3 reasons to make smaller down payments

My friend Jay Vorhees at JVM Lending put together some thoughts on why you should make smaller down payments. I thought this was an interesting idea, so here is his blog reprinted, with my thoughts at the end! Read on:

We recently had a borrower with ample income and about $70,000 of liquid assets try to squeeze into a $600,000 home with 10% down. She wanted us to put as much down as possible to minimize her housing payment. We instead talked her into putting 3.5% down and using FHA financing for the three reasons discussed below.

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  1. Pay off consumer debt: When buyers have a lot of consumer debt, we always encourage them to make smaller down payments and then use the remaining cash to pay off consumer debt. The monthly savings from paying off consumer debt almost always far exceed the potential savings from having a smaller mortgage. In addition, mortgage interest rates tend to be much lower than consumer debt interest rates and most mortgage interest is tax-deductible, while consumer debt is not.
  2. Save cash for the “unexpected”: Many buyers vastly underestimate the amount of cash they will need for unanticipated expenses once they buy a home, especially if they had been renting. These costs include moving costs, new furniture needs, new appliances, minor home improvements of all types (window treatments, floor coverings, etc.), higher utility bills, and higher yard and home maintenance costs.
  3. Take advantage of low rates: When rates are this low, it is much more affordable to put less down and to borrow more in any case.

These are good thoughts by Jay. However, a buyer is at a disadvantage if multiple offers are made. It is more likely, in that scenario, that you will lose out to someone with more money down and they may remove some or all of their contingencies. Each situation is unique and all options should be discussed so a buyer understands the pros and cons and can make an informed decision!

Another successful pie party!

Thanks to all of those who braved the rain and came out for my pie party last week; it was a great success! I had 42 pies, but due to the rain and traffic, some did not make it and the extras were also donated to the Trinity Center. I really enjoyed catching up with some familiar – and meeting some new – faces! I love hosting, and this is one of my favorite events of the year.

All in all, you helped me send an SUV full of donations (clothes, food, shoes, etc.) to the Trinity Center, and I was able to donate over $900 (checks and gift cards) as well! What a wonderful gift from all of you!

I believe the best part about the party itself was that it connected people in the community who hadn’t seen each other in a long time! There were lots of great conversations and drawing for door prizes. Some people just came by to drop off a donation, pick up a pie, but many “gathered” and mingled.

A special thanks to Daryl “Indy” Choy for giving out chair massages to my guests, plus two massage gift certificates! And an extra shout-out to the folks (Bob & Peggy) who sent me the picture (see below) of them dressed as “private pies.” I got a kick out of that! I hope to see you all again next year as this event continues to grow! Now I just need a bigger, more open space. Maybe a remodel…

Road Trips: Sonoma

I recently went to Sonoma to meet up with my old accountability group. It is always great to see everyone with whom I spent six years coaching. Mara from our group lives in Sonoma and organized the outing in a big and fabulous way!

We started out tasting wine at Jeff Cohn Cellars and got the red carpet treatment by Peter Griffith, who is the husband of Franci (one of our group members). I got a great price on a Magnum Pinot called Smoke & Mirrors (reminds me of an Imagine Dragons song), signed by Jeff Cohn which will be enjoyed at Thanksgiving! Lots to be thankful for! I also learned about an unfortunate reality from those devastating fires in the area over the past couple of years. Read on for more!

We then walked 10 feet and went into the Red Grape for a salad and pizza lunch and continued to reconnect. After lunch, we walked a block to a bubble bar called Sigh.

The owner of Sigh was full of information about champagne and its history. The lounge is designed with mirrors full of quotes about champagne. Rumor has it that French people don’t pop corks because it’s rude, so they let it out very slowly which sounds like a sigh, hence the name!

One thing I learned from Mara is that Sonoma local businesses are hurting right now because everyone thinks they are closed down due to the fire damage from the past couple of fire seasons. That couldn’t be further from the truth! Sonoma was spared, and the businesses are operating regularly.

What is so cool about Sonoma is the big square and all the businesses that surround it, so please go up and visit and enjoy a weekend in wine country! It’s always a worthwhile road trip from Walnut Creek.

