Understanding Securities Based Lending

Previously we laid out the back story surrounding the current economic environment and addressed tax issues faced by today’s affluent securities investor and purchaser of luxury properties in desirable towns such as Atherton, Palo Alto, and Los Altos. Now we move forward with a key aspect of the process used in the strategy:  Securities Based Lending.

The incredible opportunity for today’s investor exists because of the desirability of their available collateral, stocks and bonds.  While securities change price daily, there is a high level of comfort for an investment bank when they can easily monitor the collateral and potentially have immediate liquidity if necessary.  Collateral securities allowed will vary, but usually range from individual or concentrated stock positions, mutual funds, municipal bonds and government bonds. Retirement funds such as IRA’s and 401K’s are excluded from being used as loan collateral but are useful in other circumstances.  Advance amounts range from about 50% to as high as 80-90% of the value of the appropriate securities held by the investor at the investment bank.

Using securities as collateral is so attractive to investment banks that there are very few underwriting requirements for a borrower to qualify.  There is no minimum income level required, although tax returns usually will be requested on very large loan requests in excess of $10,000,000.   Even though an initial credit check will occur, it is primarily done to search for tax liens, not to determine a qualifying credit score.  No future credit reporting is done and the loan does not appear on a credit report.  The lending is typically done at no cost; no application fees, no underwriting fees, no closing costs or annual fees.

Presently the interest rates charged for securities based lending are exceptionally attractive because of the abundance of low cost short term funds. The one month Libor index is typically used for pricing and a margin is added.  The margin will vary depending upon the size of the line or loan established.  Total interest costs will be in the mid- 2% range when borrowing $10,000,000, to the low-4% range for $500,000 lines currently.

Interest costs will occur when funds are advanced and monthly payments are then required. However, depending upon the existing line equity available, the interest only payments can be capitalized and charged back to the line if desired.  The funds advanced can be used for any purpose other than purchasing more securities.  The most common use for Securities Based Lending is real estate transactions.

You are now familiar with basics of Securities Based Lending.  Knowledgeable financial advisors and informed Real Estate Agents customize this basic concept around their client’s needs as they purchase luxury properties.  We will build upon this information and the benefits from various situations will be explored, along with the ways of managing the associated risks.

We hope you’ve enjoyed Part 3 of our series!  You are invited to explore future posts discussing these strategies and more in the next weeks!  For more information on these programs, contact Dawn Thomas today at 650-947-4661.  She’ll be delighted to connect you with our local partner who offers solutions to the affluent buyer.

This blog is courtesy of The Dawn Thomas Team who is an award-winning Real Estate Agent team at Intero Real Estate Services in Los Altos 650-947-4661. We help nice people with selling and buying homes from Palo Alto to West San Jose!

Cash is King—-But There’s more to the Story

In our first blog of the series, “Luxury Home Buying Strategies Used by Stock and Bond Investors Revealed,” we introduced the idea of using securities to purchase luxury homes in the Silicon Valley.   There are many advantages in using this method in today’s competitive real estate environment, but there are “gotchas” that really need to be identified upfront.   It’s why consulting with an expert in this arena is critical.

Cash transactions appeal to virtually everyone involved in real estate.  Cash purchases can be a necessity when affluent buyers of luxury homes are not adequately served by today’s traditional banking and lending.  Borrowing funds can often open the door to potentially endless underwriting headaches, un-welcomed credit disclosure, and appraisal issues for even the most highly qualified candidates.  Many seemingly qualified buyers only qualify for insufficient amounts, if they qualify at all.   Cash provides for a timely closing, flexibility, and a higher level of predictability.

It is generally assumed that a stock and bond investor’s portfolio will be the source of funds to close. Unfortunately for the home buyer at this crucial time, their advisors typically have little incentive or reason to suggest other possibilities and don’t want to disrupt the transaction.  As with the client, most advisors aren’t aware there are other alternatives either.  Traditional thinking usually prevails and the investor home buyer liquidates their securities.  But then the consequences become apparent to the home buyer.

