Luxury Real Estate

By: Nicola Christinger of HomeHunts

Most people are uncomfortable with debt and there is clearly nothing wrong with taking such a prudent approach to your finances. However when it comes to buying a property in France it often makes sense to have a mortgage even if you don’t actually need one in order to complete the purchase. Tim Yates of Spectrum IFA offers some invaluable advice and if any of the following descriptions applies to you then you should certainly consider taking out a mortgage.

1. You are buying the property as a second or holiday home and don’t intend to live here long enough each year to be tax resident here. 2. You intend to live in France permanently but are not doing so as yet and your assets are currently outside France. 3. You have children either from a current or previous relationship. 4. Your capital is in a currency that has weakened against the Euro such as Sterling. 5. The property you are going to buy will generate an income by either being rented out or you intend to run a B&B.

The rationale for having a mortgage essentially comes down to three things – minimising your French tax liability, maximising your investment return and giving you choice.

French tax

If your assets exceed €790,000 you pay wealth tax here. However if you are not tax resident here then it is only based on your French assets. Furthermore, if you move here permanently then for the first 5 years after arriving you still only pay wealth tax on your French net assets. It makes sense therefore to keep your French net asset position to a minimum by having a mortgage.

If your property is going to generate an income you will pay income tax on it in France regardless of whether you are permanently resident here or not. If you have a mortgage you can structure it so that you can offset interest payments against this income for tax purposes.

Investment return

The cost of borrowing is historically low now and is not going to increase until the economy recovers. It makes sense therefore, from a pure investment perspective, to retain your capital and continue to let it work harder for you. If your capital is in Sterling, for example, given its relative weakness you will want to keep it in Sterling until the currency recovers. It doesn’t make sense to use it to buy a large quantity of expensive Euros to buy a property. Property, as an asset class, is illiquid and can be expensive to maintain. We buy it because we either want to use it and enjoy it or as an investment (or both). From the investment standpoint asset diversification is key so you shouldn’t have “too many eggs in one basket”. A mortgage allows you to spread this risk if you are otherwise too exposed to property.

For more advice on financing your French property purchase please contact info@home-hunts.com

By Jim Walberg of Caribbean Islands Realty

Jim Walberg provides a first hand experience regarding what is becoming the next BIG hurdle for Buyers and Sellers of real estate, and it is starting right now!

We just concluded an escrow that has given us a glimpse of what may be the next BIG hurdle for your next real estate purchase - APPRAISALS. We sold a listing this month in the high 900,000s. It was the lowest priced sale since 2003 in this neighborhood of homes that have the largest floor plan - 3,450+ square feet. ( The reduced listing price reflected the fact that the Sellers had already moved out of state and wanted to just close the chapter on their time in the East Bay.) Their home was the most beautiful home in it’s class in our geographic area.

So, the appraiser for the Buyer’s lender comes in and completes his work. The lender had chosen an appraiser that had very little knowledge of our specific area. Because of this fact we sent the lender a list of the comparable sales in this neighborhood for the last two months in order to provide the appraiser with data that we knew were sales of comparable homes. The lender told us they were not able to forward them to the appraiser because they are required to keep an arms length distance from any of their appraisers because of the new law that is officially going into effect May 1, 2009.

“The lender or any third party specifically authorized by the lender (including, but not limited to, appraisal companies, appraisal management companies, and correspondent lenders) shall be responsible for selecting, retaining, and providing for payment of all compensation to the appraiser. The lender will not accept any appraisal report completed by an appraiser selected, retained, or compensated in any manner by any other third party (including mortgage brokers and real estate agents).”

This was the first clue we were going to have a different experience with this appraisal. The appraiser used only two comparable sales, both of which were homes that had been purchased back by relocation companies that had no comparison to our listing. One of the homes used even backed to a storage unit complex. Our listing has unobstructed views of our mountains and very private. The appraiser would not consider using any of the comparable sales that we had provided within the neighborhood.

The appraisal came in $50,000 LESS than the purchase price that was already a bargain in our market area! We and the Seller were stunned! We called the lender and asked what their review process was. They said there was none available. Again, we were stunned. This one event has now created a situation that the similar homes that are within a mile of our listing are all going to be impacted by this appraisal, and it will have a detrimental effect on all of their values for months to come. Our Sellers have been short-changed by this experience and any future sellers will need to price their home using this new reduced price as the basis for their homes.

The National Association Of Mortgage Brokers has begun a legal battle to reverse this latest law. They believe, and so do I, that this new regulation will negatively impact both sides of the real estate sales transaction. It will also add costs to the appraisal process, because there will now be a new entity springing up in the midst of the home buying process - third party companies that order appraisals. The increase in costs will be to these companies in order to the have the appraisers still be paid a fair fee. Stay tuned! This specific regulation will have an impact on pricing in all of our communities. So, have any of you had similar experiences with appraisals yet?

By Jim Walberg of Caribbean Islands Realty

We currently have the lowest mortgage rates in recorded U.S. history. Is it time for Buyers to take action? YES! Jim Walberg’s conversation with Michael Tacconi.

Two days ago I sat down with one of the key loan officers in the East Bay, Michael Taconni, and had a discussion about what is happening with interest rates in 2009 and when should Buyers take action. It was a very interesting discussion. Here were three of the questions I presented to Michael to address.

When should home Buyers consider buying a home in 2009? Michael’s immediate answer was NOW! He said that Buyers have never had better home mortgage rates (YouTube) to chose from than right now - April 2009! Never in all the years of recording mortgage interest rates have they been so low. The mortgage options available are all in this same category - from five year and seven year adjustable rate mortgages, to 30 year fixed mortgages. He told me that the huge amount of activity of home purchases and refinancing that has hit his firm in the last few weeks has been like a “sumami”.

Will mortgage interest come down further in 2009? Michael’s take on this question was an emphatic NO! He let me know that the Fed rate is between ZERO and .25% (YouTube). He said that there is no further room for it to go down further. Again, the mortgage interest rates have never been as low as today in U.S. history!!! So I followed it up with the next logical question…

Will mortgage rates go up in 2009 and when? He was just as emphatic with his answer to this question - YES, and soon! He gave me some indicators that Buyers need to pay attention to (YouTube). The first one was watching the stock market and see if the March 2009 rally was actually going to be sustainable. If it continues to rally, those that are currently invested heavily in bonds will start moving back into the stocks. He referred to a blog that Elizabeth Weintraub posted late last year titled, Top 10 Real Estate Predictions For 2009. Here were her predictions for mortgage rates.

“Because mortgage rates are influenced by mortgage bonds and mortgage-backed securities, not fed rate cuts, I predict interest rates could rise to 7% in 2009. Maybe more if investors continue to worry about inflation and the government adds a new supply of U.S. Treasuries to the market to offset the looming deficit.”

Michael believes that these record low mortgage rates may not last longer than a month or six weeks at the most. The Federal stimulus package is starting to be felt in a very positive manner throughout the economy. As the consumer confidence begins to change direction, the stock market will continue it’s climb and rates will certainly go up. He even felt it will be a dramatic interest rate climb that will leave many Buyers in the dust who are waiting for a better time to buy. TODAY is the day to contact your mortgage professional, and your Realtor if you want to purchase a home in 2009. Contact me today if you would like to talk about you needs further.