Here on the South Coast — where multiple bidders compete to buy $1 million generic tract houses that “need work” — first time homebuyers are definitely in the minority. But a surprising number of working professionals are getting into the market via some very creative configurations, both in terms of financing and sometimes even living situations.
“It’s a lot more complicated than just finding a property,” said Nicole Dinkelacker, a realtor with RE/MAX’s Goleta office who’s been in the business for 20 years. “Anybody with less than ten percent down, it’s very competitive and difficult.”
Difficult, but not impossible.
“You can get 100 percent financing. You have to have beautiful credit, of course, but it isn’t like you have to come up with a huge amount of money, or at least you should talk to a realtor before you decide that,” said Rebekah Mulder, a realtor with Prudential California Realty in Santa Barbara.
A former teacher and principal at Cold Springs School, who got out of education to become a financial planner and real estate agent, Mulder said she still finds a lot of her job involves educating her clients about the tax advantages of investing in real estate, as well as the many creative ways to make buying a house possible in the Santa Barbara market.
One of the unique financing methods she often teaches first-time buyers about is equity sharing, where a parent, an employer or a third party will invest in buying a house in partnership with the person who will live there.
Recently, Steen Hudson (the Director of the Rescue Mission) and his wife Trina entered into an equity share agreement with his employers, said Mulder. “The mission is realizing money on its investment and if the Hudson’s so choose they can steadily buy the mission out. It’s a great way for employers to help out their employees and make an investment as well.”
“Equity sharing is a great investment. You pair up older people who really don’t want to go out and buy an apartment house or something. Most people are unaware that if you own a residential income property, you can depreciate that property. Even if its actually appreciating, the tax code allows you depreciate it, which then shelters that much of your earned income from any taxes at all,” said Mulder. The IRS allows you to treat one physical property as both a residential property and a residential income property (divided proportionately), she explained.
Rather than asking parents or others to “help” with a down payment, Mulder advises approaching it like a business opportunity and will often make the presentation to parents as a neutral party. “We have (37-page) contracts where you negotiate every horrible thing that could happen.”
“Another thing that piggybacks on that is that buying a property with a rental on it is really good option, especially for someone that’s maybe got high income but maybe no money down, said Sharol Mulder, Rebekah’s daughter and business partner.
“A lot of times if we have people with a lot of money down, it’s a better bottom line if they buy a more expensive property with a rental on it. So let’s say they could go buy a $600,000 condo, they could probably buy a $900,000 house with a rental on it and actually come out paying less per month,” said Sharol, who recently made this type of deal with buyers Dave and Eliza Reed and Kate Russell (Eliza’s sister). “They bought a neat old turn of the century Craftsman plus an additional duplex on West Sola. … They rent out the main house for maximum income.”
In addition to financing options, first-time homebuyers often need to be educated on the basics about realtors. “There are a lot of people out there who don’t know how realtors get paid. We’re seeing people walk into open houses and work with the realtor who’s there without a recommendation. … As a buyer you’re not going to pay the realtor’s commission but you really need a good realtor, so you need a good recommendation. … It’s a great benefit to you as a buyer that the seller is going to pay your realtor’s commission but it doesn’t take away the responsibility that you have to find someone who’s really good to represent you,” said Sharol.
Having professional, experienced representation is even more important with the current climate of multiple offers being made for any given listing. “Houses are going really quickly,” said Gloria Herrera, one of Dinkelacker’s clients who recently purchased a home in Carpinteria after making an offer on another. “The whole thing has really been a learning experience.”
There’s nothing like the first time … starting next week, our South Coast Homes section will feature case studies of local first time buyers. We’ll go inside their homes to see what they were able to buy and how they were able to do it.