Paying off Mello Roos

[ocrenter]

[quote=sdrealtor]LOl and that serious mega calculation requires any more than pushing a button. Two words….Turbo…Tax[/quote]

Haha… I was thinking more mortgage/interest rate calculator. Well, at least they were helpful enough to provide a fairly close approximation.

[outtamojo]

[quote=sdrealtor]I have seen homes with paid off MR on the market before. They are more desirable and that helps them sell quicker which is worth something in a declining market. From my recollection they seem to sell for a little more but not a lot more. The premium doesn’t seem dollar for dollar. As a caveat I believe they were in Aviara so the MR fees were modest so the difference probably shouldn’t be much. As a general statement I would recommend paying off MR early for personal benefit rather than being able to sell for more in the future. I’d look at a potentially higher sales price as a bonus but would not factor that in to the decision. Just my opinion though

Edit: thinking a bit more there has gotta be a difference when the annual
MR are 5000 vs 400 so it likely would create more value in a high MR environment. I just think it would be much less than dollar for dollar[/quote]

Don’t know why it took so long but it finally dawned on me that new construction in SEH and next door Old Creek is selling with MR about $80 a month next door to older homes with MR at about $300.

Here is a nicely upgraded traditional sale with high MR
http://www.sdlookup.com/MLS-110063558-1238_Holmgrove_Dr_San_Marcos_CA_92078

Here is new construction w/ low MR
http://www.sdlookup.com/MLS-120007414-1176_Festival_Rd_San_Marcos_CA_92078

In Old Creek,

http://www.sdlookup.com/MLS-110042190-2647_Fallsview_Rd_San_Marcos_CA_92078

Old Creek New http://www.sdlookup.com/MLS-120010261-1761_Burbury_Way_San_Marcos_CA_92078

I think about paying off my CFD costing $3385/year (for 23 more years) with a payoff of about $45K. I mean where else am I going to get that kind of guaranteed head-ache free return but the wife wants to go for the gusto and get another rental….

[sdrealtor]

Good examples just make sure to make allowances for upgrades and landscaping if any on resales. Also make sure to look at closed resales as they could be even lower than asking or could end up higher if lender counters it higher. Lastly, people will pay a bit of a premium for brand new to choose their own upgrades and be the first person to use bathrooms and kitchens etc.

Again good examples but you need more complete information for a full picture.

[ocrenter]

http://208.179.148.84/find_property.aspx

use this link to find your property and associated mello roos info, best to use parcel number.

Somehow I’m getting much higher interest rates doing back calculations based on the actual total bond compared to the interest rate the MR management company quoted. The approx payoff they provided was quite off too compared to the actual amount from the original docs pulled from the above link.

[ocrenter]

Jim has a new post on the topic:

Paying Off Mello-Roos

Jim is putting the value of the property at $20-30k higher compared to comparable homes without MR. If thats indeed the case, then one’s break-even point would just be 5 years. That makes it a much easier decision!

[sdrealtor]

I think you need to re-read what he wrote and check your math. He wrote maybe $10,000 to $20,000 more for paid off MR on a house with $5400 annual MR (payoff = $58,000). And I think thats a fairly big maybe. His opinion is very much in line with mine that paying them off wont get you close to a dollar for dollar return. A 2 to 4X the annual MR payment seems like a reasonable boost in value for paid off MR but I wouldnt expect more. Paying them off could be a wise choice if you stay long term but most likely wouldnt if you wanted to boost resale value only.

[ocrenter]

[quote=sdrealtor]I think you need to re-read what he wrote and check your math. He wrote maybe $10,000 to $20,000 more for paid off MR on a house with $5400 annual MR (payoff = $58,000). And I think thats a fairly big maybe. His opinion is very much in line with mine that paying them off wont get you close to a dollar for dollar return. A 2 to 4X the annual MR payment seems like a reasonable boost in value for paid off MR but I wouldnt expect more. Paying them off could be a wise choice if you stay long term but most likely wouldnt if you wanted to boost resale value only.[/quote]

I would not recommend anyone to payoff the MR to boost value on resale. Nor did I say that. Yes, misread the value Jim quoted. My bad on that. That moves the break even from 5 years to 6.5 years.

