Hemet, CA

Now may be the time to buy in many parts of the country, but I sell real estate in Riverside and San Diego Counties of California.

Homes are selling so cheap that some people are paying cash. Wow that is so amazing to me. Where did someone get $260k to pay cash for a home. Were they saving for years...Decades?? Did they make great investments and they paid off? And, where were they, why did I not meet them? Why were they not my customers?

A side from that good for those who are able to pay off one of the largest purchases people make and usually finance, paying at times triple the cash price.

What about the tax deduction?? Did these people seek the advise of their tax adviser before making this decision to pay cash for a home and they are still working and in the highest tax bracket of their careers?

What advice would you give a cash paying homeowner? Pay cash or finance?

The President of the United States signed legislation on November 6^th, 2009 that became effective immediately, allowing current homeowners, or ‘repeat buyers' to claim a tax credit of up to $6,500 for the purchase of a replacement home.

This is the same law that extended the current $8,000 tax credit to first time homebuyers and raised household income levels. This article will focus on the repeat buyer aspect of the bill.

THE BASICS

Before we get into how it works, lets figure out who it works for. It should be pointed out right now that there is no requirement to ‘move-up' at all and I suspect by the time this is over and done with most of these credits will be awarded to those who are actually downsizing...more on this later.

The first criteria are that the repeat buyer MUST have resided in their current home for five of the last 8 years. Second qualifier is that your adjusted household income does not exceed the limits imposed of $125,000 for the single filing taxpayer or $225,000 for those who are married and filing jointly. If your income is higher than this, please consult with your tax professional because there are some very complicated formulas that allow for some taxpayers to obtain partial credits.

The time frame for this Tax Credit starts with homes that closed escrow on November 6^th, 2010 - the day President Obama signed the legislation and runs through next spring with two very significant dates. The first is April 30^th, 2010. The implication of this date is that a binding contract (signed by all parties) must have been reached. The law allows the repeat buyer until June 30^th, 2010 to actually close escrow.

Just because the current tax credit was extended and revised by Congress, I would not count on a further extension. This was a much debated topic in Washington and across the country. While it is a good deal for those who take advantage of the opportunity there are many that feel the stimulus that it encourages does not justify the ultimate price tag to the American Taxpayer. So as my grandma used to say, "You Better Get While the Getting is Good!".

The good news is the tax credit can be claimed as soon as you close escrow. So, if you close this year you can claim the credit on your 2009 tax returns or amend the ones you filed for 2008. If escrow closes in 2010, you will have a similar option of claiming the tax credit for your 2009 taxes or file with your 2010 return. This is one of those times I MUST ADVISE YOU to talk with your tax professional and see how this applies to YOU! There may be beneficial strategies to pursue regarding your income for both years - so if you anticipate buying a home and taking advantage of this program, I strongly suggest you do so before you make the purchase.

WHAT ELSE YOU NEED TO KNOW

When looking for your new home, the purchase price cannot exceed $800,000. The good news in the Hemet-San Jacinto, CA Valley is that real estate averages round $150,000 for a nice newer home in a good neighborhood...almost anywhere in the valley!

The actual tax credit is computed based on the purchase price of the new home. The tax credit for the repeat buyer is computed at 10% of the purchase price with a maximum credit of $6,500. So, a home bought for $150,000 would cap out at the $6,500 limit - short of the $15,000 10% rule. On the other hand a buyer who might be downsizing and possibly buying an existing mobile home for say, $40,000 would only be able to claim 10% of the purchase price or $4,000.

As mentioned earlier, the requirement to sell your current home does not exist; however, your new home MUST become your primary residence. This is great news because it will allow for current homeowners to rent out their current home, keeping it as a nest egg while allowing them to buy near the bottom of the market and take advantage of the current market conditions.

I strongly recommend that if you are keeping you old home that you plan on moving THE DAY escrow closes. With the original tax bill, there have been countless abuses of fraud and you don't want the IRS taking a look at your claim - just do it right and there should not be any questions asked.

