Tuesday, July 16, 2024

The case for working with a friend and agent



The familiarity and trust established in a friendship may be the ideal foundation for a successful business relationship. Having a loyal ally from their social circle adds a new level of insight and service to such an important financial decision in their lives.

When considering the choice of engaging a friend who also happens to be a real estate agent in the purchase or sale of their home, consumers are presented with a multitude of compelling reasons to embrace this option. Firstly, the pre-existing level of trust between friends lays a solid foundation for effective communication and transparency throughout the transaction. This trust, combined with the highly personalized service that a friend-agent can provide, ensures that the process is tailored to the individual's specific needs and preferences. Additionally, friends understand each other's lifestyles, priorities, and goals, allowing for a deeper level of advocacy and support throughout the real estate journey.

Accessibility is another key advantage of working with a friend-agent, as the familiarity and comfort level shared between friends often result in prompt responses and availability during crucial stages of the transaction. Furthermore, the common goal of achieving a successful real estate transaction strengthens the collaboration between friends, fostering a sense of loyalty and commitment to each other's best interests. With a friend-agent, clients can expect insider insights and valuable tips about the local market, along with a flexible and accommodating approach that aligns closely with their needs and preferences.

Moreover, the shared values and understanding between friends ensure that the agent's efforts are aligned with the client's long-term goals and aspirations. Beyond the transaction itself, utilizing a friend as an agent can strengthen the bond and deepen the relationship, as both parties navigate this important milestone together. Overall, the decision to engage a friend who is also a real estate agent offers numerous benefits, from enhanced trust and personalized service to insider insights and strengthened relationships, making it a compelling choice for many consumers.

A friend who also happens to be an agent understands the delicate balance between friendship and business and would never jeopardize the relationship for the sake of a transaction. In fact, they are likely to go above and beyond to safeguard their friend/client's best interests, leveraging their expertise and dedication to ensure a successful outcome while preserving the integrity of the friendship.

If a buyer or seller has reservations about engaging in a real estate transaction with a friend who also happens to be an agent, it's crucial to address these concerns openly and honestly. Rather than allowing apprehensions to fester and potentially strain the friendship, initiating a candid conversation with the friend-agent can provide clarity and alleviate any uncertainties.

By expressing their concerns and discussing expectations upfront, both parties can navigate the transaction with transparency and mutual understanding. Ultimately, opting to work with a trusted friend who is an agent, rather than a stranger, not only ensures professional guidance but also strengthens the bond of friendship through open communication and shared goals.

If a person feels strongly about not working with their friend/agent, they should consider asking for a referral to a trusted colleague of theirs who would represent their interests effectively.  Your friend would want to support you even if it's not as your agent.

Tuesday, July 2, 2024

Helping buyers make sense of upcoming changes



Upcoming changes in real estate transactions are imminent following the resolution of significant class action lawsuits involving sellers and the National Association of REALTORS� along with numerous leading real estate firms nationwide. These changes will have implications for sellers, buyers, and agents alike.

There has been a lot of news coverage in the past few weeks but unfortunately, much of it has added to the confusion on how things will change rather than clarify it.

It was reported that since the seller will most likely be paying only their commission, the price of homes will come down.  That is very unlikely to happen.  The value of a home is not determined by whether a commission is paid nor the amount of it.

In the terms of the settlement, which is still to be approved by a court, the change will go into effect on August 17, 2024 but some companies will implement the changes earlier.  The following excerpts are taken from the NAR Settlement Fact Sheet.

  • MLS participants acting for buyers would be required to enter into written agreements with their buyers before touring a home.
  • Compensation continues to be negotiable between agents and the consumers they serve.
  • Selling brokers must clearly state compensation offers to buyers' brokers on each listing, which may vary and can even be zero.Compensation offers may not be communicated through the MLS.
  • The types of compensation available for buyer brokers would continue to take multiple forms, depending on broker-consumer negotiations, including but not limited to:
    • Fixed-fee commission paid directly by consumers
    • Concession from the seller
    • Portion of the listing broker's compensation
  • The settlement expressly provides that sellers may communicate seller concessions � such as buyer closing costs � via the MLS provided that such concessions are not conditioned on the use of or payment to a buyer broker.

It is important for buyers to understand that in the many forms of buyer representation agreements that exist throughout the United States, there will be a provision stating the buyer's agent fee for the transaction.  In the past, the most common way the fee was handled was through an agreement that the seller would pay a specific amount to the buyer's agent or that the listing fee would be shared with the buyer's agent.

The market will be in a state of uncertainty as to the different ways the buyer's agent will be compensated.  The most common ways would be:

  1. The seller will offer cooperative compensation.
    1. If the fee was less than stated in the buyer rep agreement, the buyer will be responsible for the difference.
    2. If the fee was more than stated in the buyer rep agreement, without exceptions addressing this specific condition, the buyer will have some options such as receiving it as a rebate at closing.
  2. If the seller was not offering cooperative compensation, the buyer would cover it personally.
  3. The buyer could direct their agent to only show houses whose seller is offering cooperative compensation.
  4. Direct the buyer's agent to negotiate in the offer to purchase agreement that the seller pays the buyer's agent fee.

Consistently, almost 90% of homebuyers have chosen to collaborate with a real estate agent or broker, a trend expected to persist. Despite the rise of digital research and transactions, the obvious value provided by REALTORS� endures, with nine out of ten homebuyers expressing satisfaction and a willingness to recommend their agent to others.

National Association of REALTORS� members will remain steadfast partners for the countless Americans pursuing the dream of homeownership, providing reliable support and guidance along the way.

For more information and another viewpoint, see this Fortune.com article published April 3, 2024.  Download a copy of 105 More Ways agents who are REALTORS� are worth every penny of their compensation.

Tuesday, June 25, 2024

How to change a second home to a primary home & why



The tax benefits of owning both a first and second home can be significant, with the IRS allowing taxpayers to deduct interest and property taxes on both properties as itemized deductions on their tax returns, albeit with certain limitations. Interest deductions are limited to the amount of debt incurred to buy, build, or improve the first and/or second home, with a maximum cap of $750,000. Property taxes, falling under the limitation of state and local taxes as set forth in the TCJA of 2017, are capped at $10,000 per year.

However, while second homes enjoy these benefits, they do not qualify for the Section 121 exclusion sale of principal residence rules. These rules only apply to a taxpayer's principal residence, allowing couples filing jointly to exclude up to $500,000 of capital gain from the sale of their primary home, and single filers up to $250,000 of gain, provided they have owned and used the property as their principal residence for two out of the five preceding years.

Taxpayers considering selling their second home, which wouldn't qualify for the exclusion, may explore changing its status to their principal residence. This entails owning and using the property as their principal residence for two years, along with careful documentation and planning to qualify for the exclusion. Indicators of a principal residence include making the second home the preferred mailing address for various documents, ensuring all family members reside there most of the time, having utilities in the homeowner's name, and updating addresses with relevant entities.

