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LA Digs - Northeast LA Real Estate Blog

Welcome to LA Digs, the real estate and Northeast Los Angeles community blog written by Realtors Tracy King and Keely Myres.

Here, we share tips, market updates, and local news bits to keep you informed on what's happening in Northeast Los Angeles and the surrounding neighborhoods. Read on to learn about the latest in your neighborhood!

How Can I get a Handle on This Financial Crisis?

For those of you who want a better understanding of how we got into this global economic mess, National Public Radio has several programs that have podcasts you can read, watch, or listen to that summarize and define a lot of the terms we see tossed around in the news today. They posit some non-accusatory and intelligent explanations both of how financial systems work and where things went wrong. I'm not saying I agree with every word, but I think it's well-balanced and worth absorbing. Knowledge is power. Check it out at:

This American Life

How Stuff Works:

Planet Money:

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Are You Ready for a Deal?

Are You Ready for a Good Deal?

What constitutes a good deal to you?

“I'll know it when I see it, you say. Well, maybe you think you are in the market for a good deal, but you just told me that you are not. What?! Well, do you have a list of what fits in your criteria for a good deal? Do you know what your numbers are for purchasing, monthly expenses, possible repairs? Do you have your financing lined up and your investment money ready? Whether you plan to buy your primary residence or an investment property, you need to have worked out a number of issues before you're ready to look for a good deal.

Right now, we are in the best market for finding a deal that we have experienced in probably 12 years. This doesn't mean that prices are at 1997 levels, but that there are affordable properties available to buy that can make real financial sense in terms of potential for equity building as well as immediate neutral to positive cash flow on your investment.

For example: A property with two 2-bedroom, 1-bath houses on a street-to-street lot in a decent neighborhood of Eagle Rock listed for $269,900. If you put 25% down, even at under-market rents of $800 each, you could have immediate positive cash flow plus real potential for appreciation over time. If you want to live on the property as your primary residence, you can use FHA financing and purchase with as little as 3.5% down! I don't know if you've been able to buy a deal like this since they changed the tax law in 1987! And this property was a good owner-occupied candidate with privacy for both units—it even had separate yards. Wow, does that sound like a deal? Sign me up, let me go talk to my lender.

Nope. Too late. That place had 6 offers within 4 days and is in escrow. And it took that long only because the tenant was uncooperative about showing any other day than Saturday.

If you are looking for a good deal, you must be ready to jump on it right away with no hesitation. Here is your list of what it takes to be ready:

  • Financing: You must be prepared with a pre-approval letter, documentation of your down payment, A liquid funds available for a deposit, and very likely with a copy of your credit score. Pushy, huh? Invasive, eh? Well, that is what these foreclosing bank sellers of great deals want to see from you, because they know how they got into this mess.
  • You must be open to doing whatever you need to do to get your offer accepted.

A. That might mean you make an offer without seeing all of the property. With tenant-occupied properties, you often can't see inside them unless you have an accepted offer. Think about it, the tenant has no incentive to cooperate with people coming through their home. All they see is a good chance they'll have to move or at least to have their rent raised. Why should they make it easy for you? The odds are good you won't buy the property and they will have been inconvenienced for nothing. You will see the entire property when you do inspections, so don't stress out about it. This tenant-showing subject deserves an article of its own, so look for that soon.

B. You might need to reduce or remove all your contingency periods up front. A harrowing idea, but some lenders are beginning to require this because they are overwhelmed with offers. How can you make this work for you? You might need to go so far as to do an inspection before you know that you have the deal. Is it worth $500 or $600 to make sure that your sewer line isn't crumbled and rusted away under that driveway, or that the systems are safe enough to make the house habitable?

C. Most important, you must be able to act instantly. If there are two or more partners going into this deal, the ideal plan is to assign one person to be the ultimate decision maker, even to the point of giving them a real estate power of attorney to sign for all the parties. Don't you trust that person? Then why are you thinking you're going to invest with them? If you want to have Mom and Dad approve your purchase, you should have them come with you to look at the property first. There is no time to line up a viewing next weekend for them. If it's a good deal, it may well be gone. That's part of it being a good deal!

