Sonoma Clean Power Comes to Town

 

If you live in an unincorporated part of Mendocino County, or in the cities of Fort Bragg, Willits or Point Arena, you should have received a letter from Sonoma Clean Power (SCP) in June, letting you know they’re taking over for PG&E as the region’s electricity supplier. PG&E will continue to maintain the wires and manage the grid, but thanks to California Assembly Bill 117 back in 2002, local governments can choose to purchase electricity on behalf of their communities.

If you compare rates, you’ll see that SCP’s electricity is slightly less expensive than PG&E’s for both their standard electricity and their extra environmentally friendly option, and that more of SCP’s standard electricity comes from renewable sources.

PG&E offers a standard program and a program called Solar Choice, which produces 100 percent of its electricity via solar energy. The standard option costs $0.24138/kWh, while the Solar Choice program costs $0.26748/kWh.

SCP’s standard offering is called CleanStart, and it costs $0.23925. Its extra environmentally friendly program is called EverGreen, and it produces 100 percent of its electricity from geothermal power. EverGreen costs $0.26425/kWh. For the average customer, the premium for EverGreen is 2.5 cents more per kWh, or about $13 more per month than the standard CleanStart. option

With SCP you will save $0.00213 per kWh or about $1.10 per month on a $120.00 bill. If you opt for SCP’s EverGreen over PG&E’s Solar Choice, you’ll save almost $2.00 per month on a $130.00 bill.

Like most people, I’m happy to pay less for electricity, but I was not happy about the fact that I received a letter from SCP in June—the same month the change to SCP occurred (the change-over happened on customers’ June meter-read date). To stay with PG&E, I would have had to opt out of the SCP service. Otherwise, along with everyone else in the region, I was automatically moved over. If you want to go back to PG&E, you needed to do so within 30 days of your switch over or pay a fee.

SCP touts its strengths as providing cleaner energy, lowering greenhouse gas emissions, and offering more local control (with public meetings for rate setting and customer program design, among others). SCP is a not-for-profit public agency “independently run by the participating cities of Cloverdale, Cotati, Fort Bragg, Petaluma, Point Arena, Rohnert Park, Santa Rosa, Sebastopol, Sonoma, Willits, Windsor, and the counties of Sonoma and Mendocino,” serving Sonoma County customers since May 2014. The fact that it is a not-for-profit organization means it reinvests revenues into the company rather than paying shareholders in an effort “to keep rates stable, build reserves, and to fund local customer programs,” according to company literature.

Because PG&E is still delivering the electricity via its poles and wires, our bills will continue to be from PG&E. Apparently, PG&E will then pay SCP their share of the money. If you have questions about SCP, you can check out their website at sonomoacleanpower.org or call them at (855) 202-2139.

I think this is probably a net gain: cheaper energy from more renewable resources. As long as that remains the case, we may all be in good shape.

However, here’s a thought to consider: how much do PG&E and their stock holders pay in taxes, be they federal income taxes, state income taxes, or local property taxes? As a not-or-profit, SCP pays fewer, if any, taxes. Is SCP actually cheaper or is it just transferring costs from your utility bill to your tax bill? If a government agency sees reduced revenue in one area, do you really think the agency won’t collect the revenue from you somewhere else?

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

Other People’s Money for College

Other People’s Money for College

Consider the goal of funding a child’s college education in the future. If “other people’s money” in the form of a scholarship is not a possibility, there still may be another way to use some “other people’s money.”26458431-250.jpg

A $25,000 investment into a mutual fund paying 5% would earn $1,250 in the first year. Alternatively, the $25,000 as a 20% down payment to purchase a $125,000 rental home appreciating 3% a year would have gone up by $3,750 or three times that of the mutual fund in the first year.

The mutual fund’s growth depends on the value of the money invested. Rental real estate benefits because a 20% down payment controls a much larger asset because you’re using “other people’s money.” Leverage allows the investor to profit not only from the amount of cash invested but from the value of the investment.

With a 20% down payment and current interest rates, a typical rental would have a positive cash flow. In ten years, the equity could be $75,000. On the other hand, the $25,000 initial investment in a mutual fund earning 5% annually would only grow to about $40,000 in the same 10 years. It would require an additional $2,700 each year to reach the same $75,000 value.

Leverage is just one of the many benefits that make rental real estate the IDEAL investment. Whether you are saving for higher education, retirement or wealth accumulation, consider rental real estate. Using single-family homes as investments are attractive because homeowners have a better understanding than many other investments and self-management is a possibility.

Til next time… May all your deals be easy ones!
Follow me on Twitter @yourmendorealty

Clint Hanks                                   707-391-6000

The post Other People’s Money for College appeared first on Clint Hanks, 707-467-3693.

Buying Existing Loans

 

Last week, I shared information about hard-money loans, which are loans that often work when conventional loans won’t. This week, I’ll talk about buying and selling notes secured by real estate, a close cousin to real estate-backed, hard-money loans.

If you sold a property and carried the financing, you are now the proud owner of a note secured by a deed of trust. The note outlines the terms of the obligation, including length, monthly payments, interest rate, and when any associated balloon payment(s) will come due, among other things. (A balloon payment is a payment that amounts to more than double the value of a regular payment, and is usually planned as the final payoff at the end of the loan.)

