HOUSINGNEWS REPORT
LEAD ARTICLE
In this situation 100 percent of the property is used by the owner-occupant — but 50 percent of the property is actually owned by the investor. Shouldn’t the investor get some compensation for the 1,000 square feet he or she literally owns? The answer is yes. The investor-owner is entitled to a fair market rental, in this case for half the property, something which can be established with help from such sources as a real estate broker or appraiser. If the fair market rent for the property is $1,600 than the investor- owner will get an $800 check from the owner-occupant each month. The investor-owner now has rental income ($800 x 12 = $9,600 a year). This is income which must be reported for tax purposes. However, the investor-owner
can also depreciate half the property and write off a proportionate share — 50 percent in this case — of the mortgage interest, property taxes, property insurance, and repairs. The owner-occupant also gets tax benefits such as the right to deduct a proportionate share — again 50 percent in this example — of the mortgage interest and property taxes. (As this is written tax reform proposals on Capitol Hill might eliminate the property tax deduction in exchange for a higher standard deduction. Speak with a tax professional for details.) In practice, a shared equity agreement might provide for the investor to collect all required money from the resident and
Barrier #3 : Savings. One result of the wage gap is that many people are not saving. A study by GoBankingRates. com found that almost 70 percent of us have less than $1,000 in the bank. This is a huge real estate problem because cash is needed for a down payment, closing costs, moving, repairs, etc. Just-released research from the Center for Financial Services Innovation shows just how dire the situation is for many Americans: “38 percent of those that spend more than their income have volatile incomes, meaning their income varies month to month.” Barrier #4 : Application Purity: Not only are many potential buyers unable to save, they face historically tough application standards. Laurie Goodman with the Urban Institute says exacting credit standards have resulted in “almost no defaults on mortgages originated in the past five years. “Only the best borrowers are getting loans today,” she says, “and these loans are so thoroughly scrubbed and cleaned before they’re made that hardly any of them end up going into default. A near-zero-default environment is clear evidence that we need to open up the credit box and lend to borrowers with less-than-perfect credit.” Barrier #5 : Lifestyles. The traditional alternative to owning has been renting and at this moment tenancy often looks very good. When 104 subsidized apartments became available in Manhattan’s Essex Crossing development the result was more than 93,000 applications. The big question is this: why trade a first-class apartment with a top-quality kitchen, soaking tub in the bathroom, and a gym, pool, and office center in the building for a single-family home which may have smaller rooms and fewer amenities? “The potential becomes a Catch-22,” says Dr. Carson with HUD. “You either become house poor through a potential mortgage, if you can get one, and sacrifice other aspects of life, or you forego a home to have the other necessities of life. Even if you are creditworthy, these are tough choices that effect future wealth creation through equity, future financial stability, and quality of life.”
TOP 10 METROS FOR CO-BUYERS Q1 2017
SAN JOSE, CA: 42.4%
$1,400K
LOS ANGELES, CA: 26.2% HONOLULU, HI: 26.5%
$1,200K
$1,000K
SANTA ROSA, CA: 25.1%
SAN FRANCISCO, CA: 33.9%
$800K
BOULDER, CO: 26.0%
$600K
SEATTLE, WA: 26.1%
$400K
MIAMI, FL: 25.8% BOSTON, MA: 25.3%
$200K
WASHINGTON, DC: 24.2%
$0
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JULY 2017 | ATTOM DATA SOLUTIONS
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