"This is going to be the year"

Every year, it seems like the same things are on the list but this could be the year you really do invest in a rental home.

Rents are climbing, values are solid and mortgage rates are still low for non-owner occupied properties. A $150,000 home with 20% down payments can easily have a $300 to $500 monthly cash flow after paying all of the expenses.

There are lots of strategies that can be successful but a tried and true formula is to invest in below average price range homes in predominantly owner-occupied neighborhoods. These properties will appeal to the broadest range of tenants and buyers when you’re ready to sell.

Single family homes offer an opportunity to borrow high loan-to-value mortgages at fixed rates for long terms on appreciating assets with tax advantages and reasonable control.

This can be the year to make some real progress on your resolutions. The first step may be to invest some time learning about rental properties by attending a FREE webinar on January 4th at 7:00 PM Central time zone by national real estate speaker Pat Zaby. Click here to register. If you can’t attend live, by registering you’ll be sent the link to watch at your convenience.

What a Difference 50 years Makes

In 1966, a gallon of gas was $0.32 and today, it is $2.49. A dozen eggs were $0.60 but they’ve only doubled to $1.33. A gallon of milk was $0.99 and today, it costs $3.98. You could send a letter for five cents and now, it costs forty-seven cents.

The average cost of a new car in 1966 was $3,500 and today, it will cost $33,560. New cars have more features than the earlier models but they’re still ten times more expensive. The median price of a new home was $21,700 and now, is $304,500.

Interestingly, mortgage rates are actually lower today at 4-4.5% than they were fifty years ago when they were just under 7%. The rates have been low for long enough that many people have been lulled into believing that they are not going to go up.

Yes, rates are a little higher but in perspective, they’re still a bargain. Years from now, will you be remembering and comparing what they were back when?

Can 0.5% Really Equal 5%?

Since the election, rates have started going up and it will have a direct effect on the cost of housing. There is a rule of thumb that a ½% change in interest is approximately equal to 5% change in price.

As the interest rates go up, it will cost you more to live in the very same home or to keep the payment the same, you’ll have to buy a lower priced home.

Before rates rise too much, it may be the best time to buy a home whether you’re going to use it for your principal residence or a rental property. Low interest rates and lower prices make housing more affordable.

Time May Be Running Out

During the Great Recession, some homeowners elected to rent their home rather than sell it for less than it was worth.

IRS tax code allows for a temporary rental of a principal residence without losing the exclusion of capital gain based on some specific time limits. During the five year period ending on the date of the sale, the taxpayer must have:

• Owned the home for at least two years
• Lived in the home as their main home for at least two years
• Ownership and use do not have to be continuous nor occur at the same time

If a home has been rented for more than three years, the owner  will not have lived in it for two of the last five years. So the challenge for homeowners with gain in a rented principal residence that they don’t want to have to recognize is to sell and close the transaction prior to the crucial date.

Assume a person was selling a property which had been rented for 2 ½ years but had previously been their home for over two years. To qualify for the exclusion of capital gain, the home needs to be ready to sell, priced correctly, sold and closed within six months.

All of the gain may not qualify for the exclusion if depreciation has been taken for the period that it was rented. Depreciation is recaptured at a 25% tax rate.

A $200,000 gain in a home could have a $30,000 tax liability. Minimizing or eliminating unnecessary taxes is a legitimate concern and timing is important.

Selling a home for the most money is one thing; maximizing your proceeds is another. For more information, see IRS publication 523 and an example on the IRS website and consult a tax professional. 

It Isn't Final Until It's Funded

Mortgage approval isn’t final until it’s funded.  Things can change prior to the loan being closed that can affect a pre-approval such as changes in the borrowers’ financial situation or possibly, factors beyond their control like interest rate changes.

Good advice to buyers is to do nothing that can affect your credit report until the loan closes. Opening new credit cards, taking on new debt for a car or furniture or changing jobs could affect the lender’s decision if they believe you may no longer be able to repay the loan.

The benefits of buyer’s pre-approval are definitive: 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

It is a very common practice for mortgage lenders to require income and bank verifications and to re-run the borrowers’ credit one final time just prior to closing. Mortgage approval isn’t final until it’s funded.

