The Pros and Cons of Downsizing

Once the kids go off to college and then (hopefully) into the work world, empty nesters typically have more house than they need. The question becomes whether to sell or stay put.

Let’s imagine you have a 3500-square-foot house. Now that your five adult children have families of their own, they visit from time to time but have no plans to come back and live with you.

A 3500-square-foot house is a lot to take care of and if it’s located a few miles from town, it’s not as convenient as a nice little place on the Westside of Ukiah, for example. If you sold your big house, you could move into town—into a neighborhood with tree-lined streets that are perfect for evening walks. You could be closer to shopping and other amenities, like Sundays in the Park concerts, the weekly Farmers Market, and your doctor’s office. And you could choose a property that would require substantially less yard work than your current one.

And convenience is only one of the possible benefits. Selling your house and buying a smaller one could be a smart financial move. Cash from the sale of your 3500-square-foot house could be used to pay for the new, smaller house, and you’d have money left over to supplement your retirement income. For the holidays, instead of staying at home (since things would be a little crowded), you could meet kids and grandkids at Disneyland or Yosemite or take a cruise to Mexico. As you can see, the benefits of downsizing are many.

However, as the father of five grown children, the thing that stops me from downsizing is the thought of losing our gathering place. I want all my kids to come home for holidays and birthdays and weekend barbecues. I want them to be able to show their children the room they grew up in, the tree they loved to climb, the fence they painted, and the back door they snuck out of when they thought no one was looking.

If I move, I lose all that. I love thinking about my children having children of their own and bringing them to my house where there’s plenty of room to run around. If it means I need to do a little extra landscaping, so be it.

The decision to downsize is a personal one, and it’s influenced by your financial resources as well as your emotional connection to your house. Sometimes, when people have experienced difficult, emotional family situations like a divorce or a death in the family, it can be easier to start over with a new house.

If you downsize, you will not only lower your mortgage payment, but you’ll also reduce the cost of maintaining your home. You may recall from previous articles, most people spend about 3 percent of the home value per year on taxes, insurance, repairs, and maintenance. If you were to downsize from a $700,000 house to a $400,000 house, you’d save on mortgage interest, plus several hundred dollars per month on house-related expenses.

If you decide to downsize, and you stay within the county, you can bring your tax base with you if that’s financially beneficial for you. If you bought your home twenty or thirty years ago, your original tax base is likely to be below the $400,000 value of the smaller house you’d move into. The lower your tax base, the lower your taxes.

Talk to your accountant about the financial benefits of downsizing, and if it’s the right move, call your Realtor to help you put your home on the market. Then, pour yourself a cup of coffee and start thinking about whether you’d rather go to Disneyland or Mexico for Christmas.

If you have questions about real estate or property management, contact me at or visit If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at Dick Selzer is a real estate broker who has been in the business in Ukiah for more than 40 years.

Appealing Your Property Tax Bill


When you purchase a property, the Mendocino County Assessor’s Office determines the property’s assessed (or market) value for the purpose of establishing future property taxes. The initial assessment is critical because it establishes the basis for all future payments. Property taxes are calculated on the base year (first year) and cannot increase by more than two percent compounded per year.

Once this base value is established, if the property value falls below the original base year value, the assessor can lower the assessed value to reflect the current market value. But if prices take a big jump the following year, the original base value comes back into play, and the value can be increased by two percent per year from the original acquisition date and amount.

Usually, the assessor establishes the base year value at the purchase price, a reasonable approach. However, there are occasions when this approach isn’t appropriate. The assessor’s job is to equate the assessed value with the fair market value as of the closing date of the purchase. If you got a screaming hot deal, the assessor is obligated to assess the property at a value higher than the purchase price. In this case, the responsibility to justify a base value higher than the purchase price is squarely on the assessor’s shoulders.

Revenue and Tax Code 110 says, “For purposes of determining the ‘full cash value’ or ‘fair market value’ of real property, other than possessory interests, being appraised upon a purchase, ‘full cash value’ or ‘fair market value’ is the purchase price paid in the transaction unless it is established by a preponderance of the evidence that the real property would not have transferred for that purchase price in an open market transaction. It goes on to say, “This presumption may be overcome if the assessor establishes by a preponderance of the evidence that all or a portion of the value of those improvements is not reflected in that consideration.”

Clearly, the assessor has to do two things: use evidence to show that the sales price wasn’t fair market value, and then demonstrate what fair market value is. The method to determine fair market value is well established by appraisers, using comparable properties that have sold recently and making adjustments for the condition of the property in question.

Now, this can work in the opposite direction, too. Let’s say you overpaid for a property, perhaps this property was your childhood home, or maybe you want to be sure no one builds on the empty lot next door. In these cases, if you want to have the property assessed so you can pay taxes on a lower base value than the purchase price, the burden of proof is on your shoulders.

