Four Myths + a Comment

Let’s begin 2012 by addressing a few myths.  It’s often good to get out in front of mis-information.  It’s hard to “un-ring” the bell as they say.

Myth # 1.  You will pay a 3.85% tax if you sell your home.

Maybe.  As part of the federal government’s healthcare reform a 3.85% tax on investment income in upper–income households was put in place to help fix Medicare.  The tax takes effect in 2013.   Very little “takes effect” in an election year unless it’s a tax cut.

It works like this.   For individuals who earn $200,000 or more, or married couples earning $250,000 or more per year, there may be a 3.8% tax on a portion of investment income.  Investment income can be capital gains, dividends or net rental income to name a few.  One important distinction is that the capital gains exclusion for the sale of a principal residence remains excluded.

For example, a couple with an adjusted gross income of $325,000 has a $525,000 capital gain on the sale of their primary residence.  In this instance only $25,000 will be subject to the 3.8% tax, resulting in a payment of $925.00 (the $25,000 gain x 3.8%).  It’s tax law so this is a simplification, but understand there is not a 3.8% tax on the sale of real estate as a whole.

“We are all entitled to our own opinion but we aren’t entitled to our own facts.” – Daniel Patrick Moynihan.

Myth # 2.  You must have a 20% downpayment to buy a home.

I have no idea where the myth that you need 20% down to buy a home came from but I have heard it quoted on national television by people far smarter than me which causes me to question, are they really far smarter than me?  I’ve owned 20 + homes in my life and only on the last 3 have I put 20% down.  A person can buy with as little as 3% down.  I’ll not weigh in on what I think about that (because I used that program many times and honored my obligations) but know that a home buyer can buy with 3-5% down.  It makes life easier to have 10% down but in the end, “if the numbers work”, and you have 3-5% down, it is probably a good time to buy if the right home is available at the right price.

Myth # 3.  Short sales and foreclosures are a good way to buy a home.

This is far from true for the average home buyer.  When pursuing a short sale or foreclosure, the buyer is at the mercy of the seller (meaning the first and/or second lien holder) and deadlines are impossible to forecast.  My advice to a buyer would be if you have unlimited time, the ability to take on some rehab and 10-20% down, then maybe.  These types of purchases are best suited to investors, those who might pay cash, those with 20% or more down and who have the desire to fix homes.  No matter what your friends, family and late night T.V. says, short sales and forclosures are not an easy or comfortable path to home ownership.

Myth # 4. Five Star Agents are really good.

Wrong.

Comment. By the way, I’m not a Five Star Agent and yes it does have something to do with Groucho Marx.  I’ll explain this in my February E-Note.  I try to plan ahead for my E-Notes and this one has been on the burner for 6 months.  Last week the N.Y. Times scooped me with a similar type story.  I’ll share my story (and theirs) next month.

If you would like a brochure e-mailed to you regarding the 3.8% tax, send me a request via e-mail at homebuyeba@gmail.com and I will forward it to you.

We are fast approaching the property tax assessment challenge season (most often a challenge is due by May).  If you have a question about how to challenge your assessment, send me an e-mail and I’ll provide some guidance.  I’m also happy to answer any real estate or rehab-related question you might have.  This can be done by phone, e-mail or over a cup of coffee.  By the way, if you are a past client, thanks.  Truly.  It is how I make my living and I really enjoy working with people who want to work with me.   If I can be of assistance to you, your family or friends, Homebuyer Associates would welcome the referral.