Insurance: Why Should We Have It

The purpose of insurance is to shift the risk of loss to a company in exchange for a premium. Most policies have a deductible which is an amount the insured pays out of pocket before the insurance starts covering the cost of the loss.
In the process of managing insurance premiums, policy holders often consider adjusting their deductibles. Lower deductibles mean less money out of pocket if a loss occurs but obviously, results in higher premiums. Higher deductibles result in lower premiums but require that the insured bear a larger amount of the first part of the loss.
A small fire in a $300,000 home that resulted in $2,500 of damage might not be covered because it is less than the 1% deductible. If the homeowner can afford to handle the cost of repairs in exchange for cheaper premiums, it might be worth it. On the other hand, if that loss would be difficult for the homeowner, a change in the deductible could be considered.
It is a good idea to review your deductible with your property insurance agent so that you're familiar with the amount and make any changes that would be appropriate.

Benefits of Pre-Approval

The benefits of buyer's pre-approval are without question; it is good for the buyers, the sellers and the agents. 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 rise
• Looking at "Right" homes - price, size, amenities, location
• Find the best loan - rate, term, type
• Uncover credit issues early - time to cure possible problems
• Bargaining power - price, terms, & timing
• Close quicker - verifications have been made

There a big difference in sitting down with a trusted mortgage professional compared to going through calculators on a website. The cost of being pre-approved is a bargain and generally, limited to the cost of the credit report.
Even if you have been pre-approved, a suggestion that can't hurt but may help is to get a second opinion from a different lender. It will either verify that you have a good deal or you’ll discover that you can improve it. Either way, it works to your advantage. Contact me if you'd like a recommendation.

Natural Disaster Insurance

Natural disasters may be defined as involving Mother Nature and her fury! Natural disasters particularly often included wind damage and flood damage. Of course, hurricanes and cyclones often cause additional damages due to power outages.

Flood Insurance is available through both private and government programs. The dollar premiums for such insurance coverage however are becoming more and more expensive as storms become increasingly prevalent.

Generally speaking homeowner insurance policies do not cover flood damage caused by a natural disaster. Flooding caused by frozen pipes may or may not be covered in a homeowner policy, but reimbursement for such damages is normally accompanied by a homeowner cost-sharing mechanism, known as the deductible!

Wind damage is normally covered by homeowner insurance policies, but wind damage caused by a hurricane or cyclone may involve deductibles based on a percent of the home's actual insured value.

Several points to remember about natural disaster insurance coverage and claims you submit for reimbursement for that damage:

1. Review your coverage with your insurance agent so you fully understand the coverage you have for flood, hail, wind, etc.
2. Review the type of deductible you have for any "natural disaster" insurance coverage.
3. Record your insurance policy number and your insurance agent information in several places other than your home.
4. Maintain an accurate record of the contents of your home detailing the type of possession, the cost of the possession, and when and where it was purchased. This record could be both a video and fact record. An online application that might help guide you in this effort is available at the Insurance Information Institute's website http://www.iii.org/software/. Search for the home inventory application.
5. Maintain an accurate, written record of your conversations with the claims adjuster who reviews the natural disaster to your home and personal property.

It pays to understand your insurance coverage and how to proceed when a disaster occurs.

Refinancing

Some people believe they shouldn't refinance more often than once every two years. The determining factors are if you'll lower your payments and plan to stay in the home long enough to recapture the cost of refinancing. If so, you should consider refinancing.
Interest rates have actually come down significantly in the past 12 months and even more in the past 24 months. According to the Freddie Mac Primary Mortgage Market Survey®, rates on a 30 year fixed rate mortgage are down to 3.6% in August, 2012 compared to 4.27% one year earlier.
Refinancing in the example below would save the homeowner $67.04 per month and they would recapture the cost of refinancing in 3 years and 9 months based on approximately $3,000 of closing costs.
Click Here to make your own projection on a Refinance Analysis calculator.

Benefits Of Having a 2nd Home

While a principal residence and a second home have some similar benefits, they have some major differences. A principal residence is the primary home where you live and a second home is used for personal enjoyment while limiting possible rental activity to a maximum of 14 days per year.
The Mortgage Interest Deduction allows a taxpayer to deduct the qualified interest and property taxes on a principal residence and a second home. The interest is limited to a maximum of $1,000,000 combined acquisition debt and a combined $100,000 home equity debt for both the first and second homes.
The gain on a principal residence has a significant exclusion for taxpayers meeting the requirements. The gains on second homes must be recognized when sold. Even if you sell a smaller second home and invest all of the proceeds into a larger second home, you'll need to pay tax on the gain.
Tax-deferred exchanges are not allowed for properties having personal use including second homes.
If the home is owned for more than 12 months, the gain is taxed at the long-term capital gains rate. If the home is owned for less than 12 months, the gain is taxed as ordinary income which would be a considerably higher rate.
The article is intended for informational purposes. Advice from a tax professional for your specific situation should be obtained prior to making a decision that can have tax implications.

Plan Ahead For Your Future!

