February 17, 2009
by Tom Harris
The National Association of Realtors (NAR) has been pushing for several things to help the stalled housing markets. And it appears they have had some success.
Here are the highlights:
1. the loan limits will be raised to $727,000 in high cost areas,
2. the tax credit will be raised to $8,000 with NO payback [a true credit],
3. interest rates have come down 125-150 basis points, and
4. the bill has over $50 billion in it for foreclosure mitigation, with Geitners Treasury plan signaling that the second half of TARP and TALF will be used to mitigate foreclosures through a government guarantee, drive down interest rates by buying another $200-300 billion of mortgage paper from the GSES’s thereby freeing them up to do the same with new mortgages, and Fannie has just agreed to lift the cap of 4 investment properties eligible for loans and raise it to 10.
They were also able to preserve the mortgage interest deductibility, real estate tax deductibility, and the $250,000/$500,000 cap gains exclusion (an overall package worth more than $100 billion and for some a very attractive funding source for their pet projects).
Maybe this will unclog the pipeline and get some capital flowing into housing again.
February 16, 2009
by Tom Harris
Second home investment should be viewed as a way to make money over the long-term. Real estate is very cyclical with housing “bubbles” expanding, sometimes rapidly, and then just as suddenly decompressing. If you highly leverage the purchase expecting a fast profit you can really blow yourself up.
You need to understand the investment you’re making with a second home and have a clear plan of how that new property will be paid for and possibly generate income for you.
Second homes can earn steady, though probably modest, income - allowing you to hold a tangible asset that will most likely rebound.
Keep these points in mind:
1. Enjoyment of your second home should take precedence over any profit potential.
2. Taking a long-term approach to real estate investing will protect you from the volatility of both the real estate market and other, riskier investment vehicles.
3. Do your homework. It’s possible to find a second home that will provide income and likely appreciate in value for that day when you decide to sell it or retire and move to it.
This may not be the best time to ask this question, but for those who bought your second home as an investment – how has that worked out for you?
February 10, 2009
Paying Cash for Your Second Home
Feb 10, 2009 Tom Harris
I have had several clients inquire about the advantages and disadvantages of paying cash for a second home. Nationwide about 30% of second homes are bought for cash.
There are no hard and fast rules, but here are some guidelines:
1. If you can get your second home mortgage at 6% and have investments that are getting a higher return, consider a mortgage. You need to also factor in the tax deductions of the interest on the mortgage.
2. Value appreciation on a percentage basis will be lower if you calculate the appreciation as a percent of the total price (cost) as compared to a down payment of only 25% to 50%. The net appreciation amount will be the same either way.
3. If you pay cash and simply don’t want a mortgage, make sure you still get an appraisal, title insurance and homeowner’s insurance – things a lender would insist on if you got a mortgage – to protect yourself.
If you have the cash and don’t need it elsewhere, it can be a fast, discreet and simpler way to get your second home.
Does anyone have any other guidelines they want to pass along?