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Showing posts from 2016

"This is going to be the year"

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Every year, it seems like the same things are on the list but this could be the year you really do invest in a rental home.Rents are climbing, values are solid and mortgage rates are still low for non-owner occupied properties. A $150,000 home with 20% down payments can easily have a $300 to $500 monthly cash flow after paying all of the expenses.There are lots of strategies that can be successful but a tried and true formula is to invest in below average price range homes in predominantly owner-occupied neighborhoods. These properties will appeal to the broadest range of tenants and buyers when you’re ready to sell.Single family homes offer an opportunity to borrow high loan-to-value mortgages at fixed rates for long terms on appreciating assets with tax advantages and reasonable control. This can be the year to make some real progress on your resolutions. The first step may be to invest some time learning about rental properties by attending a FREE webinar on January 4th at 7:00 P…

Can 0.5% Really Equal 5%?

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Since the election, rates have started going up and it will have a direct effect on the cost of housing. There is a rule of thumb that a ½% change in interest is approximately equal to 5% change in price. As the interest rates go up, it will cost you more to live in the very same home or to keep the payment the same, you’ll have to buy a lower priced home.Before rates rise too much, it may be the best time to buy a home whether you’re going to use it for your principal residence or a rental property. Low interest rates and lower prices make housing more affordable.

Time May Be Running Out

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During the Great Recession, some homeowners elected to rent their home rather than sell it for less than it was worth.IRS tax code allows for a temporary rental of a principal residence without losing the exclusion of capital gain based on some specific time limits. During the five year period ending on the date of the sale, the taxpayer must have:Owned the home for at least two yearsLived in the home as their main home for at least two yearsOwnership and use do not have to be continuous nor occur at the same timeIf a home has been rented for more than three years, the owner  will not have lived in it for two of the last five years. So the challenge for homeowners with gain in a rented principal residence that they don’t want to have to recognize is to sell and close the transaction prior to the crucial date.Assume a person was selling a property which had been rented for 2 ½ years but had previously been their home for over two years. To qualify for the exclusion of capital gain, …

It Isn't Final Until It's Funded

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Mortgage approval isn’t final until it’s funded.  Things can change prior to the loan being closed that can affect a pre-approval such as changes in the borrowers’ financial situation or possibly, factors beyond their control like interest rate changes.Good advice to buyers is to do nothing that can affect your credit report until the loan closes. Opening new credit cards, taking on new debt for a car or furniture or changing jobs could affect the lender’s decision if they believe you may no longer be able to repay the loan. The benefits of buyer’s pre-approval are definitive: it saves time, money and removes the uncertainty of knowing whether the buyer is qualified. The direct benefits include: Amount the buyer can borrow - decreases as interest rates riseLooking at “Right” homes - price, size, amenities, locationFind the best loan - rate, term, typeUncover credit issues early - time to cure possible problems Bargaining power - price, terms, & timing Close quicker - verificati…

Gift or Inheritance - Does It Matter?

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A person called into a radio talk program with a situation that was troubling to the caller and disturbing based on the potential tax liability that may have been avoided.The caller’s elderly father had deeded his home to his daughter a few years earlier because in his mind, his daughter was going to get the home eventually and this would be one less thing to be taken care of after his death. The daughter didn’t really care because the father was going to continue to live in the home and take care of it so that it would be no expense to her.Obviously, unknown to either the father or the daughter, transferring the title of a home from one person to another could have significant tax implications. In this case, when the father “gave” the home to his daughter, he also gave her the basis in the home which is basically what he paid for it. If she sells the home in the future, the gain will be the difference in the net sales price and her father’s basis which could be considerably higher…

It's the Principal of the Thing

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Most people think they’ll have a house payment and a car payment for the rest of their lives but it doesn’t have to be with a plan and a little discipline. The plan is to make additional principal contributions to a fixed rate mortgage to shorten the term and save tens of thousands in interest. If a person were to make an additional $100 payment each month applied to principal on a $175,000 mortgage, it would shorten the loan by five years six months. If the person were to make $200 a month additional payments, it would shorten the loan by 9 years. $459 additional payment would shorten it to 15 years.If a person does make a decision to regularly pre-pay their mortgage, it will be their responsibility to verify that the lender is applying the money to the principal each time as opposed to being placed in the reserve account for taxes and insurance.

