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davelj
Participant[quote=davelj][quote=briansd1][quote=Diego Mamani]Yeah dude, cut back!
Anyways, the $13B pales in comparison to the money that we (taxpayers) will lose with Fannie and Freddie. We’ve already lost close to $150 BILLION, and we stand to lose another $160 billion to $1 trillion, according to conservative estimates:
True enough.
FHA will also likely cost taxpayers $100 billion.
Funny thing is that Fan/Fred and FHA sprang into action after the financial crisis to save the market.
But certain uninformed people who just don’t understand the chain of events accuse the GSEs of CAUSING the crisis.[/quote]
How many times I have to explain this I just don’t know (this is may be the fifth time). As I wrote back in December 2009:
[quote=davelj]
I think the Fannie/Freddie (F&F) TARP [in addition to accumulated losses] will also get paid back, but over a much longer time horizon. Spread lenders, almost no matter how bad off they are, can always fill a hole, the only issue being how long it takes. And it’s going to take F&F a long time. To use an example, lets say that F&F charge off 10% of their portfolio (which would be a big number). Further, let’s say the average yield on the remaining 90% of their book is 5.5% and their funding costs (now borrowing at govt rates) are 2.5%. Add in 100 bps of operating expenses and you have a 200 bp spread. Here, it takes F&F 5.5 years to fill its hole (from losses) with spread income from the performing portfolio. If you assume that F&F’s losses are going to be 20% of its book, it takes them 11 years to fill the hole, and so on. So, while we’re hearing about the big “losses” coming out of F&F – which are real losses – we will get that money back… eventually… but it could be many years. We will lose in real (that is, inflation-adjusted) terms for sure.[/quote]The point here is that F&F’s “losses” are an income statement item and are meaningless absent a discussion of the balance sheet. We, the US Taxpayers, now own a huge pile of mortgage assets (along with corresponding debt that funds them). The losses will stop eventually – likely in a few years – and the spread income will fill the hole (think of it as accumulated negative retained earnings in accounting terms) and eventually yield a net profit. But… this is in nominal dollars and down the road many years. So, again, there will be a loss in real dollars, but that loss will be a small fraction of the “current losses” that are reported in the MSM. To be clear, I don’t give a rat’s ass about F&F – I just want folks to understand the difference between (1) temporary losses and permanent losses of capital, and (2) income statements and balance sheets.[/quote]
We’re starting to see signs of what I’ve been talking about for quite some time at the GSEs (although earlier than I would’ve expected):
Pay attention to the following headings: “Fascinating GSE Market Developments” and “No Lost Money on the GSEs?”. McFarland is making the same point I’ve been making for quite some time, albeit without providing the math behind it and on shorter time horizon.
Participant[quote=davelj][quote=briansd1][quote=Diego Mamani]Yeah dude, cut back!
Anyways, the $13B pales in comparison to the money that we (taxpayers) will lose with Fannie and Freddie. We’ve already lost close to $150 BILLION, and we stand to lose another $160 billion to $1 trillion, according to conservative estimates:
True enough.
FHA will also likely cost taxpayers $100 billion.
Funny thing is that Fan/Fred and FHA sprang into action after the financial crisis to save the market.
But certain uninformed people who just don’t understand the chain of events accuse the GSEs of CAUSING the crisis.[/quote]
How many times I have to explain this I just don’t know (this is may be the fifth time). As I wrote back in December 2009:
[quote=davelj]
I think the Fannie/Freddie (F&F) TARP [in addition to accumulated losses] will also get paid back, but over a much longer time horizon. Spread lenders, almost no matter how bad off they are, can always fill a hole, the only issue being how long it takes. And it’s going to take F&F a long time. To use an example, lets say that F&F charge off 10% of their portfolio (which would be a big number). Further, let’s say the average yield on the remaining 90% of their book is 5.5% and their funding costs (now borrowing at govt rates) are 2.5%. Add in 100 bps of operating expenses and you have a 200 bp spread. Here, it takes F&F 5.5 years to fill its hole (from losses) with spread income from the performing portfolio. If you assume that F&F’s losses are going to be 20% of its book, it takes them 11 years to fill the hole, and so on. So, while we’re hearing about the big “losses” coming out of F&F – which are real losses – we will get that money back… eventually… but it could be many years. We will lose in real (that is, inflation-adjusted) terms for sure.[/quote]The point here is that F&F’s “losses” are an income statement item and are meaningless absent a discussion of the balance sheet. We, the US Taxpayers, now own a huge pile of mortgage assets (along with corresponding debt that funds them). The losses will stop eventually – likely in a few years – and the spread income will fill the hole (think of it as accumulated negative retained earnings in accounting terms) and eventually yield a net profit. But… this is in nominal dollars and down the road many years. So, again, there will be a loss in real dollars, but that loss will be a small fraction of the “current losses” that are reported in the MSM. To be clear, I don’t give a rat’s ass about F&F – I just want folks to understand the difference between (1) temporary losses and permanent losses of capital, and (2) income statements and balance sheets.[/quote]
We’re starting to see signs of what I’ve been talking about for quite some time at the GSEs (although earlier than I would’ve expected):
Pay attention to the following headings: “Fascinating GSE Market Developments” and “No Lost Money on the GSEs?”. McFarland is making the same point I’ve been making for quite some time, albeit without providing the math behind it and on shorter time horizon.
