Having dealt with various investors (second home / vacation home clients), San Clemente Coastal Living thought it would be appropriate to address some 1031 Exchange basics.  First, as an investor, you must realize that in order to do a 1031 exchange it cannot be done on your principal residence.  Please note, however, you do not have to pay capital gains tax on a $250,000 gain if single or $500,000 gain if married on your principal residence based on IRS guidelines.  In order to successfully do 1031 exchanges, including into your eventual dream home, you need to understand the basics.

First, to qualify for a 1031 exchange, the San Clemente real estate that you plan to sell or purchase must meet four basic rules:

• Be exchanged with a like-kind property; in other words any other piece of real estate
• The replacement property must be identified within 45 days after the sale of the previous property
• The exchange transaction must be completed within 180 days
• The property must be used for productive purposes in a business or for investment purposes (cannot be your principal residence)

Beyond these basics, you should note that it’s possible to do a 1031 exchange on a second home or vacation home.  In order to do so, you must own the property for at least two years, rent the property during each year for a minimum of 14 days at fair market value, and not use the property for your own personal use for more than 14 days.  If you have met these criteria for two years, now you can do a 1031 exchange into any other piece of real estate that qualifies.   

On the other hand, if you are an investor working towards your San Clemente dream home (i.e San Clemente ocean view home or condo), there are ways to do it through 1031 exchanges, however, pay special attention to the rules.  First, you must rent out your home for at least 14 days during the year and not use it for more than 14 days either.  At the end of the two years, you can now convert your San Clemente home into your principle residence.  In the meantime, if you have not taken any cash from your 1031 exchanges, you have deferred all tax on your gains (i.e. equity) to buy into your new home.  This beats taking money out of the stock market to purchase that home as it would be subject to capital gains tax.   Also, don’t forget that when you sell your principle residence to get into this home, you don’t have to pay tax on the first $250,000 gain if single or $500,000 if married.

If you are an investor that has done 1031 exchanges over the years and are ready to sell, don’t forget that capital gains tax is still at 15% and there is a strong possibility that this will be raised in the near term to 20-25%.

For more information on 1031 exchanges or San Clemente real estate, including a second home and/or vacation rental, please contact us for a free consultation.

This article on CNN outlines great ways to obtain the best deal on your homeowner’s insurance policy.  As premiums have skyrocketed over the past few years, the following are methods to help keep this cost down in the purchase of your San Clemente home or condo.

Get a CLUE report.  CLUE, which stands for Comprehensive Loss Underwriting Exchange, is a database that keeps records of every claim a homeowner makes against their house, such as a broken pipe, window, etc.  When you purchase a home, you will receive this report as part of the due diligence process.  If the home has a history of damage or claims against it, this may drive the insurance policy up.  Like a credit report, however, a CLUE report may contain errors.  Luckily, you can receive a free CLUE report by visiting choicetrust.com, and if you believe the report contains errors, then you can visit consumerdisclosure.com.

Don’t over or under insure your home.  A homeowner’s policy should cover 100% of what it would cost to rebuild your home and not the entire home’s value that includes the land.  For example, your home may be worth $1 million, but it may only cost $300,000 to rebuild and therefore, this would be the amount you would insure.

Consider taking a risk.  If you move from a $500 deductible to a $1,000 deductible you could save approximately 20% on your premium.  Therefore, consider taking the highest deductible you are willing to stomach with your emergency fund.

Don’t be loyal to one insurer.  Some insurers may give a 10% discount to long-time customers, however, it is still worth exploring your other options as you may find a better deal.  You can get quotes from InsWeb.com or Insure.com.

Keep good credit with your insurer.  In other words, just like your credit score can be impacted, so can your insurance depending on the number of claims you make and whether you pay on time.

Please visit other sections of our website or blog for more information on your San Clemente real estate purchase or please feel free to contact us for a consultation.

While San Clemente real estate prices have come down from their highs, many individuals are struggling to afford a home due to higher downpayment requirements required by lenders and the recent legislation that is doing away with downpayment assistance programs.  Therefore, at San Clemente Coastal Living, we thought it would be appropriate to address creative ways to afford the San Clemente home or condo of your dreams.  The following are various strategies that we can structure for your purchase:

• In today’s market, many sellers (those who are not in a short-sale or foreclosure) may be willing to provide financing.  Some sellers may be willing to finance all or part of the purchase price and let you repay them gradually as you would with a mortgage.
• Consider doing a shared equity arrangement with friends, family or an outside investor.  Under this scenario, your co-investor will buy a portion of the house and share in appreciation when the house is sold.  This investor will benefit from all the tax write-offs of an investment property for their share of the ownership, which includes being able to depreciate the property.  In the meantime, you will be able to enjoy the write-offs of a primary residence for your share of the property.  Since you will occupy the house, you will pay the mortgage, property tax, and all related maintenance costs.  This can be a win-win situation for both parties.  If family or friends cannot invest, there are companies out there that could potentially provide an investor on your behalf.
• Perhaps your family will loan you money for a downpayment which you can payback as if it were a mortgage or whatever seems fit for both parties.  If you have little credit history, a lender may want a co-signer.  In this case, it may be worth structuring the deal to offer your family the upside of sharing in the long-term appreciation of the home as addressed in the previous point.
• Don’t forget about your 401K as a means for a downpayment if you are buying your first home.  If you are single, you can withdraw $10,000 from your 401K without being taxed for early withdrawal, or $20,000 if married.  Who cares how your 401K is performing as the money going into this account is all pre-tax.  So if your effective tax rate is 30%, then you are saving 30% quicker by using your 401K as a means for your downpayment versus using after tax money in your savings account.
• If there are no other options to come up with the downpayment this year, then consider leasing the property with an option to buy.  This will give you more time to save for your downpayment and test out the house for a year.  In addition,  many owners will apply some of your rent towards a downpayment.  Be sure, however, you would want to buy this home as you may have to pay a small nonrefundable option fee to the owner.
• An option once the real estate market settles and credit becomes more available would be trying to qualify for a short-term second mortgage to assist with a higher downpayment.  This may be possible if you have good income and little other debt.
• The government is currently offering a $7500 tax credit to first-time homebuyers, so you could borrow the money short-term from family or friends and return it once you receive this credit on your tax return.  This credit, however, will have to be repaid to the government as if it were a loan.

For more information on creative ways to afford San Clemente real estate and how to structure your transaction, please contact us! 

For the month of September, San Clemente real estate continues to show signs we are working towards a bottom.  New listings on the market continue to show a steep drop and home sales are approaching 2007 sales volume based on San Clemente homes and condos sold and under contract at the end of the month.

For the year, new listings on the market are down 23.8% from prior year.  This is great news as inventory is not building up as quickly, which helps to alleviate some of the downward pressure on home prices. 

Average sales price year-to-date for San Clemente real estate is $880,826 as compared to $995,776 prior year, representing a 11.5% decrease.  Buyers and sellers should keep in mind that Orange County and California real estate have faired much worse over the past year with price drops over 25% and 35% respectively.  While the San Clemente real estate market has been subjected to the correction, prices have held on much stronger indicating that demand for housing in this market is clearly above the county and state averages. 

Year-to-date, there have been 454 San Clemente homes and condos sold as compared with 513 prior year, representing a decrease of 11.5%.  While sales are still down with prior year, it should be noted that in August sales were down much more from prior year at approximately 16.3%.  This change is due to September 2008 sales of 44 compared with 33 for September 2007 or a 33% increase.  October could show signs of improvement over prior year as well as homes currently under contract at the end of September are 39 as compared with 25 prior year, representing a 56% increase.  October sales, however, may not fare as well depending on how the financial crisis impacts the market, how quickly the government’s bailout plan could begin taking effect, and how consumer behavior will be effected by all of this.

For more information on San Clemente real estate, please explore our website or contact us!

An article on CNN Money titled “9 Ways to Tough Out Tough Times” provides a number of ways to protect yourself during times of economic instability like our current situation.  While many of the talking points concern one’s financial portfolio and tips for trading in an unstable stock market, a couple of ideas deal directly with real estate buyers. 

The fifth item discussed in the article concerns raising and maintaining your credit score, one of the most important components analyzed by lenders when deciding whether or not to help finance your new home.  Not only does good credit make a lender feel more comfortable about lending money, but better credit may help you to get a lower interest rate.  The article states that the two most important factors with maintaining good credit are your payment history and account balances.  Paying bills on time should be a no-brainer (and accounts for 35% of your credit score), but keeping your account balances below 50% of your credit limit dramatically improves your overall credit score (this accounts for 30% of the total score).  The article also advises you to not open unnecessary accounts or make too many credit requests, as multiple credit inquiries could ding your score.   Credit history is important because it establishes your payment history, showing any potential lender that you have a good background with regards to paying off debt.  Even if buying a home is not in the foreseeable future, taking these steps now can make obtaining a loan for your first home that much easier.