In today’s market, a savings account pays around 0.5% or less. Even with the low mortgage rates available, there is still a considerab…

A Cost to Consider

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Homeownership, part of the American Dream: a home of your own where you can feel safe, raise your family, share with your friends and enjoy life. The benefits are easily recognizable but maintenance is just as real and should be considered.Property taxes and insurance are two of the largest expenses homeowners have aside from their mortgage interest. But, as any homeowner knows, there will be occasional expenses for repairing toilets, faucets, windows and other things. There are also the significantly larger expenses that arise like replacing a water heater or HVAC unit. And don’t overlook the periodic maintenance like painting or floor coverings. Financial experts suggest that homeowners save one to four percent of the home’s value per year for repairs and maintenance. Two to eight thousand dollars a year may sound like more than you’ll need but the cost of an air conditioning unit can easily be $6,000 and some homes have more than one unit, which hopefully, won’t need to be rep…

Dial Down Risk for Retirement

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There is certainly no shortage of retirement planning strategies available to individuals who actually take the time to consider them. What most financial experts do agree on is that the closer you are to retirement, the less time you have to recover from a loss. For that reason, many people start dialing down their risk factors as their age increases. One way to minimize risk is to invest in things that you know and understand. For the majority of homeowners, their largest asset is the equity in their home which they generally have more familiarity than other types of investments. Buy the home you’d like to retire to today and use it as a rental property. Finance it with a 15 year loan so it will amortize quickly and possibly be paid for at retirement. Continue living in your current home until you’re ready to move into the home you’ve designated at your retirement home which will not create a taxable event. Prior to moving in, you can rehab the home so that it fits your styl…

Down Payment: FOUND!

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Saving the down payment may be unnecessarily keeping would-be buyers from getting into a home. They may be unaware that the funds might be available.The NAR Profile of Home Buyers and Sellers reports that 81% of first-time buyers got all or part of their down payment from savings. Less than 4% said that all or part of the down payment came from a withdrawal in their IRA and 8% from their 401(k) or pension fund. Traditional IRAs have a provision for first-time buyers which include anyone who hasn’t owned a home in the previous two years. A person and their spouse, if married, can each withdraw up to $10,000 from their traditional IRA for a first-time home purchase without incurring the 10% early-withdrawal penalty. However, they will have to recognize the withdrawal as income in that tax year. For more information, go to IRS.gov.  Allowable withdrawals from traditional IRAs can be from yourself and your spouse; your or your spouse’s child; your or your spouse’s grandchild or your …

It's not far, if you know the way

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“It’s not far, if you know the way.” What this expression implies is that you could have a long way to go if you don’t know where you’re going or how to get there. Just like reading a map, there are some definite steps that will improve your success in buying a home in today’s market.Know your credit score – the best mortgage rates are available to borrowers with the highest scores. Unless you know what your credit score is at all three major credit bureaus, you don’t really know what rate you’ll have to pay.Clean up your credit – it is estimated that about 90% of credit reports have errors. Some are not serious but others could affect a borrower from getting the loan they want. It is your responsibility to know what is on your different reports and correct them if possible. You’re entitled to a free copy of your credit report each year from Experian, Trans Union and Equifax.Get pre-approved – Taking the time to make a loan application with a qualified lender even before you sta…

Sale of Home by Surviving Spouse

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Special consideration is made by IRS for the sale of a jointly-owned principal residence after the death of a spouse. Surviving spouse may qualify to exclude up to $500,000 of gain instead of the $250,000 exclusion for single people if certain requirements are met.The sale needs to take place no more than two years after the date of death of the spouse. Surviving spouse must not have remarried as of the sale date. The home must have been used as a principal residence for two of the last five years prior to the death.  The home must have been owned for two of the last five years prior to the death.Survivor can count any time when spouse owned the home as time they owned it and any time the home was the spouse’s residence as time when it was their residence.Neither spouse may have excluded gain from the sale of another principal residence during the last two years prior to the death.If you have been widowed in the last two years and have substantial gain in your principal residence, it …