Viel Spass bei Bierhaus!

That headline translates to “lots of fun at Bierhaus!” And is that ever accurate! I was invited to Bierhaus‘ grand opening in Walnut Creek on Nov. 15, and had a great time. For those who aren’t familiar, Bierhaus is the second Bay Area location, behind Oakland.

As you can guess, Bierhaus is German-themed and inspired. They wanted to create another community-minded space where old and new friends gather over good food and beer. So, they created the Walnut Creek location with an extensive dining hall, large beer selection, and a Bottle Shop.

Beer can be purchased for both in-house consumption or for take home. Also, the large, outdoor biergarten itself is pet-friendly, which you know I love!

This grand opening included a ribbon cutting ceremony with the owner Mike Finley and city officials, including Cindy Silva, our current Mayor. After a brief dedication, the beer was flowing along with some tasty food that included two tables of cheese and charcuterie. In addition, servers walked around with platters of pork sliders, Bavarian pretzels, french fries, and currywurst!

I am most excited to come back and try their Schnitzel! They had a traditional German band playing the night of the grand opening and I saw another band playing last Sunday evening. If you are there with the kids, they also have a shelf of games that can be taken to the table and played. As part of their community outreach, they partnered with ARF and asked for a $20 donation to support ARF’s programs. They raised $840 for their charity partner! Wow, Walnut Creek!

I think Bierhaus is in a perfect location with city parking above, the movie theater a block away, and close to Broadway Plaza for an after shopping reprieve. Their price point also supports going and hanging out with friends and drinking some beer. I foresee the summer months will be packed full of people in the biergarten. If you are craving some good food, great company, and even better beer, check out Bierhaus in Walnut Creek at your next opportunity! Prost!

Pie Party / Trinity Donation!

Next week, my annual pie party and donation drive will be taking place! I am looking forward to seeing some familiar faces, along with some new ones.

This effort supports the Trinity Center in Walnut Creek, which is a homeless shelter helping to assist those in need around our area. I believe the reason Walntu Creek doesn’t have a large homeless problem is because of the good work done by the Trinity Center to offer them viable solutions.

I used to do a just a coat drive for the one warm coat, but the last three years I have made it a pumpkin pie pick-up party with a donation drive supporting the Trinity Center. I supply the pie, the party and people bring donations for Trinity, and it is a wonderful pre-holiday time to connect with neighbors and clients. Any pies that don’t get picked up, also get donated. Since I distribute this flyer in Parkmead, I usually hire students or moms to pass them out and pay $25. This year a neighbor Cynthia helped and asked me to donate the money to Trinity – I will be buying a Chevron gas card.

This year, they are asking specifically for some clothing items in both men’s and women’s sizes. See the image below for details. Items can be used, but clean with no holes or stains, but certain items like underwear should be new ;-).

As for the pies, reserve one today and make sure to bring a donation for the Trinity Center. If you can’t swing by to pick it up yourself, message me and we’ll arrange something. Try to come by and get it yourself, because the party I’m hosting will be a blast!

People staying in homes much longer – is this a problem?

My friend Jay Vorhees at JVM Lending recently posted a blog about how people staying in homes longer creates an inventory shortage. Here are his thoughts below.

“Fewer homes for sale is a big reason why even ultralow mortgage rates, record levels of home equity and a strong job market haven’t jump-started the sluggish housing market.”

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The above quote is from this recent WSJ article – People Are Staying In Their Homes Longer – A Big Reason for Slower Sales.

According to the article, homeowners are now staying put for an average of 13 years, or 5 years longer than they stayed as recently as 2010. This, of course, puts a huge damper on inventory levels.

Below are several reasons why people remain in their homes longer now:

Baby Boomers are living longer and are much healthier

Because of this, baby boomer-homeowners are less likely to downsize as soon as they would have in years past.

Property tax exemptions

Many homeowners have special property tax exemptions that they cannot take with them when they move, so they stay put in order to preserve them.

Too expensive to move up

Many homeowners who bought years ago and now want to move up cannot afford to do so because there has been so much appreciation in the housing market.

