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Showing posts from April, 2017

Would-be to Should-be

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Some would-be buyers have emotional reasons to own a home like having a place of their own where they can raise a family, feel safe and secure and enjoy their friends’ company. Other buyers’ dominant reasons might be financial in nature such as building equity or lowering their cost of housing. Regardless of what might be motivating people to want their own home, it is easy to justify that now is a good time to purchase. Let’s look at a $250,000 example using a FHA loan. The total payment will be about $1,835 dollars a month. If the payment is lower than the rent a person is paying, that should encourage a person to continue investigating. In this example, when you consider the monthly principal reduction, the monthly appreciation and the tax savings, even with money added for monthly maintenance, the net cost of housing is less than half the total house payment. Considering all those advantages, the would-be buyer is spending over $1,100 per month more to rent than it wou

An Alternative to Paying Tax Today

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The cartoon character Wimpy would say that he’d gladly repay you Tuesday for a hamburger today. Some real estate investors say a similar thing to Uncle Sam to be able to hold on to their proceeds from the sale of an investment and agree to pay the tax later. The benefit of a 1031 exchange is that it allows the investor to defer the tax due from the sale into the replacement property. This allows more money to be reinvested. In the example shown, the investor has 27% more to invest now by deferring the tax into the future. The property to be exchanged must be like-kind which means real estate for real estate.   Rental property can be exchanged for other rental or investment property.  Personal-use properties like a first or second home are not eligible for exchanges. There are some critical dates that restrict the validity of the exchange. The investor must identify the replacement property within 45 days of the sale of the relinquished property. The replacement property mus

Lower the Rate - Deduct the Interest

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Credit card debt in America is back to levels prior to the recession. The average credit card APR is just under 16% according to CreditCards.com Weekly Credit Card Report.   Homeowners have an advantage over renters when it comes to getting their arms around debt issues. Basic money management suggests that higher rate debt be replaced with lower rate debt. Credit cards, personal cars, boats, motor vehicles and other personal property, typically have interest rates higher than that of real estate loans. Borrowing against a person’s home usually provides the lowest rate of financing. Refinancing a home mortgage to take cash out to retire personal debt is one option. Another would be to secure a home equity or HELOC, home equity line of credit. An alternative advantage of borrowing against one’s home is that the interest may be tax deductible unlike the interest on most personal debt. Qualified mortgage interest includes acquisition debt which can only be used to buy, build or

Rentals are IDEAL

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Rental homes are the IDEAL investment because they offer a higher rate of return than other investments without the volatility of the stock market. With certificates of deposit and bonds at less than 2%, people need an alternative investment that they understand and with a reasonable amount of control. In this case, IDEAL is an acronym identifying the advantages of rental properties. Income from the monthly rent contributes to paying the expenses and a return on the investment. Depreciation is a non-cash deduction that shelters income for some investors. Equity buildup occurs with amortized mortgages because each payment is composed of interest owed and principal reduction to retire the loan by the end of the term. Appreciation is achieved as the value of the property goes up. Leverage can increase the return on investment by using borrowed funds to control a larger asset. These individual benefits working together make rental real estate a good i