Rental Real Estate is Preferred Choice

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Real estate is the overwhelming preferred choice by Americans as identified in a recent survey. With the Dow Jones industrial average reaching record highs, it might be expected that the stock market would be the favored choice but that wasn’t the outcome.Analysis of the report suggests that the popularity for houses could be that they are tangible assets that you can see where your money is actually invested compared to stocks and bonds which tend to be unclear where the money is invested.There are several distinct advantages of homes as investments over other popular alternatives.High loan-to-value mortgages availableAt fixed interest ratesFor long periods of timeOn appreciating assetsWith definite tax advantagesAnd reasonable control.Another advantage of rental homes is that most people are comfortable with them. It is the same type of property that they live in but used as a rental. They have a tendency to understand the key components such as value, appreciation, rent, mainte…

When the rate goes up

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It’s not “if” the rate goes up but “when” the rate goes up; it could make a big difference for some buyers. Freddie Mac predicts that mortgage rates will be at 4.5% a year from now.If buyers can afford a home with higher interest rates, it means higher payments. Higher payments might mean they won’t have the money to spend on other things like furniture or improvements to the home or an unrelated purchase like a new car.When the rate moves 0.50% on a $250,000 mortgage, the payment goes up by $70.66 a month. If it moves 1.00%, the payment goes up by $143.74 per month, each and every month for the entire term of the mortgage which means paying over $50,000 more for the house.The question facing every borrower in this situation is “How will you feel about having to pay more to live in the same house because you were not ready to commit?”Then, there’s the borrower who is absolutely maxed out as to what they can qualify for or sometimes, it is a borrower who just refuses to pay a higher …
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Attention Homeowners!  If you have not filed for an exemption to which you are entitled, your deadline to file is FRIDAY, September 30th.  Here is the link to file https://www.realpropertyhonolulu.com, and you must know your Parcel ID # [aka Tax Map Key (TMK) #].


Waiting to Buy...WHY?

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Some people wait to buy a home until they have 20% down payment to avoid paying the mortgage insurance which is required by lenders when the loan-to-value ratio is greater than 80%, with the exception of VA loans. To illustrate a typical situation, let’s assume that buyers have $10,000 for a down payment on a $200,000 home. They could purchase it today with a 95% loan or save another $30,000 in order to get an 80% loan without mortgage insurance. If it took three years to save the additional down payment, the $200,000 home at 3% appreciation would cost $218,545. A 20% down payment on the increased sales price would be $43,709, less the $10,000 the buyers currently have leaves them $33,709 to save which would amount to $936.36 a month. They would secure a $174,836 mortgage at the then current mortgage rates, which in all likelihood, will be higher than today’s rates.The alternative is for the buyer to purchase the home today with a 95% loan at today’s low interest rates plus approxi…

Dust-Free Home

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Having a dust-free home isn’t difficult, but it takes a serious commitment and a housekeeping strategy that addresses the dust and its causes. Whether your motive is cleanliness or to eliminate the cause of some allergies and asthma symptoms, it will be worth it. Try to dust your home at least twice a week. Dust the tallest items and work your way down. Dust picture frames, blinds, baseboards and anything that stands out from the wall. Feather dusters can spread more dust than they collect compared to microfiber cloths that attracts dust because they have an electrostatic charge. Filters on heating and air-conditioning systems should be changed often not only to remove dust from the air but to increase the efficiency of the units themselves. Special HEPA filters can improve the overall indoor air quality. Frequently changing the bag or emptying the container in your vacuum is helpful in eliminating dust. Vacuum the floors at least once a week. Vacuum unde…

Getting to Value

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Fair market value is the price that real estate would sell for on the open market without any unusual forces being involved. The definition is relatively simple but there certainly different methods of determining what it is.A homeowner could order an appraisal before they put their home on the market but would incur the expense of an appraisal and more likely than not, it won’t or can’t be used by the buyer or their lender. The advantage is that an appraisal is a professional approach by a disinterested party to establish value. Licensed appraisers use three approaches to value: the market data, the replacement cost and the income approach. The appraiser can put more weight on one approach than another based on his/her assessment of what would be appropriate. The replacement cost looks at what it would cost to rebuild the property today less the depreciation it has experienced by age and wear and tear plus the value of the lot. The income approach uses a capitalization rate bas…

Pay Off Your Mortgage?