Participant[quote=davelj][quote=briansd1][quote=Diego Mamani]Yeah dude, cut back!
Anyways, the $13B pales in comparison to the money that we (taxpayers) will lose with Fannie and Freddie. We’ve already lost close to $150 BILLION, and we stand to lose another $160 billion to $1 trillion, according to conservative estimates:
True enough.
FHA will also likely cost taxpayers $100 billion.
Funny thing is that Fan/Fred and FHA sprang into action after the financial crisis to save the market.
But certain uninformed people who just don’t understand the chain of events accuse the GSEs of CAUSING the crisis.[/quote]
How many times I have to explain this I just don’t know (this is may be the fifth time). As I wrote back in December 2009:
[quote=davelj]
I think the Fannie/Freddie (F&F) TARP [in addition to accumulated losses] will also get paid back, but over a much longer time horizon. Spread lenders, almost no matter how bad off they are, can always fill a hole, the only issue being how long it takes. And it’s going to take F&F a long time. To use an example, lets say that F&F charge off 10% of their portfolio (which would be a big number). Further, let’s say the average yield on the remaining 90% of their book is 5.5% and their funding costs (now borrowing at govt rates) are 2.5%. Add in 100 bps of operating expenses and you have a 200 bp spread. Here, it takes F&F 5.5 years to fill its hole (from losses) with spread income from the performing portfolio. If you assume that F&F’s losses are going to be 20% of its book, it takes them 11 years to fill the hole, and so on. So, while we’re hearing about the big “losses” coming out of F&F – which are real losses – we will get that money back… eventually… but it could be many years. We will lose in real (that is, inflation-adjusted) terms for sure.[/quote]The point here is that F&F’s “losses” are an income statement item and are meaningless absent a discussion of the balance sheet. We, the US Taxpayers, now own a huge pile of mortgage assets (along with corresponding debt that funds them). The losses will stop eventually – likely in a few years – and the spread income will fill the hole (think of it as accumulated negative retained earnings in accounting terms) and eventually yield a net profit. But… this is in nominal dollars and down the road many years. So, again, there will be a loss in real dollars, but that loss will be a small fraction of the “current losses” that are reported in the MSM. To be clear, I don’t give a rat’s ass about F&F – I just want folks to understand the difference between (1) temporary losses and permanent losses of capital, and (2) income statements and balance sheets.[/quote]
We’re starting to see signs of what I’ve been talking about for quite some time at the GSEs (although earlier than I would’ve expected):
Pay attention to the following headings: “Fascinating GSE Market Developments” and “No Lost Money on the GSEs?”. McFarland is making the same point I’ve been making for quite some time, albeit without providing the math behind it and on shorter time horizon.
Participant[quote=barnaby33]I’d be careful about that davelj. My parents have a fidocomiso. The bank owns the land. You get essentially a 50 year lease with at least one guaranteed renewal, but I still do not believe you own the land. Now if its 100 years I think its kind of splitting hairs, but to a lot of people there is a difference.
Josh[/quote]Here’s the precise language:
***
Foreigners most often purchase residential property through a 50 year Fideicomiso bank trust. For all intents and purposes the foreigner owns the land. A Fideicomiso trust is not a lease and never reverts to the original owner. The foreigner may sell the property, rent it and leave it to their heirs. The trust can be renewed at the end of fifty years. What happens after the second fifty year trust expires? Assuming you had not sold the property by then, you or your heirs would have the opportunity to renew it for another fifty years. When purchasing property with a Fideicdomiso trust, you will incur trust charges which include a permit from the Secretary of Foreign Affairs, recording fees with the National Registry in Mexico City, the first year annual administration fee, the bank acceptance fee and 10% IVA tax. Annual trust fees vary from bank to bank so you or your representative should shop the market. Apart from the Fideicomiso trust expenses the buyer will also pay the usual closing costs associated with a purchase which normally include the title search, appraisal fees, tax certificate, notary fees for the deed, filing fees, transfer taxes (1.5% of the purchase price) and recording fees.
