The failure of yesterday's TIC auction at 3731 Fillmore Street leads one to ask many questions of its' meaning. Does it mean the highest bid was the true market value of the unit? Does it mean the auction was botched? Does it mean that TIC's are not well suited for auctions? Does it mean that the market is crashing all around us since even the lowest estimates of value prior to the auction were around $450,000, or 10% higher than the highest bid.
I've got my opinions, but I thought it would be constructive to get an update on how TIC's have been trending. In May of 2008 I ran the numbers for all TIC sales per year since 2002, but didn't include 2008.
So here's the update on total TIC sales per year (per the San Francisco MLS)
'02 = 154 sales of any sized TIC
'03 = 269 up 75% year over year
'04 = 395 up 47% y-o-y
'05 = 539 up 37%
'06 = 652 up 21%
'07 = 722 up 11%
'08 = 434 down 40%
Now before we jump to conclusions, condo sales are down 20% from 2069 in 2007 to 1665 in 2008.
Condo sales (per the San Francisco MLS)
'02 = 2119
'03 = 2313 up 9.2%
'04 = 2557 up 10.5%
'05 = 2442 down -4.5%
'06 = 2150 down -12.0%
'07 = 2069 down -3.8%
'08 = 1665 down -19.5%
You can also see by comparing the two charts that TIC sales absolutely exploded, so a bigger drop was probably due. TIC sales are still above the number sold in 2004, whereas condo sales haven't EVER been this slow (well, I'm using the MLS for my reporting and that has three flaws, one it is only Realtor represented sales, two, the current MLS only goes back so far. 1996 reported lower sales, but I'm not convinced that is accurate data. And three, it doesn't include FSBO or sales center sales at new construction buildings).
Single Family homes are down 8% from 2007 to 2008.
'02 = 3100
'03 = 3392 up 9.4%
'04 = 3321 down -2.1%
'05 = 3093 down -6.9%
'06 = 2718 down -12.1%
'07 = 2322 down -14.6%
'08 = 2136 down -8.0%
There may be other reasons that TIC sales have dropped further too. Buildings that have to enter the lottery to convert to condos have bloated that lottery. Only 200 conversions are granted per year. Compare that to the TIC chart above. 200 was great in 2002 and 2003, then half as good in 2004 and in 2007, TIC's sold not only had to compete with 522 more units than could qualify, but all the overage from the prior years. Thus the allure of TIC's an an investment that should increase in value with conversion has greatly decreased.
Winning the lottery probably became less important with the proliferation of fractional lenders and loans in 2007. But now the TIC lender market is contracting, and loans are at least 1% more expensive than comparable Condo loans.
Overall, the meaning of the failure of the auction at 3731 Fillmore to generate a much higher offer probably had more to do with TIC's suitability to auctions, and the confusion that occured leading up to and during the auction. Buyers don't buy when they are confused and ill informed.
2/25/09
2/24/09
Auction part 2 - the painfully slow bidding
This is the middle of 3 videos (How it Started is here, The anti climatic end is here). This one you hear their pitch for why anything up to $710,000 is a great buy since unit #1, the window immediately above the crowd, sold for $710k in October. That really won the crowd over as you can hear.
There were quite a few anecdotes indicating these guys really didn't know the San Francisco TIC market. One of the "dudes" (the auctioneers - there were about 4 of them with assorted other characters who seemed like groupies) was telling a Buyer how 6 unit TIC's were great because you could convert them to Condos... he said it like it was a piece of cake. Someone nearby jumped in and explained the lottery, and the "dude" seemed to back down.
At the end of the auction another "dude" said the City of San Francisco would have no choice but to green light all current TIC buildings to Condos conversion to generate revenue. Between the two comments, you had to wonder what else they were telling uneducated Buyers that they might believe. Is that what they told the Buyer of unit #1? (update/correction - the auctioneers only got involved recently AFTER the sale of #1 was long over, so they obviously didn't influence that sale) I sure hope not, but something has to explain why they'd pay $710,000 when the "free market", eg a rag tag group of bidders and spectators, says these units are only worth $410,000. (update, #1 sold with a parking spot, and they had Buyer representation by an agent with a South San Francisco address and a San Mateo web site - knowledge is power, local knowledge especially, and they didn't hire a local, and doubtful the agent had any TIC experience which is critical).