The most critical thing to remember is that the first year of assessed value will impact your taxes for as long as you own the property. Once the base year is established, doing home repairs should not impact the assessed value; however, improvements will. If you replace your roof with the same type of roof, that’s considered a repair. If you replace a flat, 1955 tar-and-gravel roof with a peaked composition shingle roof, that’s an improvement and can cause an increase in the assessed value. To the extent that the new roof is superior to the old, the assessed value can reflect that improvement.

The bottom line is this: if you honestly feel your assessed value is higher than fair market value, call the assessor’s office and explain your position; then ask them to lower the assessed value.  If they don’t agree, don’t be afraid to appeal the decision. If you convince the appeals board you’re right, it could save you a lot of money.

If you have questions about real estate or property management, please contact me at or visit If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at Dick Selzer is a real estate broker who has been in the business for more than 40 years.


Property Taxes: Where Does That Money Go and What Happens If I Don’t Pay?


No one likes paying property taxes, but if you own a home (or real estate of any sort), property taxes are part of the deal. While many of us pay property taxes, few of us seem to have a good grasp on how those taxes are calculated, where the money goes, and what happens if we don’t pay up. Even fewer people realize that when they purchase a home, they have a one-time opportunity to challenge the property value the taxes are based on, and if successful, they could save themselves a bundle of dough for years to come.

Property taxes are based on the market value of the property when it changes ownership. Generally, this is the sale price, but not always—the Assessor’s Office determines this “base value.” The first year you own the property, you pay about one percent of the base value in property taxes. Each year, the taxable value of the property goes up a maximum of two percent—and it’s compounding. So, if your property is worth $300,000, you’ll pay $3,000 the first year. The next year, you’ll pay $3060. The following year, you’ll pay $3121, and so on.

When you purchase your home and the Assessor’s Office determines the base value, if it seems higher than similar properties in the area, you can appeal it. A citizen’s committee of real estate experts appointed by the county will hear your appeal and potentially change the base value. If you appeal during the first year when the property’s base value is being determined, it can affect all future property tax payments. If you wait until after the first year, your appeal only applies to the year of the appeal.

If you do not pay your property taxes, the county can sell your property at public auction. This is why lenders make sure you pay your property taxes, and will sometimes set up an impound or escrow account requiring you to pay a twelfth of your tax bill each month so they can send a check to the county when the bill comes due. If you cannot afford to pay, things can go south in a hurry. If your payments are late, you’ll be charged a 10 percent late fee the first year. If your payments continue to be delinquent, your outstanding balance in future years will rack up an 18 percent annual late fee, plus some one-time charges. If you cannot pay for several years in a row, you can lose your home.

If you are a senior citizen struggling to pay property taxes, relief may be on the way. A waiver program is being reinstated in September 2016 allowing you (and those who are blind or disabled) to apply for a program that allows you to defer those payments in return for a lien on your property—the outstanding taxes are paid when you sell the house or pass away. You must have at least 40 percent equity (ownership) in the property, and mobile homes do not qualify, but otherwise, I’d say it’s worth looking into.

So where does all this tax revenue go? Our tax collector, Sheri Schapmire, told me that the $120 million collected each year is distributed as follows:

63 percent to public schools
30 percent to the county
5 percent to special districts (like fire and sewer)
2 percent to incorporated cities


I know that sounds like a lot of money, but for a county our size, it isn’t. Our county and other rural counties are often asked to do more with less, but the benefits of living here generally make it worth it.

And, just a reminder, if you haven’t entered the Safe Mendocino contest, there’s still time! Visit for details.

If you have questions about real estate or property management, please contact me at or visit If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at Dick Selzer is a real estate broker who has been in the business for more than 35 years.



What Is Seller Financing And What Should I Watch For?

When a buyer wants to purchase a property but doesn’t want to pay the whole price in cash, and the seller wants to sell the property but doesn’t need the whole amount in cash, an opportunity exists for both to get what they want through seller financing.

The buyer can acquire a property that may be worth more than he or she has in cash (or the buyer may want to reserve cash for other uses like improving the property after purchase). The seller is able to sell a property that may be hard to sell for cash because it is not attractive to institutional lenders, or the seller can get a higher price because he or she will carry the financing. The seller may also want to provide financing because he or she earn a favorable rate of return as well as favorable tax treatment.

If all the stars align and both buyer and seller agree to seller financing, here are some do’s and don’ts to consider. As the seller, you should require a reasonable down payment, usually a minimum of 20 percent. Less is risky: if the buyer (borrower) misses the first payment and you need to foreclose, you will lose money by the time the foreclosure is done. Foreclosures take time and money, and at the end you still have a property to sell. Depending on the situation, you may need to spend time and money repairing the property, as well as marketing it for sale and paying brokerage fees to do so—all this time you’re losing interest income. So, get 20 percent up front. The more specialized the property, the more important a large down payment is. While it’s relatively easy to sell an office building, selling a church, school, or hospital, for example, is significantly harder.