***You can keep renewing the lease after each 50-year period, but… the lease rate is only guaranteed for the first two 50-year periods. Now, how the third 50-year lease rate is determined is a good question – no one will run into that issue for another 80+ years. Personally, it’s not something I’d worry about as I won’t be around nor will I have any kids as heirs. Furthermore, assuming I spend less than $175K on my place, it’s a complete non-issue from a present value standpoint.
Having said that… if a non-Mexican builds a $5 million house on a piece of prime real estate then there could theoretically be an issue way down the road for his/her heirs. But that’s probably the exception rather than the rule.
Participant[quote=barnaby33]I’d be careful about that davelj. My parents have a fidocomiso. The bank owns the land. You get essentially a 50 year lease with at least one guaranteed renewal, but I still do not believe you own the land. Now if its 100 years I think its kind of splitting hairs, but to a lot of people there is a difference.
Josh[/quote]Here’s the precise language:
***
Foreigners most often purchase residential property through a 50 year Fideicomiso bank trust. For all intents and purposes the foreigner owns the land. A Fideicomiso trust is not a lease and never reverts to the original owner. The foreigner may sell the property, rent it and leave it to their heirs. The trust can be renewed at the end of fifty years. What happens after the second fifty year trust expires? Assuming you had not sold the property by then, you or your heirs would have the opportunity to renew it for another fifty years. When purchasing property with a Fideicdomiso trust, you will incur trust charges which include a permit from the Secretary of Foreign Affairs, recording fees with the National Registry in Mexico City, the first year annual administration fee, the bank acceptance fee and 10% IVA tax. Annual trust fees vary from bank to bank so you or your representative should shop the market. Apart from the Fideicomiso trust expenses the buyer will also pay the usual closing costs associated with a purchase which normally include the title search, appraisal fees, tax certificate, notary fees for the deed, filing fees, transfer taxes (1.5% of the purchase price) and recording fees.
***You can keep renewing the lease after each 50-year period, but… the lease rate is only guaranteed for the first two 50-year periods. Now, how the third 50-year lease rate is determined is a good question – no one will run into that issue for another 80+ years. Personally, it’s not something I’d worry about as I won’t be around nor will I have any kids as heirs. Furthermore, assuming I spend less than $175K on my place, it’s a complete non-issue from a present value standpoint.
Having said that… if a non-Mexican builds a $5 million house on a piece of prime real estate then there could theoretically be an issue way down the road for his/her heirs. But that’s probably the exception rather than the rule.
Participant[quote=barnaby33]I’d be careful about that davelj. My parents have a fidocomiso. The bank owns the land. You get essentially a 50 year lease with at least one guaranteed renewal, but I still do not believe you own the land. Now if its 100 years I think its kind of splitting hairs, but to a lot of people there is a difference.
Josh[/quote]Here’s the precise language:
***
Foreigners most often purchase residential property through a 50 year Fideicomiso bank trust. For all intents and purposes the foreigner owns the land. A Fideicomiso trust is not a lease and never reverts to the original owner. The foreigner may sell the property, rent it and leave it to their heirs. The trust can be renewed at the end of fifty years. What happens after the second fifty year trust expires? Assuming you had not sold the property by then, you or your heirs would have the opportunity to renew it for another fifty years. When purchasing property with a Fideicdomiso trust, you will incur trust charges which include a permit from the Secretary of Foreign Affairs, recording fees with the National Registry in Mexico City, the first year annual administration fee, the bank acceptance fee and 10% IVA tax. Annual trust fees vary from bank to bank so you or your representative should shop the market. Apart from the Fideicomiso trust expenses the buyer will also pay the usual closing costs associated with a purchase which normally include the title search, appraisal fees, tax certificate, notary fees for the deed, filing fees, transfer taxes (1.5% of the purchase price) and recording fees.
***You can keep renewing the lease after each 50-year period, but… the lease rate is only guaranteed for the first two 50-year periods. Now, how the third 50-year lease rate is determined is a good question – no one will run into that issue for another 80+ years. Personally, it’s not something I’d worry about as I won’t be around nor will I have any kids as heirs. Furthermore, assuming I spend less than $175K on my place, it’s a complete non-issue from a present value standpoint.
Having said that… if a non-Mexican builds a $5 million house on a piece of prime real estate then there could theoretically be an issue way down the road for his/her heirs. But that’s probably the exception rather than the rule.
