Category Archives: Sellers

Pitfall to Refinancing?

Are you considering a refinancing of your current mortgage(s)?  Maybe to lower your interest rate, to switch from an adjustable rate mortgage to a fixed rate, or maybe to consolidate a first and second mortgage into one loan?

Given today’s low interest rates, these could be prudent financial moves.  However, there is one potential pitfall which should give pause for thought.  Legally, there is a difference between a “purchase money loan” and a “refinanced” loan.

A purchase money loan is a loan (or loans) that is put into place at the time you are making the purchase of a property.  For an owner occupied property, if you have financial difficulty at some time in the future (as many people are having today), and your home ends up in foreclosure, the only recourse the lender(s) has is to foreclose, sell the home, and get back as much of their loan as they can.  The lender can NOT go after your other assets to make up their loss.

Once you have refinanced, and no longer have the loan(s) that were put in place at the time of purchase, the lenders DO have recourse.  They’ll have an unsecured lien against your name.  With this, they can attach your future wages, and come after you to make up every penny they have lost on that loan.

Disclosure: we (Robert and Gary) are not accountants or tax experts, but this is our understanding of the law.  If anyone has a different point of view, we encourage your writing on this blog and sharing that viewpoint with others.

Gary Shapiro and Robert Gosalvez

Intero Real Estate Services

Purchasing a Home Using Your Retirement Account?

I heard you can own real estate in your retirement account!  Is that true?

Yep!  In fact, here is a personal story about myself (Gary) and my wife (Vicki). We recently purchased a rental home in my wife’s retirement account, and we think you should consider doing the same!

Like many of you, our retirement accounts were hit hard during the tanking of the stock market, especially the Nasdaq market.  Although that market has started to recover in the past year, we wanted to diversify, and recognizing the recent drops in the real estate market have created an opportunity to ride that market back up again, we decided to purchase a rental home using some of the funds in her retirement account.

To accomplish this, we first transferred her retirement account into a “self-directed” account, which includes real estate as an “allowed” investment.  We (her account) then purchased a single family starter home, 3BR/2BA, a cosmetic fixer upper, in Hayward. We paid $240,000 cash (financing is available, however), and we spent $20,000 fixing it up to make it rentable.  After two weeks, we rented it for $1600 per month. Subtracting insurance and property tax expense, we deposit the balance of $1300 per month ( a 6.5% return) straight into her retirement account, UNTAXED, making our return even higher.  And, we expect the home to appreciate over time, adding to the return and (hopefully) covering the buying and selling costs.   We think this is an excellent, safe “long term” investment, a wise use of retirement funds.

And it gets even better.  We’re now going to take advantage of “leverage” by putting a 50% loan to value against that home and using the funds to buy a second property. The positive cash flow will be reduced to $585 per month due to the payment on the 50% loan, but using the same investment numbers for the second home, we’ll have a positive cash flow on each of TWO properties now, bringing the total back up to $1170 per month into Vicki’s account.  AND, now we’ll own TWO properties which we expect to appreciate over time.

A few comments:

  • The loan on the home must be a “non-recourse” loan, as the loan is being made to the retirement account, not an individual.
  • The purchased property must have a POSITIVE cash flow.
  • If you hire a property manager, that cost will of course lower your return.  We chose to manage the home ourselves.
  • Please call us if you’d like to meet and discuss the specifics about how we can help you accomplish a similar purchase in your retirement account!  Although it can be done by yourselves, we hired anexpert on retirement accounts to open and help us transfer Vicki’s funds into a “self directed” account.
  • It does not have to be a single family home that you purchase; multi-unit properties tend to have even better cash flow numbers, but perhaps not the same potential for appreciation that single family homes provide.

By the way, because of the drops in prices for entry level houses (and some multi-unit buildings), this works
for buying rentals OUTSIDE of your retirement account as well, but you can’t take advantage of the
depositing the positive cash flow “untaxed”.

Loan Limit Increase

According to a report in the Wall Street Journal U.S. House and Senate lawmakers are making a proposal to extend the time for the temporary higher limits on the amount used for home mortgages issued by Freddie Mac and Fannie Mae are able to buy or guarantee as a part of the temporary solution funding legislation that, by the end of this week, could be passed by Congress.

