The housing market, including Real Estate in Prescott, could see a stabilization with a one simple measure. This however would fly in the face of a congress that has to make everything more complicated than it really is. You cannot pick up a newspaper today, watch a talking head on television or visit a political website without reading about yet another government program from some arm of government (And government has so many more arms today). Today there was an article that suggested that the Federal Reserve might propose a program for underwater homeowners to apply for a “Bridge Loan.” Imagine how many more government workers will be required in some government agency, bureau, unauthorized entity or the treasury or the federal reserve, to screen the applications to ensure that no rich guy receives equal treatment under the law.
If you have ever applied to qualify under some government program you will know that it takes endless amounts of paperwork, confidentiality agreements, federal forms, hardship letters, bank statements, profit and loss statements and literally hundreds of pages of documentation. All of that paperwork in the hundreds of pages then goes to some bureaucrat who now views your entire financial landscape for the first time anfd then makes value judgments. Why, you might ask does this process or that process take so long and is so data intensive? You may all know the principle of CYA. All these people need to cover their respective bottoms against any possible indication of malfeasance. Now, it is necessary to be relatively thorough but, this is primarily due to the complicated nature of the programs.
What if we could come up with a simple solution or solutiuons that don’t require a lot of review, paperwork and time consuming cover for the underwriter, the tax attorney or accountant? I would like to propose the following solution for getting all these foreclosed homes off the market so the bottom can be reached.
Type II LLC – Just to explain, Limited Liability Corporations are similar to “C” Corporations like IBM, without a lot of legal filing and due diligence requirements. You can start an LLC with a name, a Federal ID application, an operating agreement,a registration with your local state and a publication plan announcing its existence for three weeks. There may be a couple of additional simple components. State requirements may differ. This results in a small business with some legal protection and permission to operate for a desired purpose.
So what would be the difference between your standard LLC and this new entity?
- Used to purchase residential real estate only. These are the homes the bank owns that they are fearful will flood the market and drive prices down even further. It would also include their existing inventory.
- Inventory from the banks must be purchased at $100.00 per square foot or higher to qualify. This will set the floor at $100.00 per square foot.
- File one form with the government through the bank as a Qualified Type II Residential Purchase.
- Exempt form taxes on profit for five years.
- Exempt from filing any data for five years.
- If held for five years and a day or longer and sold, there will be no tax on the gain.
This program, with minimal government intervention and reporting would stabilize prices and incent the banks to release the shadow inventory of foreclosed homes. This will speed up recovery of the housing market. It should also stabilize rents and even reduce them so middle income families will have move disposable income. The investors who bought homes prior to 2012 probably bought very low and the impact of lower rents would probably mean less profit but not more short sales or foreclosures. Imagine if the banks could get rid of all their real estate owned, REOs, and go back to their core business of lending. Do we think they might be more interested in providing mortgages to families desiring a new home?
A simple solution offered by someone who has rental homes, almost all of which are upside down.
I think real estate in Prescott might benefit, and I hope you the reader can see the merits of this simple solution.