Tag Archives: Reiss

Obamas Buy Their Rental

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2011 portrait by Pete Souza of the Obama family

Realtor.com quoted me in Former President Obama Finally Buys the DC Home He’s Renting: 6 Smart Reasons Why. It reads, in part,

Former President Barack Obama has decided that buying beats renting. The former first family have surprised many by purchasing the Washington, DC, house they’ve been leasing and living in since January, coughing up $8.1 million to call the place their own.

After vacating the White House, the Obamas had moved into the 6,441-square-foot, nine-bedroom, 8.5-bath mansion, located at 2446 Belmont Road NW in the tony neighborhood of Kalorama. The neighborhood has since become the place for the new political elite, with Jared Kushner and Ivanka Trump moving into a luxe rental a couple of blocks away, and Secretary of State Rex Tillerson snapping up a $5.6 million Colonial Revival down the street.

The reason the Obamas decided to stick around DC in the first place was so their younger daughter, Sasha, then a freshman at posh Sidwell Friends, could finish up high school there. With only three years to go, renting seemed to make sense so that the Obamas could easily pick up and move once she’s done.

But apparently, there’s been a big change of heart. Why?

On its surface, their decision seems a bit puzzling, given Sasha now has only two–and-a-half years to go. In real estate, the general rule is that it makes sense to buy a home only if you plan to stay put for five years, because this allows time for your house to appreciate, which helps you recoup hefty closing costs.

“People who sell after a year or two of ownership will often find that they have lost money on their purchase,” explains David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School.

Nonetheless, real estate agents and other experts we spoke to say there could be plenty of reasons it’s smarter for the Obamas to buy rather than rent, even for this short span of time. Here are a few possibilities to ponder.

Reason No. 1: They’re making a commitment to DC

As presidential spokesman Kevin Lewis explained in a statement, “Given that President and Mrs. Obama will be in Washington for at least another two and a half years, it made sense for them to buy a home rather than continuing to rent property.”

Granted, you can read a whole lot into that “at least” if you want. After all, as Atlanta Realtor® Bruce Ailion explains, “Many buyers think they will only be in a property for two to three years and end up living there three to seven years. That is common.”

And it might be an indicator that our former commander in chief isn’t ready to shed the political life quite yet.

“Perhaps they want to keep a foothold in Washington, DC, for other reasons with regard to political advocacy and involvement,” says Florida Realtor Cara Ameer.

Reason No. 2: In certain markets, 2.5 years is long enough to make a profit

While 2.5 years might not be long enough to profit on a home in general, that rule varies widely by neighborhood, based on rent levels, home prices—and how quickly both are going up. And this is one hot neighborhood.

It isn’t known exactly what the Obamas were paying in monthly rent, but estimates hover at around $22,000. It’s entirely possible that the former first couple did the math and determined that buying made far more financial sense, and that mortgage payments would be less of a monthly nut. (To find out what’s best for you, you can crunch the numbers in an online rent vs. buy calculator.)

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Reason No. 5: This home will sell for a premium—he’s a former president, after all!

“It was always a little perplexing why the Obamas would ever rent if they planned to stay for anything longer than a year,” contends Washington, DC, real estate agent Rachel Valentino.

Her reason: “While they’re buying at market value, they can eventually financially benefit on the back end, where a buyer will pay significantly more for the celebrity factor. We aren’t Southern California, where every house has that star appeal. So, I can only imagine what a buyer will eventually pay to own a piece of history.”

Reason No. 6: Profits aren’t everything

“One lesson we can draw from this story is that buying a home should not always be seen as a financial transaction,” says Reiss. “Sometimes we buy a home because it’s best for our family at a particular time. Sometimes we buy a home because we fall in love with it. And sometimes those are the best reasons of all to buy a home, profits be damned.”

