I just learned something interesting regarding short sales in the Denver real estate market.

Let me give you the story;

I found a home for my buyers the first week in December 2008 in Castle Rock. It was a short sale. I proceeded to explain to my clients the potential problems, roadblocks and/or issues surrounding short sales in Denver. For example; it might take 6 months for us to get an answer from the short sale bank, these homes usually come as-is and a bunch of others reasons. After understanding the potential problems they decided to push forward with the offer. Well, to make a long story short, our offer got accepted the very next day WITH SHORT SALE APPROVAL.

We proceeded through the purchase process and get 3 days before closing. My client flies into town preparing to move in and I get a call from the title company telling me the short sale has not been approved. Not been approved?!?!?! We have already gone through Appraisal, inspection, 2 two-way airline tickets, the entire loan process let alone 18 or so contract deadlines and now I’m being told we don’t have approval when I have it (meaning the written approval) right in my hand.
Here is the moral of the story;

Even after the bank has agreed on a price for the short sale, and I mean agreed in writing, they are not obligated to sell the home until they have officially signed off on the final HUD. I have spoken to a half dozen Colorado Real Estate Attorneys in the past few days and the truth is…..Until your buyer has the keys in their hand, there are zero guarantees when dealing with a short sale property! They are not liable for ANYTHING until their signature is on that piece of paper at the closing table.

Forget contracts, they’re apparently worthless anyway….let’s just shake hands and call it a day!
I’m sure you don’t believe me. Check with your attorney and let me know. I am itching to get some comments on other’s opinions.

The example below is just a general idea of how owning a home is going to affect income taxes.

IN 2008 tax brackets for federal income tax runs from $8025-32,550 for 15% tax bracket and income from $32,550-78,850 is in the 25% tax bracket.

If your interest rate was 6% on a 165K loan your tax deductible mortgage interest would be $11,345.51 for the year. Your estimated yearly property taxes could be anywhere from $1100-2000yr. Let’s say its $1400 (because this is going to get us to our desired monthly payment of 1200 or less). As long as you are in either the 15 or 25% tax bracket then in addition to mortgage interest and property taxes you will be able to deduct your mortgage insurance; this could range monthly from $90-$130. Let’s estimate in the middle and use $110.0 that would be an additional $1320 a year to deduct.

My tax attorney said today that being a home owner brings about many additional deductions in addition to the obvious ones like mortgage interest and property taxes. I would love to give you my CPA’s contact information for a consultation he is really great, just let me know if you are interested in using him.

Remember we are allowed to itemize additional deductions that are not included below like the single deduction for $3450 for each dependent. The example below is just comparing the basic real estate deductions

**First if your income is higher than 32,550 you are currently in the 25% tax bracket and if you own a house you will more than likely drop into the 15% tax bracket and that’s HUGE. I’m not going to compare the two tax brackets because I’m going to assume that you are deducting something and getting yourself down into the 15% bracket already…I hope you are.

15% tax bracket 32,000 income Taxable ~ $4800 Federal tax

32,000 income – 11,345.51 (mortgage interest) -1400 (real estate tax) -1320 (mortgage interest) =17,934.49 taxable income = $2690.17 federal tax

Savings = $2109.83 yearly or $175.82 monthly. **** So if you think about it, you have an additional 175$ in your pocket every month if you own a home vs if you rent. AND this home is going to appreciate over time also giving you a retirement vehicle. You could adjust your take home accordingly, and put the additional money in various retirement plans , CD, 401K or just savings. You would be actually paying the same amount you would in rent, but you own the home have the opportunity for appreciation and now have the money to start contributing more to retirement. I read a study once that suggested our overall wealth is largely decided upon when we buy our first house.. incredible isn’t it?

Let me know your thoughts!