Participant[quote=barnaby33]I’d be careful about that davelj. My parents have a fidocomiso. The bank owns the land. You get essentially a 50 year lease with at least one guaranteed renewal, but I still do not believe you own the land. Now if its 100 years I think its kind of splitting hairs, but to a lot of people there is a difference.
Josh[/quote]Here’s the precise language:
***
Foreigners most often purchase residential property through a 50 year Fideicomiso bank trust. For all intents and purposes the foreigner owns the land. A Fideicomiso trust is not a lease and never reverts to the original owner. The foreigner may sell the property, rent it and leave it to their heirs. The trust can be renewed at the end of fifty years. What happens after the second fifty year trust expires? Assuming you had not sold the property by then, you or your heirs would have the opportunity to renew it for another fifty years. When purchasing property with a Fideicdomiso trust, you will incur trust charges which include a permit from the Secretary of Foreign Affairs, recording fees with the National Registry in Mexico City, the first year annual administration fee, the bank acceptance fee and 10% IVA tax. Annual trust fees vary from bank to bank so you or your representative should shop the market. Apart from the Fideicomiso trust expenses the buyer will also pay the usual closing costs associated with a purchase which normally include the title search, appraisal fees, tax certificate, notary fees for the deed, filing fees, transfer taxes (1.5% of the purchase price) and recording fees.
***You can keep renewing the lease after each 50-year period, but… the lease rate is only guaranteed for the first two 50-year periods. Now, how the third 50-year lease rate is determined is a good question – no one will run into that issue for another 80+ years. Personally, it’s not something I’d worry about as I won’t be around nor will I have any kids as heirs. Furthermore, assuming I spend less than $175K on my place, it’s a complete non-issue from a present value standpoint.
Having said that… if a non-Mexican builds a $5 million house on a piece of prime real estate then there could theoretically be an issue way down the road for his/her heirs. But that’s probably the exception rather than the rule.
Participant[quote=barnaby33]I’d be careful about that davelj. My parents have a fidocomiso. The bank owns the land. You get essentially a 50 year lease with at least one guaranteed renewal, but I still do not believe you own the land. Now if its 100 years I think its kind of splitting hairs, but to a lot of people there is a difference.
Josh[/quote]Here’s the precise language:
***
Foreigners most often purchase residential property through a 50 year Fideicomiso bank trust. For all intents and purposes the foreigner owns the land. A Fideicomiso trust is not a lease and never reverts to the original owner. The foreigner may sell the property, rent it and leave it to their heirs. The trust can be renewed at the end of fifty years. What happens after the second fifty year trust expires? Assuming you had not sold the property by then, you or your heirs would have the opportunity to renew it for another fifty years. When purchasing property with a Fideicdomiso trust, you will incur trust charges which include a permit from the Secretary of Foreign Affairs, recording fees with the National Registry in Mexico City, the first year annual administration fee, the bank acceptance fee and 10% IVA tax. Annual trust fees vary from bank to bank so you or your representative should shop the market. Apart from the Fideicomiso trust expenses the buyer will also pay the usual closing costs associated with a purchase which normally include the title search, appraisal fees, tax certificate, notary fees for the deed, filing fees, transfer taxes (1.5% of the purchase price) and recording fees.
***You can keep renewing the lease after each 50-year period, but… the lease rate is only guaranteed for the first two 50-year periods. Now, how the third 50-year lease rate is determined is a good question – no one will run into that issue for another 80+ years. Personally, it’s not something I’d worry about as I won’t be around nor will I have any kids as heirs. Furthermore, assuming I spend less than $175K on my place, it’s a complete non-issue from a present value standpoint.
Having said that… if a non-Mexican builds a $5 million house on a piece of prime real estate then there could theoretically be an issue way down the road for his/her heirs. But that’s probably the exception rather than the rule.
Participant[quote=jpinpb]Am I missing something? I thought you can’t buy in Mexico, only lease.[/quote]
There was a time a couple of decades back when non-Mexicans couldn’t own real estate within the “Restricted Zone,” which was 100km from any border and 50km from any coastline (so the most desirable parts of Baja were off limits). About 15+ years back (if memory serves), however, Mexico allowed the development of a “Bank Trust,” or “fideicomiso,” which allows for foreign ownership anywhere in Mexico. Essentially, the Trust owns the property and you control the Trust… so you own it (the costs of setting up the Trust typically amount to 1%-1.5% of the purchase price). The development of these bank trusts is what has fueled the home building in the restricted zones, as it’s largely Americans who are buying the homes.