Gift or Inheritance - Does It Matter?

A person called into a radio talk program with a situation that was troubling to the caller and disturbing based on the potential tax liability that may have been avoided.

The caller’s elderly father had deeded his home to his daughter a few years earlier because in his mind, his daughter was going to get the home eventually and this would be one less thing to be taken care of after his death. The daughter didn’t really care because the father was going to continue to live in the home and take care of it so that it would be no expense to her.

Obviously, unknown to either the father or the daughter, transferring the title of a home from one person to another could have significant tax implications. In this case, when the father “gave” the home to his daughter, he also gave her the basis in the home which is basically what he paid for it. If she sells the home in the future, the gain will be the difference in the net sales price and her father’s basis which could be considerably higher than had she inherited it.

If the home was purchased for $75,000 and worth $250,000 at the time of transfer, there is a possible gain of $175,000. However, when a person inherits property, the basis is "stepped-up" to fair market value at the time of the decedent's death.  If the adult child had inherited the property, at the time of the parent's death, their new basis would be $250,000 or the fair market value at the time of death and the possible gain would be zero.

In most cases, there are less tax consequences with inheritance than with a gift. There are other factors that may come into play but being aware that there is a difference between a gift and inheritance is certainly an important warning flag that would indicate that expert tax advice should be sought before any steps are taken.

From Empty Nest to Full House… Multigenerational Families Are Back!

Multigenerational homes are coming back in a big way! In the 1950s, about 21%, or 32.2 million Americans shared a roof with their grown children or parents. According to a recent Pew Research Centerreport, the number of multigenerational homes dropped to as low as 12% in 1980 but has shot back up to 19%, roughly 60.6 million people, as recently as 2014.

Multigenerational households typically occur when adult children (over the age of 25) either choose to, or need to, remain living in their parent’s home, and then have children of their own. These households also occur when grandparents join their adult children and grandchildren in their home.

According to the National Association of Realtors’ (NAR) 2016 Profile of Home Buyers and Sellers, 11% of home buyers purchased multigenerational homes last year. The top 3 reasons for purchasing this type of home were:

• To take care of aging parents (19%)
• Cost savings (18%, up from 15% last year)
• Children over the age of 18 moving back home (14%, up from 11% last year)

Donna Butts, Executive Director of Generations United, points out that,

“As the face of America is changing, so are family structures. It shouldn’t be a taboo or looked down upon if grown children are living with their families or older adults are living with their grown children.”

For a long time, nuclear families (a couple and their dependent children) became the accepted norm, but John Graham, co-author of “Together Again: A Creative Guide to Successful Multigenerational Living,” says, “We’re getting back to the way human beings have always lived in – extended families.”

This shift can be attributed to several social changes over the decades. Growing racial and ethnic diversity in the U.S. population helps explain some of the rise in multigenerational living. The Asian and Hispanic populations are more likely to live in multigenerational family households and these two groups are growing rapidly.

Additionally, women are a bit more likely to live in multigenerational conditions than are their male counterparts (20% vs. 18%, respectively). Last but not least, basic economics.

Carmen Multhauf, co-author of the book “Generational Housing: Myth or Mastery for Real Estate,” brings to light the fact that rents and home prices have been skyrocketing in recent years. She says that, “The younger generations have not been able to save,” and often struggle to get good-paying jobs.

Bottom Line

Multigenerational households are making a comeback. While it is a shift from the more common nuclear home, these households might be the answer that many families are looking for as home prices continue to rise in response to a lack of housing inventory.

It's the Principal of the Thing

Most people think they’ll have a house payment and a car payment for the rest of their lives but it doesn’t have to be with a plan and a little discipline. The plan is to make additional principal contributions to a fixed rate mortgage to shorten the term and save tens of thousands in interest.

If a person were to make an additional $100 payment each month applied to principal on a $175,000 mortgage, it would shorten the loan by five years six months. If the person were to make $200 a month additional payments, it would shorten the loan by 9 years. $459 additional payment would shorten it to 15 years.