Dorms for Grownups

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The Bridge quoted me in Why Dorms for Grownups Are a New Way of Life. It opens,

If you think applying to Stanford or MIT is a long shot, consider the odds of landing a spot in a Brooklyn co-living residence. Common, the company now operating six co-living facilities in the borough, recently received more than 15,000 applications for about 300 available rooms in three of the cities it serves: New York, San Francisco, and Washington, D.C. Why the demand? Co-living, essentially the residential version of the co-working trend, offers dorm-like, amenity-filled living that’s particularly attractive to millennials. The apartments come pre-stocked with furniture, appliances, fast WiFi, and lots of prospective friends.

John Bogil, 24, has shared a giant living room, kitchen, basement, and backyard with nine other people since moving into a Crown Heights facility called Common Albany a year ago. Although it sounds crowded, Bogil enjoys the company. “It’s awesome. I’ve made friends for life,” Bogil said. Common, launched in 2015, is Manhattan-based but has found fertile ground in Brooklyn. The growing portfolio in the borough includes the newly built Common Baltic in Boerum Hill, which offers co-living spaces as well as traditional apartments. The rent varies by neighborhood, with spaces in Crown Heights starting at $1,475 and Boerum Hill spots going for $2,143 and up.

Tenants have their own private bedrooms, many with private baths, but share the living room and kitchen as well as amenity spaces including lounges, fitness rooms, roof decks, dining rooms and work spaces. Convenience is a major selling point: the suites in a Common building come fully furnished with beds, dressers, couches, tables and chairs, a TV, towels and sheets, and a weekly cleaning service. Many of the issues that traditional roommates wind up fighting about have been taken off the table, like Real World with less drama.

Common was launched by Brad Hargreaves, who earlier had co-founded General Assembly, now a global educational company with campuses in 15 cities. Like many entrepreneurs, Hargreaves was looking to solve a problem. When the Yale grad first moved to New York City, he looked for an available room in an apartment on Craigslist and found the process cumbersome. “Common offers an alternative to this,” he said. “We make living with roommates better, more convenient, and more efficient.”

With young people increasingly crowding certain urban areas, the idea of a starter apartment is changing. While rents in Brooklyn have eased lately, thanks in part to new construction, the median rent is a daunting $2,785. With rents like those, some 76% of people 21 to 34 years old say they’ve made compromises to find a place to live, including living with roommates, according to the NHP Foundation, a group advocating affordable housing.

“Co-living has proven to be more than a passing trend,” said Hargreaves. “The response to opening our first home in Brooklyn was so strong that we were able to rapidly expand in the borough as well as into San Francisco and Washington, D.C. We now have nine homes on two coasts and are actively looking at new homes and new cities.” Common chooses its spots carefully, aiming to balance affordability and urban amenities. “We look to open in neighborhoods where there’s access to public transit and great local retail for our members to explore and enjoy,” said Hargreaves.

Common has the financial fuel to grow much more. The company has raised more than $23 million in two rounds of financing from 15 investors. The budding co-living industry now has multiple competitors as well, including WeLive, HubHaus, Node, and Krash. In Long Island City, a co-living company called Ollie plans to operate what it calls the largest co-living facility in North America, occupying 13 of the 42 floors in a new skyscraper.

While much of the allure of co-living is practical, many residents appreciate having the company, which in a cosmopolitan place like Brooklyn creates diverse collections of roommates. “I really appreciate the exposure to different peoples, ideas and cultures,” said Bogil. “I’ve learned so much about Australian politics and South African sports, for example, which might sound like useless info on the surface, but it helps me to learn about the world in a way that I never would normally. It makes the world feel smaller.” More than 70% of Common members are on 12-month leases but most stay longer than a year.

While typical co-living residents are in their 20s, the format could work for older adults as well, once the format goes mainstream. “There is growing interest in more communal types of living environments of the type offered by Common,” said David Reiss, an attorney and professor of real estate at Brooklyn Law School. “Co-living appeals to different people and our membership is diverse,” Hargreaves said. “We have young professionals, married couples, those moving to New York City for their first job, those moving from abroad, and ranging in their early 20s into their 30s and 40s.”