[sdrealtor]

No problem. Its definitely worth considering for those that know they will stay long term. It just comes down a simple discounted cash flow calculation along with how much cash you have lying around and what else you can do with it.

[sdnerd]

[quote=sdrealtor]along with how much cash you have lying around and what else you can do with it.[/quote]

Along those lines; one thing I’ve been considering is a 5 year fixed home equity. There’s a couple places offering ~1.99% rates.

Kill the MR in 5 years with a ~2% loan and find another use for the bulk of the cash. (Assuming there is a better use…. 🙂 )

[sdduuuude]

[quote=sdrealtor]I think you need to re-read what he wrote and check your math. He wrote maybe $10,000 to $20,000 more for paid off MR on a house with $5400 annual MR (payoff = $58,000). And I think thats a fairly big maybe. His opinion is very much in line with mine that paying them off wont get you close to a dollar for dollar return. A 2 to 4X the annual MR payment seems like a reasonable boost in value for paid off MR but I wouldnt expect more. Paying them off could be a wise choice if you stay long term but most likely wouldnt if you wanted to boost resale value only.[/quote]

Doesn’t this scream “whatever you do, don’t buy a house with MR ” ??

I mean, if by paying them off early you get out from under a 9% loan, but it doesn’t increase the value of the house by the same amount, then buying into a place with MR is just dumb.

Just a trick the developers pull because people aren’t making rational decisions.

Maybe the good realtors will start a trend of putting in buy offers that include a requirement that, as a part of escrow, the MR tax is paid off. Then, you can get clear comparisons between houses with different MR. i.e. offer 800K for a house with $40K in MR, or $840K for a house without it. Either way, you offer $840K with any and all MR paid off.

[sdrealtor]

I dont agree. It screams there is a price to pay to live in a new house in prime area of SD. Personally my MR goes toward improvements to the San Dieguito schools. I think thats a good investment and I am happy to pay the $800 every year. I donate more than that to other charities every year any way. To me this is a tax deductible (at least for now) contribution I make. Unlike the things I give to charities which make me feel good, I actually get some benefit from this.

[ocrenter]

[quote=sdduuuude][quote=sdrealtor]I think you need to re-read what he wrote and check your math. He wrote maybe $10,000 to $20,000 more for paid off MR on a house with $5400 annual MR (payoff = $58,000). And I think thats a fairly big maybe. His opinion is very much in line with mine that paying them off wont get you close to a dollar for dollar return. A 2 to 4X the annual MR payment seems like a reasonable boost in value for paid off MR but I wouldnt expect more. Paying them off could be a wise choice if you stay long term but most likely wouldnt if you wanted to boost resale value only.[/quote]

Doesn’t this scream “whatever you do, don’t buy a house with MR ” ??

I mean, if by paying them off early you get out from under a 9% loan, but it doesn’t increase the value of the house by the same amount, then buying into a place with MR is just dumb.

Just a trick the developers pull because people aren’t making rational decisions.

Maybe the good realtors will start a trend of putting in buy offers that include a requirement that, as a part of escrow, the MR tax is paid off. Then, you can get clear comparisons between houses with different MR. i.e. offer 800K for a house with $40K in MR, or $840K for a house without it. Either way, you offer $840K with any and all MR paid off.[/quote]

Heres the thing, the difference between a house with no MR and a comparable with MR would not be $840k vs $800k. Similar sized and upgraded and updated homes in established neighborhoods without MR are often times $100-150k above newer homes in MR communities. This differential of course is because of not just lack of MR, but also because of higher % of distress. In these situations, the MR payoff would be fraction of that price difference. Knowing that one can pay off the MR should open people up to buy in MR communities, not stay away from it. Insistence on steering clear from MR with complete disregard to the premium you would have to pay otherwise simply close you off from potential opportunities.