If a person does make a decision to regularly pre-pay their mortgage, it will be their responsibility to verify that the lender is applying the money to the principal each time as opposed to being placed in the reserve account for taxes and insurance.

In today’s market, a savings account pays around 0.5% or less. Even with the low mortgage rates available, there is still a considerable savings. People who might need the funds in the near future should carefully consider this option due to the difficulty to access equity easily from one’s home.

Make your own projections using the Equity Accelerator.

A Cost to Consider

Homeownership, part of the American Dream: a home of your own where you can feel safe, raise your family, share with your friends and enjoy life. The benefits are easily recognizable but maintenance is just as real and should be considered.

Property taxes and insurance are two of the largest expenses homeowners have aside from their mortgage interest. But, as any homeowner knows, there will be occasional expenses for repairing toilets, faucets, windows and other things. There are also the significantly larger expenses that arise like replacing a water heater or HVAC unit. And don’t overlook the periodic maintenance like painting or floor coverings.

Financial experts suggest that homeowners save one to four percent of the home’s value per year for repairs and maintenance. Two to eight thousand dollars a year may sound like more than you’ll need but the cost of an air conditioning unit can easily be $6,000 and some homes have more than one unit, which hopefully, won’t need to be replaced in the same year.

Some homeowners purchase home warranties to avoid the unexpected costs. An annual premium instead of an unexpected large expenditure. Coverage varies from company to company and are not intended to cover existing conditions.

The alternative to not saving for these anticipated expenditures means that a homeowner might have to put it on a credit card at a very high interest rate or get a home improvement loan. Appreciation is a distinct benefit of home ownership and deferred maintenance can limit the value as well as lengthen the market time when it sells.

Dial Down Risk for Retirement

There is certainly no shortage of retirement planning strategies available to individuals who actually take the time to consider them. What most financial experts do agree on is that the closer you are to retirement, the less time you have to recover from a loss. For that reason, many people start dialing down their risk factors as their age increases.

One way to minimize risk is to invest in things that you know and understand. For the majority of homeowners, their largest asset is the equity in their home which they generally have more familiarity than other types of investments.

Buy the home you’d like to retire to today and use it as a rental property. Finance it with a 15 year loan so it will amortize quickly and possibly be paid for at retirement.

Continue living in your current home until you’re ready to move into the home you’ve designated at your retirement home which will not create a taxable event. Prior to moving in, you can rehab the home so that it fits your style and needs exactly.

If you’ve lived in the current home for at least two of the last five years, you can exclude up to $250,000 of gain for single taxpayers and up to $500,000 for married taxpayers. The proceeds could then, be invested for income.

Some of the attractive features of this proposal is that you’re familiar with the operation of a rental due to similarity of owning a home. Most experts agree that home prices will continue to rise and so will rents. The maintenance people that you use for your home can also work on your rental. If you don’t want to deal with tenants that can easily be delegated to a property manager. Low mortgage rates with short terms and high rental values contribute to positive cash flows that will pay for the property.

Obviously, there are many other considerations you’ll want to investigate with your tax and real estate professionals these can get the conversation started.

Down Payment: FOUND!

Saving the down payment may be unnecessarily keeping would-be buyers from getting into a home. They may be unaware that the funds might be available.

The NAR Profile of Home Buyers and Sellers reports that 81% of first-time buyers got all or part of their down payment from savings. Less than 4% said that all or part of the down payment came from a withdrawal in their IRA and 8% from their 401(k) or pension fund.

Traditional IRAs have a provision for first-time buyers which include anyone who hasn’t owned a home in the previous two years. A person and their spouse, if married, can each withdraw up to $10,000 from their traditional IRA for a first-time home purchase without incurring the 10% early-withdrawal penalty. However, they will have to recognize the withdrawal as income in that tax year. For more information, go to IRS.gov. 

Allowable withdrawals from traditional IRAs can be from yourself and your spouse; your or your spouse’s child; your or your spouse’s grandchild or your or your spouse’s parent or ancestor.