The other item they admitted to getting wrong was telling Buyers, in the days leading up to the auction, that Bank of Marin would do 10% down loans. The truth.... which they glossed over... is that they require 25% down unless you have a credit score of 740 or greater in which case you can get away with 20% down.
There were quite a few anecdotes indicating these guys really didn't know the San Francisco TIC market. One of the "dudes" (the auctioneers - there were about 4 of them with assorted other characters who seemed like groupies) was telling a Buyer how 6 unit TIC's were great because you could convert them to Condos... he said it like it was a piece of cake. Someone nearby jumped in and explained the lottery, and the "dude" seemed to back down.
At the end of the auction another "dude" said the City of San Francisco would have no choice but to green light all current TIC buildings to Condos conversion to generate revenue. Between the two comments, you had to wonder what else they were telling uneducated Buyers that they might believe. Is that what they told the Buyer of unit #1? (update/correction - the auctioneers only got involved recently AFTER the sale of #1 was long over, so they obviously didn't influence that sale) I sure hope not, but something has to explain why they'd pay $710,000 when the "free market", eg a rag tag group of bidders and spectators, says these units are only worth $410,000. (update, #1 sold with a parking spot, and they had Buyer representation by an agent with a South San Francisco address and a San Mateo web site - knowledge is power, local knowledge especially, and they didn't hire a local, and doubtful the agent had any TIC experience which is critical).
The other item they admitted to getting wrong was telling Buyers, in the days leading up to the auction, that Bank of Marin would do 10% down loans. The truth.... which they glossed over... is that they require 25% down unless you have a credit score of 740 or greater in which case you can get away with 20% down.
The auction story - How it started
With a Lender pre-approval letter or proof of sufficient cash for a cash purchase you got to sign up as a bidder and get a piece of paper with a hand written number on it to waive if you agreed to the next price.
This video is the auctioneer explaining that there is a "reserve" bid price (minimum they will accept giving them the right to reject any under-reserve offer), and that if you're not the highest bidder you probably won't find out what the reserve price was.
Approximately 75 people were there, many admittedly to watch the show. About 20 to 25 people got approved to bid. The 75 Buyers, tire kickers and agents toured the property, while the sign ups happened in the dining room of unit #2. Around 1:30pm they called everyone outside to explain how the auction was going to work.
The comedy of errors started early on, around 1pm, when one of the several members of the auctioneer group (the "dudes") said they would be auctioning all 5 of the remaining units off. Soon after another said that was a mistake and it would only be unit #2.
In walks Tim Brown of Brown & Co, and while I was on the street and can't verify, I believe they all got together and decided to auction the middle two units as well as #2. The confusion didn't help, and given the relatively small crowd, offering up 3 units wasn't wise. (update, Brown & Co. denies being involved with the auction. I don't doubt that since it was another business handling it, and Brown & Co would not have made the mistakes these guys made. They also claim to be against it, another easy thing to believe.)
You can see from the above video how things started. In addition there was an question and answer period explaining who the Lender was, what rate they were offering and now much down payment you needed. Apparently they had been telling potential bidders they could come in with as little as 10% cash.
There was so much confusion, and there were so many Buyers who were not represented by experienced TIC agents, that they pretty much crushed their chances of getting decent bids from the outset. Not that a TIC in a 6-unit building is a candidate for auctions, especially those on 4 to 5 days notice. This is no Single Family Home in the Sunset as the auctioneers found out the hard way.
By the way, among the many mistakes leading to confusion, they listed this TIC in the MLS as a Condo (update: corrected today, Feb 25th, the day after the auction, when it was withdrawn from the MLS). I'm not sure how many bidders showed up expecting their pre-approval letters to really mean something, and their hard won 5% interest rates to help them afford more, but if they did, 6.5% paying 1 point and having to put down 20% to 25% certainly would have been all the deal killer they needed. I just double checked the MLS again and no where does it mention anything about TIC's, fractional loans, or anything else.
How it started? Not well. It didn't end well either.
This video is the auctioneer explaining that there is a "reserve" bid price (minimum they will accept giving them the right to reject any under-reserve offer), and that if you're not the highest bidder you probably won't find out what the reserve price was.
Approximately 75 people were there, many admittedly to watch the show. About 20 to 25 people got approved to bid. The 75 Buyers, tire kickers and agents toured the property, while the sign ups happened in the dining room of unit #2. Around 1:30pm they called everyone outside to explain how the auction was going to work.