The client now owes taxes from the sale of securities.  Assuming that the stocks or bonds sold have been held for over a year, there will be a 15% long term capital gains tax due.  California state residents pay up to an additional 9.3% tax, (however the state tax can be written off against the federal resulting in about a 6% net tax obligation).  The California investor who has liquidated securities that create a million dollar long term capital gain is facing a tax bill as large as 21% or $210,000.  It will become even more costly in 2013 as there is a 3.8% Medicare Contribution Tax that will be added, and it is possible that the long term capital gains tax may increase to 20%.

The lack of having experienced and informed advisors has created a costly situation for the newly affluent investor that has participated in a successful IPO or for the long term holder of securities with a low cost basis that wants to buy a luxury property.  But this unwanted result can be avoided. The next post will discuss the solution.

We hope you’ve enjoyed Part 2 of our series!  You are invited to explore future posts discussing these strategies and more in the next weeks!  For more information on these programs, contact Dawn Thomas today at 650-947-4661.  She’ll be delighted to put you into touch with our local partner who offers solutions to the affluent buyer.

This blog is courtesy of The Dawn Thomas Team who is an award-winning Real Estate Agent team at Intero Real Estate Services in Los Altos 650-947-4661. We help nice people with selling and buying homes from Palo Alto to West San Jose!

Inventory continues to be tight, so savvy buyers and their Realtors have begun to dive a bit deeper to find the properties they are looking  for. The sales are happening, its just many of them are happening off-market.  As promised, we have a few to share with our readers.

Here is one in the sought after Barron Park neighborhood in Palo Alto:

OFF MARKET/ NOT ON MLS! Charming 1920′s 3bd/2ba fixer in livable condition with wonderful appeal. Feels like a private vacation retreat. Additional 1bd/1ba cottage on lot built in 1985 could be rental income. Or live in cottage while remodeling main house and create your dream home in this convenient and lovely Barron Park location. Walk to restaurants, shopping, new Starbucks. Great PA schools: Barron Park Elementary, Terman MS, Gunn HS. Don’t miss this rare off-MLS opportunity.Truly and incredible value! This property will go fast, please contact us immediately if you are interested in finding out more information or would like to schedule a viewing.

Another one in the Barron Park neighborhood of Palo Alto that is not yet on MLS but will be listed soon:

Laguna Ave 4 bedroom, 3 bath main house with a legal three room cottage with a bathroom. Although this house needs work, it does have a newer roof. The owner was planning on remodeling but will sell it now in AS-IS condition. With approximately 2,790 square feet and a lot size of 6,857 this could easily be a fantastic family home in a the sought after Barron Park neighborhood. This could be a great opportunity for someone looking for a separate legal cottage either for extended family or for some extra income and rent it out to a Stanford grad student.

If either of these properties are of interest to you, please contact us today. Even off market homes are selling very quickly and with multiple offers, so prompt and decisive action is an absolute must.

Looking in other areas? We can help, our extensive network of professionals enables us to find you properties that fit your criteria!

This blog is courtesy of The Dawn Thomas Team who is an award-winning Real Estate Agent team at Intero Real Estate Services in Los Altos 650-947-4661. We help nice people with selling and buying homes from Palo Alto to West San Jose!

Through out the Bay Area, but more specifically Silicon Valley and the Peninsula inventory is extremely low and everything seems to be selling as soon as it comes on the market! That is not the whole picture though. Now more than ever, sellers are option out of putting their house on the market, as many of the recent home sales happening with multiple offers and over asking with out ever going on the market.

There are many reason a seller might opt out of MLS, some for personal or privacy reasons, but quite frankly if your Realtor is able to do some pre-MLS marketing you may have offers coming in before you even have time to get there. Title companies are estimating nearly 20% of sales in Q1 2012 were off-market. You may recall our most recent listing in Willow Glen- as an example.

With all of these off-market opportunities being presented to us on a daily basis, we thought we would share!  They range in all price points form multi-million dollar single family estates in the hills of Los Altos and Palo Alto to multi-unit income property in North San Jose and everything in between!

Here is a super cute  3 bedroom 2 bath home in Los Gatos with great schools on a 6,500 square foot lot. The home has been nicely updated,with remodeled kitchen and baths, and is close to downtown. The property is listed at $899,000 and the seller is motivated!