Participant[quote=jpinpb]Am I missing something? I thought you can’t buy in Mexico, only lease.[/quote]
There was a time a couple of decades back when non-Mexicans couldn’t own real estate within the “Restricted Zone,” which was 100km from any border and 50km from any coastline (so the most desirable parts of Baja were off limits). About 15+ years back (if memory serves), however, Mexico allowed the development of a “Bank Trust,” or “fideicomiso,” which allows for foreign ownership anywhere in Mexico. Essentially, the Trust owns the property and you control the Trust… so you own it (the costs of setting up the Trust typically amount to 1%-1.5% of the purchase price). The development of these bank trusts is what has fueled the home building in the restricted zones, as it’s largely Americans who are buying the homes.
Participant[quote=jpinpb]Am I missing something? I thought you can’t buy in Mexico, only lease.[/quote]
There was a time a couple of decades back when non-Mexicans couldn’t own real estate within the “Restricted Zone,” which was 100km from any border and 50km from any coastline (so the most desirable parts of Baja were off limits). About 15+ years back (if memory serves), however, Mexico allowed the development of a “Bank Trust,” or “fideicomiso,” which allows for foreign ownership anywhere in Mexico. Essentially, the Trust owns the property and you control the Trust… so you own it (the costs of setting up the Trust typically amount to 1%-1.5% of the purchase price). The development of these bank trusts is what has fueled the home building in the restricted zones, as it’s largely Americans who are buying the homes.
Participant[quote=jpinpb]Am I missing something? I thought you can’t buy in Mexico, only lease.[/quote]
There was a time a couple of decades back when non-Mexicans couldn’t own real estate within the “Restricted Zone,” which was 100km from any border and 50km from any coastline (so the most desirable parts of Baja were off limits). About 15+ years back (if memory serves), however, Mexico allowed the development of a “Bank Trust,” or “fideicomiso,” which allows for foreign ownership anywhere in Mexico. Essentially, the Trust owns the property and you control the Trust… so you own it (the costs of setting up the Trust typically amount to 1%-1.5% of the purchase price). The development of these bank trusts is what has fueled the home building in the restricted zones, as it’s largely Americans who are buying the homes.
Participant[quote=jpinpb]Am I missing something? I thought you can’t buy in Mexico, only lease.[/quote]
There was a time a couple of decades back when non-Mexicans couldn’t own real estate within the “Restricted Zone,” which was 100km from any border and 50km from any coastline (so the most desirable parts of Baja were off limits). About 15+ years back (if memory serves), however, Mexico allowed the development of a “Bank Trust,” or “fideicomiso,” which allows for foreign ownership anywhere in Mexico. Essentially, the Trust owns the property and you control the Trust… so you own it (the costs of setting up the Trust typically amount to 1%-1.5% of the purchase price). The development of these bank trusts is what has fueled the home building in the restricted zones, as it’s largely Americans who are buying the homes.
Participant[quote=CONCHO][quote=davelj]I’m pretty set on buying a place in Playas (the beach area of Tijuana) in the next two years – probably in Puesta del Sol. I don’t spend enough time in San Diego to justify paying California taxes anymore, but I’ll keep my condos here.[/quote]
Nice places – I was looking on craigslist and I’d guess you could rent that for $600-750/mo pretty easily. Not a bad return if the price is actually just $100K. Something like that in Encinitas would be 8 times the price.
It would be interesting to see a historical comparison of property prices on both sides of the border. Things are rough in TJ these days, but is that going to last forever?[/quote]
I would say that the coastal strip between Playas and Puerto Nuevo got even more overbuilt than anywhere in California – it’s probably more comparable to Phoenix or Las Vegas in that regard. There are a few projects still under construction, but there are also several that got stopped mid-build. If you drive down the carretera you’ll see several large condo projects that got stopped mid-stream and nothing’s been done to the structure in a couple of years – they’re just empty shells. The only good news is that most folks who bought down there either paid all cash or put at least 30% down (and most of the condos aren’t that expensive relative to CA prices). And the builders weren’t as leveraged as they are here either. So while there are a TON of units for sale there haven’t been many actual foreclosures. But, it’s ugly.
One of the problems is there’s no really reliable MLS data down there. I don’t think there will be meaningful building in that neck of the woods for at least five years… and maybe longer.
My rule of thumb is simple: If you’re going to buy a new-ish condo or townhome down there, don’t pay more than $120/sq ft.
And you better plan on using it a lot and/or having a tax angle, otherwise you’re going to have buyer’s remorse. Just my 2 cents.
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