Song of the Week

Shine - Mondo Cozmo

Today in History: Myanmar

On this date in 2016 the country of Myanmar, formerly known as Burma, had its first session of freely elected parliament in over 50 years after ending a military dictatorship. This was a historic time for the country, and a month and a half later they elected Aung San Suu Kyi as their president (In 1990 she won the nobel peace prize for bringing elections to Myanmar and won by a landslide, but the military refused to cede power and voided the elections). This was greatly applauded by the western world and Hilary Clinton, then Secretary of State, visited the country. The first U.S. diplomat to visit in over 50 years. Unfortunately and ironically, on this date in 2021 the military staged a coup and arrested the President. The country has been in a civil war since.

What's Happening This Week: Transfer Tax Fight Round 1 Million

In a blow to Mayor Johnson, the proposed transfer tax on “luxury” real estate (anything sold over $1 million dollars) is facing major hurdles. Specifically, he has failed to garner support from some major unions that he was banking on. To add on, a team of Illinois Realtors have raised a million dollars to battle the proposed tax. The issue made it passed its first round in city council,  but now it is going to the ballot in March for the people to vote on. Many landlords have said if it passes they will simply raise rent, so they are not the ones that will pay for it in the long run, it will be the renters. 

In my opinion, I am obviously biased as a realtor, but I think for maybe a couple of years it could help combat homelessness like the Mayor's plan. But I think after that, landlords and investors will figure out ways to get around it. For example raising rent, which would just hurt the people who can’t afford to buy in the first place. Outside of your typical renters, I am most against it for big businesses who would want to come to Chicago. Chicago’s commercial real estate (for example office buildings downtown) are not exempt from this. And right now commercial real estate in Chicago is in a recession and seriously struggling. This would just kick them while they're down and drive new businesses away.

Learning Time: 2-1 Buydown

There are different forms of buydowns, but today I am going to teach you about the 2-1 buydown. A buydown is a financing method where a borrower receives a lower interest rate in exchange for an up front payment. Buy-downs have been around since the 70s and 80s when interest rates were as high as 18%. They were also common before the financial crisis of ‘08 but were more controversial at the time because lenders wouldn’t ensure that the borrower would be able to afford the loan once the buy-down period was over. Today the most common type of buy-down is the 2-1 buydown, meaning in the first year of the loan the interest rate is 2% lower, in the second year of the loan the interest rate is 1% lower, and in the third year the initial approved rate kicks in. The big kicker here is that typically the total amount of money you “saved” is the exact amount you will owe at closing. So you are really net even after the two years are up. So why would someone do this? As a buyer (depending on the market and situation) sometimes a developer or seller will offer to cover the down payment of the buy-down as an incentive or concession to sell their home. That is really the most ideal and typical situation, but still there are pros and cons.

Pros:

• Lower interest rate for two years

• Seller or contractor often will cover the up-front fee as a concession

• Borrower may be able to afford a more expensive home

• Borrower has more time to increase income in the two years leading up to the effective date for the rate agreed to at signing
  

Cons: 

• Interest rate will increase each year of the buydown period

• Borrower risks being unable to afford monthly payments once buydown period ends

• You need more money for the down payment

Don’t forget, using a real estate broker for rentals or purchasing is 100% free!

Only in a selling transaction will using a real estate broker cost any money. So spread the word and make sure you and your friends don’t get ripped off by owners. Always use a broker! (and by broker, I obviously mean myself 😎) So please share my information to anyone you know looking to buy, sell, or invest!

Quote of the Week

“We are not makers of history, we are made by history.” - Martin Luther King jr.