The comedy of errors started early on, around 1pm, when one of the several members of the auctioneer group (the "dudes") said they would be auctioning all 5 of the remaining units off. Soon after another said that was a mistake and it would only be unit #2.
In walks Tim Brown of Brown & Co, and while I was on the street and can't verify, I believe they all got together and decided to auction the middle two units as well as #2. The confusion didn't help, and given the relatively small crowd, offering up 3 units wasn't wise. (update, Brown & Co. denies being involved with the auction. I don't doubt that since it was another business handling it, and Brown & Co would not have made the mistakes these guys made. They also claim to be against it, another easy thing to believe.)
You can see from the above video how things started. In addition there was an question and answer period explaining who the Lender was, what rate they were offering and now much down payment you needed. Apparently they had been telling potential bidders they could come in with as little as 10% cash.
There was so much confusion, and there were so many Buyers who were not represented by experienced TIC agents, that they pretty much crushed their chances of getting decent bids from the outset. Not that a TIC in a 6-unit building is a candidate for auctions, especially those on 4 to 5 days notice. This is no Single Family Home in the Sunset as the auctioneers found out the hard way.
By the way, among the many mistakes leading to confusion, they listed this TIC in the MLS as a Condo (update: corrected today, Feb 25th, the day after the auction, when it was withdrawn from the MLS). I'm not sure how many bidders showed up expecting their pre-approval letters to really mean something, and their hard won 5% interest rates to help them afford more, but if they did, 6.5% paying 1 point and having to put down 20% to 25% certainly would have been all the deal killer they needed. I just double checked the MLS again and no where does it mention anything about TIC's, fractional loans, or anything else.
How it started? Not well. It didn't end well either.
Auction results of 3731 Fillmore - not what they expected
Disappointment on all sides, and frankly this was a comedy of errors. Starting with an error of mine - mistakenly writing that the $710,000 October sale was for Unit #6 or the top floor western facing unit. It was actually #1, the first floor eastern facing unit. I just assumed that only the most desirable unit in the building could possibly sell for $710k. Instead, #1, which is probably the 2nd or 3rd least desirable unit got $710k. Something doesn't add up... but I'll get to that later.
Starting with the punch line first... the auction ended badly as seen and heard in this video which is the end of the auction (earlier episodes to come)
Listen for the male voice saying "any other terms that you're going to change on us" and then a "thank you", which he said sarcastically, and then waved and walked away angrily. Another "buyer" followed him also visibly unhappy with the process. That was in response to an announcement from the auctioneer that instead of selling one unit each to the top 3 bidders, the highest bid was so low, that he would now only speak to that one bidder.
Unfortunately there was a confidential "reserve" bid, which I suspect was close to $500,000. So with the highest bid at $410,000, the auctioneers changed their tune, but that was consistent with not meeting the reserve bid. The above video starts with that change.... something he could have explained better, that it was due to not meeting the reserve.
What happens next is anyone's guess.
Starting with the punch line first... the auction ended badly as seen and heard in this video which is the end of the auction (earlier episodes to come)
Listen for the male voice saying "any other terms that you're going to change on us" and then a "thank you", which he said sarcastically, and then waved and walked away angrily. Another "buyer" followed him also visibly unhappy with the process. That was in response to an announcement from the auctioneer that instead of selling one unit each to the top 3 bidders, the highest bid was so low, that he would now only speak to that one bidder.
Unfortunately there was a confidential "reserve" bid, which I suspect was close to $500,000. So with the highest bid at $410,000, the auctioneers changed their tune, but that was consistent with not meeting the reserve bid. The above video starts with that change.... something he could have explained better, that it was due to not meeting the reserve.
What happens next is anyone's guess.
2/22/09
Homes 4x more likely to be REO's than Condos in San Francisco
There are 44 Bank Owned REO's that are Single Family homes in San Francisco. Click here for the list (good for 30 days from the writing of this post).
But since there are only 570 Single Family homes listed For Sale in the San Francisco MLS, that's 7.7% of all homes. As I mentioned in an earlier post, only 2.7% of Condo, Coop, Loft and TIC listings are REO's with 23 out of 949 on the market.
Of course, part of the reason is that "District 10" or the southern most San Francisco neighborhoods are the hardest hit, and they are almost entirely Single Family home neighborhoods.
For an up to date list of all REO's in San Francisco you can either keep checking back here, or visit Automated-HomeFinder.com, enter your search criteria, and be sure to use the Comments section at the site to request REO's.
