My Wealth Journey

It’s been almost one year and a half since my last post. Many things have changed for me and in the world.

A few of my real estate properties have dropped in value but thank goodness they aren’t down more than 5-10%. I do plan on holding all of my properties so I can pay off the mortgage.  I still feel kind of cheated that all the underwater borrowers were able to take advantage of the loan mod programs the major banks are offering. I obtained my non-owner occupied mortgage legally, fully documented, pay my taxes everyday and get penalized.

I’m also no longer working full time for a company and am focused on working on my own ventures as well as a little bit of contract programming and SEO consulting here in Southern California. Have to make the move to get out of the rat race while I still in. I’m very fortunate that my affiliate marketing income brings in enough to cover my month’s expenses, giving me time to pursue my projects. You ain’t getting rich working for the man!

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I invested in a few single family properties in the state of Texas and Utah in 2006. When I got into the properties, I was not one of those investors expecting to make a 50% gain on my properties in less than a year. With my Texas properties, I was hoping for a steady 3-5% gain with either cashflow positive or close to cashflow positive on the properties factoring in depreciation tax savings. So far, they have performed just as expected. I had one home that was vacant for a few months which no landlord enjoys but it’s part of owning rental properties.

My Utah properties are a bit more negative monthly but the amount is not something I can’t live with. I originally had hope to hold on to the properties for about 2-3 years and then sell them. However, with the current state of the housing market nationwide, this is looking more and more unlikely if I’m looking to make anything. I may be able to break even and that’s it if I sell the home in a year. The market in Utah hasn’t gone bust yet like in Las Vegas or in Phoenix but has slowed down quite a bit. Most of Texas is still relatively flat in gains, although central Austin, closest to downtown is still experiencing low DOM stats.

Looking back, would I do the same? I would still have invested in the Texas properties (Austin and Fort Worth) since the numbers worked out, but would have passed on the Utah properties. I was about a year too late with Utah.

The problem now, is I’m looking to buy a home for my own personal residence within a year or two and realize it won’t be too easy to unload a home to free up some cash as it would be if I had simply invested in a CD or in the stock market.

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The market took a huge plunge today. It happened steadily as the day went on. There were some small attempts at a rally but after the Dow started to gain 10 or 15 points, it went down another 20 points.

Why did it drop? I think it was a lot of people taking profits off the table along with bad economic news from banks with renewed worries about another credit crunch. What was surprising was that Google (GOOG) reported great profits and still barely gained 1% on the day. I did take the opportunity to buy a Google $640 Nov call.  BIDU and AAPL report next week, so it’ll be interesting to see if good news from those companies can get the market back on track. I do have positions in both of those stocks.

Is the world economy going to slow because of the US? There has been some talk about how vital the US economy is to the world economy. It’s not the center of the world economy as it was a number of years ago but any slowdown would definitely hurt the overall world economy. China exports to the US would slow.

I’m no economist but I’m still bullish on the overall economy. Housing and financials may suffer but overall, our economy should be chugging ahead.  I’m just fortunate that I did not invest or buy a personal residence in California. I still have some holdings in Texas and Utah, which I bought for cash flow. Any appreciation are bonuses for those properties. I do realize the chances of selling those homes right now are slim with the credit crunch so I am stuck with the properties.

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Is Bush’s plan really going to make much of a difference? From the numbers I’ve heard, it was less than 100,000 people who his plan will help. 100,000 people is still a lot, but there are over 2 million people who are in trouble. Seems like the plan is more of a gesture than anything.

I’m actually on the fence about this. I hate to see families lose their homes but as someone who put off buying a primary residence in CA, I feel like the people paying 700k for a 1500 sq ft home in southern California should not be bailed out.

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As someone who is waiting for the prices to drop down a bit before entering the marketing in Irvine, I’ve noticed a number of listings in the MLS that have dropped their asking price by over 10% after having their homes on the market for over 3 months. I hope more people realize that they won’t be getting 750k for a 1500 sq ft home anymore.