[sdduuuude]

But you just said that paying of the MR doesn’t increase the value of a particular home by as much as the amount you pay off. How is knowing that you can pay it off (and effectively lose money), any comfort at all ? ?

he point is – you put yourself in a no-win situation. Here I am, today, with no house.

OK. So I can choose to buy a house with MR or not.

If I choose an MR house, then I am choosing to buy either the right to make payments on a 9% loan or the right to make a lump-sum payment which will improve the value of my house by less than that lump-sum payment.

If you choose to put yourself in a position where your next move is a choice between two bad options, then it’s a bad choice.

Those MR should trade like the cash liabilities that they are and the only way is for buyers to start putting MR payoff requests in their offers.

[ocrenter]

[quote=sdduuuude]But you just said that paying of the MR doesn’t increase the value of a particular home by as much as the amount you pay off. How is knowing that you can pay it off (and effectively lose money), any comfort at all ? ?

he point is – you put yourself in a no-win situation. Here I am, today, with no house.

OK. So I can choose to buy a house with MR or not.

If I choose an MR house, then I am choosing to buy either the right to make payments on a 9% loan or the right to make a lump-sum payment which will improve the value of my house by less than that lump-sum payment.

If you choose to put yourself in a position where your next move is a choice between two bad options, then it’s a bad choice.

Those MR should trade like the cash liabilities that they are and the only way is for buyers to start putting MR payoff requests in their offers.[/quote]

But it isn’t a no win situation. Had I completely ruled out all homes with MR, I would not be able to purchase my home at $260k discount from original asking.

Now I simply need to pay about 1/5 that discount to get rid of the MR.

The point here is there’s a lot of people like yourself that shy away from communities with MR. Which helps create more bargains in MR communities. And it just so happens these are communities that was hit hard, hence, more great opportunities. This often means excellent bargains even factoring in the yearly MR. With the ability to pay off the MR early at 1/3 the long term cost, it makes buying bargains in MR communities even more attractive.

If you insist that’s no win, sure, be my guest.

[sdduuuude]

[quote=ocrenter][quote=sdduuuude]But you just said that paying of the MR doesn’t increase the value of a particular home by as much as the amount you pay off. How is knowing that you can pay it off (and effectively lose money), any comfort at all ? ?

he point is – you put yourself in a no-win situation. Here I am, today, with no house.

OK. So I can choose to buy a house with MR or not.

If I choose an MR house, then I am choosing to buy either the right to make payments on a 9% loan or the right to make a lump-sum payment which will improve the value of my house by less than that lump-sum payment.

If you choose to put yourself in a position where your next move is a choice between two bad options, then it’s a bad choice.

Those MR should trade like the cash liabilities that they are and the only way is for buyers to start putting MR payoff requests in their offers.[/quote]

But it isn’t a no win situation. Had I completely ruled out all homes with MR, I would not be able to purchase my home at $260k discount from original asking.

Now I simply need to pay about 1/5 that discount to get rid of the MR.

The point here is there’s a lot of people like yourself that shy away from communities with MR. Which helps create more bargains in MR communities. And it just so happens these are communities that was hit hard, hence, more great opportunities. This often means excellent bargains even factoring in the yearly MR. With the ability to pay off the MR early at 1/3 the long term cost, it makes buying bargains in MR communities even more attractive.

If you insist that’s no win, sure, be my guest.[/quote]

With me, it’s a logic problem. Either you realize all the gain of buying down the MR or you don’t.

If you have to pay $40K to buy down your MR and you feel you got a $40K discount vs. a comparable property because of it, then you are good. And if that is really the case, then you would honestly get the $40K back when you sell.

But, sdr and others said that you aren’t going to get that $40K back when you sell, so I’m not so sure I believe that you got as much of a discount due to the MR that you think. Your $250K discount was due to the other factors you mention.

Pragmatically, we’ll never know, of course. Who can measure it ? Nobody. The only way to know is if buyers start putting it in the offer letter so you can compare properties against each other.

The neat thing about this thread is – it points out the importance of knowing how buyers and sellers value MR vs. the actual, real cost of it.

[Author]

Posts