Here  is a fine example of Victorian architecture, carefully restored to its original splendor located in College Terrace area of Palo Alto. High ceilings and large windows provide an abundance of natural light. The large, nearly half-acre lot offers a park like setting with stately oaks, a rose garden and established trees and plants. Two large patios and a wrap around porch are perfect for entertaining. Not to mention top notch Palo Alto schools!
• 6 large Bedrooms
• 2.5 Bathrooms
• Award-winning upstairs bathroom
• Formal dining and living rooms
• Parlor with abundant sunshine

Priced at $3,295,000

Contact us today if you would like information about these properties, or other off-market listings we are aware of!

This blog is courtesy of The Dawn Thomas Team who is an award-winning Real Estate Agent team at Intero Real Estate Services in Los Altos 650-947-4661. We help nice people with selling and buying homes from Palo Alto to West San Jose!

Spring is most definitely in the air...Los Altos Downtown has undergone quite the makeover, and is ready to entertain with some fun community building activities. And, it’s time for us to get outdoors and get downtown! That’s why …..You’re invited to the May 4th Downtown Los Altos First Friday!  This month’s event is called the “May Flowers Treasure Hunt”  from 6-8pm.
What’s the scoop? Over 30 downtown merchants will be participating in the event. The evening includes several fun – and free — activities including:
- May Flowers Treasure Hunt
- Drawings for over $1,000 of gift certificates donated by local merchants and restaurants
- Complimentary sweets from the merchants
- Mother’s Day card creation activity and cookies for children
- Music along the streets

An event program will be available for all who wish to participate, and maps will be distributed downtown that evening or you can pick one up at the First Friday HQ at 170 State St.
The Treasure Hunt is a fun opportunity for attendees to visit merchants and find a unique flower in each store.  Attendees who visit and find the flowers in merchants’ stores will be eligible to enter the drawings for over 20 local dining, merchandise, and services gift cards with a total value of over $1,000.
Children can participate in the Mother’s Day Card creation activity.  Several merchants will provide supplies for children to make the cards using different crafts supplies.  Children finish this activity with a completed Mother’s Day card and get a sweet of their own.
Multiple musical groups of different genres will be performing throughout downtown.

A number of sponsors have generously contributed to the First Friday event.

- Platinum sponsors include BK Collections, Nature Gallery, Los Altos Community Foundation and Passerelle Investment Company.

-Gold sponsors include Cover Story and the Los Altos Town Crier 

- Silver sponsors are Alabasta, the Flower Shop, Body by Vi, Cassidy Turley Commercial Real Estate, Cranberry Scoop, Crimson Mim, Gallery 9, JB&B Jewelers, Los Altos Community Chiropractic, Los Altos Hardware, and Wilbur Properties.

Here is some background on the event and the group behind it: Los Altos Forward, which is fiscally sponsored by the Los Altos Community Foundation, is a volunteer group dedicated to promoting vibrancy in our downtown.  One of the group’s initiatives is called the “First Friday”, which is a themed evening event planned for the first Friday of the month several times a year.  First Fridays provide a fun, social, and community-building evening for residents of Los Altos, Los Altos Hills, and surrounding communities.

Find those flowers before I do!

This blog is courtesy of The Dawn Thomas Team who is an award-winning Real Estate Agent team at Intero Real Estate Services in Los Altos 650-947-4661. We help nice people with selling and buying homes from Palo Alto to West San Jose!

It’s no secret that we are experiencing a dramatic financial evolution following the Great Recession, and it is having a profound effect on the real estate, lending and securities industries.  But today, depending upon your personal financial position, you could be looking at extraordinary possibilities that did not exist until recently. Now five years after the crisis began, investors are adjusting to the “new normal” by adapting innovative strategies to acquire luxury homes, borrow money and own securities.

Lower interest rates have had a positive effect on securities prices resulting in the major stock market indexes doubling in value since March 2009. The exceptional performance within the communications and technology sectors, along with numerous successful initial public offerings (IPO’s) has had a tremendously positive wealth effect for Bay Area securities investors.  As with securities investors, the real estate market has been a direct beneficiary of lower interest rates and there is high demand from newly minted millionaires for luxury homes.   Home inventories have dropped to low levels for desirable homes in many areas of the Silicon Valley.