There is a series of excellent books you should read about real estate, written with Gary Keller, one of the creators of Keller Williams Realty. I'm not interested in their real estate brokerage model, but this guy has co-written some really excellent, knowledgeable books for Realtors, investors, and even one for first time buyers. Shift just came out this year and is right on for understanding and profiting from the current market. Your First Home is for—you guessed it—first time buyers. The Millionaire Real Estate Investor was published in 2005, so don't take the easy financing ideas seriously, most of them are history. But the fundamentals of investing are quite good. I do have some thoughts on some of the concepts, such as always buying 10-20% below the current market. In Los Angeles, some of these rules just don't apply, but the eventual increase in equity will more than counterbalance that. Yes, even with the economy crashing down around us, I believe that.

You can go to the website, www.millionairesystems.com, click on the Free Downloads, and access worksheets that will help you organize yourself and help you plan how to accomplish your goals. Give them a try and then maybe you really are ready to find a good deal.

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The 2009 First Time Buyer Credit Details Revealed

This was sent to us by the president of our region of Coldwell Banker,Betty Graham:

Frequently Asked Questions

In 2008, Congress enacted a $7500 tax credit designed to be an incentive for first-time homebuyers to purchase a home. The credit was designed as a mechanism to decrease the over-supply of homes for sale.

For 2009, Congress has increased the credit to $8000 and made several additional improvements. This revised $8000 tax credit applies to purchases on or after January 1, 2009 and before December 1, 2009.

Tax Credits -- The Basics

What's this new homebuyer tax incentive for 2009?


The 2008 $7500, repayable credit is increased to $8000 and the repayment feature is eliminated for 2009 purchasers. Any home that is purchased for $80,000 or more qualifies for the full $8000 amount. If the house costs less than $80,000, the credit will be 10% of the cost. Thus, if an individual purchased a home for $75,000, the credit would be $7500. It is available for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009.


Who is eligible?

Only first-time homebuyers are eligible. A person is considered a first-time buyer if he/she has not had any ownership interest in a home in the three years previous to the day of the 2009 purchase.


How does a tax credit work?

Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual's income tax return. Thus, a qualified purchaser would figure out all the income items and exemptions and make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax return a person has total tax liability of $9500, an $8000 credit would wipe out all but $1500 of the tax due. ($9,500 - $8000 = $1500)

So what happens if the purchaser is eligible for an $8000 credit but their entire income tax liability for the year is only $6000?

This tax credit is what's called refundable credit. Thus, if the eligible purchaser's total tax liability was $6000, the IRS would send the purchaser a check for $2000. The refundable amount is the difference between $8000 credit amount and the amount of tax liability. ($8000 - $6000 = $2000) Most taxpayers determine their tax liability by referring to tables that the IRS prepares each year.

5. How does withholding affect my tax credit and my refund?

A few examples are provided at the end of this document. There are several steps in this calculation, but most income tax software programs are equipped to make that determination.


Is there an income restriction?

Yes. The income restriction is based on the tax filing status the purchaser claims when filing his/her income tax return. Individuals filing Form 1040 as Single (or Head of Household) are eligible for the credit if their income is no more than $75,000. Married couples who file a Joint return may have income of no more than $150,000.


How is my income determined?

For most individuals, income is defined and calculated in the same manner as their Adjusted Gross Income (AGI) on their 1040 income tax return. AGI includes items like wages, salaries, interest and dividends, pension and retirement earnings, rental income and a host of other elements. AGI is the final number that appears on the bottom line of the front page of an IRS Form 1040.

What if I worked abroad for part of the year?

Some individuals have earned income and/or receive housing allowances while working outside the US. Their income will be adjusted to reflect those items to measure Modified Adjusted Gross Income (MAGI). Their eligibility for the credit will be based on their MAGI.