Stated in a press release by Sen. Daniel Inouye of Hawaii and Rep. David Obey of Wisconsin, the continuing resolution legislation give lawmakers more time to complete appropriation measures. The legislation would also extend loan limits, currently set to end on December 31, 2009, through the end of next year.

While the legislation must still pass through both houses of Congress, it would extend the temporary limits on the size of mortgages the FHA would be able to insure.

More on the $8,000 tax credit

Gary and I are and constantly asked if we have any update on the $8,000 first time homebuyer tax credit, and whether it will truly expire on Nov. 30th, 2009, or whether it might be extended.  While we are not accountants or tax experts, we do know there is a lot of pressure to extend the credit, and possibly even increase it to $15K.

In a report dated Tuesday, Oct. 27, we read there is an agreement to extend the soon-to-expire $8,000 tax credit for first-time homebuyers, according to Senate Banking Committee Chairman Christopher Dodd.

But a Republican who has worked with Dodd cautioned that they were still negotiating on the measure.  “We’re close, we’re close but I can’t get into any details until it’s a done deal,” said Republican Senator Johnny Isakson.

The popular tax credit, which has helped lift the housing market out of its worst slump since the Great Depression, is set to expire on Nov. 30.

Dodd and Isakson want to extend the credit through June of next year and broaden it to anyone buying a primary residence, not just first-time buyers.

Senate Majority Leader Harry Reid had backed a narrower version which would extend the full credit through March and gradually phase it out through the end of 2010.

Dodd said that the deal would merge the two proposals.

The House, which would also need to approve the measure, has yet to act.

The issue is front and center for financial markets. U.S. stocks sold off and the dollar moved sharply higher on Monday after a misleading media headline said research firm ISI Group had written that the tax credit probably would not be extended when it expires Nov. 30.

A Senate vote is expected around 6 pm Tuesday on whether to take up a bill to extend insurance benefits for unemployed workers.
Simply extending the current tax credit is estimated to cost $1 billion a month.

House Speaker Nancy Pelosi appears to be waiting to take her cue from the Senate. Asked about the tax credit earlier this month, the California Democrat said “the question is, would that be just first-time homeowners or would you open it up to other purchasers of homes?”

A House Democratic aide said House leaders would likely adopt whatever language the Senate approves, which would avoid the need for negotiations to reach a compromise. Unlike the Senate, the House has already passed an extension of benefits for unemployment insurance.

**Keep reading, more to come

Robert & Gary


At this point, the $8K first time homebuyer tax credit is due to expire on December 1, 2009.

But, we’re now hearing that Congress is considering extending it AND increasing it!  The new proposal will be available to ALMOST all home buyers, not just first timers.  And the credit may be increased to from $8K to $15K!

We’ve also heard the IRS has decided a taxpayer can deduct interest on the first $1.1 million of a home mortgage, an increase of $100K over the earlier limit.  And get this, it’s retroactive three years!  This means taxpayers can file amended returns for the past three years to claim refunds for these added deductions!

Stay tuned as we hear more!

Gary and Robert

What’s the local Sunnyvale Real Estate market doing?

Great Question!  The truth is this is a challenging time for the local  market!  We are certainly in a buyer’s market, where prices are heading downward, but what caused it to shift so suddenly?  The biggest factor has been the rise and fall of sub-prime mortgages.

You have to admit, it sounded a little crazy when banks, who are notoriously conservative, decided to offer 100% financing.  And it sounded even stranger when banks decided to offer “no qual” loans, where they said they weren’t going to verify if the borrower made enough money to make the necessary payments on the loan!

So, what exactly were they thinking when they decided to combine the two, offering 100% financed, “no qual” loans???  Hello???  Who’s the rocket scientist that came up with that one?  It’s no wonder so many of those loans are heading into foreclosure!

