Thursday, February 02, 2006

The House Raffles Are Here!!!

Link To This Post

It's house raffle season, and the mother of them all, the Palos Verdes Art Center, is selling tickets faster than iPods at Christmas. And there's still a month left in which to purchase a chance to win a cliffside dream home in the center's fourth-annual raffle.

Price per ticket — $150.

Prize value — $1.6 Million!

These house raffles are a product of the housing bubble, having become popular throughout the boom years. Palos Verdes was the first big one in Southern California and has since become a concept copied by many others, including the Irvine Public Schools Foundation, which is conducting it's third annual raffle starting today, Feb. 2.

Now, before you launch into a tirade about the expense of these tickets, consider this: In the Palos Verdes raffle, for example, a maximum of 25,000 tickets will be sold, guaranteed. That makes your odds of winning the grand prize 1 in 25,000. And with many other prizes included in the drawing (all valued at $300 or more including a $25,000 cash prize and a GT Mustang convertible) it means you have a 1 in 100 chance of at least doubling your money!

Try playing California's Super Lotto Plus. Those odds are large. The chance of winning the jackpot in the Super Lotto Plus is 1 in 41,416,353. The chance of winning your $1 ticket cost back — matching just the mega number — is 1 in 74.

Try playing the multi-state Mega Millions. The odds of winning that grand prize are even more astronomical — 1 in 175,711,536!

You've got a better chance of being struck by lightning in any given year — 1 in 240,000.

The raffles vary in what they charge for tickets and in the value of the prize. When the Irvine raffle was instituted in 2004, tickets went for $200 each with a guarantee that only 10,000 tickets would be sold, all for a top prize of a $670,000 condominium. Now, when people are forking over $200 for a chance to win a condo in Irvine, CA, you can't help but think of a very old joke — First prize is a condo in Irvine, second prize is two condos in Irvine. Words like "crazy" and "lunatic" come to mind, but this is the reality we've been living in. People are desperate.

There are others. The Santa Barbara Contemporary Arts Forum is going ahead with a third annual raffle this year as well. Those tickets will be $150 each for a top prize of a $1 million house. Only 18,000 tickets will be sold in that one.

The Fender Center for Music Education did a house raffle in 2004 for a $600,000 home, but doesn't appear to be doing one this year. At least, it's not listed on their website.

Maybe they decided the housing bubble was too much of a risk.

I'm sure the list of raffles has grown longer each of the past few years, although, that's likely to change as the housing market slows, or crashes. The thing that has made these raffles extra attractive for organizers is the appreciation they get as the prize home increases in value from the time of purchase to the time of award. It takes more than a year to set up a house raffle, with the purchase of the home being one of the first steps, occurring more than a year before the sale of the first ticket. If, during that time, the house were to decrease in value, the operators could lose money. They would be bound by law to say they were raffling off a $1 million house, for example, even if they paid $1.5 million for it a year prior to the start of ticket sales. That could cause ticket sales to tank, leaving them with a contest that, if they're lucky, breaks even. Considering all the work it takes to organize and conduct one of these things, that would truly be tragic.

Another thing about all of these contests is that winning them comes with a good news/bad news phone call from prize officials.

The good news is "you won!" The bad news is "you owe!"

Just as anyone lucky enough to win a sizeable bet at the race track knows — the government wants its take of your winnings first.

The guy who won a $1 million home in the Palos Verdes Art Center's 2004 raffle had to pay a tax bill of about $385,000 before he could claim his prize — it meant taking out a mortgage. In addition, he had to pay for title insurance and closing costs, which likely ran him about $1,500 and $30,000 respectively, unless he managed to get a broker to conduct the closing for less than a 3 percent commission, as he should have, considering all that was necessary was paperwork. Then again, maybe he saved a bundle and did it all himself.

Bottom line is this — Winning may not necessarily be the answer to everyone's hope for a home. You're probably going to have a monthly house payment, even if you win. And if it's a condo, you'll surely have homeowners association dues to pay each month as well — payments that can be $300 or more. And so, you might just opt to take the optional cash prize.

Speculators beware. If you're one of those people stuck with a house that won't sell and your doing the math in your head, mouth watering at the prospects of a raffle, stop and swallow. You can't do that. This is not an option for you. Tribal governments had to fight like hell for years to gain the right to open casinos on sovereign land, you sure as hell aren't going to get off any easier.

Many states, California included, view raffles conducted by individuals as illegal gambling. Yes, that includes your Superbowl office pool, although I wouldn't expect the feds to bust through the door at halftime for that piddly little $400 pot.

A raffle, on the other hand, is big bucks. A $150 a ticket. A total of 25,000 tickets. That's $3.75 million that Palos Verdes Art Center could realize for that $1.5 million house — more than double their money!

That could be too much a temptation for crooks, and believe it, there have been scams, and tragic endings. The UK had a sticky mess with a house raffle just last year. In that case the prize house was repossessed days before the drawing. Oops!

That might have something to do with the reason most states in the U.S. allow house raffles to be conducted only by certain non-profit organizations. California is one of those.

Now, if you're wondering whether the involvement of a non-profit in the venture means your ticket purchase is tax deductable, I have no idea. That's something about which you should consult your tax advisor.

Regardless, at a time when people like you and me can't even get in at entry level, we might be able to part with $150 for a chance at a dream.

I haven't decided yet. I still have to convince the wife.

— The Boy in the Big Housing Bubble