Changing the status of the second home to the principal residence can be beneficial to avoid recognizing gain on the sale. However, it's crucial to consult with a tax advisor to determine eligibility and ensure proper documentation and support for the change. This guidance will help navigate the process effectively and maximize tax benefits for the homeowner.

Tuesday, June 18, 2024

Homeowner Strategies to Minimize Gain & Maximize Proceeds



The gain on the sale of your home is determined by the price you sell the home, less selling expenses, less the price you paid for it, plus the capital improvements made during the time you owned the property.

IRS and accounting use the term "basis" to describe your cost in the home.  It is a dynamic number that changes over time based on capital improvements that are made and capital losses that are incurred.  What is called the tax basis may better be referred to as cost basis.  It is the taxpayer's cost in the property used to determine the tax on the gain of the sale.

The calculation begins with the purchase price of the property plus certain capitalized acquisition costs that were owed by the seller but were paid when purchased.  Examples would include real estate taxes owed through the day before the sale date, back interest owed by the seller, and charges for repairs that were the seller's responsibility.  Capital improvements made to the property during ownership will increase the basis.

Capital improvements must either materially add value to the home, appreciably prolong the useful life of the property, or adapt a portion of the property to a new use.  IRS Publication 523 has a section on figuring the gain or loss on a personal residence. 

Some of the following may be considered capital improvements: landscaping, driveway, fence, swimming pool, new roof not covered by insurance, replacement of HVAC equipment and appliances.  Maintenance and repairs to a person's home is not a capital expenditure. 

If the owner purchased a home for $350,000 and during that time spent $110,000 on qualified improvements, the cost basis of the property would be $460,000.

If cost recovery had been taken on the home when it was used as a rental property, even though it is now considered a principal residence, the total amount of the depreciation lowers the basis in the property.

 

Purchase Price

$350,000

Plus Capital Improvements

$110,000

Adjusted Basis

$460,000

Sales Price

$650,000

Less Selling Costs

$31,000

Net Selling Price

$619,000

Less Adjusted Basis

$460,000

Capital Gain

$159,000

In the example above, if the taxpayer owned and used the home as their principal residence for two out of the last five years and had not taken an exclusion on another home during the two years prior to the current sale and didn't acquire the home through a 1031 exchange during the past five years, the gain qualifies for an exclusion and no tax paid.  Single taxpayers and married taxpayers filing separately can exclude up to $250,000 of gain from the sale of a principal residence.  Married taxpayers filing jointly can exclude up to $500,000 of gain from the sale.

Record keeping is important for you to substantiate the capital improvements when it comes time to calculate the gain.  While IRS does allow you to reconstruct the expenses, it is much better to keep track of them in a contemporaneous manner with dates, receipts, and possibly, pictures for the more expensive improvements.

For more information, download our Homeowners Tax Guide.

Tuesday, June 11, 2024

Living the Dream: The Value of Homeownership



Owning a home has long been considered a fundamental part of the American dream. It represents far more than just having a place to live�it embodies values, aspirations, and a sense of security. Here's why homeownership is widely regarded as a key component of the American dream:

Stability and Roots: Owning a home provides a sense of stability and roots in a community. It allows individuals and families to establish themselves, put down roots, and create a sense of belonging.

Wealth Building: Homeownership is often seen as a pathway to wealth building. By building equity over time, homeowners have the potential to accumulate wealth, establish financial security, and pass down assets to future generations.

Personalization and Pride: Homeownership grants the freedom to personalize and customize a space according to personal taste and style. It offers a sense of pride and accomplishment, as homeowners can create a place that truly reflects their identity and values.

Community and Social Connections: Homeownership fosters a sense of community and social connections. Neighbors become more than just acquaintances; they become friends, creating a supportive network that enhances the overall quality of life.

Stability for Future Generations: Homeownership provides a stable environment for future generations. It offers the opportunity to create lasting memories, build family traditions, and provide a secure foundation for children and grandchildren.

Financial Benefits: Homeownership can provide various financial benefits, including potential tax advantages and the opportunity to build credit and establish a solid financial history.

Sense of Achievement: Achieving homeownership is often viewed as a significant milestone and a symbol of personal achievement. It represents hard work, dedication, and the fulfillment of a long-held dream.

Control and Independence: Homeownership brings a sense of control and independence. Homeowners have the freedom to make decisions about their property, from renovations and improvements to landscaping and design choices.

Long-Term Investment: Real estate has historically been a reliable long-term investment. Homeownership allows individuals to build wealth over time while enjoying the benefits of a place to call their own.

Emotional Well-being: Owning a home can contribute to emotional well-being and overall happiness. It provides a sense of security, pride, and a place to create lasting memories with loved ones.

Homeownership represents a significant part of the American dream, encapsulating aspirations for stability, financial security, personalization, and a sense of community. It symbolizes the pursuit of a better future, a place to call home, and the realization of one's own piece of the American dream.

For more information, download Homeownership Today!

Tuesday, June 4, 2024

How to get a lower rate and a lower price



Are you in the market for a new home and wondering which mortgage option is right for you? While the world of home financing offers a surplus of choices, one option often overlooked is the Adjustable Rate Mortgage, or ARM. If you're in a market where interest rates are trending lower, an ARM could be the key to significant savings and financial flexibility.

The problem is simple, while you're waiting for interest rates to come down, the price of homes are still going up.  Any savings from the lower interest rate could more than be offset by the increase in purchase price due to appreciation.  Buying at today's prices with an interim loan might be the answer.

Picture this: You've found your dream home, and it's time to secure financing. An ARM often starts with a lower initial interest rate than a fixed-rate mortgage. This means your monthly payments will be more manageable from day one, allowing you to allocate your budget wisely.

In a market where interest rates are on a downward slope, ARMs can lead to even lower monthly payments. If rates continue to decline, your mortgage payments could shrink, leaving more money in your pocket.

If you anticipate selling or refinancing your home within a few years, an ARM can be a strategic choice. The lower initial rates and shorter fixed-rate periods align with your shorter-term ownership plans, offering cost savings during your stay.

Imagine paying less interest over the life of your mortgage. In a declining rate environment, an ARM can translate into lower overall interest expenses compared to a fixed-rate mortgage, assuming the rates stay favorable.

One of the unique features of ARMs are the rate caps. These caps limit how much your interest rate can adjust during each period, offering a safeguard against sudden and steep rate hikes. Your financial peace of mind is protected.

A lower initial interest rate can boost your borrowing power. With an ARM, you may qualify for a larger loan amount or consider a property that might have been just out of reach with a fixed-rate mortgage.

Lower initial monthly payments with an ARM can free up funds that you can redirect towards paying down your mortgage faster. This could help you build equity in your home more rapidly.

Life is full of surprises, and an ARM provides you with flexibility. As market conditions change, you have the option to adapt your mortgage to your financial goals. You can choose to refinance, lock in a fixed rate, or ride the wave of lower rates.