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Becoming debt free is as much a part of the American Dream as owning a home but there certainly can be conflicting circumstances that make the decision to pay off your mortgage early unclear. The advantages of paying off debt early is increased cash flow, less interest paid and a higher credit score. The disadvantages are lower cash flow available as discretionary funds for meals, entertainment and other things. If the ultimate goal is financial security, is it worth the intermediate sacrifice? Whether you pay off your mortgage early is a personal decision that may be right for one person and not for another. Consider the following before you get started:Reasons you should Peace of mind knowing that you don’t have a mortgage You’ll save interest regardless of how low your mortgage rate is Lowering your housing costs before you retire Reasons you shouldn’t You can invest at a higher rate than your mortgage You have other debt at a higher rate than your mo…

Two Negotiations

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There are two negotiation periods in some home sales. The primary negotiation takes place when the contract is agreed upon that includes the price, closing and possession. Buyers and sellers alike feel relieved once this first round has resulted in an agreement but there may be more negotiations to come if there are contingencies for financing, inspections or other things.The purpose of an inspection is for the buyer to receive an objective evaluation about the condition of the home and its components to identify existing defects and potential problems. The expense for inspections can be several hundred dollars and it’s reasonable for buyers to not want to spend the money before they find out if they can come to terms with the seller. From a different perspective, sellers want to know quickly if the buyer is going to reject the home due to the inspections. Sometimes, buyers will expect sellers to make all of the repairs listed on the report and this is where the second round of n…

Ready for Retirement?

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It’s surprising to realize that most people spend more time planning their next vacation or cell phone purchase than they do on their own retirement. Let’s look at a hypothetical situation where you have $35,000 to invest for your retirement in 15 years. Have you compared where you might have the best opportunity? The safest place to put it might be a certificate of deposit because it’s insured but unfortunately, rates would be less than 2%. The value would grow to $47,233.26 at the end of the 15 year holding period.Investing in a mutual fund has more risk but also a greater opportunity to earn a higher rate of return. An estimated 7% return would project an accumulated value of $99,713.14. Using the $35,000 for a 20% down payment and closing costs on a $150,000 rental home could realize much higher proceeds. Using a familiar investment analysis spreadsheet, the $35,000 could grow to a future wealth position of $153,302. This analysis considers leverage, 3% appreciation, re-inves…

Price of Paradise

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Median Sales prices for the month of July 2016 continue to rise for single family homes and condominiums on Oahu.  However, we are beginning to see a slowing down in our market, with less sales compared to July of 2015.  For several years now, we have seen an average of a fairly stable 4-5% appreciation in value but this increase is showing signs of flattening.




Avoid Wasting Time

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“If you waste my time, don’t expect me to hang out with you very long.” This could have been said by a buyer or seller or a real estate agent. Time is valuable and no one wants to waste their time. Most people can’t put their lives on-hold while they’re trying to buy or sell a home. Whether they have a family, a couple or single, life continues and the time constraints of moving can become burdensome. Your agent is committed to helping you save time while making the experience memorable. They know the process and the potential problem areas and can help you move through them.To preserve your time and your agent’s, please consider the following:If your plans to buy or sell change, let your agent know.Be on time for appointments or if it is necessary, cancel them with as much notice as possible.Get pre-approved through a trusted mortgage professional.Cooperate with your loan professional by providing all requested documentation.Don’t wander into builder or REALTOR® open houses witho…

Picture This!

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Listing photos may be one of the most important marketing efforts that lead to a potential buyer.Nearly, all buyers use the Internet during the home search process. They usually start looking at homes online before they contact an agent. It’s far more efficient to screen properties by looking at the pictures that have been posted than to make appointments with each homeowner, drive all over town and waste a lot of time looking at homes that would never meet a buyer’s criteria. There needs to be enough pictures of a property to adequately represent the home; most websites allow for at least 24 and more may be needed if it is a large home.Take horizontal shots to accommodate the format of most listing websites.The pictures should be well-lit so that it is easy to see all of the features of the room. Natural light is preferred over the limitations of flash.They should be taken with a wide-angle lens so that you can see the majority of the room in one picture.Large rooms can be taken …

How Will It Feel?