WHAT CAN YOU BUY?

The good news is that just about anyplace you want to call home qualifies (again, so long as the price tag does not exceed $800,000). Both new construction and existing inventory of homes qualify and it does not matter if it is a single-family home, a condo, a townhouse, a mobile or manufactured home...or even a boat that becomes your principal residence. I have nothing solid on this, but my guess is even RVs that are principal residences will count for the credit.

The tax credit can even be applied for custom-built homes, so long as they receive their ‘certificate of occupancy' and the home becomes occupied within the specified timeframe and the custom built home does not cost more than the $800,000 limit. If the taxpayer, prior to the specified tax periods, owned the land it is my understanding that the value of the land is not computed in the value of the home. Again, check with your personal tax advisor.

WHAT YOU CANNOT BUY

Second homes, which are popular in the Hemet - San Jacinto Valley with the ‘Snowbirds' are not eligible.

Real Estate Investors have been a significant part of the market over the last couple of years and unfortunate for them, investment properties don't qualify, either.

RED FLAG - CAUTION - RED FLAG

Just like anything with the government you need to be careful that you play by their rules. Don't try and second guess with words like ‘intentions' and ‘good faith' to defend your actions. I figure if you have to ask if something is wrong, then you know in your heart that it is wrong - so avoid it. Don't try to figure out how to make it work for you and DON'T suck me into your schemes - that's called CONSPIRACY.

While some will get away with stepping to close to the line, or even over the line it just is not worth it. Once the government thinks you are not playing by their rules they can get very anal in their pursuit. Any false representation on any federal document is a federal crime - they call it fraud for starters and may find some other very creative ways of redefining it...each adding their own penalties and possible jail time.

The IRS is the long arm of Congress responsible for monitoring this program. With the new legislation, the IRS is tasked with even closer scrutiny of the program due to the overwhelming fraud that was uncovered with the original program According to the Wall Street Journal, the IRS is investigating over 100,000 suspicious first time homebuyer tax credits...that 10% of the million plus claims already filed. As of about a month ago, the IRS has opened investigations on 167 separate ‘criminal schemes' and has already obtained its first conviction.

The new rules now require the taxpayer to include copies of the closing statement, or HUD-1) issued by escrow at the close of escrow along with the IRS Form 5405, the form used for requesting tax credits.

Minors are not eligible or anyone being claimed as a dependent on another's tax return. So, say a college student being claimed by the parents on the parents tax return is not eligible if they want to take advantage of the tax credit. Believe it or not, but the IRS has uncovered claims filed in the name of a four year old.

Transactions between family members are also disallowed and will throw the red flag right into the face of the IRS

STRATEGIES

There are numerous strategies that can be implemented to maximize the benefit of this program - again each repeat buyer has their own unique set of circumstances and because this is an article on taxes and real estate, all I am only licensed to guide you on is your real estate game plan. If you need to talk to a good tax guy, I have a local one who is great and will probably uncover additional tax credits for you that Of course reading this article should not be considered advise if I have never met you. This article is written for the public and not any one client...so please lets use this article as a place to open a dialogue and not a blueprint for your own real estate moves.

With that being said, I believe that what will open up in the Hemet - San Jacinto, CA Valley real estate market will be repeat homebuyers who will look at keeping their current homes and turning them into rental...perhaps to family members and then buying a much newer home in a newer neighborhood with modern amenities and features.

I'm sure we will see a significant number of both move-up repeat home buyers as well as buyers looking to downsize who had felt trapped in a larger home after the kids had left the nest starting their own homes but leaving mom and dad with the family castle. Of course with the hit to the economy, the castle may now be considered obsolete for their needs. Well, now there is an out. Rent the existing home, which should cash-flow (assuming it has not become over-indebted with refinances) nicely and then move into something more appropriate for the downsized family.