While ARMs offer exciting benefits in a declining rate environment, they are not without risks. If interest rates rise, your monthly payments could increase, potentially impacting your budget. Therefore, it's crucial to assess your financial situation, future plans, and risk tolerance carefully.

When the market is trending toward lower interest rates, an Adjustable Rate Mortgage can be a valuable tool for savvy homebuyers especially when the price of homes are still going up. It's all about seizing the opportunity for savings, financial flexibility, and homeownership that aligns perfectly with your goals and lifestyle. Explore your options, consult with a trusted mortgage professional, and make an informed decision that leads you to your dream home with your financial well-being in mind.

Tuesday, May 28, 2024

Home selling strategies for downsizing seniors



Downsizing can be a significant life transition for any age person, but especially for seniors who may have lived in this last home for some time. Follow these suggestions to make the downsizing process smoother and less stressful.

  • Start Early: Begin the downsizing process well in advance of your planned move. Give yourself plenty of time to make decisions and avoid feeling rushed.
  • Assess Your Needs: Evaluate your current and future needs in terms of space, accessibility, and location. Consider factors like health, mobility, and proximity to family and healthcare facilities.
  • Create a Plan: Develop a comprehensive downsizing plan that outlines your goals, priorities, and a timeline for each task. Having a plan will keep you organized and focused.
  • Declutter: Go through your belongings room by room and decide what to keep, donate, sell, or discard. Be realistic about what you truly need and use regularly.
  • Seek Professional Help: Consider hiring a professional organizer, downsizing specialist, or real estate agent experienced in working with seniors. They can offer guidance and support throughout the process.
  • Embrace Technology: Digitize important documents and photographs to reduce paper clutter. Consider using digital tools to keep track of your possessions.
  • Measure Your New Space: Obtain floor plans or measurements of your new home to ensure your furniture and belongings will fit comfortably. This can help you decide what to bring and what to leave behind.
  • Prioritize Sentimental Items: While downsizing often involves letting go of sentimental possessions, choose a few cherished items to keep and display in your new space. Consider passing down heirlooms to family members.
  • Hold an Estate Sale or Auction: If you have valuable items that you no longer need, consider selling them through an estate sale or auction to help fund your downsizing efforts.
  • Stay Positive: Downsizing can be emotionally challenging, but it also offers the opportunity for a fresh start and simplified living. Focus on the benefits of your new home and lifestyle.

Remember that downsizing is a personal journey, and it's essential to approach it with patience and a positive mindset. Don't hesitate to seek support from family and friends, and don't be too hard on yourself during this process.

For more information download our guide Downsizing Your Home.

Tuesday, May 21, 2024

Should You Install Artificial Turf in Your Yard?



Who wouldn't want to reside in a beautiful neighborhood adorned with meticulously manicured lawns? While some homeowners relish the thought of working on their yards, others may not share the same enthusiasm. If you've ever contemplated the idea of installing artificial turf, also known as fake grass, as a part of your landscape, it's essential to consider both its advantages and drawbacks.

Let's Begin with the Advantages:

Modern advancements in artificial turf technology have rendered it nearly indistinguishable from real grass, offering an evergreen and perpetually lush appearance to your landscape.

One of the most significant perks of artificial turf is the elimination of the need for regular mowing and trimming. This translates to potential cost savings by reducing monthly expenses associated with professional yard maintenance.

Artificial lawns are highly durable and can endure for up to two decades with minimal upkeep.

Many manufacturers incorporate recycled materials like tires and plastic bottles into their synthetic grass, contributing to a reduction in your environmental footprint.

Artificial turf conserves water, requiring only periodic watering for surface cleaning. In regions with consistent rainfall, this may even become unnecessary, making it an ideal solution for drought-prone climates. Additionally, artificial grass eliminates the risk of groundwater pollution since it doesn't require fertilizers. It also reduces air and noise pollution by eliminating the need for gas-powered lawnmowers and trimmers.

Now, Consider the Drawbacks:

Artificial grass can come with a substantial initial cost.

Being synthetic, it can absorb heat, potentially making it uncomfortably warm under bare feet in direct sunlight.

Accidental pet waste may pass through the turf, with solids being removable, but odors could linger. However, these odors can typically be eliminated using a vinegar and water solution.

Small debris that can't be removed with a leaf blower, such as mulch chips and tiny branches, may require a specialized artificial grass sweeper or turf rake for thorough cleaning.

Before deciding on artificial turf for your yard, carefully weigh these pros and cons to determine if it aligns with your needs, preferences, and budget.

Tuesday, May 14, 2024

Transform your home into a showstopper with the power of staging!



Imagine looking around your home and wondering how you can make it shine during those crucial showings. The answer is simple: staging! It's a powerful tool that can transform your property and raise its appeal.

Your online listing photos serve as the initial showcase for potential buyers. Staging plays a crucial role in enhancing these images, making them more captivating and inviting. It sets the stage, quite literally, for a positive first impression. When buyers scroll through your listing, professionally staged rooms catch their eye, drawing them into the story your home tells.

Staging isn't just about creating a visually pleasing environment; it's about sparking an emotional connection. A well-staged home exudes warmth and welcome, making it easier for buyers to picture themselves living there. It's a canvas upon which they can paint their own future, creating an emotional bond with the space that lingers long after the showing ends.

The numbers don't lie. According to the National Association of Realtors (NAR), 23% of buyer's agents report that staging can increase the dollar value offered by 1-5% compared to non-staged homes. In essence, staging is an investment that yields a tangible return. It's a strategic move to maximize your property's market value and, ultimately, your selling price.

Staging has another subtle yet impactful benefit. It redirects attention away from any outdated or minor repair needs that you may not have had the resources to address before listing. Instead of fixating on imperfections, buyers are drawn to the positive aspects of your home. It's about showcasing its potential and best features, ensuring they shine brightly.

To reap the full benefits of staging, timing is key. Ideally, it should be implemented before your home hits the market. The moment you decide to sell, consider reaching out to us. We can seamlessly incorporate staging into your selling timeline, ensuring your home stands out and captures the hearts of potential buyers right from the start. Don't underestimate the impact of this transformative process�it's the secret weapon in your arsenal to sell your home swiftly and at an optimal price.

Tuesday, May 7, 2024

Discovering Tax Credits That Enhance Homeowner Benefits



Owning a home not only provides a sense of stability and pride but also opens doors to potential tax benefits. As a homeowner, understanding tax credits can significantly impact your financial well-being. Let's delve into some key tax credits and deductions available to homeowners and how they can help you maximize savings.

If you've made energy-efficient improvements to your home in the past year, you may qualify for the Residential Energy Efficiency Property Credit. This credit allows you to claim a percentage of the cost of qualifying energy-efficient upgrades, such as solar panels, energy-efficient windows, and HVAC systems, up to certain limits. Not only do these upgrades help lower your utility bills, but they also contribute to a more sustainable future while providing tax savings.