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It has been said that change is the only constant. Most of the financial experts have been expecting interest rates to increase along with home prices. While homes, in most markets, have definitely seen increases over the past five years, the mortgage rates today are actually lower than they were a year ago. If the interest rates were to increase by 1% over the next year while homes appreciated at 6% during the same time frame, a $250,000 home would go up by $15,000 and the payment would be $211.53 more each month for as long as the owner had the mortgage. The increased payments alone would amount to $17,769 for the next seven years. When facing a decision to postpone a purchase for a year, a legitimate question to ask oneself would be: “how will it feel to have to pay more to live in basically the same home a year from now?”It is easy to understand that if the price of a $250,000 home goes up by 6%, it increases the price by $15,000. A slightly more difficult concept to realize i…

Increase the Chance of Being Accepted

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While all contracts must have certain required elements, mutual assent, consideration, capacity and legality, there are some things that increase its chance of being accepted. The seller generally wants the highest possible price with the fewest inconveniences in the shortest period of time. In the same way, the buyer generally wants the lowest possible price with the fewest inconveniences in the shortest period of time. The perspective of the principal can change depending on how these different parts of an agreement are structured. Offer Price - While the price of the home seems to be the major point of contention in a home negotiation, the seller’s net proceeds and the buyer’s mortgage payment may actually be more critical. Financing - 86% of buyers financed their recent home purchase as opposed to the 14% who paid cash. Some financing has higher fees than other types of financing and in some instances, sellers must pay the additional charges on behalf of the buyer.�����…

The Right Questions are Key

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Asking the right questions will lead to the answers that help you determine which agent to use for one of the largest investments that most people make…the purchase or sale of their home. Rudyard Kipling wrote the verse “I keep six serving men, they taught me all I knew; their names were what and why and when and how and where and who.” Prefacing your questions with one of these words can help you get the information you need to make a good decision about the REALTOR® you use.How long have you been selling homes and is this your full-time job?What designations or other credentials do you have?How many homes did you and your company sell last year?What is your average market time compared to MLS and your top competitors?What is your sales price to list price ratio?When will you report to me on the progress of my transaction?Who can you recommend for service providers like mortgage, inspections, repairs and maintenance? Why do you want to work with me?Where are the biggest opportu…

Opportunity Can Disappear

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In the last few years, some people who were unable to sell their homes, rented them instead. The market has improved in most places and the home may easily sell now and possibly, for a higher price.Even though the opportunity to sell in the near future might not change, there could be another opportunity that could quickly disappear for some homeowners. Most homeowners are aware that there is a capital gain exclusion on the profits of a principal residence of up to $250,000 for single taxpayers and $500,000 for married taxpayers filing jointly. The rule requires that you must own and use the home as your principal residence for two out of the last five years.A homeowner can rent their home for up to three years and still be eligible for the exclusion. As an example, if they had owned and lived in it for two years and then rented it for two and a half years, they would need to sell and close the transaction before the remaining six months expired.If there was a $200,000 profit in the…

Retirement Funds for Home Purchase

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For the person who has good credit and income but not enough money for the down payment on a home, their qualified retirement program could offer them some help. The rules are different depending on whether it is a 401(k), a Roth IRA or a traditional IRA.Up to half of the balance of a 401(k) or $50,000, whichever is less, can be borrowed by the owner at any age for any reason without tax or penalty assuming the employer permits it. There can be specific rules for loans from 401ks that would determine the repayment; interest is usually charged but goes back into the owner’s account. You can consult with your HR department to find out the specifics.A risk in borrowing against a 401(k) comes if your employment ends before the loan has been repaid. The loan may have to be repaid with as soon as 60 days to keep the loan from being considered a withdrawal and subject to tax and penalty. Even if you continue with the same employer, failure to repay the loan could be considered a withdra…

Choose a Lower Tax Rate

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During campaign season, it is not unusual to hear a candidate criticized because they make a lot of money but pay little in income tax. While it might not seem fair, taxpayers are allowed to arrange their affairs so that they minimize the amount of tax paid.Salary, wages and commissions, along with interest and dividends are taxed at ordinary income rates which can range from 10% to 39.6%. However, capital gains rates, for property held more than 12 months, are much lower ranging from 0% to 20%. Taxpayers in the 25-35% brackets pay LTCG rates of 15%.The profit on rental property enjoys the lower long-term capital gains rates as compared to the profit on “flipped” property which is taxed at ordinary income rates. Investments in rental homes generate income, provide depreciation for tax shelter, have equity build-up due to the amortizing loan, leveraged growth due to the borrowed funds and appreciation. The profits could be considerably higher than alternative investments and the pr…

