office, nothing has been done.
I think it is important that people start demanding an investigation these issues by our elected representatives, Democrats and Republicans, why they are allowing our country and its people continue to suffer for the benefit of the stock market, which in no way truly reflects the health of the nation.
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