I don’t find pleasure in people going under, but if those people are too stubborn to pay attention to the market value around, they will just keep on dropping their list price after others instead of being the first to do it and their values will just keep dropping not allowing them to get rid of their homes.

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I received my estimated property taxes for a home I got in April 2006 where the value was about 18k over how much I purchased the home for.  I certainly was disappointed because last year the value was only 60k since it was a new home.

I decided to try to protest the value on my own without using any service since I figured the best outcome would only mean a savings of 400-600 bucks and if I used someone, I’d pay about half my savings away.

All I did was write a very short letter and explained that I purchased my home for 18k less than their appraisal and included the closing statement. Within a week, I got a notice back that they are adjusting the value to the original purchase price of the home! The end result is savings of about 480 bucks this year based on a 2.7% tax rate in about half a hours of work.

The moral of the story, if you built a new home and the appraisal was way over the purchase price, just write a short letter and send them your closing statement. Contesting the value of an older home may be tougher because then you need to send in comps and probably would have to show up in person.

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Wow is all I can say from the new home sales for April. New home sales jumped 16.2 percent last month. After reading a little further in the news article, all of the sales increased came from one region; the northeast which saw home sales jumped 43.1 percent. I know a lot of housing bulls (a.k.a realtors) will jump on this and say the housing market has bottomed already and start promoting the hell out of this number. Sales were down in every other part of the country and median new home prices dropped over 11 percent. Prices are definitely coming down on new homes.

I still plan on waiting this out before buying a home in California to live in. The prices haven’t dropped that much yet as there are still people trying to sell homes at 2005 prices.

Yahoo New Homes Sales News Article

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I just received the notice of appraisal value for my Austin property and am glad to see the taxes went down by a little.  I have a property in the Manor ISD that had a 2006 tax rate of 1.768% that looks like it has been cut to 1.535%. A savings of roughly $200-$250 a year which definitely helps cashflow a little. The other estimated tax rate are the same. The proposed appraisal value also went down by a thousand. I was expecting the value to go up while the tax rate go down a little, neglecting any tax decrease.

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The tax implications for transferring a home in California from parent to children while the parent is still alive is something families should consider and consult with a CPA or tax attorney. From my research, you are entitled to a total of $1 million of non-exempt lifetime gift before you pass away. However, as the person giving up ownership of the home, you still need to file a gift tax return with the IRS even if you do not go over the $1 million. The value of the gift is subtracted from the max federal estate tax exemption of $2 million.

A drawback of receiving the home as a gift rather than inheriting the home is that you lose the stepped up basis of the home’s value.  For example, if the home was purchased by the parent at $100,000 and is now worth $400,000. The cost basis of the home would still be $100,000. We will exclude deprecation and other related activities that may affect the cost basis for this example. That means if the children sells the home at a later date for $500,000, taxes will need to be paid on $400,000 ($500,000 minus $100,000). Had the home been inherited, the stepped basis would be the value of the home at the time of death, which in this example is $400,000. So taxes would only have to be paid on $100,000. ($500,000 – $400,000)

Also, you straight out lose control of your home which could be troublesome if you and your children no longer get along. Once you deed the title over, your children or whomever the title was deeded legally owns the home.

Disclaimer: I am not a tax expert or professional. Please do your own research and consult with a professional.

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Over 18 months ago, I put $1,000 down in deposit to hold my spot in line to purchase a condo in Park City at the Westgate Lodge. I never really intended to buy anything because you would have to come up with over 50% of the purchase price to cashflow. I didn’t want to count on appreciation like I did for a few of my other properties. The sales event came and gone. I don’t recall the exact prices, but I do remember 1 or 2 bedroom condo going for as much as $700,000. I kept on getting flyers, emails, phone calls from the sales agents regarding the condos.

Fast forward 18 months, I get another email with the subject, “Westgate: Studios Unexpectedly Available!” Please! Unexpected? They probably have been available all this time.

I haven’t been following the Park City real estate market, but the point is, don’t buy into any marketing gimmick any real estate agent tries to sell to you no matter how sincere they may seem. They don’t get paid unless you buy.

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