Roth IRA owners can withdraw their contributions tax-free and penalty-free at any age for any reason because the contributions were made with post-tax income. After age 59 ½, earnings may be withdrawn as long as the Roth IRA have been in existence for at least five years.

Up to half of the balance of a 401(k) or $50,000, whichever is less, can be borrowed by the owner at any age for any reason without tax or penalty assuming the employer permits it. There can be specific rules for loans from a 401(k) that would determine the repayment; interest is usually charged but goes back into the owner’s account. You can consult with your HR department to find out the specifics.

A risk in borrowing against a 401(k) comes if your employment ends before the loan has been repaid. The loan may have to be repaid as soon as 60 days to keep the loan from being considered a withdrawal and subject to tax and penalty. Even if you continue with the same employer, failure to repay the loan could be considered a withdrawal also.

Your tax professional can provide you specific information on how making a withdrawal from your retirement program might affect you. Additional information can be found on www.IRS.gov.

It's not far, if you know the way

“It’s not far, if you know the way.” What this expression implies is that you could have a long way to go if you don’t know where you’re going or how to get there. Just like reading a map, there are some definite steps that will improve your success in buying a home in today’s market.

• Know your credit score – the best mortgage rates are available to borrowers with the highest scores. Unless you know what your credit score is at all three major credit bureaus, you don’t really know what rate you’ll have to pay.
• Clean up your credit – it is estimated that about 90% of credit reports have errors. Some are not serious but others could affect a borrower from getting the loan they want. It is your responsibility to know what is on your different reports and correct them if possible. You’re entitled to a free copy of your credit report each year from Experian, Trans Union and Equifax.
• Get pre-approved – Taking the time to make a loan application with a qualified lender even before you start looking at homes will provide peace of mind, make sure that you are looking at the “right” homes and may help you negotiate the best price on the home you select.
• Do your homework – when you find the home that meets your needs and desires, get the home inspected and research the tax assessments, school ratings, crime activity, possible zoning changes and comparable sales in the area.

Call for a recommendation of a trusted mortgage professional and an inspector.

Sale of Home by Surviving Spouse

Special consideration is made by IRS for the sale of a jointly-owned principal residence after the death of a spouse. Surviving spouse may qualify to exclude up to $500,000 of gain instead of the $250,000 exclusion for single people if certain requirements are met.

• The sale needs to take place no more than two years after the date of death of the spouse.
• Surviving spouse must not have remarried as of the sale date.
• The home must have been used as a principal residence for two of the last five years prior to the death. 
• The home must have been owned for two of the last five years prior to the death.
• Survivor can count any time when spouse owned the home as time they owned it and any time the home was the spouse’s residence as time when it was their residence.
• Neither spouse may have excluded gain from the sale of another principal residence during the last two years prior to the death.

If you have been widowed in the last two years and have substantial gain in your principal residence, it would be worth investigating the possibilities. Time is a critical factor in qualification. Contact your tax professional for advice about your specific situation. Contact me to find out what your home is worth in today’s market. See IRS Publication 523 – surviving spouse.

Rental Real Estate is Preferred Choice

Real estate is the overwhelming preferred choice by Americans as identified in a recent survey. With the Dow Jones industrial average reaching record highs, it might be expected that the stock market would be the favored choice but that wasn’t the outcome.

Analysis of the report suggests that the popularity for houses could be that they are tangible assets that you can see where your money is actually invested compared to stocks and bonds which tend to be unclear where the money is invested.

There are several distinct advantages of homes as investments over other popular alternatives.

1. High loan-to-value mortgages available
2. At fixed interest rates
3. For long periods of time
4. On appreciating assets
5. With definite tax advantages
6. And reasonable control.

Another advantage of rental homes is that most people are comfortable with them. It is the same type of property that they live in but used as a rental. They have a tendency to understand the key components such as value, appreciation, rent, maintenance and financing. 

When the rate goes up

It’s not “if” the rate goes up but “when” the rate goes up; it could make a big difference for some buyers. Freddie Mac predicts that mortgage rates will be at 4.5% a year from now.

If buyers can afford a home with higher interest rates, it means higher payments. Higher payments might mean they won’t have the money to spend on other things like furniture or improvements to the home or an unrelated purchase like a new car.