Just as this financial evolution has created new opportunities for certain segments of the market however, traditional lending has had a more difficult time. Changes in banking regulations have tightened underwriting standards requiring borrowers to have documentable income, stable employment, good credit and larger down payments. Supportive appraisals are adding to the traditional lending difficulties as communities absorb short sales and foreclosures.  This process is further complicated by todays “A List” clients who expect more from their advisors than being expected to use obsolete and burdensome financial solutions. These clients want to know all of the best options.

What are the luxury home-buying strategies used by today’s informed stock and bond investors?  We will explore actual examples used by these affluent families.  We will learn how they collaborate with experienced specialized Wall Street financial advisors/bankers and informed realtors to purchase real estate with ease.   Here are a few things we will unfold over the next several weeks:

• Little known strategies that save up to 21% of the total cost of a home (This one concept alone could translate into hundreds of thousands of dollars in potential savings on the purchase of a luxury home for many buyers).
• Discuss how “A List” stock and bond investors borrow funds at extraordinarily low rates with little underwriting friction, yet participate in real estate transactions as “Cash Buyers.”
• The use of a no cost, no income qualifying, and low interest rate lending strategy where the loan will not appear on a credit report.
• How stock and bond investors purchase luxury homes for cash while continuing to own and grow the securities portfolio that created their wealth.
• Discuss the many ways that affluent families work together in acquiring real estate, satisfying wealth building and wealth preserving objectives for different generations.

We hope you’ve enjoyed this introduction to a few ideas!  You are invited to explore future posts discussing these strategies and more in the next weeks!  For more information on these programs, contact Dawn Thomas today at 650-947-4661.

This blog is courtesy of The Dawn Thomas Team who is an award-winning Real Estate Agent team at Intero Real Estate Services in Los Altos 650-947-4661. We help nice people with selling and buying homes from Palo Alto to West San Jose!

Maybe you just got hit with a higher tax bill than expected. April 16th is much like January 1st: time for resolutions. Capital Gains tax benefits are due to expire this year. The market is so hot right now; sellers are getting their price (many way over and above their price!!!) The inventory is extremely low in areas like Palo Alto, Mountain View, Los Altos, Los Altos Hills and Menlo Park, that sellers are seeing upwards of 29 offers on a property! Is this a “problem” you might like to have? Keep in mind these are not low-ball offers, buyers are savvy and well prepared, they are willing to come in strong and are serious about buying their piece of the American dream here in Silicon Valley! These are great reasons for you to consider selling you home today. But of course we have an additional consideration for you that very well may affect not only  your motivation, but profitability on the sale of your home !

It will be far more advantageous for owners who have more than $500K in profits (married couple) or $250K (single) to sell this year as opposed to 2013.  The reason for this is that President George W. Bush during his administration signed into law a “relief” on capital gains tax in 2005.  This will reset in 2013.  Here is more information on the capital gains (both short-term and long-term):  http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States

While the team here at Silicon Valley and Beyond are with out a doubt experts at selling your home, and negotiating the best possible price, we are not licensed CPA’s or tax advisors. What we recommend is that you contact your CPA to find out if/how the sale of your property might affect your tax liability this year versus next year. Of course your second call needs to be to Silicon Valley and Beyond so the Dawn Thomas Team can represent you in getting you house SOLD for the best possible price!

This blog is courtesy of The Dawn Thomas Team who is an award-winning Real Estate Agent team at Intero Real Estate Services in Los Altos 650-947-4661. We help nice people with selling and buying homes from Palo Alto to West San Jose!

Maybe you saw the “Coming Soon”  sign on a that cute house in your neighborhood and wanted more info, or you are driving around an area where you really want to live and notice a sign go up in front of house. Then all of a sudden the sign goes from “Coming Soon” to “Sale Pending”!

This is what just happened with our new listing in Willow Glen! Inventory is so low, and demand so high for great properties, that houses are selling before they even hit MLS! The buyers were ready to go and put in a preemptive offer that the sellers felt was just what the needed to get it sold and move on to their next adventure. Now the house is in great condition, beautifully updated yet finished with period detail and all the charm that people look for in Willow Glen.