But since there are only 570 Single Family homes listed For Sale in the San Francisco MLS, that's 7.7% of all homes. As I mentioned in an earlier post, only 2.7% of Condo, Coop, Loft and TIC listings are REO's with 23 out of 949 on the market.
Of course, part of the reason is that "District 10" or the southern most San Francisco neighborhoods are the hardest hit, and they are almost entirely Single Family home neighborhoods.
For an up to date list of all REO's in San Francisco you can either keep checking back here, or visit Automated-HomeFinder.com, enter your search criteria, and be sure to use the Comments section at the site to request REO's.
Not all REO's are deals
Of the 23 REO's in the list below, one that stands out appears to be an over priced 1 Bedroom. Granted, 1818 Broadway is in Pacific Heights, but an REO that is Asking over $1000 per SqFt? Yikes. Generally REO's are priced below market. Banks usually want the "inventory" moved quickly, so over pricing isn't an option.
This photo of the building is the only one in the Listing... but it's on lock box, so I may have to break out the trusty video camera for a little tour to get a look at the interior.
One of the reasons I think it's priced too high is my new listing, 3501 Laguna, is also a 1 bedroom but is larger and in what I think is a better location (it's across from two parks, Fort Mason and Moscone Rec), yet it is priced lower. The size difference is 768 SqFt vs. 630 SqFt and that usually makes a big difference in one bedroom apartment. But the size makes the $20,000 price difference (only 3% apart) look exorbitant since 1818 Broadway is 20% more expensive than 3501 Laguna in Price Per Square Foot.
So 1818 Broadway hardly seems to be your typical REO. Maybe they assume any offers will be 10% below their asking price, and I'm just guessing but a $600,000 price would make 1818 Broadway look far more attractive and likely sell quickly.
If there is any lesson here, it's to shop, shop and then shop some more. A dedicated Buyer can know the market better than most agents for "their market" and will develop a gut feel for what's a deal and what isn't. Unless I show up and find a place larger than 630 SqFt with nice outlooks that is also remodeled, I suspect this one isn't a deal. Time will tell.
Of course, over priced listings tend not to sell in San Francisco anyway, so 1818 Broadway could be a buying opportunity in that a Buyer can go in with a very low offer and try to push it through. My guess is not too many other Buyers will bother, so your one offer just may do it even if it's quite low.
This photo of the building is the only one in the Listing... but it's on lock box, so I may have to break out the trusty video camera for a little tour to get a look at the interior.
One of the reasons I think it's priced too high is my new listing, 3501 Laguna, is also a 1 bedroom but is larger and in what I think is a better location (it's across from two parks, Fort Mason and Moscone Rec), yet it is priced lower. The size difference is 768 SqFt vs. 630 SqFt and that usually makes a big difference in one bedroom apartment. But the size makes the $20,000 price difference (only 3% apart) look exorbitant since 1818 Broadway is 20% more expensive than 3501 Laguna in Price Per Square Foot.
So 1818 Broadway hardly seems to be your typical REO. Maybe they assume any offers will be 10% below their asking price, and I'm just guessing but a $600,000 price would make 1818 Broadway look far more attractive and likely sell quickly.
If there is any lesson here, it's to shop, shop and then shop some more. A dedicated Buyer can know the market better than most agents for "their market" and will develop a gut feel for what's a deal and what isn't. Unless I show up and find a place larger than 630 SqFt with nice outlooks that is also remodeled, I suspect this one isn't a deal. Time will tell.
Of course, over priced listings tend not to sell in San Francisco anyway, so 1818 Broadway could be a buying opportunity in that a Buyer can go in with a very low offer and try to push it through. My guess is not too many other Buyers will bother, so your one offer just may do it even if it's quite low.
Updated REO Condo list: San Francisco condos 2/22/09
Total number of San Francisco REO's (Real Estate Owned by a Bank) is 23 Condos, Lofts and TIC's actively For-Sale on the MLS. Click here for the current list of REO's. If the page doesn't open it means you're reading this past 30 of this writing, so please look to the top of this blog for a new list.
23 REO's out of 949 currently For Sale condos, lofts, coops and TIC's in the San Francisco MLS is a mere 2.4% compared to what I hear can be 30% or more in badly hit areas. With the government trying to get banks to do loan modifications, while several of the bigger banks with moratoriums on foreclosures, that number is likely to remain low for a while... albeit artificially low.