When the rate moves 0.50% on a $250,000 mortgage, the payment goes up by $70.66 a month. If it moves 1.00%, the payment goes up by $143.74 per month, each and every month for the entire term of the mortgage which means paying over $50,000 more for the house.

The question facing every borrower in this situation is “How will you feel about having to pay more to live in the same house because you were not ready to commit?”

Then, there’s the borrower who is absolutely maxed out as to what they can qualify for or sometimes, it is a borrower who just refuses to pay a higher payment. When that’s the case, the buyer has to make a larger down payment. In the same example, a 0.50% increase in rate would require $14,873 more in down payment. That could make the purchase impossible or require the buyer to buy a lesser price home that will not have the same amenities.

Mortgage rates have been low for so long that some people think that is what they should be. There are some economists who believe that the economy will not be strong again until mortgage rates are in the 7% range.

To see how this type of scenario might affect you, go to the If the Rate Goes Up calculator.

Waiting to Buy...WHY?

Some people wait to buy a home until they have 20% down payment to avoid paying the mortgage insurance which is required by lenders when the loan-to-value ratio is greater than 80%, with the exception of VA loans.

To illustrate a typical situation, let’s assume that buyers have $10,000 for a down payment on a $200,000 home. They could purchase it today with a 95% loan or save another $30,000 in order to get an 80% loan without mortgage insurance.

If it took three years to save the additional down payment, the $200,000 home at 3% appreciation would cost $218,545. A 20% down payment on the increased sales price would be $43,709, less the $10,000 the buyers currently have leaves them $33,709 to save which would amount to $936.36 a month. They would secure a $174,836 mortgage at the then current mortgage rates, which in all likelihood, will be higher than today’s rates.

The alternative is for the buyer to purchase the home today with a 95% loan at today’s low interest rates plus approximately $85 a month for mortgage insurance depending on their credit score. At the end of three years, the unpaid balance would be $179,548.  Assuming the home will be worth the same $218,545, the buyer’s equity would be almost $39,000.  To reduce the mortgage to the same amount as the first example, the buyer would need to make an additional $125 a month principal contribution above the normal payment. Then, the mortgage would have an unpaid balance at the end of three years of $174,775.

When there is sufficient equity in the home, the mortgage insurance is no longer required. Some lenders may drop the mortgage insurance requirement with an appraisal to provide proof. In other situations, it may require refinancing to eliminate the insurance.  Call to discuss options that may be available to you.

Dust-Free Home

Having a dust-free home isn’t difficult, but it takes a serious commitment and a housekeeping strategy that addresses the dust and its causes. Whether your motive is cleanliness or to eliminate the cause of some allergies and asthma symptoms, it will be worth it.

• Try to dust your home at least twice a week. Dust the tallest items and work your way down. Dust picture frames, blinds, baseboards and anything that stands out from the wall.
• Feather dusters can spread more dust than they collect compared to microfiber cloths that attracts dust because they have an electrostatic charge.
• Filters on heating and air-conditioning systems should be changed often not only to remove dust from the air but to increase the efficiency of the units themselves. Special HEPA filters can improve the overall indoor air quality.
• Frequently changing the bag or emptying the container in your vacuum is helpful in eliminating dust.
• Vacuum the floors at least once a week. Vacuum under furniture and periodically, move appliances to clean behind and underneath. Use the proper attachments to vacuum upholstered furniture and under cushions.
• Eliminate dust magnets like carpet, heavy drapes and upholstered furniture. Consider hard surface flooring like wood or tile instead of carpet.
• Keep windows closed to keep dust out.
• Clean your pillows and drapes.
• Damp mopping and dusting with plain water helps hold the dust and is environmentally friendly.
• A humidifier can eliminate static electricity which holds dust.
• Air purifiers circulate air and capture dust and other pollutants.

Getting to Value

Fair market value is the price that real estate would sell for on the open market without any unusual forces being involved. The definition is relatively simple but there certainly different methods of determining what it is.