Increase Your Marketability

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The seller has three tools available to affect the marketability of their home: price, condition and terms. Price is the easiest to adjust for the competing properties, amount of inventory or market conditions. However, lowering the price is not necessarily the best decision when trying to maximize the proceeds of sale.If a home is in poor or outdated condition, updating can be done to make it show favorably with other homes that are currently on the market. Sometimes, sellers rationalize not doing the work by saying they believe the buyers would rather make their own choices. The truth is that most buyers are using all their resources to get into the home and will have to live in its present condition until they can save enough to make the changes they want.Another reason to go ahead and invest the money and effort into improving the condition is that it is difficult for buyers to imagine the home any other way than its current condition. When comparing one home to another, buye…

If you're going to play, GET IN THE GAME

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If competition is a buyer’s biggest concern, for goodness’ sake, get in the game. In a new survey of close to a thousand home buyers conducted by Redfin, affordability is still the number one concern but due to low inventories, competition from other buyers is moving its way up the poll.26% identified affordability while 19% mentioned competition and 15% mentioned low inventory as their respective top concerns.To win, athletes study the competition to come up with a plan and buying a home is not different.Ask what terms are important to the seller before you write the offer.Once you decide to make an offer, do it as fast as you can, hopefully, to be the only one the seller is considering.Make a good (or possibly, your best) offer in the beginning; you may never get a chance at improving it. In highly competitive situations, offer above the list price.Attach your pre-approval letter from a respected lender. This means you’ll need to get pre-approved before you even think about writi…

Your Tenants Will Send Your Kids to College

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Parents, with children getting closer and closer to entering college, may also be feeling stress because they haven’t saved enough for tuition and other expenses. It’s estimated that the average cost for the 2015-16 school year is $32,405 for private colleges, $9,410 for state residents of public colleges and $23,893 for out-of-state residents.If you started saving the year your child was born, you’d have to save $4,608 per year for 18 years at 5% to accumulate $129,620. If you waited until they were 10 years old, you’d have to save $13,574 per year to have the right amount. Saving enough can be difficult if you have a lot of time but if you only have a short time to meet your goals, it can seem impossible.Student debt is one way to handle the tuition but many parents are reluctant to saddle their children with the obligation. Currently, there is more than $1.2 trillion in outstanding student loan debt to 40 million borrowers with an average balance of $29,000. Some economists s…

The Obvious Alternative Investment

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Rental homes can be a natural alternative investment choice for homeowners because they are already familiar with houses. Maintenance on a rental is not that much different than on your personal home. The same plumbers, painters and other workmen can be used to make repairs. Single family homes offer an investor high loan-to-value mortgages at fixed interest rates for long terms on appreciating assets with defined tax advantages and more control than other investments.High loan-to-value mortgages – most investments require that you pay cash but rental properties can be purchased with 20% down payment.Fixed interest rates – most commercial loans are based on a floating rate such as prime interest plus one or two percent compared to real estate loans as fixed rates for the term.Long terms – commercial loans are generally short-term such as six months or a year with the possibility of being renewed for another six months or a year unlike real estate where a 30-year mortgage is commonpl…

7 Out of 50 Could Save Money

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It is estimated that seven million out of 50 million homeowners could save money by refinancing their existing mortgages. Obviously, if the replacement mortgage has a lower rate than your existing one, you will save money.If you bought a home before 2011 and are paying mortgage insurance, you should investigate refinancing to eliminate that requirement. Even if you don’t get a lower interest rate, the savings could amount to hundreds of dollars a month.If a home you purchased since 2011 has appreciated enough, it could easily justify refinancing to eliminate the required mortgage insurance. Most loans don’t require mortgage insurance if the loan-to-value is 80% or less. There are some programs for 90% mortgages that don’t require mortgage insurance. It is certainly worth investigating with a trusted mortgage professional.Continuing to pay mortgage insurance that could be eliminated is like having a broken cell phone and continuing to make the monthly payments for something you ca…