23 REO's out of 949 currently For Sale condos, lofts, coops and TIC's in the San Francisco MLS is a mere 2.4% compared to what I hear can be 30% or more in badly hit areas. With the government trying to get banks to do loan modifications, while several of the bigger banks with moratoriums on foreclosures, that number is likely to remain low for a while... albeit artificially low.
2/20/09
3731 Fillmore's Roof Deck & Apt #5
As I mentioned in the post below, while checking on the $293,888 1BR TIC at 3731 Fillmore that is to be auctioned on February 24th, I noticed 4 of the 5 other doors were open and vacant. #6 was sold last October. It's a top floor rear/west facing apartment. The other top floor unit is #5 facing Fillmore Street or East. I also noticed stairs to the roof and found an amazing roof deck.
Here's the roof deck walk through followed by a tour of Apartment #5
Here's the roof deck walk through followed by a tour of Apartment #5
Another auction: 1BR Marina TIC apartment
Note the Video walk through below.
Listing price in the MLS was $298,888. 5 and 1/2 hours later is was dropped by $3,000 to $295,888. This morning, only 1 day later, it was dropped another $2,000.
Why such tiny drops you ask?
If you like, start the video walk through and read more below:
So why the price drops? Because price drops are re-emailed to Buyers who have been set up on email alerts for new and changed listings that meet their search criteria. Check out www.Automated-HomeFinder.com if you'd like to set up your own search, or speak to your Realtor who will do it for you. Other sites like CleanOffer and SF-MLS-Search.com also re-email new listings or price changes. So the strategy is to get it noticed by everyone with an active search in the area.
Any why so many drops so fast? Because they are planning to have an auction outside the property on Tuesday at 1pm which is a mere 6 days after entering it into the MLS.
I'll post yet another video because while there I notice that 4 of the 5 other apartment doors were open. So my guess is that after the auction they will bring on the other 4 apartments. Apparently back in Sept/Oct 2008 unit #6 (correction, it was unit #1, a 1st floor western facing unit) in the building sold for $710,000. They are marketing parking separately, so that might have included parking (update, they definitely did include parking per the above) whereas the $294k price on #2 does not include parking.
To speculate even more, I'll guess that the auction is designed to determine the true market value of these TIC units. #2 is probably the least desirable in the building, although not a bad apartment at all. #6 (#1 I meant) almost definitely set the high price because it went into contract before the financial crisis became national news. The auction of #2 without parking is likely to set the bottom price. Then all other units may then be brought to market with prices in between.
I haven't spoken to the listing agent, so the above is guesswork. I saw Brown & Co open house signs in the building, so who knows, maybe the Auction agent and Brown & Co are working together in some fashion.
Auction date and time: Tuesday February 24th at 1pm outside the building. See you there. And if you're interested in making an offer and are unrepresented by another Realtor, drop me a line at info AT sfishome DOT com
Listing price in the MLS was $298,888. 5 and 1/2 hours later is was dropped by $3,000 to $295,888. This morning, only 1 day later, it was dropped another $2,000.
Why such tiny drops you ask?
If you like, start the video walk through and read more below:
So why the price drops? Because price drops are re-emailed to Buyers who have been set up on email alerts for new and changed listings that meet their search criteria. Check out www.Automated-HomeFinder.com if you'd like to set up your own search, or speak to your Realtor who will do it for you. Other sites like CleanOffer and SF-MLS-Search.com also re-email new listings or price changes. So the strategy is to get it noticed by everyone with an active search in the area.
Any why so many drops so fast? Because they are planning to have an auction outside the property on Tuesday at 1pm which is a mere 6 days after entering it into the MLS.
I'll post yet another video because while there I notice that 4 of the 5 other apartment doors were open. So my guess is that after the auction they will bring on the other 4 apartments. Apparently back in Sept/Oct 2008 unit #6 (correction, it was unit #1, a 1st floor western facing unit) in the building sold for $710,000. They are marketing parking separately, so that might have included parking (update, they definitely did include parking per the above) whereas the $294k price on #2 does not include parking.
To speculate even more, I'll guess that the auction is designed to determine the true market value of these TIC units. #2 is probably the least desirable in the building, although not a bad apartment at all. #6 (#1 I meant) almost definitely set the high price because it went into contract before the financial crisis became national news. The auction of #2 without parking is likely to set the bottom price. Then all other units may then be brought to market with prices in between.
