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Showing posts from August, 2019

Invest in Equity Build-up

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Equity build-up could be one of the biggest advantages to buying a home.There are two distinct dynamics that take place to make this happen:each house payment applies an amount to reduce the mortgage owed and appreciation causes the value of the home to go up.It is easy to make a projection based on the type of mortgage you get and your estimation of appreciation over the time you expect to own the home.Even conservative estimates can produce impressive results.Let's look at an example of a home with a $270,000 mortgage at 4.5% for 30 years and a total payment of $2,047.55 payment including principal, interest, taxes and insurance.The average monthly principal reduction for the first year is $362.98. If you assume a 3% appreciation on the $300,000 home, the average monthly appreciation is $750 a month.The total payment of $2,047.55 less $1,112.98 for principal reduction and appreciation makes the net monthly cost of housing, excluding tax benefits, $934.57.If this hypothetical per…

America Still Considers Real Estate the Best

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35% of respondents, in a recent annual Gallup poll that dates back to 2002, identified real estate as the best long-term investment option compared to 27% who identified stocks.The top choices included real estate, stocks, savings accounts and gold.Even with the remarkable prices of the different U.S. stock indices recorded in 2019 through April and May, homes have the highest confidence in the minds of the respondents.This seems to be based on the stability of the housing market and the expectation that home prices will continue to rise.Homeowners build equity from both appreciation as well as reducing principal with each payment made. These same factors exist for investors of rental homes in predominantly owner-occupied neighborhoods.Real estate has another dynamic working to produce favorable investment results due to leverage.Leverage occurs when borrowed funds are used to control an asset.When the borrowed funds are at a lower rate than the overall investment results, positive le…

Determining Property Type

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The Internal Revenue Service considers four different types of real estate.  Specific types of properties have benefits based on their classification.  The determination does not depend on the property itself as much as it depends on how the property is used and what the owner's intentions are.Principal Residence ... a principal residence is the place a person lives or expects to return if they are temporarily away from it.  It could be a single family, detached home or condominium or a duplex, tri-plex or four-unit.  The owner(s) can deduct the qualified mortgage interest and property taxes on the schedule A of their tax return.  There is a capital gains exclusion on profit of up to $250,000 for a single taxpayer and up to $500,000 for a married taxpayer.  Income Property - is improved property that is rented or leased to tenants as opposed to using it personally.  It can include houses and condos, apartment buildings, office complexes, shopping centers, warehouses and other comm…