Do individuals with incomes higher than the $75,000 or $150,000 limits lose all the benefit of the credit?

Not always. The credit phases-out between $75,000 - $95,000 for singles and $150,000 - $170,000 for married filing joint. The closer a buyer comes to the maximum phase-out amount, the smaller the credit will be. The law provides a formula to gradually withdraw the credit. Thus, the credit will disappear after an individual's income reaches $95,000 (single return) or $170,000 (joint return).

For example, if a married couple had income of $165,000, their credit would be reduced by 75% as shown:

Couple's income $165,000

Income limit 150,000

Excess income $15,000


The excess income amount ($15,000 in this example) is used to form a fraction. The numerator of the fraction is the excess income amount ($15,000). The denominator is $20,000 (specified by the statute).

In this example, the disallowed portion of the credit is 75% of $8000, or $6000

($15,000/$20,000 = 75% x $8000 = $6000)

Stated another way, only 25% of the credit amount would be allowed.

In this example, the allowable credit would be $2000 (25% x $8000 = $2000)

What's the definition of principal residence?


Generally, a principal residence is the home where an individual spends most of his/her time (generally defined as more than 50%). It is also defined as owner-occupied housing. The term includes single-family detached housing, condos or co-ops, townhouses or any similar type of new or existing dwelling. Even some houseboats or manufactured homes count as principal residences.

Are there restrictions on the location of the property?

Yes. The home must be located in the United States. Property located outside the US is not eligible for the credit.

Are there restrictions related to the financing for the mortgage on the property?

In 2009, most financing arrangements are acceptable and will not affect eligibility for the credit. Congress eliminated the financing restriction that applied in 2008. (In 2008, purchasers were ineligible for the $7500 credit if the financing was obtained by means of mortgage revenue bonds.) Now, mortgage-revenue bond financing will not disqualify an otherwise-eligible purchaser. (Mortgage revenue bonds are tax-exempt bonds issued by a state housing agency. Proceeds from the bonds must be used for below market loans to qualified buyers.)

Do I have to repay the 2009 tax credit?


NO. There is no repayment for 2009 tax credits.

Do 2008 purchasers still have to repay their tax credit?

YES. The $7500 credit in 2008 was more like an interest-free loan. All eligible purchasers who claimed the 2008 credit will still be required to repay it over 15 years, starting with their 2010 tax return.


Some Practical Questions


How do I apply for the credit?

There is no pre-purchase authorization, application or similar approval process. All eligible purchasers simply claim the credit on their IRS Form 1040 tax return. The credit will be reflected on a new Form 5405 that will be attached to the 1040. Form 5405 can be found at www.irs.gov.


So I can't use the credit amount as part of my downpayment?

No. Congress tried hard to devise a mechanism that would make the funds available for closing costs, but found that pre-funding would require cumbersome processes that would, in effect, bring the IRS into the purchase and settlement phase of the transaction.


So there's no way to get any cash flow benefits before I file my tax return?


Yes, there is. Any first-time homebuyers who believe they are eligible for all or part of the credit can modify their income tax withholding (through their employers) or adjust their quarterly estimated tax payments. Individuals subject to income tax withholding would get an IRS Form W-4 from their employer, follow the instructions on the schedules provided and give the completed Form W-4 back to the employer. In many cases their withholding would decrease and their take-home pay would increase. Those who make estimated tax payments would make similar adjustments.

What if I purchase later this year but can't get to settlement before December 1?

The credit is available for purchases before December 1, 2009. A home is considered as purchased when all events have occurred that transfer the title from the seller to the new purchaser. Thus, closings must occur before December 1, 2009 for purchases to be eligible for the credit.


I haven't even filed my 2008 tax return yet. If I buy in 2009, do I have to wait until next year to get the benefit of the credit?