Don’t want to give up low rate

This was not mentioned in the article and it is not as much of a factor now, but it was a significant factor last year when rates were much higher. Many homeowners with very low fixed rates (in the low 3% range) do not want to give them up. And moving when rates are higher forces them to give up their low rates.

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Capital gains taxes

This is a much bigger factor than most people realize. The WSJ article uses a Danville, CA couple as an example. They bought their home in 1987 for $440,000 and it is now worth $1.8 million. If they sold, they would have to pay capital gains against almost $1 million of capital gains (after their exemption). If you are single or divorced and have the house then you only get $250k of capital gains write off vs. $500k.

This is an even bigger factor for investors. I recently blogged about my nephew renting a $2 million home for $4,250 per month in San Francisco. That works out to less than a 2.5% return against a $2 million asset. I realize that is over-simplified, as there is much more that goes into a full real estate investment analysis (appreciation, cash out of pocket, debt service, maintenance, depreciation, taxes, etc.) but there are millions of landlords across the country who are sitting on poorly performing properties solely to avoid capital gains taxes. We see this constantly when we are pre-app roving borrowers.

Kristin’s note: The state is trying very hard to figure out our housing shortage by focusing on ADUs – “additional dwelling units,” better known as in-law units. Consistent laws have been made across the state, but, come January, a few of the current laws will be changing to make it even easier for somebody to build an ADU in their backyard. For example, you used to have a parking garage space for the ADU unit and the owner had to occupy at least one of the living spaces. Stay tuned for a future blog about those upcoming changes.

Event Round-Up: Nov. 16, 2019

Looking for some fun activities between your family time around Thanksgiving? I’ve got you covered. Here are five local events you can do over the next month or so!

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Walnut Creek on Ice! (thru Jan. 20, 2020)

If you haven’t taken advantage of Walnut Creek’s little ice rink in previous winters, now is your chance! Visit their website for more info on prices, hours, etc.

Leonids Meteor Shower (night of Nov. 17) – Anywhere!

This is a regular event, but still well-worth staying up late to watch! If it’s a clear night, you can wrap up in a blanket in the backyard and see a dazzling display of shooting meteors. One of nature’s best performances.

Exploratorium After Dark (Nov. 21) – San Francisco

This week’s Exploratorium After Dark is called “Nonsense Machines,” which sounds just so San Francisco. This is a super fun adult nighttime outing in the City. Tickets are about $20!

Jack London Square Christmas Tree Lighting (Nov. 22) – Oakland

Always wanted to witness a huge public Christmas tree get lit up? Now’s your chance! Go down to Jack London Square and bring the kids for this free event on a Friday night. The event begins at 5 p.m.

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Walnut Creek Holiday Stroll (Dec. 6)

Stroll down the streets of Walnut Creek and take advantage of open houses, sips and savors, caroling, live music, an ugly sweater contest, and more! It kicks off at Water Light Public Plaza at 5 p.m.

Nabolom Bakery in Berkeley is a must-try

What I love about the Bay Area is if you get out and explore, you will always come across some neighborhood gems. I was meeting a friend who lives in Albany to head into the city and she recommended we meet in Berekely where one car could be parked for the day. It was blocks from Nabolom Bakery on Russell St. It looked like a quaint, family-run joint and she recommended stopping to get a coffee and pastries; of course I had to give it a try and it turned out to be a very good decision!

I love supporting local businesses. I had a croissant and a cappuccino – my go-to breakfast choice. I also spied some gorgeous loaves of bread – which is my kryptonite – and passed on buying one for later as I probably would have snacked on it during our drive to and from the city!

This little bakery seems to be very popular with locals. They don’t have much pizzazz in the way of decoration, but the options are endless, and they had some very tasty-looking bakes that I didn’t get around to trying.

Nabolom’s has been around since 1976 as a collective and then closed in 2015. Luckily, in 2016, they reopened under the stewardship of Julia Elliot where they acquired the original Nabolom’s recipes. They added daily pizzas a la Julia’s Cheese Board Collective experience. They are open from 7-7 and are closed on Mondays and Tuesdays, so be sure to swing by on your next jaunt through Berkeley. You won’t regret it!