Gen Z Eying Real Estate Trends

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The Washington Post along with its content partner National Association of Realtors quoted me in Eye on the Future. It reads, in part,

The suburbs as we know them are in flux. Many of the country’s bedroom communities have traditionally been known for their single-family homes and a lack of walkable public spaces. That’s changing as condos, sprawling townhome complexes and apartment buildings now dot areas where single-family homes would have been built.  Developers are building walkable public spaces to accommodate young families leaving cities but still seeking urban-like amenities.

 Another wave of change is expected in the next five to 10 years. That’s when members of Generation Z-those born on the heels of millennials-will become homeowners. Experts say they’ll transform areas that are sandwiched between major cities and suburbs into districts with an urban feel and amenities, without the hefty price tags major metros demand.

That transformation is already starting to happen. “Many of our ‘suburbs’ are actually neighborhoods in Los Angeles, particularly the San Fernando Valley,” said Kathryn Bishop, a real estate agent with Keller Williams Realty in Studio City, Calif. and member of the National Association of Realtors. “In the Valley, many neighborhoods have become mini ‘cores.’ Sherman Oaks, Encino and Woodland Hills have office towers, good restaurants and night-life business creating their own city areas.”

It’s no surprise that the younger generation needs to find an alternative to the sky-high costs of urban living. The Economic Policy Institute noted in 2016 that folks who live in San Francisco face a cost of living that’s 52.9 percent above the national average. For New Yorkers, living costs were 49.4 percent higher. The country’s least-affordable place to live was Washington D.C., where residents faced costs 63.5 percent higher than the national average.

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“Since the financial crisis there has been an increase in multigenerational households, driven in large part by financial limitations and insecurity as well as by marital status and educational attainment,” said David Reiss, professor of law and research director at he Center for Urban Business Entrepreneurship at Brooklyn Law School.  “Young adults are more likely to live at their parent’s home in recent years than they have been for more than a century.”

Fannie Mae Student Loan Mortgage Swap

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HIghYa quoted me in Fannie Mae Student Loan Mortgage Swap: Should You Do It? It reads, in part,

This past week federal mortgage giant Fannie Mae announced it had created a new avenue for its borrowers to pay off student loans: the student loan mortgage swap.

The swap works like this, according to documentation published by Fannie Mae:

  • Fannie Mae mortgage borrowers get the benefit
  • They do a “cash-out” refinance
  • The money from that refinance is used to pay off your loan(s) in full

The concept of this is pretty elegant in our opinion. People who are saddled with student loans – the average grad has about $36,000 in debt at graduation – don’t usually stumble upon a huge chunk of money to pay off those loans.

If you’re lucky enough to own a home that’s gone up in value enough to create a sizeable difference between what your home is worth and what you owe, then Fannie Mae allows you to borrow against that amount (equity) by taking it out as cash you can use on a student loan.

The idea is that your mortgage rate will probably be lower than your student loan rate, which means instead of paying back your student loans at 6.5%, let’s say, you can now pay it back at your mortgage refi rate of, in most cases, less than 4.5%.

Basically, you’re swapping your student loan payments for mortgage payments, which is how this little financial maneuver gets its name.

The news first came out on April 25 in the form of a press release which said the mortgage swap was designed to offer the borrower “flexibility to pay off high-interest rate student loans” and get a lower mortgage rate.

The change was among two others that will, in theory, work in favor of potential or current homeowners who have student loan debt.

“These new policies provide three flexible payment solutions to future and current homeowners and, in turn, allow lenders to serve more borrowers,” Fannie Mae Vice President of Customer Solutions Jonathan Lawless said in the release.

What You Need to Know About Fannie Mae’s Student Loan Swap

Remember how we said that the money you get from your mortgage refinance can be used for a student loan or multiple student loans?

That happens because this refinance is what’s known as a cash-out refinance.

