As home loans get harder to obtain, the number of renters increases, and so will rent

Come October 2011, buyers’ purchasing power is will reduce even further:

• The FNMA (Fannie Mae) loan limit will be reduced from $729,000 to $625,500, pushing more buyers into jumbo loans for which there are fewer lenders and consolidators.

• Jumbo loans require 6-12 months of reserves, which is more than FNMA requires.

• Interest rates will likely rise, making qualifying for a loan even harder.

• Mortgage insurance for FHA loans will increase by 30% in April 2011.

• Credit scores are on the decline.

• As home equity has vanished, buyers who want bigger homes will not have the equity from the sale of their current home to put toward the new purchase, which will likely require a 30% down payment.

What does this means?  More people staying in their homes, more people unable to qualify for a loan, more people renting instead of buying.  This is all true before we get to the conversation of the recurring suggestions in Congress that the mortgage interest deduction should be reduced or eliminated.  There are times when it’s good to be a landlord. This is one of them.  And, yes, we do investment property loans, too.  Give us a call.

As a member of the Estate Planning Team, I can work with clients to implement a tax strategy called the Deferred Sales Trust, which just got its private letter ruling from the IRS this summer.  This strategy allows owners of highly appreciated assets—real property, businesses, private stock—to sell those assets and defer the capital gains taxed owed. Those clients can then earn money on the money they owe the government and can come out ahead financially with proper planning.  Even in a down economy.

How the DST works

The process starts with a property owner transferring ownership of the property to a dedicated trust, which promises to pay the client with an “installment sales contract.”  The trust then sells the property, stock or other capital asset to the buyer. The contract promises payments to the owner or their trust and those payments can be structured to continue to future generations with additional estate planning.  The tax code does not require payment of the capital gains tax until the seller starts receiving installment payments.  The DST is not unlike a no-risk “seller carry-back” financing structure.

The Deferred Sales Trust has the ability to generate substantially more money over the long run than a direct and taxed sale. It is also superior to a direct installment sale as the concerns of a defaulting buyer are eliminated.  Check it out:  www.mydstplan.com/jlanning