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Show Volume One November 15, 1979 Number Four Mitigating Factors Ease Pain Of Interest Rates Although no one is claiming today's high interest rates are helping the real estate business, there are mitigating factors and sales alternatives that make the picture less than bleak, especially in the Park City area. Local real estate brokers and agents note that the actual interest paid on home loans is considerably less than the nominal rate due to income tax deductions and that contract sales may make it easier for some people to buy. In addition, Park City is less affected by escalating interest rates than the national market. The amount of interest paid by a homeowner is deductible from taxable income and this goes a long way toward easing the interest burden. For example a person with an annual income in-come between $16,000 and $20,000 who has a 11.75 percent loan actually pays only 8.3 percent when tax deductions de-ductions are weighed. The higher the income, the lower the interest rate. Even at 12 percent, a person making between $100,000 and $120,000 pays only 3.82 percent when the tax deductions are calculated. "Many people are not aware of the real costs of ownership," according to Bob Brown, of Gaddis Investments of Park City. "There are many variables to be considered, such as the adjustment adjust-ment to taxable income, the type of property purchased, the current inflation in-flation rate and the rate of appreciation. ap-preciation. The cost of money is not the only thing to be considered when contemplating the purchase of real estate." Brown feels the appreciation of Park City real estate will continue to run well ahead of the national inflation rate. "Even at today's higher interest rates, real estate is still a better investment in-vestment than fixed deposits in financial finan-cial institutions," Brown said. He noted that one of Park City's biggest selling points is its growing reputation. "We are now known by people who are familiar with other ski resorts. They see situations and opportunities here similiar to those created in the country's other top resorts." And, although tight money constricts the availability of conventional financing, the contract sale can be an attractive alternative in certain TAXABLE INCOME LOAN INTEREST RATE Over NolOver 6 0". 6 25 6 0 6.75 7 0 7 25 7 5 7 76 8 0 8 25 8 5 8 75 9 0 9 25 9 5 9 75 10 0 10 25 10 5 10 76 11.0 11 25 11 5 11 75 12.0 S 4,000-S 8,000 4 75 4 94 5.14 5 34 5 54 5 74 5.93 613 6 33 6 53 6 72 6.92 7 12 7 32 7 51 7 71 7 91 8 11 8 31 8 50 8.70 8 90 9 10 9 29 9 49 8,000 1 2 000 4 5 5 4 74 4 9 3 0 1 2 0 3 1 0 5 0 5 6 9 5 8 8 6 06 6 2 5 6 4 4 6 6 3 6 8 2 7 01 7 20 7 39 7 58 7 77 7 96 8 15 8 34 8 03 8 72 8 91 9 10 12.000- 16,000 4 35 4 53 4 71 4 89 5 08 0 26 5 44 0 62 0.80 0 98 6 16 6 34 6.53 6 71 6 89 7 07 7 20 7 43 7 61 7 79 7.98 8 16 8 34 8 52 8 70 16,000- 20,000 4 15 4 33 4 50 4 67 4 84 5 02 5.19 5 36 5 64 5 71 588 6 06 6.23 6 40 6 57 6 75 6 92 7 09 7,27 7.44 7.61 7 79 7 96 8 13 8,30 20.000 24,000 3 89 4 05 4 21 4 37 4 54 4.70 4 86 5 02 5 18 5 35 5 61 5,67 5 83 5 99 6 16 6 32 6 48 6 64 6 80 6 97 7 13 7 29 7 45 7 61 7 78 24,000 ' 28,000 3 62 3 78 3 93 4 08 4 23 4 38 4 53 4 68 4.83 4 98 5 13 5.29 5 44 5 59 5 74 5 89 6 04 6 19 6 34 6 49 6 64 6 80 6 95 7 10 7 25 28,000 32.000 343 357 3. 71 3 86 4.00 4. 14 4 28 4 43 457 4. 71 4 85 5. 00 514 5 28 542 557 571 085 6 00 614 0 28 642 6 75 671 685 32,000 36.000 3 23 3 36 3 50 3 63 3 77 3 90 4 04 4 17 4 30 4 44 4 57 4.71 4 84 4 98 0 11 0 26 5 38 5 51 5 66 0 78 6 92 6 00 6 19 6 32 6 46 36,00 0 40.000 3 0 3 3 1 6 3 2 8 3 4 1 3 0.4 3 6 6 3 7 9 3 9 1 4 04 4 1 7 4 2 9 4 4 2 4 00 4 6 7 4 8 0 4 9 2 0 0 5 5 18 5 3 0 5 4 3 0 06 5 58 5 8 1 5 9 3 6 06 40 000- 44.000 2 83 2 96 3 07 3 19 3 30 3 42 3 04 3 66 3 78 3 89 4 01 4 13 4 20 4 37 4 48 4 60 4 72 4 84 4 96 0 07 0 19 5 31 5 43 5 55 5 66 44 000 62.000 2 70 2 81 2 93 3 04 3 15 3 26 3 38 3 49 3 60 3 71 3 83 3 94 4 06 4 16 4 28 4 39 4 00 4 61 4 73 4 84 4 90 0 06 0 18 0 29 0 40 52.000 64,000 2 00 2 61 2 71 2 82 2 92 3 02 3 13 3 23 3 34 3 44 3 55 3 65 3,75 3 86 3 96 4 07 4 1 7 4 27 4 38 4 48 4 59 4 69 4 80 4 90 5 00 64 000 ' 76.000 2 37 2 47 2 67 2 67 2 77 2 86 2 96 3 06 3 16 3 26 3 36 3 46 3 56 3 65 3 75 3 85 3 95 4 05 4 15 4 25 4 35 4 44 4 54 464 4 74 76,000 "88.000 2 17 2 26 2 35 2 44 2 63 2 63 2 72 2 81 2 90 2 99 3 08 3 17 3 26 3 35 344 3 53 3 62 3 71 3 80 3 89 3 98 4 07 4 16 4 