San Francisco Real Estate - Residential

How to pull money out of a property without selling it - Part 1

A reader asks:

I want to pull some equity out of my San Francisco property and pay as little as possible in taxes or none at all. Is there a way to do this?

Our answer:

There are several ways to do this. When to do it one way or another might be a better question. Depending on the market conditions or current interest rates, you could refinance and pull some money out that way. During the past several years ago where rates were historically low, mortgage companies were swamped with people refinancing their homes. When you refinance, any money you take out from the proceeds is not taxed, and it does not raise your property taxes. However, with interest rates going up(check our trusted mortgage advisor with Princeton Capital, Dennis Kowalski's website for the most current information and new trends), that might not be the best strategy right now. It is always a good idea to talk to your accountant or financial advisor to evaluate your situation and determine the best time for you to refinance. There are many things to consider, for instance, the amount of the new monthly payments, what you are using the money for, what the future interest rate might be and how long you think you will hold the property.

Another way that defers most of the capital gains taxes is the Private Annuity Trust. As the Real Estate Journal put it, "Under this plan, the owner of commercial or residential property transfers ownership to a trustee prior to the sale of the property. The trust pays the seller with a special payment contract called a private annuity that stipulates that payments from the sale of the property go to the owner for the rest of his or her life. The trustee then sells the property to the buyer, getting cash for the property and holding it in a trust. The trustee also can invest the money held in trust." With this method only the amount of the distributions are taxed at a rate calculated by the IRS depending on your life expectancy and only at the time the payments are made.

When you start hearing legal terms bandied about like "trust" and "trustee", it can sound a little ominous. So check with the experts and ask a lot of questions!

- Mick Orton

posted by SFResidence.com @ 7:31 AM 0 comments

How to pull money out of a property without selling it - Part 3

A reader previously asked:

I want to pull some equity out of my San Francisco property and pay as little as possible in taxes or none at all. Is there a way to do this?

Our answer:

In our first article, we discussed refinancing and private annuity trusts. Our second article talked about reverse exchanges. This third article discusses second loans or lines of credit.

At the time of this writing, the Fed raised interest rates to a 5 year high on June 29, 2006 and are probably going to continue on fears of rising inflation. Back in July of 2005, we published a market report (written by Jay Bransfield) explaining what these rising rates affect and why.

As you probably know, this most affects the short term interest rates for credit cards and, even more importantly, second loans or equity lines of credit on your home. It also affects adjustable rate mortgages. In the short term, seconds loans and lines of credit might be good ways to pull money out of your property, but as a long term solution it can be quite expensive. This might override any advantage you might get from not being taxed on the money.

- Mick Orton, Janis Stone, Jay Bransfield

posted by SFResidence.com @ 8:54 AM 0 comments

How to pull money out of a property without selling it - Part 2

A reader previously asked:

I want to pull some equity out of my San Francisco property and pay as little as possible or no taxes at all. Is there a way to do this?

Our answer:

In addition to the suggestions we made in our post for Wednesday, June 21, 2006, a reverse mortgage may work well for older citizens (62 or older) who have a lot of equity in their property. This vehicle allows homeowners to convert part of their home's valuye into cash. Although the home equity line of credit also provides cash with out tax consequencews, they still require payments of at least interest only. In a reverse mortgage the money goes the opposite direction... to the people who need it! Be aware, this plan works well only if the homeowner expects to stay in their home for at least 5 years. Reverse.org has a list of Frequently Asked Questions (FAQ) with lots of information.

Go to the Reverse Mortgage Internet site to find a reputable local reverse mortgage originator.

- Janis Stone

posted by SFResidence.com @ 2:19 PM 0 comments

Freddie Mac: 30-year mortgage averages 6.18% vs 6.13%

Dow Jones MarketWatch reported today that mortgage rates edged up over the week following the news of rising consumer spending. This surge in spending is causing fears of higher inflation. Does anyone else see paranoia here?

We want strong numbers to show that our economy is humming, yet because it is doing well, there are fears that this will cause rampant inflation. I, for one, am skeptical. The market is based on a lot of factors, and like the weather, it is difficult to predict. So, in my opinion, the Fed's tight grip on the interest rates can only be one factor in controlling inflation and can not be a panacea to all ills.

Recently I went to a website on economics and found an article on inflation. Here is their definition:

"Inflation is an upward movement in the average level of prices. Its opposite is deflation, a downward movement in the average level of prices. The boundary between inflation and deflation is price stability."

Think about that. Everyone wants to make more money and earn more for the products they produce, yet we don't want prices to increase because it causes inflation. Why not? Those $1,500,000 houses and condos that are selling in the City used to be worth $500,000-$700,000. Even though a million dollars isn't what it used to be (as Donald Trump says), it's still an awful lot of money. So it seems that in a lot cases, inflation may be our friend.

To me, money has always seemed an elusive concept anyway. Most of the money now is just electronic data sitting in a database of some bank somewhere and actually doesn't account for anything until I buy something real. I could pull my money out of the bank and have money under the mattress, but paper money is only worth what people believe it is worth... and goes down in value every day... because of inflation.

So it seems to me that there are things much more important than money, and that is the thought as we head into the new year. Enjoy life, and don't worry so much. Stop listening to the negative news and create your own positive reality. Interest rates up or down; stock market up or down; real estate market up or down it really doesn't matter. Health and happiness are the keys to enjoying life!

Happy New Year!

- Mick Orton

posted by SFResidence.com @ 9:50 AM 0 comments

Mortgage Weekly Update - Last Week in Review

Foster Weeks publishes a weekly mortgage report which is updated every Monday morning. How is this affecting the San Francisco real estate market? Read our weekly and monthly market reports. It looks like the days of low, low mortgage rates are finally coming to an end as home loans inch ever higher.

WHILE INDEPENDENCE DAY SIZZLED, BONDS AND HOME LOAN RATES FIZZLED...Just like a bottle rocket that turns out to be a "dud" - Mortgage Bonds sputtered and crashed lower last week, causing home loan rates to rise about .125% across the board.

The move was sparked by a variety of factors, including the Bank of England (like our Fed) announcing a hike in their benchmark interest rate to 5.75%, their highest rate in six years and .50% above our own Fed Funds Rate of 5.25%. Remember, our own US Bonds compete globally for investment dollars seeking the highest rate of return, so higher rates being offered in other countries can pull money out of our Bond market. And just like a slowing demand for any product would cause prices to decline - this caused Bond prices to move lower and home loan rates to rise. Read more.

- Foster Weeks

posted by SFResidence.com @ 7:18 AM 0 comments

High cost of reverse mortgages keeps owners away

On November 13, MarketWatch published a great article explaining how reverse mortgages could be the answer for retirees who have a lot of equity in their home and want to use that money to live on without having to sell their home outright. Although reverse mortages are expensive right now, as they become more well known, the competition could bring the price down.

Read the article here.

We also published a series on "How to pull money out of a property without selling it". Read the 3 articles.

- Mick Orton

posted by SFResidence.com @ 9:40 AM 0 comments