Informational Articles

What’s A Short Sale?

By | March 29, 2011

Once upon a time, short sales were among the rarest of transactions. Houses tended to appreciate (heavily) over time and mortgages used to come with heavy down payments, leading to lots of equity for sellers. People could wait a few years, get a few tax benefits, and then sell for a profit.

Not anymore.

These days, more and more homes are marketed as short sales (the first step a house takes toward foreclosure.) High loan-to-value mortgages and unsustainable price appreciation led to an unprecedented drop in home values. Here are some Sarasota, Florida market statistics for the last five years:

sarasota median sales prices

Homes prices have plummeted to unbelievable lows, but the market has stabilized substantially over the last year (as of March 29, 2011). Lots of homeowners remain upside down in their mortgages, however, and need to find a way to sell their property.

Enter the short sale.

What is a Short Sale?

A short sale is, simply put, a way for homeowners to sell their properties for less than what they owe. It’s not a ‘get out of jail free’ card; short sale sellers take big hits to their credit, lose any money they’ve invested in their properties, and in some cases are required to repay some or all of their mortgage after the property has been sold.

For a short sale to work, the bank that owns the note (the instrument that binds the seller to repay the mortgage) has to agree to take less than what they’re owed. In many cases, this can be hundreds of thousands of dollars less than the original amount.

Why Would a Bank Accept a Short Sale?

Money talks.

From a bank’s perspective, here’s the problem: borrowers owe lots more than their houses are worth and are unwilling or unable to make payments. Mortgage payments are the bank’s primary sources of income. When borrowers don’t make payments, banks don’t make money.

Once upon a time, banks would just foreclose on properties when the borrowers went into default. This didn’t happen often, and when it did, the income from other mortgages more than made up for the loss – and in any event, the newly foreclosed home could be sold at market value and the banks might even be able to turn a quick profit in the resale market.

These days, when banks foreclose, they’re up against heavy competition to get a house sold. The market values are so far below what the borrower originally paid that the banks will take a loss regardless of their actions. If they do foreclose on a home they have to sell it at a steep discount and they take over all kinds of other payments – lawn service, taxes, HOA fees, maintenance, pool guys, and more. These are all red marks on the bank’s balance statement.

On top of that, banks have to pay attorneys to foreclose. And lawyers ain’t cheap.

A short sale is a way for a bank to trump all of those payments – homeowners will generally maintain their own properties as long as they live in the home, the banks won’t have to pay the courts thousands of dollars in fees and costs, and at the end of the day, the banks will actually net much more by allowing a borrower to walk on their mortgage.
Enter the short sale.

 

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Florida Housing Bucks The National Trend (Again)

By | March 25, 2011

Bucking the national trend (yet again :) ), Florida’s housing market showed rising sales in February and stable housing prices.  This is indicative of where our market has been for the past 2 years.

Out here in the trenches, we can attest to the same – the market is really hot right now and buyers are facing stiff competition for the houses that are priced right and in good condition.  In addition, our inventory is now at a low not seen since the height of the bubble – leading to a LOT of pent up demand.

Courtesy the St. Pete Times:
The performance, which was better than the national picture, builds on evidence of increased stability in the state’s troubled housing market.
Sales of previously occupied homes reached 13,701 statewide, up 13 percent from a year ago and nearly 13 percent from January. In the Tampa Bay area, sales were up 16 percent from a year ago and a whopping 24 percent over the month.
Here’s the full link:
http://www.tampabay.com/news/business/realestate/home-sales-rise-in-florida-in-february-flouting-national-trend/1158717

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Bonefish Grill

By | February 15, 2011

 