What is a Cash-Out Refinance?

A cash-out refinance is part of the general class of refinancing.

When you refinance your home, you’re basically selling the rest of what you owe to a lender who’s willing to let you pay them back at a lower interest rate than what you currently have.

The upside is that you have lower monthly payments because your interest rates are lower, but the downside is that your payments are lower because they’re most likely spread out over 30 years, or, at least, longer than what you had left on your original mortgage.

So, you’ll be paying less but you’ll be paying longer.

A cash-out refinance adds a twist to all this. You see, when you do a traditional refinance, you’re borrowing the amount you owe. However, in a cash-out refinance, you actually borrow more than you owe and the lender gives you the difference in cash.

Let’s say you owe $100,000 on your house at 7% with 20 years left. You want to take advantage of a cash-out refi, so you end up refinancing for $120,000 at 4.6% for 30 years.

Assuming all fees are paid for, you get $20,000 in cash. The lender gives you that cash because it’s yours – it comes from the equity in your home.

How the Fannie Mae Student Loan Swap Works

Fannie Mae’s new program takes the cash-out refinance a little further and says that you can only use your cash-out amount for student loans.

However, it’s not that easy. There are certain requirements you have to meet in order to be eligible for the program. Here’s a list of what you need to know:

  • The borrower has to have paid off at least one of their student loans
  • You’re only allowed to pay off your student loans, not loans other people are paying
  • The money must cover the entire loan(s), not just part of it/them
  • Your loan-to-value ratios must meet Fannie Mae’s eligibility matrix

We checked the Fannie Mae eligibility matrix and, at the time this article was published in April 2017, the maximum loan-to-value they’d allow on your principle residence was 80% for a fixed-rate mortgage and 75% on an adjustable rate mortgage.

In other words, they want to know that what you owe on the house is, at most, 80% of what it’s worth.

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Our Final Thoughts About Fannie Mae’s Student Loan Swap

The Fannie Mae student loan mortgage swap is certainly an innovative way to cut down on your student loan debt via equity in your home.

The pros of this kind of financial product are that, if cash-out refinance rates are lower than student loan rates, then you can stand to save money every month.

And because refis typically last 30 years, your monthly payments will most likely be lower than what they were when you were making payments on your mortgage and your student loan.

The main drawbacks of using a Fannie Mae cash-out refinance to pay off your loans is that you’ll put your home at a higher risk because house values could fall below the amount you borrowed on your refi.

Making a student loan mortgage swap also changes your debt from unsecured to secured. Brooklyn Law School Professor David Reiss reiterated this point in an email to us.

He said that borrowers need to “proceed carefully when they convert unsecured debt like a student loan into secured debt like a mortgage.”

The benefits are great, he said, but the dangers and risks are pretty acute.

“When debt is secured by a mortgage, it means that if a borrower defaults on the debt, the lender can foreclose on the borrower’s home,” David said. “Bottom line – proceed with caution!”

We think what Mark Kantrowitz and David Reiss have pointed out is extremely valuable. While a student loan mortgage swap may seem like a good way to pay off your debt, the fact that it swaps your unsecured debt for secured debt could mean trouble down the road.

Renovating Among The Stars

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Justin Theroux, photo by David Shankbone

Realtor.com quoted me in Justin Theroux’s Renovation Drama: What Went Wrong? It opens,

Actor Justin Theroux might have many admirers (including his wife, Jennifer Aniston), but apparently the “Leftovers” hunk inspires more than his share of haters, too—including his Manhattan neighbor Norman Resnicow. Apparently their feud started two years ago, when Theroux decided to renovate his apartment; Resnicow lives one floor down.

As anyone who’s lived under, next to, or anywhere near a demolition site knows, home renovations can get noisy—which is why Resnicow, a lawyer, felt it within his rights to ask Theroux to do the neighborly thing and install soundproofing to muffle the ruckus. There was just one problem: According to the New York Post, the requested soundproofing would cost a whopping $30,000 and make it difficult for Theroux to preserve the original flooring in his place, which he was keen to do. So he refused.

