Wow, I'm a blogger now! I guess that makes you a bloggee. Which is kind of funny because I have a cat named Boggie, so I will try not to confuse the two. I will also try to be as straight forward with my thoughts and opinion's as I can so you (the bloggee, not my cat) can get a true sense of who I am and what I think is important in the SoCal Real Estate market.
I feel I should also let you know that English is not my best subject so you will find many grammatical error's and misspelled words in my ramblings. Please don't point these out to me because like my dad (also a bad speller) always said "you know what I meant". Hopefully, with time and writing more both will improve. So let's get started...
Today I had to find $300,000 for a client that is in escrow with a co-worker. Here's a quick background on the deal for you. Ms. X is in escrow on a $800,000 home in Coto De Caza. She has great credit, is putting $500,000 down and keeping $150,000 in the bank as reserve. Several banks have denied her because her only source of income is alimony which she has only been receiving for a short time. The banks we went to all need her main income source to have been in place for a minimum of 3-years.
Now that you are up to speed let's solve this issue..First there are hard money lender's out there that will gladly lend the $ for crazy interest and upfront point's (like 6pts. upfront and 12% per year). Since this particular client doesn't feel like getting raped we had to find something better. We put some calls into some homeowners with a huge amount of equity and found one that was willing to hear us out and listen to our plan.
Mr. Homeowner has over $1,000,000 in equity in his home he owns outright. I know crazy right, how many people can say that. Anyways, we proposed for Mr. Homeowner to take out a equity line on his home for $300k at 6% and lend it to Ms. X for 9% giving him a net profit of 3%. I know, that's not very much for such a big risk but here is where it gets good. Since Mr. Homeowner still works and has an income he is taxed on that. Since he is taxed he needs a write-off to offset some of his taxable income. To explain this in detail would be very boring and long so the short version is...6% of $300,000 is $18,000 a year, which is his write-off. His tax bracket is give or take 36%. This means he will realize 36% of the $18,000 per year in tax savings which is.....carry the 4.....divided by Y...plus 8.4.....= $6,480! Combined with the 3% net per year on $300,000, his grand total is $15,480 per year. This works out to be about 5% per year in Mr. Homeowners pocket on equity that was making him nothing 5-minutes ago.
Now Mr. Homeowner is making over $15,000 per year off his previously untapped equity. He has a 1st trust deed on a $800,000 house in Orange County and to top it off he is protecting himself against frivolous lawsuits. Let's me explain the law suit stuff quickly....when you own your house outright lawyers know this...when you have an equity loan against your property it "looks" as if your home is mortgaged 100%....soooo there is no money for lawyer's to come after.
All in all, everyone wins. Ms. X gets to close escrow on a new home. Mr. Homeowner gets some cash and a 1st trust deed, we get paid for doing our job and Boggiee eats another week..I knew I would find some way to work that back in.
Well, keep lurking and blog you later,
Brent