Another valuable tax credit available to homeowners is the Residential Renewable Energy Tax Credit. This credit applies to the installation of renewable energy systems, such as solar panels, geothermal heat pumps, and small wind turbines. Homeowners can claim a percentage of the cost of these systems as a credit on their federal income tax return, reducing their tax liability dollar for dollar.

For homeowners looking to make their homes more accessible and accommodating, the Disabled Access Credit can provide financial assistance. This credit covers a portion of the expenses incurred when making eligible improvements to accommodate individuals with disabilities, such as installing ramps, widening doorways, and modifying bathrooms. By taking advantage of this credit, homeowners can improve the livability of their homes while reducing their tax burden.

As a homeowner, understanding and leveraging these tax credits can lead to significant savings and benefits. They can not only reduce your tax liability but also enhance the financial rewards of homeownership in lower maintenance costs. Be sure to notify your tax professional about the expenditure so they can explore all available options and maximize your savings.

Tuesday, April 30, 2024

Building a Case for Homeownership Today!



Over the last 60 years, the average sales price of homes has appreciated at a rate of 5.56% annually, according to the Federal Reserve Economic Data. During the same period, rent has increased at a rate of 3.88% annually which presents a compelling argument in favor of homeownership.

When the figures are analyzed, it becomes evident that homes have not only appreciated in value at a faster rate than the increase in rental costs, but they have also provided homeowners hedge against inflation and a substantial asset that builds equity over time.

In the report called "Building a Case for Homeownership Today!", the reader will discover the real cost of homeownership is most likely less than they are paying in rent because of the two powerful dynamics of amortization and appreciation that are not currently working in their favor.  As they continue to rent, the dynamics work in favor of their landlord.

The median homeowner has a net worth of $396,000 compared to approximately $10,400 for renters making the net worth of a homeowner 38 times the household wealth of a renter according to the latest data from the Federal Reserve Board Survey of Consumer Finance.

Another powerful comparison shows what is happening to the postponed buyer's funds for down payment during the delay in purchasing.  Even when the funds are invested in a certificate of deposit or in stocks, the increased proceeds are no where near what their equity would be had they been invested in a home.

Another revelation in this report puts mortgage rates in perspective.  Instead of the anomaly the market has seen for the past 10 years and even more so, in the past three years, the average fixed-rate mortgage rate for the past 52 years is 7.74%; less than the current 30-year fixed-rate mortgage rate.

The report also explains how homeowners can access their home's equity for a variety of purposes like education, medical expenses, investment, business opportunities, or other causes.

An interesting opportunity for owner-occupants is that they can purchase a two-, three-, or four-unit property with a minimum down payment on FHA and conventional loans.  The rent received on the investment units will be shown as income to help them qualify for the larger mortgage on a more expensive property.

In conclusion, the case for homeownership today extends far beyond the emotional and social dimensions�it's a solid financial decision. While high interest rates, affordability concerns, and soaring home prices may seem daunting, it's essential to recognize that the current environment still favors homebuyers.

Download the Building a Case for Homeownership Today! report either for yourself or for someone you know.  After looking at it, schedule an appointment with us to look at the specifics of your situation and give you the information you need.

Tuesday, April 23, 2024

Making Sense of Home Improvements: What Adds Value?



Before diving into renovation projects, it's important to understand which upgrades are likely to boost your home's value and which ones may not yield a significant return on investment. While certain improvements can enhance your home's appeal and attract potential buyers, others may fall short of expectations.

It's prudent to explore examples of home improvements that have the potential to increase your home's value, as well as situations where renovations may not have a substantial impact on its worth. By gaining insights into these factors, homeowners can make informed decisions and maximize their return on investment when upgrading their properties.

Home improvements that may increase the value of the home:

Hardwood floors ... Refinishing or updating to wood floors have good appeal and have a high return on the cost.

Kitchen Remodel - Updating the kitchen with modern appliances, countertops, and fixtures can increase the home's value by improving functionality and aesthetics.

Bathroom Update - Renovating bathrooms with new fixtures, tiles, and amenities can enhance the home's appeal, especially if it increases the number of bathrooms or improves their condition.

Curb Appeal - Enhancing curb appeal through landscaping, exterior painting, or updating the front door can make a positive first impression and increase the home's perceived value.

Energy-Efficient Upgrades - Adding energy-efficient features such as insulation, or windows can attract environmentally conscious buyers and reduce utility costs, thereby increasing the home's value.

Open Floor Plan - Removing walls to create an open floor plan can improve the flow of the home and make it feel more spacious, which may appeal to modern homebuyers and increase value.

Home improvements that may not affect value significantly:

Over-Personalized Upgrades - Home improvements that are highly customized to the homeowner's taste, such as extravagant or niche features, may not appeal to a broad range of buyers and may not recoup their cost.

Low-Quality Workmanship - Poor-quality renovations or DIY projects that are not executed professionally may detract from the home's value rather than adding to it.

Excessive Upgrades - Spending too much on renovations relative to the home's overall value for the neighborhood may not yield a commensurate increase in value.

Unpermitted Additions - Home improvements made without the necessary permits or that violate building codes may lead to complications during the selling process and may not add value to the home.

Overcapitalization - Investing in upgrades that exceed the anticipated resale value of the home for the neighborhood may result in diminishing returns and may not justify the expense.

While there are many powerful investment aspects of homeownership, not all the money spent on it will necessarily increase the value.  If the cost of some renovations won't be able to be recaptured in the sales price, homeowners should recognize that in advance of making them.  If they decide to move forward, they must realize that it was done for personal convenience or enjoyment. 

On the other hand, some improvements can satisfy convenience, enjoyment and return part or all the cost.  The latest Remodeling Impact Report done by the National Association of REALTORS� and the National Association of Remodeling Industry  can provide more insight into cost recovery.

Your real estate professional can provide guidance of a more specific nature.

Tuesday, April 16, 2024

Bridging Wealth Gaps: Homeownership's Stand Against Inflation



When exploring the benefits of homeownership, it's more than just having a place to call your own. Among its many advantages, homeownership stands as a formidable safeguard against inflation and a strong vehicle for long-term wealth accumulation. This article will delve into the dynamics of appreciation and amortization, explaining why owning a home can be one of the most impactful financial decisions you can make.

Inflation, the overall upward price movement of goods and services in an economy, erodes the purchasing power of money. In simpler terms, as inflation rises, each dollar you have buys a smaller percentage of a good or service.  The same inflation that is driving rising mortgage rates is putting upward pressure on home prices and rents.

Over the past sixty years, homes have appreciated in value at an annual appreciation rate of 5.56% according to the Federal Reserve Economic Data.  As a homeowner, you want to benefit from the appreciation.  Inflation for the same period averaged 3.7% (Bureau of Labor Statistics) making homes an effective hedge against inflation.