Believe it or not, many sellers just don’t want to deal with the open houses, and continuous showings with people traipsing through your house morning, noon and night. The house always has to be immaculate, which can be difficult if you are living there, or if you have small children. It can also be very stressful for you pets. Two years ago, it wouldn’t have made as much sense to sell off market, but today with inventory so low and demand so high, it can be a viable option. You need to have a Realtor with an extremely viable network, and excellent knowledge of market value, demand and negotiating skills or you could end up feeling like you are leaving money on the table.  The Dawn Thomas Team can do just that- although our recent sale of the house in Willow Glen is one example we have worked on these types of sales numerous times with great results.

To find out more about off-market sales, and if this type of sale might benefit you, contact us today!

This blog is courtesy of The Dawn Thomas Team who is an award-winning Real Estate Agent team at Intero Real Estate Services in Los Altos 650-947-4661. We help nice people with selling and buying homes from Palo Alto to West San Jose!

San Pedro Square Farmers’ Market Opened on  April 7th!

If you haven’t been to  San Pedro Square Market t. We have there are even more reasons to go now! They have an incredible array of activities and openings this month, so be sure and get some of them on your calendar!

Last week, they kicked off a new series, officially titled “Music at the Market Powered by San Jose Jazz”, that will run throughout the Spring and Summer every Friday evening from 7-9pm. Future dates will include a wide range of musical genres and styles, showcasing an eclectic selection of local artists.

Saturday, April 7th was a huge day for the Marketplace, as it affectionately is known as Opening Day, as it was the  first official opening of the Farmer’s Market This is a major centerpiece of their cultural programming, and they’ve partnered with the very best in the business, Urban Village Farmers’ Market Association. They produce the highly-respected Campbell Farmers’ market, among others. The  Market is targeted toward Downtown residents, and will take place year-round, rain or shine, from 10am-2pm on West St. John St. between N. Almaden and N. San Pedro, directly in front of SPSM. There will be 40+ vendors selling the finest, freshest local food available, as well as music and special events.

The San Pedro Square Market is really taking shape, so grab a friend and go check it out. Whether its to grab a bit during lunch with a friend, listen to some of the local artists perform or do your weekly shopping of fresh local produce, there is something for everyone!

This blog is courtesy of The Dawn Thomas Team who is an award-winning Real Estate Agent team at Intero Real Estate Services in Los Altos 650-947-4661. We help nice people with selling and buying homes from Palo Alto to West San Jose!

The founder and CEO of Intero Gino Blefari is often asked to comment on the latest trends in Real Estate, as his knowledge and vision has propelled Intero Real Estate into the fastest growing Real Estate company of all time. No small feat considering the market we are coming out of……which brings me to a recent article he wrote for the “Intero Insider.” Just this week, our Los Altos office Real Estate agents shared information on over 30 properties in Silicon Valley that were SOLD over asking and with multiple offers. Many of them never even hit the MLS. Right now we are aware of several dozen properties that are not yet on the MLS, or are going to be sold off-market.

Below are some excerpts from Gino’s article about bidding wars:

“Bidding wars. These horror stories/glorious situations (depending on which side of the deal you were on) were abundant in the years leading up to the top of the housing market in 2006. Then the phrase slipped out of consciousness – and reality – for most markets in the last few years. And now, amidst a slow and tough-as-nails housing recovery, these situations are back.

Is this the tipping point we’ve been waiting for? A story that ran on Bloomberg last week seems to suggest that yes, it is the tipping point in the markets that are seeing multiple bids. And these markets also happen to be the ones with strong underlying economies.

What markets are we talking about? Silicon Valley, for one. And across the country, bidding wars have been noted in Seattle, Miami and Washington, D.C., according to Bloomberg.

What’s driving the voracious interest in homes in these markets is a combination of a six-year low inventory, an increase in jobs and increased affordability brought on by a handful of years of falling prices. In fact, it’s now more affordable to buy than to rent in many of these markets.

The housing market is bouncing back in these markets. That’s great news for sellers, owners and the local economies. But what about the buyers? Well, it’s certainly an incentive to get off the fence and make a move. If you’ve been waiting for prices to drop even further in these pivotal markets, you likely waited too long.”

So if you are a seller, now may be the best time to give us a call so we can help you take advantage of the low housing  inventory and increasing number of well qualified motivated buyers!

This blog is courtesy of The Dawn Thomas Team who is an award-winning Real Estate Agent team at Intero Real Estate Services in Los Altos 650-947-4661. We help nice people with selling and buying homes from Palo Alto to West San Jose!