I lived in Chicago for half a decade, and I would have been mortified to bring a weekend guest to the Cheesecake Factory downtown.  Shortly after I moved here, a new friend suggested we go to Bonefish.  I said “sure!”all while turning up my inner nose at the idea.  Who would go to a chain restaurant with all these great seafood restaurants around?  Years later, I’m not ashamed to admit I’m a regular.  The service is always great, the food is always excellent, and as odd as it may be, it’s actually quite the locals scene.  It’s so packed during Season that you have to hover and stalk seats at the bar and common tables, but it’s a fun energy.  We usually sit in the bar, but if you want a table expect to wait an hour and a half during season.  Don’t worry though, they pass tasty snacks around on trays while you wait!  The bartenders make it a point to know your name too, which is a nice touch.  I get the same thing almost every time: Jumbo Sea Scallops and Shrimp (except I ask for all Scallops, and they don’t charge me extra!), around $16.  They are never overcooked and are always properly cleaned so you don’t bite into that tough little morsel from hell that they’re supposed to cut off.   You can pick from among four sauces (Pan Asian, Lemon Butter, Chimichurri, or Warm Mango Salsa), but if you’re nice you can ask them to serve your fish grilled and sample several of the sauces!  I like the Lemon Butter and Chimichurri.  I was brave enough to try the Imperial Longfin the other day and it was TO DIE FOR.  Fresh, tender, flaky, and rich enough that I suspected Paula Deen might just come walzing out of the kitchen yelling “Hey y’all, surprise, it was me that cooked this!” (Sidebar: Just how cool would that have been?)  They also have a seasonal side, which right now seems to be some kind of spaghetti squash which is just ok, but for $1 you can substitute one of their other sides, which I will now be doing on a regular basis.  The Haricot Verts and Potatoes Au Gratin are the best, though the Garlic potatoes are excellent as well.  On Wednesdays bang bang shrimp are $5, so if you want a seat at the bar come early.  When there is a bargain Sarasota, the locals will pack it in!  Oh, and if you’re lucky enough to go when they have the chocolate crème brulee, get it, but plan on your bill being permanently more expensive because you will always feel incomplete without it.  I’m not one to turn down bread, but if you plan on getting dessert or an appetizer (AHI TUNA, don’t ask, just get it), do yourself a favor and skip it unless your ultimate plan for the evening is laying on your couch in misery.

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Tax Consequences Of Vacation Vs. Investment Homes

By | January 6, 2011

Investment HomesJanuary is once again upon us, and with it come our seasonal residents!

Our 2011 season is forecast to be one of the busiest seasons on record.  Buyers have picked up on the fact that prices stabilized over a year ago and, now that interest rates are creeping up again, have jumped back in the driver’s seat.

A good portion of those residents aren’t ready to move here (not even part-time) but are looking forward a couple of years and want to pick something up when prices are low and they can get positive cash-flow out of their units.  There are many ways homes can generate income, but for today, we’ll focus on vacation homes versus investment homes.

Vacation Vs. Investment: Definitions

A vacation home (aka a 2nd home) is a house or condo more than 50 miles away from your primary residence that you use for personal purposes the greater of 14 days or 10% of the total days it is rented to others at a fair rental price.

An investment home is a house or condo used almost entirely for income purposes in the tax year.  Although some personal days are allowed, the primary purpose of the condo must be to generate income or tax benefit.

A day of personal use is a day:

  • You or any other person who has an interest in it, unless you rent your interest to another owner as his or her main home under a shared equity financing agreement
  • A member of your family or of a family of any other person who has an interest in it, unless the family member uses it as his or her main home and pays a fair rental price
  • Anyone under an agreement that lets you use some other dwelling unit
  • Anyone at less than fair rental price

Tax Benefits For Investment Homes

When you own a bona fide investment property, you have the ability to deduct lots of big expenses relating to the maintenance of your home, including property taxes, mortgage interest, maintenance, utilities, insurance, casualties, and management expenses.  You also get to claim the depreciation on your home.  These deductions can be used to offset other types of income, creating a tax haven.

If you’re using the home as a vacation home then you can still deduct certain expenses (mortgage insurance, property taxes, and casualty losses) but you can’t claim in excess of your rental income.  You’ll also have to divide your total expenses between your days of personal and investment use.

There’s a lot of great, easy-to-read information about this – including some special rules – at the IRS website: http://www.irs.gov/taxtopics/tc415.html.

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