You'll have a helpful choice that might speed up the process. Eligible homebuyers who make their purchase between January 1, 2009 and December 1, 2009 can treat the purchase as if it had occurred on December 31, 2008. Thus, they can claim the credit on their 2008 tax return that is due on April 15, 2009. They actually have three filing options.

If they purchase between January 1, 2009 and April 15, 2009, they can claim the $8000 credit on the 2008 return due on April 15.

They can extend their 2008 income-tax filing until as late as October 15, 2009. (The IRS grants automatic extensions, but the taxpayer must file for the extension. See www.irs.gov for instructions on how to obtain an extension.)


If they have filed their 2008 return before they purchase the home, they may file an amended 2008 tax return on Form 1040X. (Form 1040X is available at www.irs.gov)


Of course, 2009 purchasers will always have the option of claiming the credit for the 2009 purchase on their 2009 return. Their 2009 tax return is due on April 15, 2010.


I purchased my home in early 2009 before the stimulus bill was enacted. I claimed a $7500 tax credit on my 2008 return as prior law had permitted. Am I restricted to just a $7500 credit?


No, you would qualify for the $8000 credit. Eligible purchasers who have already claimed the $7500 credit on a 2008 return for a 2009 purchase may file an amended return (IRS Form 1040X) for the 2008 tax year. This amended return will enable them to obtain the additional $500 credit amount.


If I claim my 2009 $8000 credit on my 2008 tax return, will I have to repay the credit just as the 2008 credits are repaid?


No. Congress anticipated this confusion and has made specific provision so that there would be no repayment of 2009 credits that are claimed on 2008 returns.


I made an eligible purchase of a principal residence in May 2008 and claimed the $7500 credit on my 2008 tax return. My brother, who has never owned a home, wishes to purchase a partial interest in the home this spring and move in. Will he qualify for the $8000 credit, as well?


No. Any purchase of a principal residence (or interest in a principal residence) from a related party such as a sibling, parent, grandparent, aunt or uncle is ineligible for the tax credit. Since you and your brother are related in this way, he cannot qualify for the credit on any portion of the home that he purchases from you, even if he is a first-time homebuyer.


I live in the District of Columbia. If I qualify as a first-time homebuyer, can I use both the $5000 DC credit and the $8000 credit?


No; double dipping is not allowed. You would be eligible for only the $8000 credit. This will be an advantage because of the higher credit amount, plus the eligibility requirements for the $8000 credit are somewhat more easily satisfied than the DC credit.


I know there is no repayment requirement for the $8000 credit. Will I ever have to repay any of the credit back to the government?


One situation does require a recapture payment back to the government. If you claim the credit but then sell the property within 3 years of the date of purchase, you are required to pay back the full amount of any credit, including any refund you received from it. A few exceptions apply. (See below, #24). Note that this same 3-year recapture rule applies, as well, to the $7500 credit available for 2008. This provision is designed as an anti-flipping rule.


What if I die or get divorced or my property is ruined in a natural disaster within the 3 years?


The repayment rules are eased for many circumstances. If the homeowner who used the credit dies within the first three years of ownership, there is no recapture. Special rules make adjustments for people who sell homes as part of a divorce settlement, as well. Similarly, adjustments are made in the case of a home that is part of an involuntary conversion (property is destroyed in a natural disaster or subject to condemnation by eminent domain by an authorized agency) within the first three years.


26. I have a home under construction. Am I eligible for the credit?


Yes, so long as you actually occupy the home before December 1, 2009.


WITHHOLDING EXAMPLES:


Note: The impact of estimated tax payments would be the same.


Situation 1:Sally plans her withholding so that her withholding is as close as possible to what she anticipates as her income tax liability for the year. When she fills out her 1040, her liability is $6000. She has had $6000 withheld from her paycheck. She also qualifies for the $8000 homebuyer credit.


Result: Sally's withholding satisfies her tax liability and reduces it to zero. She will receive a refund of the full $8000.