Real estate, unlike many other assets, is a tangible, real asset. History has shown that over the long term, the value of real assets tends to rise at a rate that at least matches, if not outpaces, inflation. So, as the price of goods and services increases, so does the value of real estate, making homeownership a strategic move against inflationary pressures.

With a fixed-rate mortgage, your monthly principal and interest payment remains constant. As a result, while other costs may rise due to inflation, your primary housing cost (if you exclude taxes and maintenance) remains stable, shielding you from the full impact of inflation.

Home appreciation refers to the increase in the home's value over time. Given the finite nature of land and the ever-growing demand for housing, especially in thriving areas, real estate often appreciates. This appreciation can result in substantial equity gains for homeowners, creating a form of 'forced savings' and making it a powerful tool for wealth accumulation.

Amortization has been considered the silent wealth builder. Each time you make a mortgage payment, a portion of that payment goes toward the loan's interest, and the balance pays down the principal, thus retiring your debt incrementally. This process means you're gradually building equity in the home with each payment. Over time, a larger portion of your payment goes towards the principal, accelerating your equity buildup.

Combined, appreciation and amortization can lead to significant wealth growth for homeowners. As the home's value rises and the mortgage balance decreases, homeowners often find themselves sitting on a substantial asset, which can be leveraged in various ways, from securing loans to planning retirement.

While the emotional and social benefits of homeownership are often celebrated, the financial benefits are equally compelling. In a world of economic uncertainties and inflationary pressures, owning a home emerges not just as a source of stability but also as a strategy for long-term financial prosperity. By understanding and leveraging the twin forces of appreciation and amortization, homeowners can pave a path to meaningful wealth accumulation even during periods of relatively high mortgage rates.

For more information, download an information guide on Building a Case for Homeownership Today.

Tuesday, April 9, 2024

Baby Boomers' Wave to Downsize



As the first groups of baby boomers gracefully rides the wave of aging, they are setting new trends in the housing market, giving birth to what experts fondly refer to as the "Silver Tsunami." This phenomenon is not merely about a change in address; it's a lifestyle transformation tailored to meet the unique needs of the golden years.

With approximately 10,000 people reaching the age of 65 every day, the United States is witnessing an unprecedented demographic shift. By 2030, all baby boomers will have passed this milestone. Among these remarkable statistics, the AARP's estimate stands out: a staggering 74% of total U.S. homeownership belongs to individuals over 50, with more than half of this demographic opting for downsizing their home as a strategic move.

The Silver Tsunami is, in essence, a testament to the demographic strength of the baby boomer generation. Born between 1946 and 1964, this generation has played a pivotal role in shaping American society at every stage of life. Now, as they embrace their senior years, they are reshaping the real estate landscape. Downsizing has become a prevailing trend among this generation.

One of the fundamental aspects of this is the desire for aging Americans to remain in their homes, a concept known as "aging in place." However, this doesn't necessarily mean staying in the same large family home that has seen decades of memories. Instead, it often involves downsizing to a more manageable, efficient, and accessible living space.

The statistics are a testament to the appeal of downsizing among this generation. AARP estimates that a whopping 74% of homeownership in the United States is held by individuals over the age of 50. Additionally, more than 51% of people in this age group have already made the move to downsize.

The reasons behind this paradigm shift are as diverse as the individuals making it happen. For some, it's about financial prudence ... reducing the costs and maintenance associated with larger homes. For others, it's the desire for a simpler, more manageable lifestyle that allows them to focus on experiences rather than possessions. Accessibility and health concerns also play a significant role, with many opting for homes that are designed to accommodate mobility challenges.

Downsizing is having a profound impact on the housing market. It's not just about the scaling down trend; it's also about the types of homes that are in high demand. Single-story residences, condos, and communities with amenities tailored to an active older population are experiencing increased interest. Builders and real estate developers are adapting to these evolving preferences, creating more accessible, age-friendly housing options.

It is not merely a demographic shift; it's a testament to the baby boomer generation's determination to embrace their golden years on their terms. Downsizing is just one facet of this multifaceted trend, and it's changing the way we think about aging and housing. As the silver wave continues to ripple through the real estate market, it's essential for homeowners and industry professionals alike to be aware of these evolving preferences.

One way to find out about your options is to determine the value of your current home and its equity to facilitate the change in housing.  Contact us to provide this service at no obligation as well as to inform you what is available to meet your wants and needs.

Tuesday, April 2, 2024

Keep more profits from home sales



In recent years, home values have soared, presenting an opportunity for homeowners with substantial equity to consider a unique tax benefit.

Section 121 in the IRS code allows for homeowners who meet certain requirements to exclude up to $500,000 of capital gain on the sale of their principal residence.  Single or married taxpayers filing separately can exclude up to $250,000 of capital gain.  Taxpayers must meet the following requirements:

  • They must have owned and used the home as a principal residence during at least 2 out of the last 5 years.
  • They should not have excluded gain from another home during the two years before the current sale.
  • The property should not have been acquired through a 1031 exchange during the past five years.

Capital gain is determined as selling price, less sales costs, less basis in the property which is the purchase price paid for the home plus capital improvements made during the tenure.  Capital gains more than the exclusion amounts are taxed at the capital gains rate which varies between 0% and 20% depending on the taxpayers adjusted gross income in the year of the sale. 

Some exceptions for divorce, death of a spouse, or military service may apply.  For more information, see IRS Publication 523 and download our Homeowners Tax Guide.  It is always advisable to seek the counsel of your tax professional for your particular situation.

Tuesday, March 26, 2024

Smart Home Tech: Is It Real Property or Personal Belongings in a Home Sale?



Many of today's homeowners have accumulated multiple high-tech "smart" devices to make their home more convenient, economical, and fun to operate.  When they decide to sell the home, they need to make the listing agent completely aware of whether they will be included in the sale of the home. 

Some of these things easily meet the definition of real property because they are permanently installed like thermostats, doorbells, cameras, garage door openers, and pool equipment monitors.  A rule of thumb mentioned frequently is that if it were removed, the functionality would cease or if there would be evidence of where it had been, it is probably real property and is included in the sale.

Other devices like virtual assistants made by Amazon, Apple, or Google, may not specifically meet that criteria but they are needed to operate things like electrical switches and plugs, or lamps.  It becomes a grey area of whether it is real property when TV's, doorbells, garage door openers, and other devices are dependent on the virtual assistants.

Door locks, as well as some other devices, have a master code written on them that allows the new owner to reset the combination ensuring not only their safety but potential liability for the seller.  In some cases, the seller will need to do this using the app on their computer or phone while it is still connected to their home network.  It may be prudent to arrange a time for the seller to reset the devices in question for the buyers' convenience and security.

Smart home additions could easily be a selling point for potential buyers and sellers need to weigh the benefits of promoting the advantages of such and including those items in the sale of the home.

Make an inventory of what devices stay with the home and what needs to be done to reset them for the new owner.  This could be done at the time of listing the home and given to the listing agent at the same time the listing agreement is signed. Your listing agent will know how to handle it, but decisions must be made before the home is put on the market or it is shown to any prospective purchasers.

