How would one compete with cash?

Submitted by spdrun on July 11, 2013 - 1:28pm.

Most of the cash is American, and probably will be refi'd after purchase. Foreign property purchases in CA are a whopping 6% of the total.

Submitted by SD Realtor on July 12, 2013 - 11:12am.

I have already posted documented sales statistics debunking the claims that cash buyers are accounting for many sales.

Submitted by SK in CV on July 12, 2013 - 11:21am.

SD Realtor wrote:
I have already posted documented sales statistics debunking the claims that cash buyers are accounting for many sales.

I know it's beyond your direct involvement, but do you have any insight into the assertions that properties are commonly being bought with cash and subsequently financed?

Submitted by SD Realtor on July 12, 2013 - 7:39pm.

Can be found. Basically find the homes that were purchased with cash, then look at the tax roll to see if there are any mortgage liens that were recorded after the sale.

I think it does happen, but not to the degree that people claim. Additionally it is alot harder then it used to be. For at least a few now, lenders have stopped giving cash out refi's on rental properties. This is a huge blow to that strategy because alot of the rentals were purchased with cash. So that leaves owner occupants to get 80% cash out refi's but usually the lender will require at least 6 months seasoning.

Submitted by spdrun on July 13, 2013 - 7:04am.

Uh, what? It's definitely possible to get cash out on an investment property, first position loan. Talking conventional loans, not GSE-backed, of course.

Submitted by SK in CV on July 13, 2013 - 8:21am.

spdrun wrote:
Uh, what? It's definitely possible to get cash out on an investment property, first position loan. Talking conventional loans, not GSE-backed, of course.

I'm pretty sure he didn't say it's not possible, only that it is harder now than it once was. I also strongly suspect it's not near as common as some think it is.

Beyond that, I'm pretty sure if this is done for rental property, the interest is not deductible. There's a 90 day grace period after acquisition for interest on a personal residence. I don't think there is any such grace period on investment property. There may be a 30 day look-back period that applies, though the IRS rules on tracing are pretty specific, and I'd speculate that these rules are rarely met.

Submitted by spdrun on July 13, 2013 - 10:02am.

You'd be incorrect.

Cash-out interest on a rental property isn't deductible IF it's used for personal use. If it's put into a business, another rental property, or a different category of investment, it can be deducted just fine.

Essentially, you deduct it AS IF it were the mortgage on the next rental, bought with cash pulled out, or business loan interest.

If you cash-out refi'ed and used it to buy a shiny new car, you'd be an idiot anyway (car loan rates are cheaper than home loans these days) and deserve to pay through the nostrils.

Submitted by SK in CV on July 13, 2013 - 10:15am.

spdrun wrote:
You'd be incorrect.

Cash-out interest on a rental property isn't deductible IF it's used for personal use. If it's put into a business, another rental property, or a different category of investment, it can be deducted just fine.

Essentially, you deduct it AS IF it were the mortgage on the next rental, bought with cash pulled out, or business loan interest.

If you cash-out refi'ed and used it to buy a shiny new car, you'd be an idiot anyway (car loan rates are cheaper than home loans these days) and deserve to pay through the nostrils.

"deducted just fine" is an exaggeration. First, the investment has to be traceable to an investment. And there are limitations on investment interest deductions. No income, no deduction.

It's just not near as simple as buying for cash, then financing and pulling 80% cash out, and deducting the interest it as if it was purchase money debt. You can't, for instance, borrow cash from a 401K, use it to buy a property for cash, subsequently finance the property, and then repay the 401K loan and deduct the interest.

Submitted by spdrun on July 13, 2013 - 3:41pm.

Why the blue fark would you buy an investment property that doesn't produce income? Dumbest idea ever, and those who do deserve what they get.

Submitted by SK in CV on July 13, 2013 - 4:38pm.

spdrun wrote:
Why the blue fark would you buy an investment property that doesn't produce income? Dumbest idea ever, and those who do deserve what they get.

For investment interest deduction purposes, rental income doesn't qualify. If the money is borrowed for rental property, the interest is deductible against that property. If some other type of investment is made with the proceeds (like stock, non-income producing land, gold, debt), then the interest deduction is limited to investment income. "Investment Interest" has a very specific meaning".

Submitted by SD Realtor on July 13, 2013 - 8:37pm.

It could be also related to the number of homes you have. We have more then 10 properties so when we tried it, we couldn't do it. However perhaps if you have less then 4 homes it may be a lot easier. I have not seen many people do it though. I did get email from someone who did do it although they said it was challenging, but they did get it done.

Submitted by HLS on July 14, 2013 - 12:35pm.

spdrun wrote:
Talking conventional loans, not GSE-backed, of course.

What do you think a 'conventional loan' is ???
they ARE GSE backed.
Who else in their right mind will loan money for 30yrs in the 4%+/- range?

Submitted by SD Realtor on July 14, 2013 - 5:21pm.

Wow HLS there is no secondary market? Whew when did that happen?

Submitted by spdrun on July 14, 2013 - 7:06pm.

"Conventional loan" is the term for a non-GSE loan, at least locally to me. They won't lock 4% for 30 years, but they'll lock 4-4.5% for 10 years, which is enough in my book.

Submitted by SK in CV on July 14, 2013 - 7:17pm.

spdrun wrote:
"Conventional loan" is the term for a non-GSE loan, at least locally to me. They won't lock 4% for 30 years, but they'll lock 4-4.5% for 10 years, which is enough in my book.

I think you misunderstood. A "conventional" loan is not FHA or VA, both of which will finance with (usually) lower down payments than conventional. Neither are GSE's. They are government agencies. Conventional loans today are generally 20% down and don't require PMI, though some lenders are free to make up their own rules. Most though not all conventional loans today are also conforming loans ("conforming" to the GSE requirements) if they're below the conforming loan limits and meet the other requirements.

Submitted by bearishgurl on July 14, 2013 - 8:24pm.

SK in CV wrote:
... Conventional loans today are generally 20% down and don't require PMI, though some lenders are free to make up their own rules...

Yes, regardless of amount borrowed, portfolio lenders are actually conventional lenders who make up their own rules and keep these loans "in-house" but very rarely originate mortgages higher than 80% LTV. Some (ex: JC Morgan Chase) originate Freddie Mac-backed (FHLMC) loans for their portfolio but most mortgages in their portfolio are not GSE-backed loans. JCM Chase keeps FHLMC loans in their own portfolio and typically sells off their FNMA-backed loans.

Some CA conventional lenders have several mtg products which are NOT backed by GSE's. These mortgages are typically ARMs tailored to the individual borrower's needs. The bulk of these borrowers are high net-worth individuals with excellent credit. These mortgages are NOT "sub-prime" products.

Submitted by paramount on July 20, 2013 - 2:13pm.

Del

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