The main job of the deed of trust is to tie the specific loan to the real estate that secures it. In a seller carry-back situation, the real estate is normally the property you sold. When you sold the property and carried the financing, there may have been good reasons to do so: a higher sales price, a faster sale, a better return on investment than was available from other investment sources; or maybe the sale could not have happened at all without seller financing. Now, however, things have changed. Your princess may be about to graduate from high school and hoping to go to college, or perhaps you want to remodel your home or take advantage of an exciting investment opportunity.

Whatever the reason, you’re currently in a position of needing cash. Happily for you, that note secured by a deed of trust is a negotiable instrument. That means you can sell it.

Depending on a number of factors, you will usually get something less than the outstanding balance owed. If the financing you provided was at a low rate or had an especially long term, the note’s sales price will almost certainly be less than the outstanding balance. If the loan-to-value (LTV) ratio is high—calculated by dividing the total loan amount by the value of the property—you can also expect to sell the note for less than the outstanding balance. Still, cash in your hands may be worth more than the value of the note.

If you choose to sell the note, these transactions are typically handled by a licensed broker who charges a commission for arranging the sale. Like a real estate transaction, it should be handled in a professional manner, making sure all escrow instructions are carefully drafted and followed, and title insurance is secured.

As a buyer of this note, you should have your broker verify that the value of the property supports the loan, and that fire insurance and property taxes are accounted for. And most importantly, confirm that the seller does, in fact, own the note—and that there are no liens that might encumber the note. Your broker can also provide a financial analysis to let you know what the rate of return will yield if all the payments are made in a timely manner (including any balloon payments).

When the dust settles, the sale of an existing loan can be a reasonable source of cash for the seller and an attractive investment option for the note’s buyer.

If you have questions about real estate investment, sales or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com.

Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

 

Assumptions are an Alternative

Assumptions are an Alternative

In the late 80’s, both FHA and VA began requiring buyers to qualify to assume their mortgages. The main reason there haven’t been many assumptions in the past 25 years is that interest rates have been steadily going down and if a person has to qualify, they might as well do it on a new loan and get a lower interest rate.

Based on projections by Fannie Mae, Freddie Mac, the MBA and NAR, rates for the second half of 2017 and 2018 are expected to be higher. When interest rates on new mortgages are higher than the rates of assumable FHA and VA mortgages in the recent past, it becomes more advantageous to assume the existing mortgages.

FHA and VA loans originated with lower than current interest rates have great advantages for buyers and sellers.

  1. Interest rate won’t change for the qualified buyerunnamedLower interest rate means lower payments
  2. Lower closing costs than originating a new mortgage
  3. Easier to qualify for an assumption than a new loan
  4. Lower interest rate loans amortize faster than higher ones
  5. Equity grows faster because loan is further along the amortization schedule
  6. Assumable mortgage could make the home more marketable

An Assumption Comparison can help determine the savings and financial benefits of an assumable mortgage with a lower rate.

Til next time… May all your deals be easy ones!
Follow me on Twitter @yourmendorealty

Clint Hanks                                   707-391-6000

The post Assumptions are an Alternative appeared first on Clint Hanks, 707-467-3693.

Buying Existing Loans, called “Real-Estate-Backed Notes”

Last week, I shared information about hard-money loans, which are loans that often work when conventional loans won’t. This week, I’ll talk about buying and selling notes secured by real estate, a close cousin to real estate-backed, hard-money loans.

If you sold a property and carried the financing, you are now the proud owner of a note secured by a deed of trust. The note outlines the terms of the obligation, including length, monthly payments, interest rate, and when any associated balloon payment(s) will come due, among other things. (A balloon payment is a payment that amounts to more than double the value of a regular payment, and is usually planned as the final payoff at the end of the loan.)

The main job of the deed of trust is to tie the specific loan to the real estate that secures it. In a seller carry-back situation, the real estate is normally the property you sold. When you sold the property and carried the financing, there may have been good reasons to do so: a higher sales price, a faster sale, a better return on investment than was available from other investment sources; or maybe the sale could not have happened at all without seller financing. Now, however, things have changed. Your princess may be about to graduate from high school and hoping to go to college, or perhaps you want to remodel your home or take advantage of an exciting investment opportunity.

Whatever the reason, you’re currently in a position of needing cash. Happily for you, that note secured by a deed of trust is a negotiable instrument. That means you can sell it.

Depending on a number of factors, you will usually get something less than the outstanding balance owed. If the financing you provided was at a low rate or had an especially long term, the note’s sales price will almost certainly be less than the outstanding balance. If the loan-to-value (LTV) ratio is high–calculated by dividing the total loan amount by the value of the property–you can also expect to sell the note for less than the outstanding balance. Still, cash in your hands may be worth more than the value of the note.

If you choose to sell the note, these transactions are typically handled by a licensed broker who charges a commission for arranging the sale. Like a real estate transaction, it should be handled in a professional manner, making sure all escrow instructions are carefully drafted and followed, and title insurance is secured.

As a buyer of this note, you should have your broker verify that the value of the property supports the loan, and that fire insurance and property taxes are accounted for. And most importantly, confirm that the seller does, in fact, own the notes–and that there are no liens that might encumber the note. Your broker can also provide a financial analysis to let you know what the rate of return will yield if all the payments are made in a timely manner (including any balloon payments).

When the dust settles, the sale of an existing loan can be a reasonable source of cash for the seller and an attractive investment option for the note’s buyer.

If you have questions about real estate investment, sales or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com.

Dick Selzer is a real estate broker who has been in the business for more than 40 years.