The seventh talking point in the article concerns finding a great deal on a mortgage, something that is on everyone’s minds these days when thinking about a real estate purchase.  One of the reasons that the housing market is in trouble is due to unscrupulous lenders taking advantage of people with little money and substandard credit by offering them loans that looked good on the surface but turned out to be nightmares when the interest rates adjusted.  In these tough times, banks are much more careful when lending money, and securing a good interest rate might mean putting down at least a 20-25% down payment.  The article states that buyers can find good interest rates without having to deal with mortgage brokers, who may add upwards of 27% to a loan’s fees.  The article suggests going to a site like bankrate.com, where you can put in your desired location and loan amount to discover different lenders in the area and their loan terms.  Once you narrow down the list to a couple of potential lenders, contact each of them and ask for a good-faith estimate (usually free of charge).  The interest rates you receive from each may be in the same ballpark, but pay attention to the additional fees they charge for loan origination, document preparation, etc.  This takes a little work on your part, but it could end up saving you a nice chunk of change in the long run.

For more information on tips to help your purchase of San Clemente real estate become a reality, please do not hesitate to contact us. 

Mortgage rates have fallen below 6% for the first time since this past spring.  The 30 year fixed rate dropped from 6.35% to 5.93% last week making San Clemente real estate more affordable.  For example, a San Clemente home or condo financed at $700,000 based on a 6.35% rate would cost $4,355 per month.  The same amount financed with this past weeks rate of 5.93% would cost $4,165.  This would be a savings of $190 per month or 4.37%.  This would equate to a savings of $2,280 per year or $68,400 over the life of the loan if never refinanced.  The drop in rates is both good news for buyers and sellers.  Buyers can now afford more for their San Clemente real estate purchase and for sellers, this relieves some of the downward pressure on prices.

For more information on financing or San Clemente real estate, please contact us.

On Sunday, the government announced the bailout Fannie Mae and Freddie Mac due to these mortgage giants having serious liquidity issues.  The national housing market was at risk since these two entities back nearly half of all mortgages in the U.S.  But what does this mean for San Clemente real estate and the cost of borrowing?

The Good News: 

The bailout is crucial to turning the corner on falling prices for San Clemente homes and condos for sale.  The availability of mortgage financing and getting approved over the last year has been extremely difficult, meaning fewer individuals were able to buy.  With the bailout, there will be a greater availability of credit as the mortgage giants will be able to continue buying mortgages from lenders, which have been traditionally packaged and sold in the secondary markets.  Interest rates could drop by 1% as investors in the debt of Fannie Mae and Freddie Mac may require lower returns as the risk of losing their money is now fully protected by the government.  This is good news as the higher rates required by investors over the past year have made mortgages more expensive, and therefore, in part explaining why mortgage applications have been down 27% and home prices have fallen.

The Bad News:

With foreclosures and deliquencies at an all-time high, lending standards will remain tight, especially for borrrowers with weaker credit histories.  Down payments up to 20% may still remain on San Clemente real estate and lenders are requiring credit scores of 700.  Borrowers with scores in the 600s may pay an additional 2.25%.   This would mean an extra $1100 per month on $700,000 financed for a San Clemente home or condo.  Once the housing markets show more stability (i.e. fewer foreclosures and deliquencies, inventory clearing and prices stabilizing) down payment requirements should begin to ease and lending standards return to historical norms.  Nevertheless, San Clemente should begin to see an uptick in sales as their are some great deals  to be had, specifically on foreclosures or sellers desperate to move.  Buyers with patience will find these deals with the assistance of a specialist.

For more information about San Clemente real estate and what the bailout means, please contact one of our specialized San Clemente real estate agents.

In a recent study conducted by J.D. Power and Associates to determine the real estate companies that rank highest amongst buyers and sellers in customer satisfaction, a couple of very interesting trends were highlighted.  As has become the norm over the past couple of years, a large proportion of buyers and sellers began their real estate process online; 68% of buyers used Internet tools throughout their real estate purchase process, and 61% of sellers primarily used a website listing to market their homes while crediting online methods as the most important aspect of marketing their homes to potential buyers.  While the Internet has become a central force in the buying and selling of real estate, the report also notes that agent professionalism, responsiveness and market knowledge are still crucial components to customer satisfaction.   