I haven't spoken to the listing agent, so the above is guesswork. I saw Brown & Co open house signs in the building, so who knows, maybe the Auction agent and Brown & Co are working together in some fashion.
Auction date and time: Tuesday February 24th at 1pm outside the building. See you there. And if you're interested in making an offer and are unrepresented by another Realtor, drop me a line at info AT sfishome DOT com
Video walk thru of 3501 Laguna
The SFisHOME Real Estate Group presents a YouTube video walk through on it's latest listing:
New SFisHOME Listing: 3501 Laguna St #104
3501 Laguna St #104 Open Sunday 1-4pm
If you want the ultimate in recreation and walkability, 3501 Laguna, across from 2 parks, and 2 blocks to the Bay is for you. Watch the photo tour or click on the "view detailed listing" link.
If you want the ultimate in recreation and walkability, 3501 Laguna, across from 2 parks, and 2 blocks to the Bay is for you. Watch the photo tour or click on the "view detailed listing" link.
2/15/09
Short Sale "income" taxation treatment
I'm not an accountant or lawyer and this is not tax or legal advice. If you are going to attempt a Short Sale, in addition to hiring a competent Realtor, you should run your situation by an attorney and/or accountant.
However, one of the most common questions in Short Sales is whether or not the Bank is going to report the "forgiven" debt amount to the IRS, and whether or not the IRS will then treat it as income.
The good news is that the "Mortgage Debt Forgiveness Relief Act of 2007" means the IRS won't tax you on it. What is confusing to most is that the bank is likely to report it to the IRS, and that the IRS does see it as income, but now it's a special kind of income that is separated out and NOT taxed.
My layman's understanding of the process is that you need to attach the 1099 the lender provides after the sale which shows the amount of forgiven debt, and you need to file form 982 which essentially cancels it out.
Again, please don't rely on this article... use it to run by an accountant or lawyer. But the punch line is that until 2012 you should be forgiven the debt and NOT be taxed on it if you file correctly with the IRS.
One last piece of advice, make sure your bank doesn't file a deficiency judgement against you requiring you to pay the forgiven debt down the line.
Considering a short sale? Drop us a line at INFO at SFisHOME dot COM
However, one of the most common questions in Short Sales is whether or not the Bank is going to report the "forgiven" debt amount to the IRS, and whether or not the IRS will then treat it as income.
The good news is that the "Mortgage Debt Forgiveness Relief Act of 2007" means the IRS won't tax you on it. What is confusing to most is that the bank is likely to report it to the IRS, and that the IRS does see it as income, but now it's a special kind of income that is separated out and NOT taxed.
My layman's understanding of the process is that you need to attach the 1099 the lender provides after the sale which shows the amount of forgiven debt, and you need to file form 982 which essentially cancels it out.
Again, please don't rely on this article... use it to run by an accountant or lawyer. But the punch line is that until 2012 you should be forgiven the debt and NOT be taxed on it if you file correctly with the IRS.
One last piece of advice, make sure your bank doesn't file a deficiency judgement against you requiring you to pay the forgiven debt down the line.
Considering a short sale? Drop us a line at INFO at SFisHOME dot COM
Paying your mortgage off in half the time ala Money Merge Accounts
I'll give this short thrift because this post from "SearchLightCrusade" goes into incredible depth debunking Money Merge Accounts or MMA's.
But the bottom line is that when something sounds to good to be true, well then, it is. I actually dismissed the concept outright when I first heard about it for two reasons. For one is just it made no logical sense. How could you pay off your mortgage in half the time without paying anything extra? Secondly, if it was that good wouldn't EVERYONE already know about it and be doing it? Wouldn't Oprah include it on every "save money" show, and Suze Orman bring it up on every show?
The concept in a nut shell is that you set up either a HELOC (Home Equity Line of Credit) or get a special mortgage where you direct deposit your income into it, thus lessening the interest. You then pay your monthly bills out of that account at the end of their 30-ish day pay cycles. So instead of the bank floating your money for30days and making money off you, you float it and save the money. Finally, there is very expensive software that will read your budgeting and recommend when you pay extra payments.
It all sounds very convincing.... but to to skip to the punch line, the only part of this that really has a major impact are the extra payments, and you can do that on your own by either making a random extra payment, or paying every 4 weeks instead of every month (there are 52 weeks, not 48 in a 12 month year). And per the SearchLightCrusade post one extra payment per year on your mortgage pays it off 8 years earlier.
