7/10/24 – Hold and buy or sell and buy?

I get interesting calls all of the time, and people want to hold their property to rent and buy something bigger and better because they have a great rate on their current house. I love that idea, but the math can be difficult.

My clients Bonny and Caitlin have owned a house for the past 13 years, and they want to move from their condo to a small house, but they want to keep the house as a rental to help supplement their retirement! They currently owe $265,000 on the condo they purchased for $280,000. The condo is now worth $750,000, and they want to pull cash out to buy or sell and buy! By the way, they are at a 2.75% interest rate that we refinanced in 2020. They are looking at a small house for about $1,100,000.

Below are some things I will make the client aware of:

• Their Principal and Interest payment is under $1200, and about $600 is going to Principal!
• They are nearing the $500K Capital Gains Exemption maximum. They can take the profit now and not pay taxes!
• The savings on the $265K loan at a low rate may not matter, as they will get a rate of about 8% on a second mortgage. If they get $220K for the down on a second mortgage, the rate will average 5.11%, so it’s not a crazy great rate anymore!
• They are over 55 and can transfer their property taxes of $4500 to the new house if they sell. The taxes will only go to about $9500 annually if they pay $1,100,000.00 vs. $13,750 if they keep their property as an investment.
• They can rent their property for about $3800 per month. Their current payment is $2125, and they will have a second for about $1840, so the rental will be breakeven for a while.
• If rents increase by 3% annually, in 10 years, they will receive $5125. In 20 years, that rent will be $6918.

Now, the numbers:

If they buy for $1,100,000.00 and get a second mortgage, they will pay approximately $7370 monthly, including taxes and insurance. If rates drop 1%, this payment will go down by $577.00 on the new house, and the payment on the second mortgage on the departing residence will go down by about $150.00.

If they sell for $750K and buy for $1,100,000.00, they will pay approximately $5700 monthly, including taxes (using Prop. 19 transfer) and insurance, assuming they put down $400K. If rates drop by 1%, the payment will go down by about $485.00 monthly.

Quite often, clients want to hold their property and buy another property, and that’s great! The big question for the buyers above is whether they can take on an additional $1670 monthly instead vs. selling! This is a tough sale in the first place, going from $2125 to $5700, but going from $2125 to $7370 and having an investment property close to breakeven is even more challenging.

I see these all the time, and I hope this gives you some perspective on what a client sees when they consider holding a property as an investment. I love these scenarios, and I love to go over them with clients regarding their situations. Many buyers are not this clean and have credit card debts, student loans, etc., but this is all you get today!

I am available all week if you need anything. Let me know if you have any questions or if someone is interested in buying a property! My cell is 661-714-6258, and my office line is 661-260-2970 ext. 2222. My direct line is 661-291-2222. When you text, text (661-714-6258) or email me at Mike@AugustaFinancial.com.

But wait, there’s more!

Interest rates are slightly better this week, and waiting for tomorrow’s big CPI news! If everyone can say this 100 times today, maybe rates will go down! No more inflation!!! No more inflation!!!…

• 12-day escrows if your buyer is pre-approved - Conventional / FHA / Jumbo / Bridge
• We do loans in all states, so call me with anything you need.  
• Government Loans (FHA / VA/ USDA) are in the high 5’s and low 6’s
• Conventional Loans up to $766,550.00 are in mid to-high 6’s
• High Balance Loans $766,550.01 – $ 1,149,825.00 are high 6’s and low 7’s
• Jumbo loans above $1,149,625 are in high 6’s and low 7’s
• Bank statement loans - They are available with 10% down again! 7’s to 9’s depending on down and credit score.
• Profit and Loss Statement loans- You don’t need bank statements, just a profit and loss statement!
• No income qualifier – 40% down with reserves! In the 8’s!
• 0 down loans are in the high 7’s – 660 credit score min right now, up to $793,000.00.
• Private Money lenders - Hard Money Loans – 35% down!
• No Ratio Loans 30% down
• DSCR – Debt Service Coverage loans with as little as 15% down
• Bridge Loans - typically 7.99% with limited fees – and they get you where you need to go!
• 3/2/1 Buydowns 2/1 Buydowns and 1/0 Buydowns are available at great start rates!

Interest rates are subject to change without notice! The above are LA County Loan Limits.

Augusta's Naughty Condo List / Update!  

New Today!

Heather Ridge HOA – Insurance is insufficient, and the deductible is too high!  Can we go a few weeks without a new one popping up?

I hear that The Vistas could be an issue too, but I have yet to see the paperwork.