As a seller, you should also be cautious about a buyer who plans to do major work renovating the property. At first, it may sound great. But if the buyer doesn’t know what he’s doing, you may end up with a mess. Unfortunately, I speak from experience. I sold a property and carried the financing; six months later, after the buyer gutted the buildings (down to the concrete walls), the buyer ran out of funds. I foreclosed and had to complete the renovations at my expense.

As with most agreements, things work best when both parties get what they need. The loan’s interest rate should work for both buyer and seller, and the payment schedule should be realistic for both. The buyer needs to be able to afford the monthly payments, (mortgage payment, taxes and insurance) and the seller needs to receive enough income. Be aware that the new Dodd Frank Act, may pertain to your transaction. In most cases, seller financing is exempt, but talk to your realtor to be sure you’re following the rules.

The overall term or length of the loan may need to correspond with other expenses, like sending a child to college. If the seller carrying the loan suddenly needs cash, all is not lost. The loan (or mortgage-backed note) can be sold on the open market. The value of the note depends on the loan terms, the value of the property, and the borrower’s payment record. Having carried financing, I highly recommend title insurance on the note. It reduces your risk by protecting you against buyer fraud. If you’re carrying the financing, I also recommend that you make sure property taxes are paid, the property is covered by hazard insurance, and that you report interest income to the government so the buyer can deduct the interest paid. That keeps everyone happy including the IRS.

If you have questions about real estate or property management, feel free to contact me at or visit our website at If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at Dick Selzer is a real estate broker who has been in the business for more than 35 years.

Real Estate Investing – What Are My Options?

When it comes to real estate, you can invest in several types of properties. The question is, why would you? Well, because it can pay handsomely.

A reader asked, “If I were interested in investing in real estate, where should I start?” Well, there are several different types of real estate investments: single family homes, duplexes to four-plexes, residential buildings with five or more units, commercial real estate, raw land, limited partnerships, or notes secured by deeds of trust.

Today, I’ll talk about single-family homes. While many of the investment issues are common among all types, most folks start with single-family homes. Bear in mind, all consideration of buying a new residence applies to buying an investment property. Do your due diligence: complete all recommended inspections and listen to your realtor’s advice. Remember, lower priced properties will have a much better rent-to-price ratio. A $200,000 home will probably rent for $1,200/month, while a $750,000 home will likely rent for $3000/month. In addition to a better rent (income)-to-price ratio, you’ll probably have shorter vacancies with a less expensive property. More people are in the market for a $1200/month property than for a $3,000/month property.

For the purpose of this column, I’ll assume we’re talking about a $200,000 house in good condition. You should anticipate expenses in the neighborhood of 3-4 percent of the purchase price per year, or $6,000 – $8,000 per year. This includes taxes, insurance, and maintenance costs. Taxes alone are about $2,400. Now, you won’t spend the additional  $3,500 – $4,500 every year, but the year you need a new roof, paint inside and out, and new carpet, you’ll make up for any money you didn’t spend in previous years.

On a $200,000 house with 20 percent down, your monthly payment will be about $800. I recommend that you treat the expenses mentioned above as a monthly bill. Take $550/month and put it in a separate “reserve” account, so you’ve got the money you need when that paint job or property taxes come due.

On the upside, you’ll have depreciation (a non-cash expense) as a tax benefit. Depreciation is a bookkeeping expense that allows you to deduct the value of improvements over time. As long as you take good care of the property, it will last many years past the “depreciable” life. Consequently, depreciation is only a taxable expense, not a cash expense. This means, you have the ability to save on your income tax expense to the tune of $150-200/month. This savings pretty much offsets your negative cash flow, and income tax savings IS a cash savings. You can reduce your withholding or your quarterly tax payments to provide cash to deposit to your reserve savings account for future property expenses.

So now, you own a $200,000 rental property that takes no significant time to manage or maintain, and that has about a break-even cash flow. You invested $45,000 (a 20 percent down payment plus $5,000 in closing costs), and your benefit is the potential appreciation in the value of this property. If values rise at three percent a year, that equates to $6,000 per year on a $200,000 house—that means you made $6,000 on a $45,000 investment or a 15 percent return. This is called leverage. Compared to other investment options, real estate looks pretty darn good!

In addition to the increased property value, over time rents will also increase. And while expenses go up with inflation, mortgage payment (your biggest expense) won’t go up over time. The bottom line is, if you can afford to buy a $200,000 rental today, by the time junior heads to college in 10-15 years, you should have an asset capable of paying for much of his education.

If you have questions about real estate or property management, contact me at or visit If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at Dick Selzer is a real estate broker who has been in the business for more than 35 years.