Okay, before we get started today I need to say a couple of things about well . . . luck. First, the Lakers 89-85 win over the Spurs was a dream come true. Kobe played the way I have been hoping he would play since the very first time I saw him take a pass from Vlade (the old one) Divac and 360 a dunk. In today’s LA Times, TJ Simers took his usual sardonic look at the game by recognizing the maturity of Lamar Odom but the truth is it has taken twelve long years for Kobe to teach himself how to use his superb talents to really play the game. It was nothing short of great.
The second thing I want to note is the my old friend Serendipity is still watching out for me. Yesterday’s post, titled Real Estate, the new wasteland, brought TS Eliot’s poem to mind. So imagine my surprise and delight to open up my Times later in the day to web critic David Sarnov writing about the mystery of so many searches last week for TS Eliot. Apparently though, people have been misusing the Google Hot Search program to route views to themselves so the big G has started punishing the abusers. Wow!
Now to get on with it. In my first post, I passed on my thoughts about some different ways that a person could look at the current real estate landscape. Things are changing even as you read. Congress may actually put a bail out bill on the President’s desk before Memorial Day. I pointed out that even though 38% of the homes sold in SoCal in the first quarter had been through bankruptcy first a seller could avoid that fate by learning how to short sell the property. A part of solving for this might be to get yourself a new appraisal from which point you could then decide whether to sell or figure out with your lender how to hold on.
Meanwhile, lets lead our horse to a look at the following:
- Carry Back Loans– So you have decided to sell but with the market so depressed it is a hard decision you have to make about how much you are willing to cut your asking price. Say you bought at $200,000 but a recent survey of homes sold in your area shows that your property now might be valued $150,000. That is a hit to your equity that might be recoverable. If you sell now, the carry back option may be the way to make it back. In a typical carry back deal your home buyer might only qualify for a certain amount and thus might need to take a second loan out to handle the down payment, closing costs, and the difference between the sale price and what they can qualify for. In the previous over-priced market, this type of owner-held loan was used to fascilitate a sale when the buyer couldn’t qualify for the whole price. The owner carried back a portion of the loan at a lower interest rate which the buyer then paid of in monthly installments. Any problems and the property comes back to the original owner to sell again. But that was then. Now in an upside down market, you need to sell, the property value has gone down, and you may have to take a loss. But it need not be a permanent one. By carrying back a part or even all if you’re lucky, you can be the bank that earns the interest. On a $400,000 property where you originally put 20% down you have $80,000 that you can play with. Drop your sale price to a market value that entices a buyer, say $350,000, and carry back $30,000 as a down payment. You pay off your mortgage and your $30,000 at 6% earns $38,000 for the 30 years.