20 4 34 88.000 100,000 204 2 13 2 21 2 30 2 38 2 47 2 55 2 64 2 72 2 81 280 2 98 3 06 3 15 3 23 3 32 3 40 3 49 3 57 3 66 3 74 3 83 3 91 4 00 4 08 100.000 120.000 1 91 1 99 2 07 2.15 2 23 2 31 2 39 2 47 2 54 2 62 2 70 2 78 2 ,86 2 94 3 02 3 10 3 18 3 26 3 34 3 42 3 00 3 58 3 66 3 74 3 82 situations. Under a contract sale, the seller finances the purchase, sometimes completely eliminating lending institutions. in-stitutions. "This is a good time for the seller if he is willing to offer a contract. He can sell at a strong market price because he is making his property easy to finance. It works well for the buyer, too, because he doesn't have to go through the traditional avenues of financing." Brown's observations are supported by Bob Theobold, of Mountain Realty. Theobold notes that the buyer not only may find it easier to make the purchase, pur-chase, but also cheaper. "Basically, under a contract sale the buyer saves the loan origination fee, which, in turn, makes it less expensive to buy." Loan origination fees, commonly called points, are added on by lending institutions. One point equals one percent per-cent of the loan amount and on a $100,000 loan three points would mean an additional cost of $3,000. Where one or two points used to be the norm, some institutions are now charging up to five or six points, depending on the type of loan. There are variations of the contract sale. Under some contracts, the buyer is given a specified amount of time to obtain conventional financing with the seller providing the interim financing. Other contracts call for the buyer to pay the seller a certain amount and then assume the seller's loan. Still another method has the seller financing the entire purchase. Theobold notes that it is important to carefully read the seller's original loan agreement before entering into a contract sale. While some loans are assumable under the old interest rate, some are not assumable at all and others call for a readjustment of the interest in-terest rate to current levels. Despite the caution that should be exercised, Theobold feels the contract sale can benefit both parties. . "It's beneficial for the buyer because he saves points; he may save by assuming a loan at the older, lower interest in-terest rate; he doesn't have to meet the strict qualification standards of conventional con-ventional lending institutions; the down payment is negotiable; and the transaction time is reduced. "The seller can benefit because he can get top dollar by giving terms and he can close the sale quicker. "There has been quite a bit more discussion regarding contract sales lately due to the tight money situation," he continued. "One of the first things we ask a seller now is if he is willing to sell on contract. If he wants to sell quickly and at the highest prices, it's a good way to go." As for the overall effect of interest rates on the Park City market, Theobold feels it will be minimal . "I think it will be gangbusters here this year. There's so much going on, people should get involved now. The Park City market is far from peaking out and comparable property here is still 40 percent less than in Aspen." Dusty Orrell, of Skyline Land Company, Com-pany, is another agent who feels the interest in-terest rate impact will not affect Park City dramatically. "Park City is not like other places," Orrell said. "The small inventory of property for sale creates an excess of demand over supply and prices are not being slashed." He singled out homes in the older part of town as prime candidates for contract sales. "Even when money is available, it's still tough to get a loan on an older home," he said. "The current situation and the resulting contract sales could be an advantage for the marginal buyer who might have a hard time qualifying for a conventioal loan." Bill Coleman, owner of Coleman Land Company, made it unanimous among the real estate people contacted. "Park City is less sensitive to the interest in-terest rate hikes than most of the country," coun-try," he observed. "We're unique and there are always more buyers than there is property tor sale." In addition to Park City's uniqueness, Coleman feels the timing of the rate increases has alleviated the impact. "If this had occurred in the spring it could have hurt," he said. "If it had to happen, this was the perfect time." "We will have a brand new influx of buyers coming this winter. The few Interest To 16 |