Right now, there are a lot of headlines a lot regarding the mortgage meltdown. What’s hype, what’s not?

In general, I stick to my usual soap box of don’t believe everything you read and proceed with rational observance b/c “If it bleeds, it leads.” (In case you are wondering, I welcome you taking my opinions with a grain of salt too! I am educated, aware, and in the trenches though I certainly don’t know it all and am only one person with an opinion.)

What’s happened?

In summary, rates are volatile right now and the qualifying criteria for home buyers has gotten stricter, much stricter, in a very short period of time. This does not affect the majority of borrowers around the US, i.e. those looking to borrow within the “conforming” loan limits ($417,000 and under).

Obviously, with Bay Area home prices, it affects us locally b/c most home buyers are seeking “jumbo” loans.

Plus, all stated income loans have gotten much harder to get. This too affects the San Francisco housing market because so many of us use stated income loans to qualify, especially first-time home buyers.

What does it mean?

First of all, this tightening of credit has been swift and severe. Most of us anticipate loosening in the coming days, weeks, and definitely months as lenders see the opportunity to make deals and jump back in the game.

Second, it means that some of you will have a harder time making home ownership happen right now. And, I do mean right now. Things are changing daily so it’s best to stay calm and stay tuned.

Third, it means that those of you who are able to make home purchases will be able to secure great deals right now. And, again, I mean right now. Things change quickly.

If you have a down payment, can document your income, and have good credit, BUY, BUY, BUY. A large bulk of the local San Francisco competition is temporarily gone so you can get into a property for a relative steal at this moment.

I truly expect the situation to correct itself very soon. I also do NOT expect a run down in San Francisco home prices. Right now, there are deals to be had, for sure. This is especially true in the condo market.

BUT, sellers are not giving away their homes for pennies on the dollar. Yet, they may be willing to negotiate on price and even buy down your interest rate to get the deal done.

What to do?

Make sure your mortgage broker and Realtor are savvy and aware of what is going on now. This is not the time to go discount. It is the time to have a team of experts around you!

If you are pre-approved, go back to your mortgage broker and make sure you understand current pricing and whether or not your situation has changed.

If you are selling your home, look into a seller rate buy-down. The cost of the buy-down is soooo much less than any price reduction! Get the sales price you want with this savvy move.

Talk to your Realtor (me or whomever it is) and ask them how they can be creative to get you the property you want at a great deal. Do they know how to negotiate rate buy-downs for you? Do they read the financial papers? Do they know how to protect you while you are in escrow.

Get out there and look at homes. The timing is absolutely excellent for those of you who have the money, credit & income to buy.

Times have changed and we are going back to basics. San Francisco will always be amongst the MOST desirable places to live. A couple weeks or even months of lending distress doesn’t change this so go-ahead and be a “have” rather than a “have not.”

Got a question? Please let me know…

Resources:

Today’s Chronicle Article: Mortgage crunch hits Bay Area hard because of jumbo loans

How cool is this? The casting director of A&E’s Flip this House found MY blog and asked me to help get the word out for a new crew!! Obviously, I was both excited and flattered. Steve Grant wrote, “I think your blog is great, and could possibly be a great way to spread the word about the search for the new cast….”

But enough about me, what do you think of me? (Remember that timeless Bette Midler quote from Beaches?)

Anywho, do you want to be on television? Do you flip houses or want to? Check this out and MAKE SURE TO TELL STEVE YOU SAW THIS ON SFHOTLIST, THE BLOG! PLEASE AND THANK YOU.

Flip This House, A&E’s #1 rated lifestyle show, has been to Charleston, Atlanta, San Antonio, and New Haven. Which city will be next?!!

813 Casting and Departure Films are conducting a nationwide search for the new cast of characters who will be featured on the upcoming season of Flip This House! Will it be your team?

We’re looking for confident, charismatic, motivated and opinionated people who “flip” residential properties for a living. We want real-estate adrenaline junkies who love the high risk, high reward nature of their jobs and who are devoted to doing a great job!

If you would like your team to be featured on the upcoming season of Flip This House, send an email to fth@813casting.com. Include your contact info, bios on you and your team, and some reasons why your team should be the next to be featured on Flip This House! Teams should consist of four or more people.

Schedule an interview with Casting Director Steve Grant. Email fth@813casting.com

Generally speaking, it is wise to begin with owning your own home. So, if you are set on acquiring your real estate empire, start at home…literally. However, after that, it is wise to consider diversifying your portfolio. Smart rental homes are a great investment for the long-term.

