How to buy real estate today and get a 2.75% mortgage rate

Jim Porter

Solano Real Estate Scene: Jim Porter

Article By: Jim Porter – September 8, 2023

In the seventies and early eighties, high-income individuals bought a lot of real estate because the income tax rules allowed for high-income individuals to write off unlimited amounts of paper losses regardless of their adjusted gross income.

Buying real estate not only produced rental income and appreciation but gave doctors, CPAs, lawyers, and high paid executives huge tax losses from depreciation, interest, and other deductions.

In 1986, this all ended abruptly with the IRS limiting passive losses for high income individuals. There are still significant income tax benefits and write offs for owning rental properties for folks that have adjusted gross taxable incomes below $150,000 but for higher-income folks, the passive losses are stored up and can be used later in life to offset capital gains or when the investor’s AGI is below the IRS income threshold.

My brother is the CPA in my family, so I could be off on some of the notes above, but this article is not meant to be about taxes, it’s about buying real estate, a hard asset like gold and silver, that unlike precious metals, produces income, and like precious metals, is considered an inflation-fighting investment.

Chuck Woolery, William Devane and Pat Boone have all been preaching about gold and silver for years as a hedge against inflation and a haven from the volatility of the stock market. Nicole Kidman and Wayne Gretzky own a bunch of gold as part of their diversified portfolios and Warren Buffett, and funny men Martin Short and Jack Black own a ton of silver.

DiCaprio, Winfrey, Schwarzenegger, and Diane Keaton are huge real estate investors. Keaton is an Oscar winning actress but she’s also a serious real estate flipper who buys, renovates, and sells her celebrity homes. She learned this skill from her father, who was a real estate broker.

Leonardo bought his first house in the late nineties and is a big fan of real estate investing. One of his investments is Dinah Shore’s old house, 432 Hermosa in Palm Springs, which he rents out for $3,750 per night with a two-night minimum.

OK folks, here is how you can buy local real estate today and get a mortgage rate at 2.75%. Step 1: Find a homeowner who bought a starter home in the last 15 years and has outgrown their home and needs more space. This homeowner must have 700 plus FICO scores, a decent financial statement, a steady source of income, a mortgage rate at 3% or below, and a nice house in a good location for a rental.

Step 2: Offer to buy a percentage of the property for cash.

Step 3: Create a simple partnership agreement and use a lawyer, real estate broker or at least a title company to record and insure the grant deed from the seller’s name into both names. If you get lucky, the seller could be a child, brother, nephew, parent, or best friend.

Here is a scenario: Joe and Cathy are 38 years old and bought their 1260 square foot starter home in 2014 and since then have remodeled the home, put on a new roof, received promotions at work, and now have three kids 5, 7 and 10. The home’s value is $600,000 and they owe $320,000 on their 2.75% mortgage which now has 27 years left on it since they Refi’d in 2020.

Joe and Cathy want to move up to a 2200 square foot 4-bedroom home, but they don’t want to lose their 2.75% rate and they are nervous about taking out a $100,000 2nd mortgage on the departing residence for the down payment on their new larger $770,000 home, which will need to be financed at 7%.

Joe’s uncle Tony wants to invest and writes a tax free $140,000 check to Joe and Cathy via escrow for 50% of the equity and a grant deed from owners Joe and Cathy to 50% Joe and Cathy and 50% Uncle Tony as tenants in common. Uncle Tony just bought 50% of this awesome $600,000 house for $300,000 with $140,000 down payment and now has a $160,000 loan at 2.75% with a high-quality partner.

Joe and Cathy now have $140,000 tax-free money to use for the down payment on their forever home, a rental property worth $300,000 as part of their growing investment and retirement portfolio and a high-quality partner that has agreed to assume 50% of all the liability and work related to this rental property.

All promissory notes have a due-on-sale clause; however, I have never seen a loan called by a lender over my 35 years in the business where an owner and borrower remained on title and added an additional owner to title or transferred the ownership into a trust.

Jim Porter, NMLS No. 276412, is the branch manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.

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