Tuesday, March 19, 2024

Leverage your home's equity into rental property



There can be many reasons homeowners aspire to have their home paid for.  They can include no mortgage payments, financial security, debt reduction, lower expenses, retirement planning, financial freedom, legacy planning, no risk of foreclosure, and reduced stress, just to name a few.

All those things have a cost attached to them which is the loss of the earning power which is tied up in an asset that only benefits the owner by appreciation.  In the past few years since the pandemic began, homeowners have experienced a dramatic increase in equity due to appreciation.

As an example, let's set up a comparison of how the yield on equity decreases as the property appreciates.  A homeowner has a debt-free home worth $400,000 that is expected to appreciate at 4% a year for the next five years. The future value of the home would be $486,661 and the owner would have earned a 4% return on his investment in the property.

In scenario #2, the homeowner refinances the property today for 80% of its value at 7% interest for 30-years.  At the end of the five years, the property is still worth $486,661 and his unpaid balance on the mortgage would be $338,874. The $80,000 equity would have grown to $147,787 earning him an annual return on investment of 13.06%.  The leverage of the borrowed funds caused the owner in this example to triple his yield.

Let's not forget the $320,000 cash out that the owner received when he refinanced the home.  If that was invested in rental real estate, he may be able to buy three to four more properties with 80% mortgages and increase his yield even more.

There is a lot more to a total analysis of a situation like this because rental properties have income and tax advantages that are not relative to a principal residence.  What is possible for the homeowner with this type of asset in their home, is to free up a major portion of the cash and reinvest it.

Having equity gives a homeowner many benefits including financial freedom and security, peace of mind, and the option to pull money out, tax free, to invest in rental property to increase their wealth position.

To learn more about rental property, download our Rental Income Properties and then, schedule a time when we can get together to explore options.  We can start with a Home Equity Review to see what kind of funds may be available based on the current value of your home and its unpaid balance and then talk about how rental property could help you with your financial goals.

Tuesday, March 12, 2024

Adapting to Life's New Chapters



All of us encounter major life events and they have the possibility of disrupting our lives temporarily, if not permanently.  The homes we live in may have met our needs originally but due to a change in our life, it may no longer be adequate or the best fit for us, which will require a move. The decision to change one's living situation often comes as a response to these pivotal moments, and the reasons behind such changes can be as diverse as the events themselves. 

The number of things that can influence these changes is numerous.  It may be the birth of a new child, or the ages of the children are getting such that you simply need more room. 

Marriages generally merge two households into one.  The possibilities are endless, but it could be two single people or two single parents each with children who need the right space to blend the families.

A promotion, transfer, or a new job could require a change in housing, or maybe just make it more convenient to move closer to where a person is working. 

Countless numbers of people have moved as a result of health issues.  It could be to get away from the altitude, or to a drier climate, or to a more rural area where life is simpler.  The death of a spouse can be the impetus for the move.

Empty nesters and retirees have the freedom to make changes to their housing that will better adapt to their new lifestyle.  The time may have come to seek a cozier, more manageable abode that suits the evolving needs of empty nesters.  It may or may not lead them to a new city or state, but it can certainly include a different size or style home than they have currently.

These are just a few examples of how major life events can set the stage for changes in housing. If you are considering a move for one of these reasons now, you will probably think about it at some point.  We can help you through today's market, talk about timing, and guide you through the decision-making process.

We want to be your trusted agent, ready to support you finding your dream home as you start this new chapter in your life. Take the first step, when the time is right, by connecting with us.

Tuesday, March 5, 2024

House-Hacking your way to multi-unit rentals



House-hacking refers to buying a multifamily property on an owner-occupied mortgage, living in one unit and renting the others.  If you're thinking about becoming a rental mogul, starting early is an advantage.  Not only will you have longer to accumulate a larger portfolio, but you can also increase the leverage on the first owner-occupied acquisitions. 

Leverage is the use of other people's money to finance an investment.  The higher the loan-to-value, the greater the leverage which can increase the yield.  The lower down payment gives the investor more leverage which can increase the return on their investment. 

FHA, VA, Fannie Mae, and Freddie Mac each have programs for buying owner-occupied two-to four-unit properties with the same minimal down payment required for a single-family home.  The advantage is that non-occupant investors must have a 20-25% down payment where the owner occupant is much less.

A qualified veteran could get into the first property with no down payment.  FHA only requires a 3.5% down payment.  And owner-occupants seeking to buy a multi-unit property with a conventional loan would need 5-10% down payment.

As an example, let's say there is a 2-unit property selling for $500,000.  A non-owner-occupant investor would need to make a minimum down payment of $100,000.  Whereas an equally qualified investor who was going to live in one of the units, would only be required to make a $17,500 down payment on an FHA loan or $25,000 to $50,000 on a conventional owner-occupied loan.

The difficulty is that there are not a lot of two-to-four-unit properties.  In some cases, they may be older properties in older neighborhoods.  With some searching, you might be able to find lots with the right zoning and get a builder involved.

It is certainly worth investigating to find out what is available in your area and surroundings.

Rental properties offer the investor an opportunity to borrow large loan-to-value mortgages at fixed interest rates for up to 30 years on appreciating assets with tax advantages and reasonable control that many other investments don't enjoy.

Some people consider rental properties the IDEAL investment with each letter in the acronym standing for a benefit it provides.  It provides income from the rent which many investments do not have.  Depreciation is a non-cash deduction from income that increases cash flow.  Equity buildup occurs as each payment is made by reducing the principal owed.  Appreciation happens over time as the value of the property increases.  L stands for leverage that was explained earlier in this article.

The key to making this work is to be an owner-occupant in one of the units.  After a reasonable period of time, you may be able to buy another four-unit as an owner-occupant before you need to start using a normal investor's down payment. 

In the meantime, you could have eight units that are increasing in value while the mortgage balance is decreasing with every payment made.  If there is sufficient equity in the properties by the time you're ready to buy more units, you may be able to take cash out of the existing ones to use for the down payments.

This can be a great way to turbocharge your net worth by becoming an owner and a real estate investor at the same time.  To learn more about rental properties, download the Rental Income Properties guide and/or contact me at  to schedule an appointment to meet to answer your questions and discuss the possibilities.

Tuesday, February 27, 2024

The relationship between homeownership and net worth



During the span between 2019 and 2022, the COVID-19 pandemic significantly disrupted both society and economic activities. Nevertheless, the latest Survey of Consumer Finance, which has recently been unveiled, highlights widespread enhancements in the financial well-being of American families during this timeframe, especially concerning their net worth.

The median net worth of homeowners increased 37%, after adjustment for inflation, between 2019 and 2022.  This is the largest three-year increase in the history of the modern Federal Reserve Board's triennial survey dating back to 1989 and more than twice the next largest one on record.

The survey showed increases in both median and mean net worth were near universal across different types of families, grouped by either economic or demographic characteristics.

