Monday, August 29, 2016

Pay Off Your Mortgage

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 mortgage that needs to be paid off
  • You might need the money in the future and want to remain liquid
  • You might not qualify for a mortgage currently
  • You should pay off other debt with higher interest rates
  • Your employer has a matching retirement plan that would benefit you more
  • You have more urgent financial needs like emergency fund, life, health and disability insurance
  • You expect high inflation and the value of your mortgage debt will decrease
Use this Mortgage Accelerator to determine how quick you can pay off your mortgage.

Monday, August 15, 2016

Mutual Fund

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-investing cash flows, 7% sales expenses and paying applicable taxes which the previous examples do not.
The rate of return on these three examples are 2% for the CD, 7% for the mutual fund and a comparable 14.19% return on the rental. As the rate of return increases on investments, additional risk is reasonable.
Most people are much more familiar with homes than they are with mutual funds, bonds and other similar investments. The same REALTOR® who helped you with your home can help you invest in a rental home.

Monday, August 8, 2016

Agent Partnership

“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 without your agent. If you find yourself in that situation, immediately notify them that you have an agent.
  • Only talk to the other party through your agent until after closing.
Your agent is working to help you meet your goals. Things work best when it’s like a partnership where each party mutually respects the other and their resources including their time.

Monday, August 1, 2016

Listing Photos

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 from different angles to give the buyers a different perspective.
  • Rooms should be set if not staged prior to taking the pictures so they will give the buyer an idea of what the room might look like with their own things in it.
  • Arrange pictures in website to help buyers visualize the floorplan as if walking through it.
  • Think about using a tripod; professionals do to absolutely hold the camera still.
  • They should definitely not be “photoshopped” to modify factual elements like removing power lines.
Everyone occasionally takes a great picture but it doesn’t make them a photographer. Since the photography can be one of the most important marketing efforts, consider using a professional photographer to show the home to its best advantage.

Monday, July 25, 2016

Cost of Waiting to Buy

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 is that if the interest rate were to go up by ½%, it is approximately equal to a 5% increase in price. A 1% increase in mortgage rates would approximately equal a 10% change in price. This means that if a home goes up in price by 6% and the interest rate goes up by 1%, it is equivalent to the price of the home going up by a little more than 16%.
Use the Cost of Waiting to Buy calculator to estimate what it might cost to wait to purchase based on your own estimates of what interest rates and prices will do in the next year.

Monday, July 18, 2016

Skilled Negotiator Benefits Both Buyers & Sellers

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.
  • Concessions
    • Seller-paid closing costs – paying all or part of a buyer’s closing cost requires less cash outlay for the purchaser and makes it easier or more appealing for them to buy the home.
    • Seller-paid buydown – prepaying interest to the lender on behalf of the buyer gives them lower payments for the first one, two or three years even though they must qualify at the note rate of the fixed-rate mortgage.
    • Personal property – seller may agree to include existing or new personal property like washer, dryer or refrigerator.
    • Improvements – seller may agree to make modifications to the existing condition of the home like floor covering, countertops, appliances, painting or other things.
  • Earnest Money – more money gives the seller a sense that the transaction is more likely to close while putting the least amount at risk is generally, more appealing to the buyer.
  • Timing – depending on which party is more flexible, sometimes an earlier or later closing or a position on occupancy can be an offsetting consideration that can balance the differing terms.
  • Contingencies or lack thereof – requirements that must be satisfied before the contract can be closed.
The training and experience of a skilled negotiator can benefit both buyers and sellers to save time, avoid difficulties and bring all parties to an agreement. Your real estate professional should be able to help you structure a good offer and negotiate a win-win situation.

Thursday, July 14, 2016

Find the Right Person to Represent You!

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 opportunities to expose my home to the largest market?
Finding the right person to represent you is a little like the person who ordered a lobster dinner at a restaurant. When the waiter brought out the meal, the lobster only had one claw. The customer asked why it only had one claw and the waiter said: “I don’t know; I guess it was in a fight.” The customer looked at him and said: “then, bring me the lobster who won.”

Tuesday, May 3, 2016

Home Value

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.  Home equity debt up to a $100,000 limit is tax deductible and can be used for any purpose.  Owner's commonly refinance to eliminate mortgage insurance, consolidate mortgages, pay off higher interest rate debt like credit cards or student loans or to buy out an ex-spouse's equity.
Be aware that an automated value model like Zillow Zestimates uses algorithms to determine a price and while it might be in the ballpark, AVM results may only be accurate about 20% of the time.  A comparable marketing analysis or broker's price opinion will be more accurate due the subjective approach that will be used by an agent with personal experience in the area.  An agent will consider factors like condition, floorplan, marketability and demand.

Monday, April 25, 2016

Mortgage Program

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.  Normally, the principal and interest payment would be $1,151.76 for the full 30-year term.  If the seller will pay the lender $4,736 at closing, it can be applied to pre-pay part of the interest for the first two years.
The first year, the buyer's P&I payment will be $891.71 for 12 months based on a 2% interest rate or 2% lower than the 4% note rate.  It is $260.06 lower per month in the first year.  The second year, the buyer's P&I payment will be $1,017.12 for the next 12 months based on a 3% interest rate or 1% lower than the 4% note rate.  It is $134.64 lower per month in the second year.
A bonus for the buyer will be that the cost of the buydown paid at closing by the seller becomes prepaid interest that is deductible by the buyer in the year of purchase.  The buyer gets lower than normal payments for the first two years and a sizable tax deduction.
This type of program can be very beneficial to a seller who wants to offer terms to improve the marketability of their home rather than lower the price.  The challenge will be explaining it to not only potential buyers but even agents who are not familiar with this program.

Monday, April 18, 2016

Buying Rental Property

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 $1,750 a month or 0.88% where a $400,000 home might only rent for $2,250 a month or 0.68%.
Choose predominantly owner-occupied neighborhoods because when you sell the home, it will appeal to a homeowner who will most likely pay a higher price for the home.  Homes in predominantly tenant-occupied neighborhoods tend to sell to investors who pay lower prices and will not be emotionally involved with the purchase.
Purchase a property with the idea of selling it in mind.  You may be able to get a property for a bargain price today but if it is due to a functional obsolescence like a bad floorplan or not enough bathrooms, that problem will still be there when you're ready to sell the property.  Identify what the problem is and what solutions are available.  The property may rent fine in that condition but before you sell, it will need to be corrected.
Get the home inspected before you purchase it.  Having the property checked out can save thousands in unanticipated expenses.
Consider getting a home warranty on your rental.  The annual premium can limit the out of pocket expenses for repairs and maintenance.
Risk can be minimized by understanding the investment and what is involved in the acquisition, operation and disposition.  For the typical homeowner, rental property is something that they can relate to because of the similar attributes of the home they live in.