Creating buyers out of so many people who really weren’t “qualified” brought too many buyers into the market place, artificially driving prices up.  And now that those loans are no longer being offered, prices are coming back down.  What else is contributing?  How about an economy heading into (or already in) recession?  How about local companies announcing layoffs and downsizing, causing buyers to lose confidence?   How about increasing inventory?  Add it all up, and you have today’s “softening” market, where prices are falling.  However, it’s also creating opportunity to buy at very low prices!!!

2009 First-Time Home Buyer Tax Credit Facts

The federal government is providing a first-time home buyer credit of up to $8,000 for qualified
purchasers of a principal residence in 2009. However, that program is scheduled to end as of
December 1, 2009. Although other incentive programs, such as the “cash for clunkers” giveaway,
were extended beyond the originally scheduled termination date, there is no indication that the
first-time home buyer credit will be extended beyond its originally scheduled termination date.
To qualify for the credit, the first-time home buyer must close escrow on or before November 30,
2009 and meet other eligibility requirements (see below).

Unfortunately, many factors can delay the close of escrow. Such factors include, but are not
limited to: the buyer’s ability to secure financing; the seller’s ability to resolve any and all
outstanding financial obligations affecting the property; and the condition of the property.
Mortgage professionals have no control over any or all of these potential timing problems and thus
are not able to guarantee the precise date that escrow will close.


2009 First-Time Home Buyer Tax Credit Facts

Who is Eligible

• The $8,000 tax credit is available for first-time home buyers only.
• The law defines “first-time home buyer” as a buyer who has not owned a principal
residence during the three (3) year period prior to the purchase.
• All U.S. citizens who file taxes are eligible to participate in the program.

Payback Provisions
• The tax credit is a true credit. It does not have to be repaid.
• The only repayment requirement is if the homeowner sold the home within three (3) years
after the purchase.

Income Limits
• Home buyers who file as single or head-of-household taxpayers can claim the full $8,000
credit if their modified adjusted gross income (MAGI) is less than $75,000.
• For married couples filing a joint return, the income limit doubles to $150,000.
• Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to
receive a partial first-time home buyer tax credit.
• Married couples who earn between $150,000 and $170,000 are eligible to receive a partial
first-time home buyer tax credit.
• The credit is not available for single taxpayers whose MAGI is greater than $95,000 and
married couples with a MAGI that exceeds $170,000.

Effective Dates for the Tax Credit
· First-time home buyers can receive an $8,000 tax credit for the purchase of any home on or
after January 1, 2009 and before December 1, 2009. To qualify, you must actually close on
the sale of the home during this period.

Tax Credit is Refundable
• A refundable credit means that if you pay less than $8,000 in federal income taxes, then the
government will write you a check for the difference.
• For example, if you owe $5,000 in federal income taxes, you would pay nothing to the IRS
and receive a $3,000 payment from the government.
• If you are due to receive a $1,000 tax refund from the government, your refund would grow
to $9,000 ($1,000 plus $8,000 from the home buyer tax credit).
· Buyers can take the tax credit on their 2008 or 2009 income tax return.

Types of Homes that Qualify for the Tax Credit
• All homes, whether single-family, townhomes, or condominium apartments will qualify,
provided that the home will be used as a principal residence and the buyer has not owned a
principal residence in the prior three years. This also includes newly-constructed homes.
For more details on the tax credit, go to

Q. I am saving money to buy a home, but I’m not totally clear on what the term “earnest money” means. What is earnest money?

A. First, let us commend you on saving money for a home. Buying a house is probably the most important purchase you’ll make in your lifetime – and having cash available gives you more options with your purchase.

Earnest money is an important factor when you’re making an offer on a house. When you make an offer to purchase a house, the “earnest money” is the deposit that shows the seller you are serious about the purchase. The money opens the escrow and can be applied to the buyers’ down payment or closing costs.

The earnest money amount is negotiable. It typically varies depending on the price of the house and strength of the market. Generally, it’s recommended that your earnest money deposit be about three percent of your offered price. And although earnest money is not required by law in most states, it is standard practice in local real estate transactions.

When the seller accepts your offer and earnest money, the property is taken off the market. In a hot real estate market, a large deposit may impress a seller enough so they will accept your offer instead of someone else’s.  However, buyer beware…it can also put you at significant financial risk if for some reason the transaction runs into trouble not covered by a contingency in your purchase agreement.