For families who owned a home, the median net housing value, the value of the home, less secured debt, increased 44% between the same three-year period.  The median homeowner has a net worth of $396,000 compared to approximately $10,400 for renters making the net worth of a homeowner 38 times the household wealth of a renter according to the latest data.

Housing wealth, in this study, represented on average approximately 75% of the total assets of the lowest income household.  In the middle-income distribution, housing wealth represents between 48% and 74% of total assets.  For the top 10% of the income distribution, the wealthiest households' share was 33%.  The study suggested that as income and net worth increases, the diversification of investments increases.

Even though there was significant increase in the value of homeowners' property during this period, the debt secured by the residential property was relatively unchanged and the median amount of this debt decreased by less than one percent to $155,600 in 2022.  During the same period credit card debt was stable.

Odeta Kushi, deputy chief economist at First American, summarized by saying "For the majority of households that transition into homeownership, the most recent data reinforces that housing is one of the biggest positive drivers of wealth creation in this country."

Starting in 2022, mortgage rates more than doubled the rates during the fall of 2021 and continued to rise throughout 2022 and most of 2023 to the high 7% range which the market had not reached for 30 years.  This rate affected buyers' affordability and challenged a belief that rates would stay low since they had been for over ten years after the Great Financial Crisis.

While homeownership is still a major part of the "American Dream", would-be buyers are having to adapt to the higher rates.  And even if rates moderate during 2024, the low housing inventory experienced across the country will continue to increase prices which favors current homeowners.  It could take years to reach a balanced market.

The challenged buyers should remember that homes have appreciated 5.56% annually for the last sixty years.  The average mortgage rate in the same period is 7.74%. 

Based on the impressive margin that homeowners have 38 times more net worth than renters and that the contributing factor is the home's equity, Buyers who can financially afford to buy now should investigate exactly what it will take to get into a home now.

Download our Buyers Guide.

Tuesday, February 20, 2024

Understanding Credit Life Insurance for Home Buyers



Credit life insurance is a specialized type of insurance designed to provide financial protection for borrowers and their families in the event of the borrower's untimely death. This insurance is often associated with loans, including mortgages, and is specifically tied to the outstanding balance of the loan. In the case of a home purchase, credit life insurance will cover the remaining mortgage balance if the homeowner passes away before the loan is fully paid off.

In some cases, lenders may include the expense of credit life insurance in your loan principal. This arrangement means that you'll accrue interest on the combined amount, potentially resulting in increased costs over time. Consequently, opting for traditional life insurance, as opposed to credit life insurance, might be a more financially prudent choice to protect your family's financial well-being.

Credit life insurance offers peace of mind to homeowners, knowing that their loved ones won't be burdened with mortgage payments in case of an unexpected tragedy.  It can be a safeguard for their loved ones from inheriting the mortgage debt in the event of their death. It ensures that the home loan is paid off, preventing financial strain on surviving family members.

Some lenders may require or recommend credit life insurance as part of the loan approval process, making it easier for homebuyers to qualify for a mortgage but it is not typically mandatory, and the borrower usually has the option to request its removal from the loan agreement. 

Advantages of Regular Life Insurance:

While credit life insurance serves a specific purpose, there are advantages to opting for a regular life insurance policy instead:

  • Regular life insurance provides a broader range of coverage beyond mortgage debt. It offers financial protection to beneficiaries for various needs, such as income replacement, education, and long-term financial security.
  • Unlike credit life insurance, which is tied to a specific loan, regular life insurance can be used to address multiple financial goals and needs, making it a versatile option.
  • Regular life insurance remains in force regardless of changes in your mortgage or loan status. It can be maintained even if you refinance, pay off your mortgage, or move.
  • Some life insurance policies, such as whole life or universal life, offer a cash value component that can grow over time, potentially providing additional financial benefits.
  • With regular life insurance, you have the flexibility to choose any beneficiary, not just the lender, ensuring your loved ones are financially protected.

Credit life insurance can provide a valuable safety net for homebuyers by addressing their mortgage debt in the event of their passing. However, it's essential to consider the broader financial needs of your family and explore regular life insurance options, which offer more extensive coverage and flexibility. Ultimately, the choice between credit life insurance and regular life insurance should align with your specific financial goals and priorities.

Tuesday, February 13, 2024

Discover how to make a difference in your neighborhood



Whether you're a seasoned homeowner or just starting this thrilling chapter, every time you turn your key, you're not just entering a house but also embedding yourself in a neighborhood. The heartbeat of a vibrant community doesn't solely rest upon pristine lawns or architectural beauty, but predominantly on its residents � wonderful folks like you! Consider these suggestions to enjoy your new neighborhood and actively contributing to making it a wonderful place to live.

Foster Connection - Begin your journey by fostering connections. Introduce yourself to your neighbors, participate in or organize social events, and involve yourself in local gatherings, HOA, Next Door, or forums. Establishing a network of friendly faces creates a sense of belonging and shared responsibility towards the well-being of the neighborhood.

Create a Safe Environment - A safe community is a serene community. Be mindful of adhering to speed limits while driving through your neighborhood, watch out for children playing, and consider organizing or participating in a neighborhood watch program. Ensuring that everyone feels secure enhances the quality of life for all residents.

Champion Cleanliness and Green Practices - Your new neighborhood is an extension of your home. Engage in and advocate for practices like regular clean-up drives, recycling initiatives, and maintaining green spaces. Planting trees or creating communal gardens can be wonderful projects that not only beautify the area but also instigate sustainable living.

Support Local Businesses - Frequent local shops, cafes, and services to boost the neighborhood's economy. Supporting local businesses fosters a self-sustaining community, often making it more attractive to future residents and other local entrepreneurs.

Volunteer and Offer Support - Whether it's helping a neighbor with yard work or volunteering in local schools, your acts of kindness will ripple through the community, establishing a culture of support and assistance that enriches everyone's lives.

Organize and Participate in Events - From block parties to garage sales, events can add vivacity to any neighborhood. They provide a platform for residents to mingle, forge friendships, and create cherished memories, threading a fabric of unity and camaraderie.

Respectful Living - Being mindful and considerate of your neighbors is foundational. Adhere to noise guidelines, maintain your property, and respect shared spaces. A culture of mutual respect enhances peaceful co-existence and cultivates a harmonious environment.

Advocate for Improvements - If you observe areas for improvement, like a need for better street lighting or safer playgrounds, take the initiative. Work with local authorities, attend town meetings, or organize petitions to facilitate beneficial changes.

In contributing towards shaping a great neighborhood, you're not only enhancing your living experience but also elevating the quality of life for existing and future residents. Your active involvement, care, and initiatives sow the seeds for a community where everyone enjoys a sense of belonging, security, and joy in their daily lives. After all, the richest neighborhoods are those woven with the threads of unity, understanding, and collective effort. So, embrace your role and be the beacon that lights up your community with positivity and progress!