This scenario will allow for the current home to remain in the family and give it a chance to regain equity at a future point while also allowing for the purchase of a newer home near the bottom of the market that will also increase in value and thus being able to take advantage of the market for a future retirement.

In any event, there are many situations...just like everyone who reads this there are unique strategies that feet unique needs...so call and lets figure out how you can best capitalize on the current real estate boom market now...before it's too late.

Is it Time to Sell...or Renovate?

Many Hemet and San Jacinto, CA homeowners have been hit hard with the loss of equity, due to the collapse of our housing market and the decline in our general economic conditions.

The down-side is many people thought they were buying a home as a stepping stone...thinking that their real estate investment in the Hemet - San Jacinto CA market would be a place to establish roots with a starter home and then they would be able to sell in a couple of years to another first time homebuyer - taking out the equity they planned on earning and applying it to a larger home to grow in.

Unfortunately, there are a lot of shattered dreams in the Hemet - San Jacinto valley. Many families today are living in over-crowded conditions and just don't know what to do. Yes, they can afford their payments and yes they want to protect their credit...but many feel as if they just need a bigger home.

Well for those who either may still have some equity or have good credit...or even some cash stashed for a project now is an excellent time to consider putting off selling your home and looking to expand what you've got.

A well-designed renovation or room addition can not only ease the dilemma of space but add value to your home as well. It's true that most improvements don't return 100% on the investment - but all wise improvements do make the home easier to market and make it more desirable when it is time to sell.

REASONS TO CONSIDER A REMODEL / RENOVATION

1)... Contractors have definitely felt the pinch in the current economic times with the decline in the housing market, many homeowners can't afford to spend money on their homes - so the contractors are often willing to lower their bids for specific projects, in the Hemet - San Jacinto Valley.

2) The Selection of contractors is greater - since fewer of them are working steadily. Here in the Hemet - San Jacinto Valley in Southern California it is not unusual to have multiple contractors competing for against each other to be selected to complete your project and add value to your real estate.

3) The Cost of financing is way down. Regardless if you are using home equity or other established credit lines, lenders are also very competitive when it comes to loaning on real estate projects. It's times like this that your good credit and savvy financial planning pay off in a big way.

4) Supply and Demand is always an equation when it comes to any type of real estate transaction - it doesn't matter if you want to buy a house, sell a house or remodel your home. When the demand is down there will be greater supply and that holds true for building and raw materials as well. With fewer construction projects taking place, the demand for building materials also decreases and with it the price drops making fixing your home that much less expensive.

5) Waiting Time for the best known and most highly skilled contractors and artisans is reduced. I can remember, not so long ago a certain landscape designer would have a 9 month waiting list to take on new jobs - he was that good. Give him a call today and you'll probably see him by the end of the week, or next week at the latest. So the quality workers may still be working - but the time to get that someone special might be a whole lot easier...and they may now be willing to travel a little bit further.

6) Service with a Smile is much more likely. Now is the time for all businesses to improve on their customer service if they plan on riding out the storm. Most contractors, like most professional businesses in the Hemet - San Jacinto Valley know they have to provide superior service now, more than ever. I'm almost willing to bet that MOST contractors you call these days will be returned. Let me gout on a limb and even guess that most jobs will also start on time and be finished on time...can it get any better?

WORD OF CAUTION

If you are going to go ahead an look into a remodel or renovation then please do your homework on the contractor you select. Check with the Contractors State License Board and verify that the license is in good standing. Verify insurance, bonds and just as important spot-check several of their jobs. Any contractor will provide references - but take the time to go by the job and inspect the work and talk with the previous client...this bit of due diligence can pay for itself many times over.

There are still a lot of scammers and scam artists out there looking to separate you from your money, but if you are in the market to fix up your home, then now is the perfect time.