Paying an extra payment per year is free, and you don't need to shop for special mortgages or get a HELOC. Besides, these funny money schemes were mostly touted when everyone had access to easy money. All mortgages and HELOC's are much harder to get these days, AND usually the Money Merge Account ones are more expensive.
So take a free piece of advice.... if you want to pay off your mortgage early, make one or more extra payments per year. Your first extra payment can be the $3500 some of these slimy outfits want to charge you.
But the bottom line is that when something sounds to good to be true, well then, it is. I actually dismissed the concept outright when I first heard about it for two reasons. For one is just it made no logical sense. How could you pay off your mortgage in half the time without paying anything extra? Secondly, if it was that good wouldn't EVERYONE already know about it and be doing it? Wouldn't Oprah include it on every "save money" show, and Suze Orman bring it up on every show?
The concept in a nut shell is that you set up either a HELOC (Home Equity Line of Credit) or get a special mortgage where you direct deposit your income into it, thus lessening the interest. You then pay your monthly bills out of that account at the end of their 30-ish day pay cycles. So instead of the bank floating your money for30days and making money off you, you float it and save the money. Finally, there is very expensive software that will read your budgeting and recommend when you pay extra payments.
It all sounds very convincing.... but to to skip to the punch line, the only part of this that really has a major impact are the extra payments, and you can do that on your own by either making a random extra payment, or paying every 4 weeks instead of every month (there are 52 weeks, not 48 in a 12 month year). And per the SearchLightCrusade post one extra payment per year on your mortgage pays it off 8 years earlier.
Paying an extra payment per year is free, and you don't need to shop for special mortgages or get a HELOC. Besides, these funny money schemes were mostly touted when everyone had access to easy money. All mortgages and HELOC's are much harder to get these days, AND usually the Money Merge Account ones are more expensive.
So take a free piece of advice.... if you want to pay off your mortgage early, make one or more extra payments per year. Your first extra payment can be the $3500 some of these slimy outfits want to charge you.
2/13/09
Good foreclosure news for some owners is bad for others
4 banks announced new moratoriums on foreclosures, Wells Fargo, Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase per this article.
This may be great news for Single Family homes, but could have horrendous unintended consequences for Condo buildings. As I wrote a few days ago, condo buildings that have more than a few foreclosures are at risk of spiralling out of control as unpaid HOA dues add up. Once all possible common area expenses are cut, and the building is short on cash flow, dues must be raised, or special assessments must be made to raise money from the "healthy" owners.
Unfortunately some of those owners will likely be at the financial edge of a cliff... with any extra expense could push them into foreclosure... and you can just picture the snowball effect and possible avalance of foreclosures.
The moratorium on foreclosures is only going to lengthen the time HOA's will not get paid by defaulting owners, and that will force HOA's to pursue foreclosures themselves to try shorten the time period that HOA dues go unpaid. Of course there are legal costs associated with pursuing foreclosures, and if the owner in question has no equity then none of that money will be recaptured. The additional downside is that foreclosed units usually sell for less than market value, thus creating a new and lower market value for all other units throughout the building. As owners watch values decline, even more may default and the beat goes on.
So good news for those in financial straights may only cause more to join them, especially in newer condo buildings where everyone is underwater already.
This may be great news for Single Family homes, but could have horrendous unintended consequences for Condo buildings. As I wrote a few days ago, condo buildings that have more than a few foreclosures are at risk of spiralling out of control as unpaid HOA dues add up. Once all possible common area expenses are cut, and the building is short on cash flow, dues must be raised, or special assessments must be made to raise money from the "healthy" owners.
Unfortunately some of those owners will likely be at the financial edge of a cliff... with any extra expense could push them into foreclosure... and you can just picture the snowball effect and possible avalance of foreclosures.
The moratorium on foreclosures is only going to lengthen the time HOA's will not get paid by defaulting owners, and that will force HOA's to pursue foreclosures themselves to try shorten the time period that HOA dues go unpaid. Of course there are legal costs associated with pursuing foreclosures, and if the owner in question has no equity then none of that money will be recaptured. The additional downside is that foreclosed units usually sell for less than market value, thus creating a new and lower market value for all other units throughout the building. As owners watch values decline, even more may default and the beat goes on.
So good news for those in financial straights may only cause more to join them, especially in newer condo buildings where everyone is underwater already.
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