Situation 2: Nick and Nora file a joint return. Nick is self-employed and makes estimated payments; Nora has taxes withheld from her salary. When they compute their taxes, their combined withholding and estimated tax payments are $11,000. Their income tax liability is $9800. They also qualified as first-time homebuyers and are eligible for the $8000 refundable tax credit.


Result: Ordinarily, their combined estimated tax payments and withholding would make them eligible for a refund of $1200 ($11,000 - $9800 = $1200). Because they are eligible for the refundable tax credit as well, they will receive a refund of $9200 ($1200 income tax refund + $8000 refundable tax credit = $9200)


Situation 3:> Cesar and LuzMaria both have income taxes withheld from their salaries and file a joint return. When they file their income tax return, their combined withholding is $5000. However, their total tax liability is $7200, generating an additional income tax liability of $2200 ($7200 - $5000). They also qualify for the $8000 first-time homebuyer tax credit.


Result: Cesar and LuzMaria have been under-withheld by $2200. Ordinarily, they would be required to pay the additional $2200 they owe (plus any applicable interest and penalties). Because they are eligible for the refundable homebuyer tax credit, the credit will cover the $2200 additional liability. In addition, they will receive an income tax refund of $5800 ($8000 - $2200 = $5800). If they owed penalties and/or interest, that amount would reduce the refund.


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Propertunities Oct. 9, 2008

First, my listing at 3926 W. Avenue 43, Eagle Rock. It's cute! It's now $399,000! A screaming deal! And it's open Sunday, October 12, 2-5 pm.

Propertunities Seen on Caravan Oct. 9, 2008

3926 W Avenue 43, Eagle Rock

Who cares about the stock market sliding down to Nixon-era levels! There are some incredible deals out there in all price ranges. Call me if you want to make an offer! Check it out:

62 W. Terrace Dr, Altadena. $219,900. A crazy deal!

Bank-owned fixer on spacious lot on quiet side street with expansion/tear-down/investment potential galore. Nice neighborhood of well-maintained homes with diverse architectural styles. Flat lot with all utilities in. Great opportunity to live onsite while making building plans. It's only 628 square feet, but it's on a 6,732 sqft lot.

528 Westgate St, Pasadena. $450,000. Actually, this is in decent condition and it's 3 bedrooms, 1 bath. The back yard is a desert, ready for your creative touch. Good space, it's 1,054 square feet on a 8,750 sqft lot in a pretty good neighborhood. Make an offer!

62 W Terrace Dr, Altadena, CA


1637 Rose Villa St, Pasadena. $975,000. This has one of the best new-in-the-style of original period kitchens I've seen. And the bathrooms are beautiful, too. Impeccable is not too strong a word to describe this whole 3 bedroom, 2 bath home. A joy to see.

838 Milan Ave, South Pasadena. $950,000. Almost 3,000 sqft, on a 12,600 sqft lot, 4 bedrooms, 2 baths. A great neighborhood and a good deal!

528 Westgate, Pasadena, CA

1637 Rose Villa St, Pasadena, CA

838 Milan Ave, South Pasadena, CA

To see any of these homes, call or text me! 626-827-9795.

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Finance 101 thanks to Money Magazine

An interesting calculation in the June 2008 Money magazine is the TED spread, an indication of easy it will be to borrow money. It's the difference between the 3 month LIBOR rate and the 3 month T-bill rate.  The T-bill is essentially risk free and the LIBOR is the rate the banks charge to borrow from one another. If they are nervous about lending to each other, they certainly are more fearful about lending to you and me. They say a difference of .4 % is what we need to see. The latest figures show a spread of .97%, which is a bit more than last month, and a lot more than 1 year ago when it was .41%.

My conclusion: this formula confirms that it is difficult to get loans right now. I already knew that anything but the most pristine of credit, 20% down, conforming loan type buyer was having trouble getting a loan, but this formula shows me why and also how I can know when it is changing.

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