Irvine House Raffle is back again...

NEW -> Contingent Buyer Assistance Program
Girl In the OC_IHB

Girl In the OC_IHB

New member
http://www.ipsf.net/index.asp?id=97

So, the classic question!

Would you take the house...? Or would you take the cash...?

Hmmm... leads me to wonder what would be better tax wise? So, you would own the house... you could rent it out since all you would need to pay on it is taxes and HOA. Or take the cash and get a hit on taxes that way?

GITOC

 
I'd go with the cash flow. It might suck to be a landlord at first, but the learning curve can't be that steep.
 
Take the money and run. Put it towards your favorite house in a few years when you can get more house for your money.
 
Of course you have to pay taxes.

I'm not an accountant but my understanding is that you will receive a 1099 for the value of the home (600k). CA takes 10% and the feds will take another 40% so you will net $300k for you $200 investment.

You can only claim capital gains if you buy something with your own after tax money then sell it later for a profit.
 
Yup - Uncle Sam is co-winner with all who win. We won $10k last year on the raffle, and Uncle Sam got a nice big chunk of it.
 
I would take cash. Assume $500,000 market value of townhouse, here's my estimate of the projected performance in 1 year of the two options:

Cash Prize: $500,000

Lottery Tax Withholding (25% rate - see IRS W2-G Instructions): -125,000

Net Cash Prize to You: $500,000 - 125,000 = $375,000

Invest @ 3.2% 1-Year CD: 1.032 * 375,000 = $387,000

Taxes paid @ 25% tax bracket on interest: $3,000

Net Cash on hand after 1 year: $387,000 - 3,000 = $384,000

Net Asset (Cash and non-cash) Value after 1 year: $384,000

House in-kind: $500,000

Cash out HELOC to pay Tax (same $ amount as above), if available at all: -125,000

Net Beginning Equity in House: $375,000

Equity Burn Rate @ IrvineRenter's 10% estimate: -37,500

HELOC Payments for 1st 12 months (assuming excellent FICO) @ 5.49% Bank of America, 30 year Amort, balloon due in 10 years (typical): -709.00 * 12 = -8,508

County Tax + Mello Roos (estimated at 1.2%): -6,000

HOA Fees: $200 est. * 12 months: -2,400

Estimated Rent (if rented @ Irvine median 3BR condo rent @ $2,400 per month): +2,400 * 12 = $28,800

Tax Savings on Property Tax and HELOC interest @ 25% tax bracket: ($6820 interest paid + $6000 property tax paid) * 0.25 = $3,205

Net Cash on hand after 1 year: -123,313 (owe to bank for HELOC) - 8,508 (HELOC pmts) - 6,000 (property taxes) - 2,400 (HOA) + 28,800 (rent) + $3,205 (tax savings) = -105,011.00 (net negative)

Net Asset Value (Cash and non-cash) after 1 year: $375,000 (beg. equity) + $1,687 (equity gained from paying HELOC principal) - 37,500 (market equity burn per IR estimate) = $339,187

So after 1 year, you come out around $45,000 less in terms of total assets if you take the house and forgo the cash option.

Q.E.D.
 
So, last year, if i remember correctly, a lower class family had won the home and intended to live in it. Are they still there? It would be schadenfreud max factor 11 if they took out a large mortgage on the home to pay off taxes, furnish, take a vacation and buy a bmw, and its now REO
 
I'm done with these raffles. I have entered every one since the Palos Verde Art Institute one years ago. Nice to dream, but it is getting expensive. Plus, I hate to say it, they aren't professionally run. At the last Mater Dei one, there were several tickets stuck in the mesh of the barrel and nothing was done about it. Could have been mine. At the Dana Point Ocean Institute raffle, the same sort of thing happened. Tickets kept getting hung up on the door. Plus, it seemed like the winning tickets were almost exclusively ones that had been sold by volunteers and filled out by hand and wrinkled in some way. The ones sold over the phone and printed out had no chance.

I may be wrong, but it sure looked that way, and I was paying attention.

I'd take the cash...
 
I think I would live in the house for a year or two while the market corrects... then rent out the unit and purchase the house I want in the area I want at that time. I wouldn't mind being a landlord... I grew up helping manage many of my fathers rental units, so I am comfortable with it!

This would give me a nice NEW place to live (and just the right size) for the time being... and end up being a nice investment and source of income for the future.
 
GITOC: "I think I would live in the house for a year or two while the market corrects..."

I guess you have not been reading IR's analysis posts too closely. For example, see the following charts:

The ARM reset chart:

http://www.irvinehousingblog.com/wp-content/uploads/2007/03/reset.PNG

Uncanny prediction chart from IR almost exactly 1 year ago:

http://www.irvinehousingblog.com/wp-content/uploads/2007/03/ihb-post-irvine-market-decline-chart.jpg

It will be a long time before this market recovers. If you are financially and mentally prepared to slog it out, more power to you...
 
Crucialtaunt:

Actually, yes I follow the postings, charts and graphs continually. In fact, I printed out several copies for friends who either 1. Were thinking of buying anytime soon and 2. Were asking why I have not purchased yet. I also tell almost ever person I know about this blog.

Now, the person who wins the raffle (and of course I hope it's me!) will not be moving into the house until very late 2008 or even early 2009... add the two years to live in it before renting it out... now you are in 2011. At that time it would make sense for me to purchase the home I want.

I purchased my first home in 1998, my second in 2001... sold in 2006 and I've been renting ever since.... while watching the market, staying involved in the blog (very smart people here) and charting all my own data of when it would make sence for "ME" to get back into the market.

I saw the bubble in the 90's quite clearly... and we were at the bottom for some time... no rush there! Also, I know this time will most likely play out even longer. But, for my personal decisions this timeline of 2011 works for me. After all, the purchase of a home IS a personal decision.

I have owned before and I am debt free.
 
CM_Dude said:
I'm done with these raffles. I have entered every one since the Palos Verde Art Institute one years ago. Nice to dream, but it is getting expensive. Plus, I hate to say it, they aren't professionally run. At the last Mater Dei one, there were several tickets stuck in the mesh of the barrel and nothing was done about it. Could have been mine. At the Dana Point Ocean Institute raffle, the same sort of thing happened. Tickets kept getting hung up on the door. Plus, it seemed like the winning tickets were almost exclusively ones that had been sold by volunteers and filled out by hand and wrinkled in some way. The ones sold over the phone and printed out had no chance.

I may be wrong, but it sure looked that way, and I was paying attention.

I'd take the cash...
Click to expand...
Hm, you may be right. From the OC Register:

"The winner of the home raffled off by the Irvine Public Schools Foundation is the sister of the woman who came up with the idea of the house raffle in the first place."

Irvine House Raffle: All in the Family
 
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