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Showing posts from October, 2018

Start Early and Live Happily Ever-after

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As storybooks go, the character is introduced, they meet their love interest, a villain thwarts their intentions, true love overcomes, they marry and live happily ever-after.It's a very familiar formula.Similarly, there is a formula that couples follow in real life.They go to college, get a good job, rent a home, fall in love, get married and buy a starter home.They start a family, move into a larger home, save for their children's education, start planning for their retirement and if they live within their means, they invest their surplus funds.An alternative to this might be to start investing in rental homes early in their adult life before their standard of living becomes so expensive that they don't feel like they have the money to purchase rentals.There are infinite possibilities but let's say a single person, after getting a good job, buys a small three or four-bedroom home with an owner-occupied, minimum down payment.They move into the home and possibly, rent o…

It's Not Just the Tax Benefits

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When the standard deduction for married couples filing jointly was increased from $12,700 to $24,000 for 2018, there was some speculation that the bloom was off the rose of homeownership.The thought was that if the tax benefits from being able to deduct the property taxes and interest was less than the standard deduction, that maybe, the buyer would be better off continuing to rent.With mortgage rates as low as they have been for the past eight years, payments have been lower and so has the amount of interest that was paid.This and the fact that sales and local taxes, which include property taxes, are limited to $10,000 a year on the Itemized Deduction form have made it harder to reach the increased standard deduction.The reality of the situation is tax benefits are only one of the components that make a home an excellent investment and it probably contributes the least of the top three benefits.Principal reduction and appreciation build an owner's equity in an automatic way that …

HELOCs Becoming More Expensive

In September, the Federal Reserve raised interest rates for the third time in 2018 and they're expected to go up one more time this year and three times next year.If you have a Home Equity Line of Credit, HELOC, you're paying more to use that money and it is going to become more expensive.It may make sense to refinance your home and consolidate the balance of your HELOC to lock in a lower mortgage rate.Most lenders require that the combination of these loans should not exceed 80% of the home's fair market value and that you have good credit and adequate income to support the payment.A HELOC is a first or second mortgage that allows the borrower to withdraw money as needed, up to the line of credit provided by the lender.A draw period is established where the borrower is only required to pay interest.Since all HELOC loans are variable rate mortgages, during periods of rising rates, the cost of the funds increase.However, unlike adjustable rate mortgages that have specified …

Fast Track Rental Property

FHA allows owner-occupants to purchase up to a four-unit property with a minimum 3.5% down payment.The rent collected on three units could be used to make the payment and the owners' pro-rata share would be less than ¼ of the payment itself.The owner-occupied unit would be considered their principal residence.The other three units are treated as rental property and eligible for cost recovery, a non-cash deduction plus all the normal business expenses.The rental income of the three remaining units is calculated as income and assists the buyer in qualifying.A homeowner could buy a four-unit, live in one for two years, buy another four-unit with a minimum down payment, move into one unit, rent the other three as well as the previous unit in the first property.Then, after another two years, repeat the same process over again.The fifth year, the homeowner/investor would have a total of 11 rental units plus the one that they are occupying.An acquisition strategy like this might be diffi…

Mortgage Free

It may be an all too common belief that a person will have a house payment and a car payment for the rest of their lives.However, with a plan and some determination, you can be mortgage free.Planning for retirement is obviously important and many times, an activity plagued by procrastination.Some homeowners' goal is to have their home paid for by retirement, so they won't have payments.It makes sense to eliminate a sizable recurring expense before they quit working.By making regular principal contributions in addition to the payments, the debt can be eliminated by the target retirement date.Assume a homeowner refinanced their $300,000 mortgage at 4% last year for 30 years with the first payment due on May 1, 2017.With normal amortization, the home will be paid for at the end of the term.Additional principal contributions with each payment will save interest, build equity and of course, accelerate the payoff on the home.An extra $250.00 a month would pay off the mortgage 7.5 ye…