For the past couple of years, study after study has shown the rising importance of Internet marketing with regards to real estate.  From a seller’s perspective, this is a low-cost method of marketing that will reach the widest possible audience by utilizing the Internet and its variety of search engines.  With over two-thirds of buyers using the Internet for their real estate searches, your property’s online presence is vital to its ability to sell.  The study shows that the average time a listing stays on the market before a sale is a little over 6 months, meaning sellers need to think outside of the box in order to get their homes sold in a shorter amount of time.  At San Clemente Coastal Living, we focus on the Internet as our primary marketing arena to help sell your San Clemente home.  Our listings receive home page placement on our website and are not mixed with listings from other areas - we deal exclusively in San Clemente in order to attract serious community buyers, not shoppers looking throughout Orange County.  On top of this, we display your listing on a variety of real estate websites to create maximum exposure, and we do not settle for simply cutting and pasting a link to the MLS listing.  We use the latest technology to create state-of-the-art online listing presentations so that potential buyers have a clear picture of the property before they even pick up the phone to call us.  For more information on the services we provide to sellers, please click here.

While having a strong presence on the Internet will help both buyers and sellers with their San Clemente real estate processes, our customer service is what sets San Clemente Coastal Living apart from other real estate companies.  Our mission has always been very clear - the client is always more important than the deal.  We are experts on the San Clemente real estate marketplace because we are exclusive to San Clemente, unlike other companies that work in multiple locations.  Our blog serves as a great educational tool for buyers and sellers, not only to provide national, regional and local real estate news and analysis, but to give you a better feel for San Clemente as a wonderful beach community with a small-town feel.  We are just as interested in finding a lifestyle that fits your needs as we are in putting a roof over your head.  Buyers can feel confident that they will receive the utmost amount of care and expertise when searching for their home with San Clemente Coastal Living.  For more information on the buyer’s services we provide, please click here.

If you have more questions about our services or wish to learn more about utilizing the Internet for your real estate needs, please contact us.

For the first in this series on Financing 101, San Clemente Coastal Living thought it would be appropriate to address how important your credit score is to getting approved on the the purchase of a San Clemente home or condo for sale.  The first thing as a buyer you need to take a look at is your financial profile, or in other words, your credit score.  Credit scores range from 300-850 and borrowers with a score of 700 or above are typically considered prime borrowers.  So lets break down how your credit score is calculated and how you can improve it.

First, 30% of your credit score is based on what’s known as your credit utilization ratio.  This is how big your balances are compared to how much credit is available to you.  It’s recommended you leave 50% of your available credit open in order to not ding your credit score.  Therefore, one of the fastest ways to improve your credit score is to pay those balances down.

Another 30% of your credit score is based on your payment history, and therefore, paying on-time is critical.  Late payments will stay on your records for as long as seven years, however, your credit score will begin to improve after six months of on-time payments.   After one year of on-time payments, you should see a huge leap in your credit score.

10% of your credit score is based on how many times you apply for new credit, and therefore, opening new credit lines before you want to refinance or take out a mortgage could prevent this from happening.

 The rest of your credit score is based on length of credit history among other factors.  One thing to keep in mind, however, is to review your credit report annually for errors as a recent study found that over 75% of credit reports contained some sort of error.  Having an error on your report could prevent you from buying the San Clemente home of your dreams.  With this being said, you are entitled to a free credit report every 12 months and can obtain it off FreeCreditReport.com.  If you happen to find errors, then you can respond to the credit bureau as they have 45 days to investigate the claim once found.  You will also want to contact the creditor who reported the error.

For more information about financing or San Clemente real estate, please feel free to contact us as we will be happy to provide you a free consultation.

Due to recent requests from current and past San Clemente real estate clients, we have added a foreclosure and short-sale section on our website under Real Estate.  This page includes all the current foreclosures and short-sales currently available in the San Clemente real estate market.  In addition, you now have the opportunity to search foreclosures and short-sales through our property search engine at the top of our website.  This will enable you to search San Clemente real estate foreclosures and short-sales by price, bedrooms, bathrooms, neighborhoods, etc. 

Please keep in mind the majority of the foreclosures and short-sales are in the Talega real estate market, the most inland and newest area of San Clemente.  Talega real estate, both homes and condos, has experienced the most foreclosures due to the majority of the community being developed and sold during the real estate boom.  Since a lot of the Talega homes and condos have been sold over the past couple years, many homeowners are either forced to foreclose or face the difficult choice as their homes are worth less than the amount they owe.  Some of the other areas of the San Clemente real estate market are experiencing the foreclosure pain as well, however, not as significant.  Lastly, buyers need to remember that while the San Clemente real estate market has experienced price declines and foreclosures, the market has held its ground relative to the rest of the county and state as median price has fallen around 10% over the past year as compared with 26% for Orange County and 35% for California.

For more information on foreclosures, please read our past blogs, “How to Buy a San Clemente Foreclosure“ and/or contact us.