45 Day Escrow...All the Time in the World, Right? WRONG!

The real estate market in the Hemet - San Jacinto Valley, CA is dominated with investors and first-time homebuyers. The investors have all been through escrows and know what is expected of them to close and close on time, without incurring hefty per diem charges for delays. First-time homebuyers more often resemble a deer in headlights, believing that 45 days is plenty of time for everyone to do their job.

The first time homebuyer who now has successfully negotiated a purchase contract, with the help of their REALTOR® or other real estate agent now has the real work cut out.

I'll often joke with buyers, very early in the process, when I'm assisting them with the ‘pre-approval' process that once they have been pre-approved we'll know exactly how much money they have to spend, and being the bona-fide shopaholics that I am, I can easily help them spend their money. I'll go on to explain that getting into escrow is the easy and fun part - where I earn my money is getting out of escrow.

TIME FOR THE BUYER TO GO TO WORK

Perhaps the most critical actions any buyer can do is be prepared with supporting documentation that will include a copy of their drivers license and social security card (for each borrower, if more than one).

The first time borrower must be able to provide proof of income that will include pay stubs for the last month. The borrower must also realize that it is not uncommon for the underwriter to request updated information and documentation in the days preceding the anticipated close of escrow date.

Not only will the borrower have to produce current employment records but tax returns for the most recent two years, as well...to include ALL W2's and 1099's for the prior tax years.

Two months worth of ALL bank statements will also be needed. Make sure you include your IRA and 401 statements as well as any CD's and saving accounts. This is not the time to black out account numbers or bank branch info - this is documentation that will be verified.

STAY CALM

Assuming the first time homebuyer is successful at submitting all of the requested documentation right away, it does not mean that the borrower is off the hook. The loan package, with all of your supporting documentation as well as the appraisal and possibly even termite or maintenance inspection reports are closely reviewed. The analogy of the underwriter analyzing your hemorrhoids with a microscope are often floated in conversation.

It is NOT uncommon for the underwriter to request additional documentation. This is the point when many purchasers will start to loose their composure. The process is getting down to crunch time and the buyer is being asked for something that has already been produced, or the buyer can't understand why they would ever want to see something that appears to be totally irrelevant...say 10 year old divorce papers, or a child support award...anything. It's all possible.

It is imperative that the new home buyer maintain their cool and accept the fact that they have been reduced to the role of a circus tiger trained to jump through burning hoops of fire. Just do it. Don't argue. Don't justify. Don't make excuses. Remember the old Nike commercials - "Just Do It".

WHAT NOT TO DO

Now this should be understood without any comment here - but maybe the seasoned real estate agent or loan officer just got so tired of sharing this information that they just naturally assume everyone and their brother knows this...DON'T MAKE ANY MAJOR PURCHASES UNTIL YOU CLOSE ESCROW - PERIOD!

I hate thinking of the Hemet - San Jacinto, CA real estate transactions that went sideways and didn't close because some happy-go-lucky buyer felt sooooo good that they were buying their first home they went out and bought a house full of new furniture, using some easy payment plan...many times with no payments due for a year. Maybe they bought a new car or they start opening new lines of credit - you know 2 or 3 new credit cards. . My favorite is when a first time wanna-be homebuyer quits their job and starts their own business. That's always a classic - remember more than likely the underwriter will want to see updated pay stubs at the end of escrow - at the very least they will be making telephone calls to the employer.

The reason why is very simple. The loan the first time buyer is obtaining was calculated on a debt to income ratio, among other important factors. When debt is increased it throws off the entire ratio. Even if the borrower would qualify for a similar loan with the higher ratio - more often than not they don't qualify for the loan that is being processed. And no, they do not just re-adjust the terms. This deal is now scrapped and more often than not the first time buyer has just forfeited their earnest money deposit.

This has all been said before. In today's economic climate these guidelines are perhaps even more important than ever before since the lenders appear to be over analyzing just about everything. So please prepare yourself ahead of time, be prepared for bumps in the road and don't don anything of a financial nature until after you close your escrow.