I recently wrote a blog about the various types of real estate assets. I’d like to discuss the best way to verify these assets.
As with most other types of income, the preferred option is a third-party verification. What this looks like for real estate is a verification completed by a real estate professional such as a realtor or broker that provides all the required information.
Other options:
Tax returns (for a rental property) to establish net income from the rental
Seller’s agreement (when a property is on the market)
Tax assessment statements
Mortgage statements to obtain principal balance and determine equity in the property
Types of real estate assets you may encounter include:
Sold: To determine the asset value of a normal sale of real estate that has been sold at market value, the cash value of the property and the imputed value (if it exceeds $5,000) must be calculated. Once that is completed, the higher value is used. The cash value is determined by taking the actual value of the property and deducting the outstanding mortgage, closing costs, and any other applicable fees (PITI - principal, interest, taxes, and insurance).
Real Estate as Rental: A household may apply to live in your property that is using their real estate as rental property. When dealing with this scenario, two calculations must be done. First, the cash value must be determined as noted above. Second, the monthly income received in rent must be determined. The actual income received is not what is included. Management must verify the rental income for the next 12 months and the expenses to rent the property over the next 12 months. The expenses would include taxes, insurance, maintenance, utilities, and mortgage interest. If the property is already being rented, the most recent tax return can provide all of this information.
Foreclosed: If real estate has been foreclosed upon, then it will not be considered in the asset calculations as the tenant will not be receiving income from the foreclosure. However, keep in mind that until the foreclosure is complete, the real estate is sold at an auction, or the title has been transferred to another party, the real estate is still technically considered the tenant’s.
Short Sale: The real estate may have gone through a short sale. In this case, it is typically not considered an asset as most often, the owner will not be receiving income from this. However, if there is a difference in the sale that is in favor of the resident, that difference is counted as an asset and must be verified by a third party if it is a HOME project and if it exceeds $5,000 for LIHTC.
Reverse Mortgages: This is a loan that allows a homeowner to convert part of the equity into cash that does not have to be paid back until the homeowner dies, sells or lives elsewhere for 12 or more months. To establish the value for eligibility purposes, it is treated the same way as any other real estate with a mortgage. Keep in mind that the real estate would still need to be treated as an asset and calculated accordingly. The calculation of the cash value is done by taking the market value less the principal balance due on the reverse mortgage.