Maybe you're not ready to move into it but that doesn't mean that you shouldn't take advantage of the present opportunities to acquire the home you want to live in during retirement. The combination of the low interest rates, reduced prices and lower competition may never be this good again in our lifetimes.
The rental market is strong and a tenant could pay for your retirement home. The cash flows are attractive and the yield is bound to be stronger than what you're currently earning. Even if you don't retire to this home, it could be a placeholder to control the costs of the home you do move into.
One thought would be to finance it with a 15 year loan that will have a lower rate than that of a 30 year loan and it will obviously amortize in half the time. Even if you don't have the home paid for by the time you retire, your equity will be larger.
Ideally, if you sell your current home when your move into this retirement home, you may be able to take up to $500,000 of tax-free gain for a married couple. That profit could be used to fund your retirement.
With home prices and mortgage rates certain to rise, this may be one of the best decisions you can make. We want to be your personal source of real estate information and we're committed to helping from purchase to sale and all the years in between.

Prevent Burglars

Home is a place you should feel safe and secure. Sometimes, we take it for granted and unfortunately, we do need to remain vigilant about things we do that could compromise our well-being. Here are a few tips you might want to consider.

1. Everyone loves an inviting home including burglars. Make sure it looks occupied and is difficult to break in.
   • Always lock outside doors and windows even if you're gone only a short time.
   • Leave lights on when you leave. Consider timers to automatically control the lights.
   • Keep your garage door closed even when you’re home; don’t tempt thieves with what you have in your garage.
   • Suspend your mail and newspaper delivery when you're out of town or get a neighbor to pick it up for you.
2. Posting that you're out of town or away from home on social networks is like advertising your home is unprotected.
3. Equally dangerous could be allowing certain social network sites to track your location.
4. Don't leave keys under doormats, in flowerpots or the plastic rocks; thieves know about those hiding places and even more than you can think.
5. Trim the shrubs from around your home; don’t give criminals a place to hide.

Single-Family Homes

Single-family homes used for rental property have distinct advantages over other types of investments.
An investor can borrow 75-80% at fixed interest rates on appreciating assets with definite tax advantages and reasonable control. The financing alone is attractive compared to some investments that require 50% cash and have floating rates at prime plus for one or two years.
Home prices have adjusted 30-40% around the country, mortgage rates are incredibly low and rents have risen in the past two years due to more demand and shorter supply. Indicators like these point to a strong and sustained rental market.
Consider you bought a $125,000 home for cash that would rent for $1,250 per month. With $15,000 income and allowing for property taxes, insurance and maintenance, it is still reasonable to expect $10,000 net income. You'd have an 8% return on investment without considering tax savings or future appreciation compared with 5-year CDs paying less than 1.5% and a 10-year Treasury yield at 1.65%.
The reasonable control has a lot of appeal to many investors who find the volatility of the stock market unacceptable and don't want the risk associated with some of the alternative investments. Please contact us if you'd like to know more about available opportunities.

How to Make Your Home More Safe & Secure

A quick once-over of the items on this list may improve the safety and security of your home and could protect your family and friends. It is important to periodically pay attention to these things because things change over time.
Security

• Does each exterior door have a deadbolt?
• Does the lock on each window work?
• Have you added pins or clips to your windows for additional security?
• Do you have dowels or broom sticks in the track of windows and sliding glass doors?
• Do you have security company labels or signs displayed prominently?
• Do you have an alarm system? Is the system monitored?
• Do you have a dog that barks when strangers approach the home?
• Are emergency numbers posted near the telephones?

Fire

• Do you have smoke detectors near all sleeping areas?
• Do you check the batteries monthly and change them annually?
• Do you have two carbon monoxide detectors?
• Do you have an escape ladder for upper floors?
• Do you have fire extinguishers near exits and in the kitchen?
• Do you have an emergency escape plan and is the family familiar with it?
• Are any outlets or switches warm to the touch?
• Are kitchen ventilation systems working properly?
• Is the dryer ventilated to the outside and is the exhaust free of lint?
• Is the furnace cleaned and serviced yearly?
• Is the space around the hot water heater clear of combustible materials?

Falls

• Are all electrical and phone cords out of the flow of traffic?
• Are rugs and runners slip resistant?
• Is your step-stool sturdy and in good condition?
• Are stairs clear of objects that could cause a fall?
• Are all entrance ways, exits, halls and walks well lighted?
• Do bath tubs and showers have non-skid strips or suction mats in them?

Other

• Do you keep drugs and medicines out of reach and sight of small children?
• Are interior doors designed so small children cannot lock themselves in rooms?
• Are pool and play areas fenced to keep small children in and uninvited guests out?
• Are firearms kept out of reach and sight of children?
• Is a well-stocked first aid kit available for emergencies?
• Is there one member of your family trained in first aid, CPR and the Heimlich maneuver?

Tax Planning!

Transferring the title of a home from one person to another may seem simple but it could have a significant tax implication.
When a person inherits property, the basis is "stepped-up" to fair market value at the time of the decedent's death. On the other hand, a gift has a carry-over basis which means that the recipient receives the unrealized gain also.
As an example, let's say an elderly parent, in an attempt to get their affairs in order, gives their home to their adult child. The rationale might be that they are the sole beneficiary and will get the property eventually. In an effort to settle things early, unnecessary income tax may be incurred.
If the home was purchased for $20,000 and worth $100,000 at the time of transfer, there is a possible gain of $80,000. However, if the adult child inherited the property at the time of the parent's death, their new basis would be $100,000 or the fair market value at the time of death and the possible gain would be zero.
This is meant to be an example and many other variables could be involved. If you're concerned about a situation, you should seek specific advice from a tax professional. As always, I'm here to help you I can as your real estate professional.