I don’t want you to get the wrong idea – my trip to Las Vegas last week wasn’t a complete waste of time. I love taking pictures, and I ended up getting some decent shots to add to my collection. One day I’d like to take some actual photography classes, but I’m afraid that will have to wait until I get enough time free in my schedule.
I didn’t take any pictures from the seminar/training deal – although that was interesting. The seminar/training deal was held at Bally’s (the same hotel where we stayed – highly recommended, it’s cheap given it’s prime location and it has a monorail station), in the Pacific Ballroom. Huge room, the size of a football field, There were only 120 Realtors or so taking the training – apparently they had expected there would be a lot more, to have rented a room of that size. A sign of the times?
Anyway, we spent some time talking about paying discount points. A few weeks earlier, at my regular office meeting, one of the owners of my brokerage (Larry Hattis, the infamous) gets all worked up about discount points, how he loves paying discount points. Or, rather, he loves it when the seller pays the discount points, although it’s all pretty much the same thing, since it’s your money (the buyer’s money) that he’s using to pay the points (typically, unless it’s a short sale).
What both Larry and the trainers said was this: seller paid discount points are tax deductible for the buyer in the year that the property is purchased – that’s right, even though the seller pays them. Sweet, huh? So let’s say the seller pays two points for your $500,000 loan – that’s $10,000, which is a big fat tax deduction you get to take that year. Not too shabby.
One thing that the trainer talked about is that many lenders also charge an origination fee. This is the biggest of the myriad fees you see that get paid to your lender at the time of closing. The thing is, this is basically a disguised discount point. Some lenders don’t charge origination fees – but this is probably reflected in a slightly higher interest rate. So…if your lender is going to charge you an origination fee (which is not tax deductible), ask if instead it can be called a discount point on the closing statement, and so then it, too, will be tax deductible.
Here’s a little article on bankrate.com about origination fees and discount points. Now, I’m not necessarily advocating that you get the seller to pay discount points for you – although it is increasingly common, especially as buyers are finding that interest rates are higher than they heard they might be – typically around 6 to 6.5%. Paying points probably makes sense if you plan to hold on to the property for several years – which since real estate works best as a long term investment, it’s something to consider.