You may never stop paying for some improvements

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You've saved the money and are ready to pay cash to build a new pool for your home.  However, that's just the beginning of your soon to be increased expenses which will include maintenance, higher utilities and higher taxes.Homeowners obviously benefit by a larger equity when their home increases in value due to appreciation.   A not-so-obvious effect that will also more than likely take place is that their property taxes will increase.  In most cases, a property's assessed value is generally tied to market value to calculate the property taxes based on the tax rate for that year. Similarly, a homeowner can affect the value of their home by making capital improvements.  Some small items may never be recognized by the taxing authority but items that require a permit, certainly are brought to their attention.  Items such as a fence, roof, remodeling, windows, new rooms or swimming pools can easily increase the assessed value of a property.Most states have an establ…

Your home may be worth a lot more than you think

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Real estate lost a lot of value during the recession but most areas have rebounded considerably.  In some cases, the homes are worth more than they were before the housing bubble burst. The dynamics are classic for this type of market: inventories are low, mortgage rates are low and demand is high.  All price ranges are on the rise with some at an even higher rate because the short supply is causing competition among buyers.Another reason many homeowners' may have more equity is simply not staying current with what is going on in the market.  In a recent FNMA study, it indicates that 23% of owners believe they have negative equity in their home when actually, it is 9%.  37% believe they have greater than 20% equity in their home when actually 69% of homeowners do.Even if you're not planning to sell your home, knowing the value helps you understand your financial position better.  The interest on home equity debt up to a $100,000 limit is tax deductible and can be us…

Temporary Buy Down

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There is an infrequently-used mortgage program available that could be the solution to a buyer's or seller's problem.A temporary buydown is fixed rate mortgage that the seller has prepaid interest at closing to lower the payments for a number of years.  The borrower must qualify at the note rate but gets the benefit of lower payments for the early years. A 2/1 is a common buydown that the first year's payment is calculated at 2% lower than the note rate and the second year's payment is calculated at 1% lower than the note rate.  The third through thirtieth years' payments are the note rate.Let's set the scene.  A buyer is using their available cash for down payment and closing costs to get into the home.  They'd like to put their own touches on the home when they move in but may not be able to for a year or two since most of their cash was used.In this example, a $250,000 home is purchased with a 3.5% down payment and a 4% mortgage for 30-years. …

Tips for Buying Rentals

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Buying rental property can be an excellent decision and the better informed you are, the more likely you'll have favorable results.  The following suggestions can help you with your decisions.Real estate is a long term investment affected by supply, demand and the economy.  It isn't an investment that is easily converted to cash.  The costs to acquire and dispose of real estate are sizable and need to be spread over years to minimize their effects on the rate of return.Invest in average price homes or slightly below average price to appeal to the broadest market not only when you are renting but later on when you sell it.  The average price is relative to the market you are in and those specific prices.Lower-priced homes will rent for more relative to higher-priced homes.  There is an inverse relationship between rent as a percentage of the price.  As the price increases, the rent as a percentage of the price decreases.  For example, a $200,000 home might rent for $…

How Earnest Are You?

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"If I tell you it's going to rain, you can put the buckets on the porch." If you grew up in the south, you may have heard this expression when a person is testifying to the veracity of his word. If you know a person and/or their reputation, you know whether you can trust their word or not. However, with a stranger such as a buyer, the seller doesn't know whether they'll live up to the terms of the contract or not. Buyers submit earnest money along with a contract to demonstrate their commitment to the terms of the offer. The more earnest money that the buyer deposits indicates to the seller a higher level of commitment to the contract. Except for stated contingencies in the sales contract, if the buyer fails to close on the sale, the earnest money may be forfeited. Significant earnest money makes the seller feel more secure that the contract will close. There certainly are a lot of things that can dictate how much earnest money is appropriate. Local cust…

