Pre Loader

How to Keep your Clients invested in the Financial Markets while paying cash for a New Home

//How to Keep your Clients invested in the Financial Markets while paying cash for a New Home

Tax day is upon us, sort of… As you know, the deadline for filing and paying Federal Taxes has been pushed back to May but I am guessing you and your clients still have that April 15th ingrained in your head like I do.

I want to shift the theme of this newsletter away from On-Boarding to the amazing and insane real estate market we are in the midst of and how our clients are handling it and how it relates to taxes.

My guess is that you have clients out shopping for a new home right now. I would also guess you are getting feedback on how difficult it is to get their offer accepted and maybe even being beaten out of a home with someone who is paying cash.

It is happening everywhere and honestly, I don’t see that changing this year. It is great for our sellers of course as they reap the rewards of an escalating market but I am often asked “what can I do to compete and buy my next home?”

The easy answer is “Pay cash for your new home” since those offers go to the front of the line. But we know that negatively affects their investment portfolio and potential long term financial goals.

This is where the concept of “Delayed Financing” comes into play. First, let’s discuss Acquisition Debt. Any mortgage used to purchase, build, or improve a primary or vacation home qualifies as “Acquisition Debt.” A mortgage that is used for any other purpose is defined as “Home Equity Debt.” Up to a mortgage of $750,000 the interest paid on that mortgage is what we deduct when we itemize our taxes. This helps lower our debt owed for Federal Taxes.

Did you know you can lose that ability to deduct the interest if you don’t immediately put a mortgage on this home?

If you don’t have a mortgage on your primary residence in the first 90 days after you purchase the home, you lose the ability to deduct this interest FOREVER.

What me and my team do is help our cash buyers with this type of transaction and get them more liquid, invested and earning a rate of return. Once the transaction is complete we spring into action.

We immediately get escrow open on the refinance and work to get them up to 75% of their cash payment back to their advisor. This transaction is fairly common and has just a few key guidelines we need to work with:

  1. There was no financing originally attached to the home when purchased
  2. The source of the cash payment can be documented Those are the basics.

With the cost of debt so low and the market performing so well, it has been an easy discussion to have with our cash buyers. Imagine the opportunity cost of a ½ Million dollars not invested over the next decade or two! WOW, that is a lot of money!!!

Please let me know if you have questions or need help with your clients on their annual reviews and helping them reach their goals. I am happy to help in any way that I can.

No comments yet.

Leave a comment

Your email address will not be published.