A homeowner could order an appraisal before they put their home on the market but would incur the expense of an appraisal and more likely than not, it won’t or can’t be used by the buyer or their lender. The advantage is that an appraisal is a professional approach by a disinterested party to establish value.

Licensed appraisers use three approaches to value: the market data, the replacement cost and the income approach. The appraiser can put more weight on one approach than another based on his/her assessment of what would be appropriate.

The replacement cost looks at what it would cost to rebuild the property today less the depreciation it has experienced by age and wear and tear plus the value of the lot.

The income approach uses a capitalization rate based on the net operating income of a property to determine value. It is more applicable to commercial properties than it is for homes used by homeowners and not rented.

The market data approach relies on recent sales of similar properties near the subject. The appraiser will make monetary adjustments for differences in the comparables that are used to create a more accurate comparison.

Real estate agents use a similar approach to determine fair market value by performing a Competitive Market Analysis, CMA. Like the market data approach of an appraisal, it looks at recent sales of similar properties, it also considers properties currently for sale and what homes were unsuccessful in their attempt to sell. This approach is sensitive to supply and demand and may be more reactive to rapidly rising or declining markets.

Both appraisals and CMAs have a distinct advantage because of the personal opinion as a professional compared to online website estimates using raw data and mathematical formulas. Regardless of which method is used, it is an estimate. Obviously, some estimates are more accurate based on the experience of the person making the estimate. A price is placed on the property by the seller but value is ultimately determined by the buyer when a final sale is achieved.

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.

Two Negotiations

There are two negotiation periods in some home sales. The primary negotiation takes place when the contract is agreed upon that includes the price, closing and possession. Buyers and sellers alike feel relieved once this first round has resulted in an agreement but there may be more negotiations to come if there are contingencies for financing, inspections or other things.

The purpose of an inspection is for the buyer to receive an objective evaluation about the condition of the home and its components to identify existing defects and potential problems. The expense for inspections can be several hundred dollars and it’s reasonable for buyers to not want to spend the money before they find out if they can come to terms with the seller. From a different perspective, sellers want to know quickly if the buyer is going to reject the home due to the inspections.

Sometimes, buyers will expect sellers to make all of the repairs listed on the report and this is where the second round of negotiations begins. If the seller refuses, the negotiations can go back and forth until the other party accepts the offer on the table or the contract falls apart.

When purchasing a new home from a builder, it is expected for everything to be in working order; after all, it is new. However, it is reasonable to expect that existing homes, that are not new, have a different standard. While it’s understandable that buyers would want to be aware about major items that are not in “working order”, normal wear and tear of components based on its age should be expected.

In a highly competitive seller’s market, buyers might do whatever they can to get their contract accepted, realizing that there is another place to negotiate when they’re not competing with other buyers’ offers to purchase.

For this to be a WIN-WIN negotiation, both seller and buyer must feel good about the transaction. Neither party should feel that they have been taken advantage of.

Ready for Retirement?

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.

Avoid Wasting Time

“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.

Picture This!

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.

How Will It Feel?

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.

Increase the Chance of Being Accepted

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.

Opportunity Can Disappear

In the last few years, some people who were unable to sell their homes, rented them instead. The market has improved in most places and the home may easily sell now and possibly, for a higher price.

Even though the opportunity to sell in the near future might not change, there could be another opportunity that could quickly disappear for some homeowners.

Most homeowners are aware that there is a capital gain exclusion on the profits of a principal residence of up to $250,000 for single taxpayers and $500,000 for married taxpayers filing jointly. The rule requires that you must own and use the home as your principal residence for two out of the last five years.

A homeowner can rent their home for up to three years and still be eligible for the exclusion. As an example, if they had owned and lived in it for two years and then rented it for two and a half years, they would need to sell and close the transaction before the remaining six months expired.

If there was a $200,000 profit in the home that didn’t qualify for the exclusion, a 15% long-term capital gain tax of $30,000 could become due depending on the tax bracket of the owner. With some careful planning, the tax could be avoided. Awareness of the time frames and the right team of tax and real estate professionals could save a considerable amount of the homeowner’s equity.

The Right Questions are Key

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.”