Components of a Credit Score

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Credit scores are used by lenders to measure the credit worthiness of borrowers. While there are several different companies that offer scores, the FICO, Fair Isaacson Corporation, is the model that is used most often. There are five key components that determine the overall score or rating. The most emphasis, 35% of the overall score, is placed on payment history which reflects whether the borrower paid on time and as agreed by the terms of the credit. Being late, missing payments or going into default would have adverse effects on this part of the score. The second largest component, 30%, is credit utilization or the amount owed in relation to amount available. A person might have a $4,000 outstanding balance on available credit of $20,000. This would be a 20% ratio and would be considered acceptable. Owing $15,000 on $20,000 of available credit would be a 75% ratio and would negatively affect this part of the credit score. FICO says people with the best scores average around…

More Money in Your Paycheck

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A homeowner’s tax savings benefit is generally realized when they file their federal income tax return after the money has been spent for the interest and property taxes. Some people look forward to the refund as a means of forced savings but some people need to realize the savings during the year.It is possible to adjust the deductions being withheld from the homeowner’s salary so they realize the benefit of the savings prior to filing their tax returns in the form of more money in their pay checks. Employees can talk to their employers about increasing their deductions stated on their W-4 form.By increasing the exemptions or deductions, less is taken out of the check and the employee will receive more each pay period. If a person over-estimates their exemptions and therefore, underpays their income tax, they might incur interest and would have additional tax to pay when they filed their tax return.

Buyers considering this strategy should seek tax advice and discuss it with their…

Postponing a Purchase

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You might be surprised how many people contact real estate offices because they want to buy a home but they don’t have the down payment or the credit to qualify. Occasionally, an agent will be working with someone who does have the down payment and credit but for whatever reason, decides to postpone the decision to purchase now for some point in the future.It’s not uncommon that once they’re out of the market, the money starts burning a hole in their pocket and they end up buying a boat or a motorcycle or some other thing that cannot positively affect their lives and security the way a home does.If the money had been put away somewhere safe like a certificate of deposit, it wouldn’t earn a lot but it would be there when they decided the time was right to buy a home. $8,750 would grow to $9,286 in three years in a 2% CD.For the person who could tolerate a little more risk, they might consider investing in the stock market. If you found a mutual fund that would earn 7%, at the end of…

Worth the Effort

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“Anyone may arrange his affairs so that his taxes shall be as low as possible...” While Judge Learned Hand was talking about federal income taxes, it can be applied to property taxes as well. States have a process of assessing the value of a property based on a number of things that can include size, amenities, location and what the owner paid for the property. Most states make adjustments to that value annually. Once it has been published to the owner, there is a process available for those who disagree with the value.Learn the assessment process and what the filing deadlines are to apply. Since different states have different requirements, it is important to know the process in your area.Obtain your assessment records – they may be available online and you can find out how your value was determined. Check for mistakes in square footage, bedrooms, amount of land, etc. Then, verify if the comparable sales in the neighborhood support their position or not. Your real estate agent…

Leverage - A Maximum Advantage

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Leverage gives the user a maximum advantage whether it is physically lifting a large object or rapidly building equity in a home. In the case of the home, the high loan-to-value mortgage allows the profits made to be greater than simply the cash invested.A $250,000 home can be purchased on a FHA loan with a 3.5% down payment of $8,750. If the home appreciates at 2% a year, in seven years the equity will grow to $75,920 due to the appreciation and the amortization of the mortgage. That would be a remarkable 36.2% rate of return.It is estimated that homeowners have a 45 times higher net worth than renters. Since the obvious difference is that renters don’t own a home, owning a home is a distinct advantage. The leverage that allows a borrower to control a much larger asset with a small down payment gives them a return on the much bigger asset than on just the down payment.Another interesting contribution is the forced savings that occurs with each payment made on the mortgage. A po…

Digital Showings

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Ask any real estate professional if they have sold a house without the buyer having physically seen it and they’ll most likely tell you they have. While it may have been an unconventional sale, it is more prevalent today than it was twenty or even ten years ago. The digital world of the Internet has changed the process of buying a home. It is evolving as people have become more comfortable with the reliability of the information available. Getting in a car and driving around all day looking at homes that may or may not fit your needs or wants is not productive for buyers or the agents.The quality and the quantity of pictures has dramatically improved in the last twenty years. Buyers and agents alike can view a property online and get a fairly accurate idea of the condition and layout of home and whether it warrants a physical visit. Videos can “walk” you through the house to be able to assess if the floorplan will work for you.The 2015 Profile of Home Buyers and Sellers reports 89…