Due Diligence 101 Or What You Do Not Know Can Kill you!

Median Home Price in 1980 – $75,Guest Posting000Median Home Price in 2005 – $372,000Median Family Income in 1980 in Florida = $ 21,355Median Family Income in 2005 in Florida (estimated) = $60,000Increase of Median Family income in the same period = 181%Increase of Median Home Price between 1980 and 2006 = 396%Note: These figures have not been completely certified. They have been taken from different sources, and could reflect some inaccuracy. They are used to graphically explain a tendency, and only in this context, will they serve the purpose of this essay.

Average property tax for new buyer (including Homestead t4 online exemption) in 1980: $ 850Average property tax for new buyer (including Homestead exemption) in 2005: $5,899(Approximate figures)Homestead exemption grants a $ 25,000 deduction for homeowners who qualify and register with their county appraiser. $36,588 yearly income Minimum Yearly Income, as per FNMA guidelines, necessary to cover Median Home purchase in 1980; assuming 90% financing @ 12.5% annual interest, 1% insurance rates, (PITI= $854) – Note the very high interest rates prevailing in the 80’s.

PITI = Principal + Interest + Taxes + Insurance $134,086 yearly income Minimum Yearly Income as per FNMA guidelines, necessary to cover Median Home purchase in 2005; assuming a 90% financing @ 6.5% annual interest, 1% insurance rates, (PITI=$3,152)Roughly, FNMA guidelines require that a maximum of 28% can be dedicated by a homeowner to pay for his monthly PITI (principal + interest of the mortgage, plus taxes, plus insurance). To be noted that the decrease in affordability is occurring notwithstanding mortgage rates in 2005 are half of what they were in 1980.

Property Tax for new buyers as a proportion of median home value in 1980 = 1,133%Property Tax for new buyers as a proportion of median home value in 2005 = 1.586%This is a direct consequence of the decrease of the homestead exemption as a proportion of home value. The $25,000 exemption represented 33.3% of the median home value in 1980.

It represented a measly 6.7% in 2005.

Percentage of Median Family income dedicated to Home Property Tax – 1980 = 4%Percentage of Median Family income dedicated to Home Property Tax – 2006 = 9,83%However, this increase is only valid for new buyers in this market. The “Save-our- Homes”Tax break unfairly burdens new buyers, vacational home owners and investors, and protects “Old Homestead Owners” who are limited to a 3% annual increase in their property taxes.

Fact: Even though Median Home Values have increased proportionally more than double the Median Family Income, and substantially increased the tax base, most cities in Florida have found their way to increase the City Tax Rate, further aggravating the cost of owning a property in Florida. Let’s pray and hope that our conclusions won’t send the following messages:

To “old homeowners” in Florida: Don’t ever, ever move from your house or condo. You will be punished by an unsustainable raise in property taxes, even if you downgrade to a smaller and more “affordable” home. Don’t try to add space, build or remodel. Every added square foot will be taxed at the full market value, because it wouldn’t be covered by the “save our home” exemption. You would be surprised by how much it could raise your tax bill. To Owners of second homes or vacation homes in Florida: Congratulations, your equity has tripled in the last 10 years. Now, take your money and run. From now on, you are being hit with taxes three or four times higher then 10 years ago; while you are not taking advantage of schools and other infrastructure designed for permanent residents, you are paying the highest bills. Conclusion: “…Sell”.