That’s when things got ugly. According to a lawsuit filed by Theroux, Resnicow embarked on a “targeted and malicious years-long harassment campaign” to derail those renovations and just make life unpleasant for the actor.

Here’s how the suit lays it out:

  • Resnicow accused Theroux’s contractors of damaging the marble in the building’s entranceway, and demanded they make repairs.
  • He halted Theroux’s roof deck renovations by arguing that the fence separating their portions of the deck encroached on his property.
  • Then, for good measure, he cut down the ivy lining the fence purely because he knew that the site of the foliage made Theroux happy.

Theroux now seeks $350,000 from Resnicow, alleging nuisance, trespass, and all in all “depriving Mr. Theroux of his right to use and enjoy his property.”

But Resnicow remains resolute, telling the Post, “I have acted for one purpose only, which remains to assure my and my wife’s health and safety.”

How to balance renovations with neighbor relations

As Theroux’s predicament makes painfully clear, few issues can ruin a neighborly relationship like noise—particularly if you live in an apartment building or other tight quarters. Problem is, homeowners also have a right to make home improvements. So at what point does reasonable renovation ruckus become so loud it’s a legitimate nuisance? That depends, for starters, on where you live, as noise ordinances and other regulations vary by area.

New York City’s Noise Code prohibits construction noise that “exceeds the ambient sounds level by more than 10 decibels as measured from 15 feet from the source.” (And in case you have no clue how to figure that out, the city uses devices called sound meters; you can also download sound meter apps to take your own measurements.) Volume levels aside, most areas have limits on when you can hammer away; in New York, work is typically limited to 7 a.m. to 6 p.m., Monday through Friday.

The third variable to consider is the co-op, condo, or HOA board that governs your building or community, which may place further restrictions on hours or even the type of renovations you do. Yet if a homeowner like Theroux is following these rules, odds are he’s in the clear.

“In New York City, they say ‘hell hath no fury like an attorney dealing with noisy neighbors,’ but as long as you have the proper permits, then construction noise created during normal business hours is generally allowed, with the understanding that it will only be temporary,” says Emile L’Eplattenier, a New York City real estate agent and analyst for Fit Small Business. “As long as he isn’t running afoul of his building’s rules—which is doubtful—then his neighbor has little recourse.”

Still, if you’re a homeowner about to embark on a renovation who doesn’t want to drive your neighbors nuts, what can you do? For starters, keep in mind that even if the sounds don’t ruffle you, people’s noise sensitivities can vary.

In the words of David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School, “One person’s quiet hum is another’s racket.”

Using Home Equity Responsibly

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photo by Scott Lewis

Chase.com quoted me in How a Home Equity Line of Credit Can Help Your Family. It reads,

If you’re a homeowner, you could qualify for a unique financial product: the Home Equity Line of Credit (HELOC). HELOCs allow you to borrow money against the equity you have in your home and similar to a credit card, they offer a revolving credit line that you can tap into as needed.

“Equity is the market value of your home less what you owe on your mortgage balance,” explains David Lopez, a Philadelphia-based member of the American Institute of Certified Public Accountant’s Financial Literacy Commission.

With home values on the rise and interest rates historically low, HELOCs are an attractive option right now. Plus, according to Lopez, for most borrowers, there’s the added benefit of a potential tax deduction on the interest you pay back.

However, since your home is on the hook if you can’t meet your debt obligations, you’ll have to be cautious, explains David Reiss, a professor at Brooklyn Law School and editor of REFinblog, which covers the real estate industry.

So, what are the most common reasons you might consider leveraging this tool? According to the Novantas 2015 Home Equity Survey, 50 percent of people said they opened a HELOC to finance home renovations, upgrades and repairs.