The Standard Offer And Purchase Contract stipulates under what conditions your earnest money will be returned if the contract fails. We’re experts on this stuff; if someone you know is in the market for a home and needs competent and caring representation, please call us at 408-861-4813.

Why am I getting so much conflicting information from the media about how the real estate market is doing?

GREAT question; we’re glad you asked! The answer is relatively simple; you need to carefully differentiate between media reports about the national real estate market and the local real estate market.


It’s important to remember, real estate follows true principles of economic supply and demand. When supply is low, demand for each available home is increased, which pushes prices upward; when supply is high, demand for each available home is decreased, which results in lower prices.
Also remember, our local market seems to operate on a different planet than the national market.

Nationally, it’s pretty much gloom and doom in most areas. Inventory is rising close to all-time highs in many areas. Prices are declining in the vast majority of them. The number of homes heading into foreclosure, where the owners are falling behind in the mortgage payments, is increasing each month. And the number of homes being foreclosed on and auctioned off is on the rise.

Locally, however, it’s a different story. We do have rising inventory, and fewer transactions, but it’s not across the board. In Santa Clara County, areas which have high performing schools, such as Los Gatos, Saratoga, Cupertino, Sunnyvale, Los Altos, Mountain View, and Palo Alto, have not had huge increases in inventory. Those areas are (and may always be) in high demand, so the listings sell before they have the chance to pile up and increase in number. This demand has also kept the prices from slipping very much.

As you head south, the story follows the national headlines. In many areas of San Jose, and further south in Morgan Hill and Gilroy, the market is VERY slow. There are large numbers of foreclosed homes coming on the market, and numerous short sales. The prices have dropped and are continuing to drop. These areas were in the prime price range for the “no qualification, no verification” loans that were so popular with first time buyers. Most of those loans were at adjustable rates, and as the adjustments kicked in, many homeowners couldn’t handle the larger, adjusted payment, and went into foreclosure. As the foreclosed homes come back on the market, the inventory naturally rises.

Have Real Estate Prices Hit Rock Bottom?

The secret is that not all properties hit rock bottom at the same time. Many properties have already hit bottom and they have already been purchased. Somebody else got the deal. Some properties will never hit bottom; the sellers will simply remove them from the market and re-list then in better, more expensive times. You can describe the market like this: If you threw a handful of small rubber balls in the air, they would not all hit the ground at the same time. They’d all bounce at different times, just like individual house prices.

Not every seller will come to the same conclusion at the same time. A     property is not worth what the seller wants, what the seller paid or what somebody else paid. A property is worth what a willing and qualified buyer will pay today, and not a penny more. The good news is sellers are starting to figure that out, one at a time.

The trick is identifying the bounce — and when to buy a specific property. This is particularly important with investment properties. As an investor looking to maximize profits, the price of a specific property is at rock bottom when the return on investment is better if you buy the property than if you leave your money where it is. Compare the real estate rental income and positive cash flow to the other investment options we all have, i.e. stocks, bonds, savings accounts, etc. As real estate prices come down, and consequently the mortgage payments and taxes come down, while at the same time the demand for rentals is growing, at some point the positive cash flow will make the investment irresistible. That is the bottom for an investor.

You must ignore everybody else and their investments. What we see now in hindsight is that many people paid too much when they invested in a seller’s market. Remember, for you to win, somebody else has to lose. Because so many people are losing so much of their equity, it makes your ability to win much easier in a buyer’s market like we’re in right now.

In a stable market, real estate prices are not driven up by investors. Home owners should be the predominant driving force. When a renter sees that their rent is higher than what they would be paying if they were to buy a similar property, the tenants tend to once again convert to homeowners. That is the bottom line for tenants. We know not all tenants have what it takes (income, savings and credit) to secure the American dream of home-ownership. Consequently, there will always be tenants and they will always need investors like us to provide them with a home.

It’s been years since we’ve seen prices low enough that we could invest in nice properties in great locations. If you’ve ever been tired of hearing, “I remember when I could” or “I should have bought them all when I had the chance.” Now you can. You have a second chance — take advantage of it!