The snow is[photopress:snow_picture.jpg,thumb,alignright] finally melting off the tree branches in my yard today. One foot of snow fell last Wednesday afternoon turning my normal 45 min commute to Issaquah into 4 hours. I’m really impressed with how well the agents are doing maneuver on these slick streets. I had a showing Friday night, Saturday and Sunday on one listing, even though the roads are still slick and hard to navigate out here in Issaquah.

Nice to be back to RCG. I’ve been buried in an investment class for the last 3-4 months and haven’t been keeping up with the post reading or writing. Came up for breath today and I see that a Welcome to all the new contributors is in order! We’re honored to have you on board. 

Given that it’s tax time, I want to remind everyone to be sure you’re aware of all the tax advantaged investment programs out there for real estate. Who knows how long these will last. There’s a great new program called a solo 401K to go along with the Roth IRA programs investing in real estate.  I’ve blogged about this before and hope you check it out especially if you’re paying taxes on any real estate gains this year. 

I’m building a good retirment by investing this way and it will all be tax free.  A key player in the IRA game is the custodian.  I’ve been waiting for the new custodian in Seattle, Viking Bank with Jim Winder in charge of the Self Directed IRA department to get their website up and running so that RCG readers can get information on line. Jim Winder is a well known guru of self-directed IRA’s and he is respected local celebrity and has taught many many classes in the past.  He promises the Viking Bank site will be functional soon.  But it is tax time so until then, I’ll direct you to Pensco Trust to learn all you need to know about some really great tax strategies using some of the money you’ve already socked in retirement plans. Pensco Trust is a national leader in IRA education so I hope you find these articles helpful.  

Once Jim’s fully in the game I’ll post you his site and when he’ll be teaching live classes.  LTD will be hosting one, soon, I hope, and by the way, I met Jim here on RCG!

PMI is NOW Tax Deductible

[photopress:Anne_business_card_pic.JPG,thumb,alignright]My friend and colleague (disclosure) Anne Brown of AB Homelending and I have been discussing the fact that PMI is now tax deductible.  Here are her thoughts:

“It’s taken a long time, but finally Private Mortgage Insurance (PMI) is tax deductible.  A loan over 80% loan to value (less than 20% down payment) is required to have PMI unless the loan is split into a 1st and 2nd mortgage.  Until recently, the additional cost of this insurance was not tax deductible. This is Great news, but proceed with caution…     
Here are my two cents: If you take a loan with PMI then the question is what will the investor or PMI company accept for an appraisal to prove the 20% equity.    Obviously their motivation is to A) be protected and B) make money (respectively).  From previous experience I’ve seen in-house appraisals come in lower than market value so be aware that there is a factor of lack of control for removal of the PMI.  Who would want to be stuck with the PMI if the new value is challenged? Just my thoughts. Anne Brown”

Unfortunately her thoughts raise more questions than they answer! LOL  So I thought maybe we could have a discussion here and invite other lenders and accountant types to comment on this important topic.

My thoughts (Ardell speaking here, not Anne)

Back in the old days, when I started in real estate, it was common for the first mortgage to be 95% with 5% down at one low rate.  The monthly payment included the PMI charge, which was not tax deductible.  PMI being Private Mortgage Insurance insuring the lender on th 95% financing loan for the amount above the 80%…in this case 15%.

Today, instead of PMI, most borrowers get a first mortgage for 80% at a LOW rate and a second mortgage at 15% at a HIGH rate in order to avoid PMI.

The question of the day therefore is, when is the buyer better off WITH the PMI instead of the HIGH RATE second?  At least that is MY question of the day.  How does a buyer evaluate which would be better in the long run for them?  I expect the high rate second was cheaper before this news that PMI is tax deductible, or so many would be going that route.  Does this news change that?  If so, does it change it for everyone…or only people in very high tax brackets?

A tough topic…but an important one.  Hope those who know more on this will comment freely to the enlightenment of us all.