That was the case for Laura Beck, who along with her husband, used their equity to fund a substantial home renovation that doubled their square footage and home’s value.”The HELOC let us do a full renovation right down to re-landscaping the yard without being nervous about every penny spent,” she says.

Interested? Here are a few of the most common reasons people leverage a HELOC:

Home improvement expenses

Upgrades to your home can increase the market value and not to mention, allow you to enjoy a house that is customized to fit your family’s needs.

Pro Tip: Some improvements and energy efficient upgrades, such as solar panels or new windows may also score you a bonus tax credit, says Lopez.

Debt Consolidation

Exchanging high interest debt (like credit cards) for a lower interest rate makes sense, especially since interest payments on your HELOC are usually tax deductible, says Lopez.

Pro Tip: Reiss stresses how important it is to “be cautious about converting unsecured personal debt into secured home equity debt unless you are fully committed to not running up new balances.”

Surprise expenses

When faced with a situation in which money is the only thing preventing you from getting the best medical care, a HELOC can be a literal life saver, Reiss explains.

Pro Tip: If you need to pay an existing medical bill, however, try negotiating with the health care provider rather than use your equity, says Reiss. Often, they are willing to work something out with you, and you won’t have to risk your house.

College expenses

Reiss explains how a good education can improve one’s career outlook, increase earnings, and has the potential of offering a strong return on your investment.

Pro Tip: Before turning to your equity for education costs, try to maximize other forms of financial aid like scholarships, grants, and subsidized loans.

No matter your reason for considering a HELOC, if used responsibly it can be a great tool, says Reiss. For information on how to qualify, speak to a banking professional to see if this is a good option for you.

Manafort’s Mystery Mortgage

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photo by Kevin Dooley

NBC News quoted me in Manafort Got $3.5M Mystery Mortgage, Paid No Tax. It opens,

Former Trump campaign manager Paul Manafort took out a $3.5 million mortgage through a shell company just after leaving the campaign, but the mortgage document that explains how he would pay it back was never filed — and Manafort’s company never paid $36,000 in taxes that would be due on the loan.

In addition, despite telling NBC News previously that all his real estate transactions are transparent and include his name and signature, Manafort’s name and signature do not appear on any of the loan documents that are publicly available. A Manafort spokesperson said the $3.5 million loan was repaid in December, but also said paperwork showing the repayment was not filed until he was asked about the loan by NBC News.

News of the missing documents comes as New York Attorney General Eric Schneiderman is taking a “preliminary look” at Manafort’s real estate transactions, according to a source familiar with the matter.

On August 19, 2016, Manafort left the Trump campaign amid media reports about his previous work for a pro-Russian political party in Ukraine, including allegations he received millions of dollars in payments.

That same day, Manafort created a holding company called Summerbreeze LLC. Several weeks later, a document called a UCC filed with the state of New York shows that Summerbreeze took out a $3.5 million loan on Manafort’s home in the tony beach enclave of Bridgehampton.

Manafort’s name does not appear on the UCC filing, but Summerbreeze LLC gives his Florida address as a contact, and lists his Bridgehampton home as collateral.

A review of New York state and Suffolk County records shows the loan was made by S C 3, a subsidiary of Spruce Capital, which was co-founded by Joshua Crane, who has partnered with Donald Trump on real estate deals. Spruce is also partially funded by Ukrainian-American real-estate magnate Alexander Rovt, who tried to donate $10,000 to Trump’s presidential campaign on Election Day but had all but the legal maximum of $2,700 returned.

The mortgage notice for the loan, however, was never entered into government records by the lender. A mortgage notice normally names the lender, and gives the interest rate, the frequency with which payments must be made, and the length of the mortgage.

Real estate experts contacted by NBC News called the omission “highly unusual,” though not illegal.

David Reiss, a professor at Brooklyn Law School who specializes in real estate law, said, “It would be totally ill-advised to not record the loan on the property that is being secured. … Recording the mortgage on the property protects the lender.” Without it, there’s no public record that the borrower owes money.