Condo / Townhome – issues we know of now. Properties can be financed with 10% down and are considered NON-WARRANTABLE:

1. American Beauty Condos - The brown ones - Insurance: 50 Million in coverage for 748 units is not nearly enough!
2. American Beauty Gardens: 19% delinquency on special assessments due. 19% are 60 days or more late! We can do with 5% down, but others can’t!
3. American Beauty Village: On Fannie’s List. Per Fannie, this project needs critical repairs and may have conditions such as material deficiencies and significant deferred maintenance. This project’s master insurance policy deductible exceeds the allowable limit
4. Bouquet Canyon Village is on Fannie’s list! Per Fannie – This project’s master insurance policy coverage does not meet the requirements.
5. Bridgewater, Emeryville - On Fannie’s list!
6. Brookside Walk – Insurance –
7. Cabrini Villas, Burbank - On Fannie’s list!
8. Calla and Rowan – 27513 Illumination – Fannie Mae Approval expired – New Construction.  See Blog on 5/7/2024
9. Cameo Woods HOA - Per the litigation disclosure, the association is being sued by a homeowner for water heater damage and discrimination, and the damage is still ongoing. We received confirmation that the HOA’s insurance agency is not covering the lawsuit, and the claim was denied due to the nature of the complaint.
10. Canyon Village – Reserves and 10% of the dues not going to reserves!
11. Canyon Oaks – Insurance On Fannie’s list!
12. Casa Marabella – 13951 Sherman Way, Van Nuys -On Fannie’s list!  
13. Cassia and Jasmine  – 26949 Winding Trail Court  – Fannie Mae Approval Expired. See Blog on 5/7/2024
14. Cornerstone – Insurance -On Fannie’s list!
15. Creekside – ??? We don’t know
16. Encino Oaks – 5460 White Oak Ave – On Fannie’s list!
17. Heather Ridge HOA – Insurance is insufficient, and the deductible is too high!
18. Lantana at Valencia – 27034 Hummingbird Lane – Fannie Mae Approval – expired. See Blog on 5/7/2024
19. Liberty Canyon HOA – 27409 Country Glen Road, Agoura Hills, CA- On Fannie’s list!
20. Madison at Towne Center  – Litigation – We can do with 5% down, but others can’t!
21. Mariposa: On Fannies List. Per Fannie Mae – This project’s master insurance policy coverage does not meet the requirements.
22. Orchid at Valencia – 27033 Open Sky Place – Fannie Mae Approval Expired. See Blog on 5/7/2024
23. Penn Court HOA – 4201 Pennsylvania Ave La Crescenta On Fannie’s list!
24. Princessa Estates – has $8200 in Reserves, and they are voting on an assessment in May!
25. Rainbow Sierra Terrace – On Fannie’s Naughty List – This project’s master insurance policy is not written to Replacement Cost Value. See Selling Guide Sec. B7-3-03, Master Property Insurance Requirements for Project Developments.
26. Scenic Hills – Insurance – On Fannie’s list!  This project’s master insurance policy coverage does not meet the requirements in Selling Guide Sec. B7-3-03, Master Property Insurance Requirements for Project Developments.
27. Shadow Ridge – Oak Park – Insurance -On Fannie’s list!
28. Sherman Way Condos – 17900 Sherman Way Reseda – On Fannie’s list!
29. The District Community Association – 19533 Cardigan Dr, Northridge – On Fannie’s list!
30. Treana - Stevenson Ranch: On Fannie’s list! Per Fannie, this project needs critical repairs and may have conditions such as material deficiencies and significant deferred maintenance.
31. Valle Di Oro is on Fannie’s list! Per Fannie Mae, this project contains timeshare, fractional, segmented, or split ownership units or other arrangements (such as mandatory rental pooling, shared interest apartments, or community apartments) restricting the unit owner’s ability to occupy the unit.
32. Vista Del Canon – Insurance is too low, UGH!
33. Village Park Condo – It’s over the max deductible with that 50k per unit.
34. Walnut Gardens II – 7320 Lennox Ave Van Nuys CA – On Fannie’s list!
35. Warner Center Condos – 5515 Canoga Ave, Woodland Hills, CA –  On Fannie’s list!
36. West Creek Condos and Townhomes: On Fannie’s List. Per Fannie, this project’s master insurance policy coverage does not meet the requirements in the Selling Guide!

Please let me know if you hear anything new on condos or townhouses.

I am still available all week if you need anything. Let me know if you have any questions or if someone is interested in buying a property! My cell is 661-714-6258, and my office line is 661-260-2970 ext. 2222. My direct line is 661-291-2222. When you text, text (661-714-6258) or email me at Mike@AugustaFinancial.com.

Have a great day and an even better tomorrow! Please call me when you have a client who needs to borrow!