Right now, it is a great time to get into the rental market here in San Francisco. Certain areas are booming like the good, ole days with crazy over bids and multiple, non-contingent offers. Yet, other areas that once were hot have cooled down and offer savvy buyers an opportunity. For example, certain lofts, condos, and TICs are lingering just a little longer on the market and the sellers are getting antzy. Many of them have already purchased their new homes and have to get out of the double-mortgage situation. Pressure’s on and you can benefit. The truth is that most of these owners will do quite nicely, even with the slower market. Lofts, condos, and TICs have appreciated greatly over the years so their profits are nothing to cry about. That said, this is a market that is more cyclical than the single family one typical is… Lofts will be hot again so why not buy when it’s actually possible to get a decent $/SF?

This strategy also rings true for those of you who are renting and want to buy your first San Francisco home. Either way, it’s a great time to get into the market.

Bob Bruss wrote this article for Inman News on the benefits of owning rentals. I think his writing is both informative and easy to digest. Take a peek below…

Pros and cons of owning rental houses

A closer look at investment purchases

Friday, July 06, 2007

By Robert J. Bruss
Inman News

What is the best investment you ever made? Common stocks? Bonds? A small business? Your house? Other real estate?

Chances are your most profitable investment has been your personal residence. If you have yet to purchase your own home, today’s “buyer’s market” is an excellent time to do so.

However, if you already own your house, why not take advantage of current market conditions to buy one or more houses as rental investments? Let your tenants buy those houses for you by using their rent payments to pay the mortgage and other expenses.

Purchase Bob Bruss reports online.

WHY BUY RENTAL HOUSES? Realizing that profitable rental houses (and most other real estate investments) are long-term investments for at least five years, consider the advantages of such investments.

Your list of benefits will likely include probable appreciation in market value (although the home sale market is “flat” in many cities today), income tax shelter, maximum leverage to control the property with little cash, tax-free and tax-deferred sales benefits, and pride of ownership.

Yes, there are possible rental-house disadvantages unless you carefully qualify tenants before they move in to ensure they pay the rent on time and won’t “trash” your property. But sound property management techniques minimize this risk and hold repair costs down by providing tenant incentives to avoid damaging your rental houses.

HOW TO GET STARTED BUYING RENTAL HOUSES. The easiest way to acquire a sound, well-located rental house is to buy one as your personal residence.

That might sound unusual. However, the key reason is buying your own home for owner-occupancy is the simplest way to purchase for little or no cash on the most affordable mortgage finance terms.

After owning and living in your home for a few years, perhaps fixing it up to add market value, then you can convert it to a rental house and move on to another house purchased the same way, eventually establishing a portfolio of rental houses.

Or, thanks to the tax magic of Internal Revenue Code 121, after living in the house at least 24 months and then moving out to rent it to tenants, you will have up to 36 months to decide if you want to keep the house as a rental or sell it and claim up to $250,000 (up to $500,000 for a qualified married couple) tax-free principal-residence-sale profits.

THE FORGOTTEN RENTAL-HOUSE TAX-SHELTER BENEFITS. Most prospective rental-house investors realize these properties can provide income tax benefits, but they are often hazy as to the details.

Thanks to the unusual benefits of the depreciation tax deduction for estimated wear, tear and obsolescence, most rental houses show a paper tax loss. The reason is that depreciation is a noncash-expense tax deduction, which requires no actual payment, as is necessary for mortgage payments, property taxes, insurance and repairs.

Current tax law allows depreciation deductions for rental properties over 27.5 years. Commercial properties require a 39-year depreciable useful life.

For example, suppose you buy a $250,000 rental house, allocating $50,000 to the nondepreciable land value. Dividing the $200,000 cost of the structure, each year for 27.5 years you can deduct on Schedule E of your income tax returns about $7,300 without having to pay in cash even $1 for any actual depreciation expense.

The likely resulting tax loss from the rental house, after paying the operating expenses from the rental income, is deductible up to $25,000 annually if your adjusted gross income (AGI) from other sources is less than $100,000. Between $100,000 and $150,000 AGI, the amount of deductible rental-property loss gradually declines.

But any unused rental-property tax loss can be “suspended” and saved for use in future tax years or when the property is eventually sold.

UNLIMITED DEDUCTIONS FOR REALTY PROS. However, “real estate professionals” can claim unlimited property-loss deductions from their other ordinary taxable income. If you spend at least 750 hours per year (about 14 hours per week) on your real estate activities, you may qualify for unlimited Schedule E deductions from your rental houses and other realty investments.

A real estate sales license is not required. Full-time real estate investors, property managers, builders, contractors and leasing agents can qualify. Either spouse is eligible.

For example, suppose a married physician earns $500,000 AGI. Normally, he would not be entitled to any Schedule E tax loss deduction from his rental houses because his AGI exceeds $150,000. However, if his wife manages their properties and she spends more than 750 hours annually supervising those investments, making management decisions, inspecting properties for possible purchase, and supervising sales and exchanges of their properties, they can qualify for unlimited “real estate professional” deductions on their joint income tax returns.

AVOID TAX WHEN SELLING YOUR RENTAL HOUSES. If you quickly buy and sell rental houses or other real estate after fewer than 12 months of ownership (called “flippers”), your capital gains will be taxed at ordinary income tax rates up to 35 percent plus state taxes.

However, if you own the property more than 12 months, then the maximum federal capital gain tax rate is currently only 15 percent, plus state taxes.

But various tax-avoidance methods are available to cut or eliminate these taxes. In addition to the principal-residence-sale tax exemption of Internal Revenue Code 121 (if the house was owner-occupied to meet the statute’s requirements), tax-avoidance consideration should be given to tax-deferred exchanges and installment sales.

Also, remember that any unused annual property-tax losses from rental properties are “suspended” for use in future tax years or when a property is sold. Your tax adviser can provide full details.

Personally, I have sold several rental houses at considerable profits with no tax due because my suspended tax losses sheltered my capital gains from taxation. More information is available in my brand-new special report, “Pros and Cons of Investing in Rental Houses and Condominiums,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 94010, or by credit card at 1-800-736-1736 or instant delivery at www.BobBruss.com.

Pop goes the weasel or does the weasel go pop? In our culture, so often it is headlines, water cooler gossip and cocktail party embellishments that cause economic markets to fluxuate. Take, for example, the housing market. If you read the Chronicle, you will think we are in a real estate slump. If you are out there looking for a home, you will think something very different. Key, is the NYTimes Real Estate Magazine. This past week, there is an interesting read on why real estate (at least residential housing) will never be like the stock market. I’ll provide a link to the entire article but in one word: LEVERAGE.

“The dirty little secret of home ownership is that it lets you play with other people’s money. Say you want to purchase the median home (in California the cost would be about $565,000, but let�€™s take the United States median, which would run you $220,000).

 

Typically, you would take perhaps $50,000 from savings as a down payment, borrow the balance and pay the monthly mortgage from your income. But wait! Just before you close, a friendly real estate bear points out that you could rent the same house, or a similar one.

 

Your monthly payment would go to the landlord, not the bank. And you could invest the $50,000 in stocks, which, with dividends, might appreciate at close to 10 percent a year, rather than the 5 percent or so you could expect from your house. That would be a very dumb move. Suppose the stock market did rise 10 percent; after a year you would be up $5,000. Whereas the gain on your home would be 5 percent over the entire purchase price or $11,000. Over 10 years the gap becomes huge �€” not to mention over 20 or 30 years. This is the little guy’s (and also Donald Trump’s) trick for accumulating equity: leverage.“

This Sunday, the Chronicle ran a Sacramento Bee article from February that the NYTimes ran before them (get my point??) about how women home buyers are among the largest growing market of home buyers around the United States.

For those of us in the real estate world as a two time single woman purchaser, myself, this comes as no surprise. Some see the trend as a “Women like to nest more than men thing…” Well, maybe some do but I’m sure not all! Some see it as a “Folks are marrying later…” while others see it as an end of civilization. Well, I’m not here to espouse family values or the lack thereof.

It seems to me that single women home buyers are trying to create financial independence for themselves, whether or not they marry/partner with another person down the road. If a woman has a good job and decent savings, she should explore the option of becoming a homeowner, just like the rest of us! Wanna know something tres interesting….According to NAR statistics, single women were 22% of sales in 2006, which is up from 14% in 1995. What do you think it is for single men???? 9% last year AND in the mid-90s.

C’mon guys, do you want the ladies to beat you on this whole financial freedom thing? I’m not going to comment on the possible reasons for this disparity though I’d love to hear your opinions. Read the ARTICLE here.

Here ye, Here ye, there is now a first time buyer home loan program that will work for San Francisco! Hallalujah! Call the press!!  New Source Financial is one of the few lenders in the Bay Area to offer this program. What do I mean by saying this program actually works in San Francisco? Most first time buyer programs have qualifying criteria (both income caps and loan amounts) that do not work here. The income caps are too low and the loan amounts wouldn’t cover an entry-level purchase price in San Francisco. This loan program is AMAZING and such a great opportunity for 1st time buyers!!!!!!!!!! Purchase price up to $650,000 for San Francisco. Income for 1-2 family members - $131,673. Find out more….please.

A prescient friend of mine named Lauryn who has always been a trendsetter, or at least, one of those Malcolm Gladwell “influencer” types who can spot a trend and make it run recently purchased her first condo in Brooklyn. Yes, it’s Williamsburg but this is the outer limit, as in where W-burg is headed. She paid a ridiculously low price in exchange for taking 2 more stops on the subway. It’s a brand-new conversion of an older, architecturally interesting building. Obviously, I am SO proud of her. Check out this NYTimes article from 2/4/07 about buyers just like her. In fact, one of her neighbors is made “famous” in the read.