Tuesday, February 6, 2024

How Home Value Growth Beats Renting



Over the last 60 years, the average sales price of homes has appreciated at a rate of 5.56% annually, according to the Federal Reserve Economic Data. During the same period, rent has increased at a rate of 3.88% annually which presents a compelling argument in favor of homeownership.

When we analyze these figures, it becomes evident that homes have not only appreciated in value at a faster rate than the increase in rental costs, but they have also provided homeowners with a substantial asset that builds equity over time. This discrepancy in growth rates means that, in the long run, homeowners are likely to experience a greater return on their investment compared to renters.

Renters, while they may have the flexibility of moving without the ties of property ownership and might have lower upfront costs, do not gain any equity from their monthly payments. Their money goes straight to their landlord, and they are subject to the annual increases in rent. Over time, as rent continues to rise, renters might find themselves allocating a larger portion of their income to housing expenses compared to homeowners with fixed-rate mortgages, whose monthly payments remain constant.

Homeowners, on the other hand, can lock in their housing costs, particularly if they have a fixed-rate mortgage. Even as the value of their property increases, their monthly mortgage principal and interest payments remain steady. Furthermore, as they pay down their mortgage, they build equity in their home, which becomes a valuable asset. This asset can be leveraged for other financial opportunities, such as funding education, investing, or purchasing additional property.

In addition, homeowners can capitalize on the tax benefits associated with mortgage interest and property tax deductions, and potential capital gains exclusions, which can contribute to the overall financial advantage of homeownership.

In conclusion, while renting may offer flexibility and potentially lower upfront costs, homeownership presents a compelling long-term financial opportunity. The significant difference in the annual growth rates of home prices and rent over the past 60 years underscores the potential for wealth accumulation and financial stability that comes with investing in real estate and the equity building that comes with homeownership.

Download our Buyers Guide and consider getting together with your agent to get the facts of today's market.

Tuesday, January 30, 2024

Bridging Wealth Gaps: Homeownership's Stand Against Inflation



When exploring the benefits of homeownership, it's more than just having a place to call your own. Among its many advantages, homeownership stands as a formidable safeguard against inflation and a strong vehicle for long-term wealth accumulation. This article will delve into the dynamics of appreciation and amortization, explaining why owning a home can be one of the most impactful financial decisions you can make.

Inflation, the overall upward price movement of goods and services in an economy, erodes the purchasing power of money. In simpler terms, as inflation rises, each dollar you have buys a smaller percentage of a good or service.  The same inflation that is driving rising mortgage rates is putting upward pressure on home prices.

Over the past sixty years, homes have appreciated in value at an annual appreciation rate of 5.56% according to the Federal Reserve Economic Data.  As a homeowner, you want to benefit from the appreciation.  Inflation for the same period averaged 3.7% (Bureau of Labor Statistics) making homes an effective hedge against inflation.

Real estate, unlike many other assets, is a tangible, real asset. History has shown that over the long term, the value of real assets tends to rise at a rate that at least matches, if not outpaces, inflation. So, as the price of goods and services increases, so does the value of real estate, making homeownership a strategic move against inflationary pressures.

With a fixed-rate mortgage, your monthly principal and interest payment remains constant. As a result, while other costs may rise due to inflation, your primary housing cost (if you exclude taxes and maintenance) remains stable, shielding you from the full impact of inflation.

Home appreciation refers to the increase in the home's value over time. Given the finite nature of land and the ever-growing demand for housing, especially in thriving areas, real estate often appreciates. This appreciation can result in substantial equity gains for homeowners, creating a form of 'forced savings' and making it a powerful tool for wealth accumulation.

Amortization has been considered the silent wealth builder.  Each time you make a mortgage payment, a portion of that payment goes toward the loan's interest, and the rest pays down the principal, thus retiring your debt incrementally. This process means you're gradually building equity in the home with each payment. Over time, a larger portion of your payment goes towards the principal, accelerating your equity buildup.

Combined, appreciation and amortization can lead to significant wealth growth for homeowners. As the home's value rises and the mortgage balance decreases, homeowners often find themselves sitting on a substantial asset, which can be leveraged in various ways, from securing loans to planning retirements.

While the emotional and social benefits of homeownership are often celebrated, the financial benefits are equally compelling. In a world of economic uncertainties and inflationary pressures, owning a home emerges not just as a source of stability but also as a strategy for long-term financial prosperity. By understanding and leveraging the twin forces of appreciation and amortization, homeowners can pave a path to meaningful wealth accumulation even during periods of relatively high mortgage rates.

Tuesday, January 23, 2024

Access "Trapped Equity" without Refinancing



American homeowners have a record amount of equity in their home.  Many of these homeowners would like to cash out part of that equity but don't want to trade an historically low interest rate for one that is as high as it's been in 20 years.

Instead of refinancing their home, an option is to get a fixed-rate second-lien.  This is different than a HELOC, home equity line of credit, which gives you continual access to your equity at a variable rate.  A HELOC has a draw period where you only must pay the interest.

A second mortgage is a loan against the equity where the homeowner will receive a lump sum and will make payments to repay the loan and interest over a specified period.  Generally speaking, lenders want the combination of the existing first-lien and the new second-lien not to exceed 75-80% of the home's current value.

To calculate how much would be available in a second-lien, subtract the existing unpaid balance on the first-lien from 75-80% of the home's current value.  The remaining amount would be available in the form of a second-lien mortgage.

The borrower, which is the homeowner, would have to qualify for the new second mortgage with sufficient income, acceptable debt-to-income ratios, good credit, and other underwriting requirements.

The advantage of this option is that the homeowner retains the lower interest rate first mortgage which may represent a larger percentage of the value of the property.  The second mortgage will have a higher interest rate but will only be on a smaller percentage of the value of the property.  The blended rate of the two mortgages will be less than the cost of refinancing the home at current interest rates.

Your lender can run an analysis to determine the blended rate on your first and second mortgages so you can see the benefit of keeping your low rate first mortgage in place and accessing your equity through a fixed-rate second mortgage.  Sources for home equity loans could be traditional banks, community banks, credit unions, mortgage brokers, and mortgage companies.

A fixed-rate second mortgage is a solution for homeowners who would like to cash out part of their equity but feel trapped because they don't want to trade an historically low interest rate for a much higher one.

Tuesday, January 16, 2024

Navigating Closing Costs During Your Home Sale



Buying or selling a house is an exciting and sometimes confusing experience that includes expenses called "closing costs" that can often catch us by surprise. Closing costs are simply the fees and expenses incurred by buyers and sellers during a real estate transaction's closing or settlement process. 

Typical closing costs can vary depending on what is customary in an area, the mortgage type, property value, and other factors.  The largest expenses can be the real estate commission and the title policy.  Total closing costs for a buyer can characteristically range from 2% - 5%  of the sales price and 4% - 7% for a seller.

The most common buyer's closing costs include loan origination fee, title insurance, attorney fees, appraisal, homeowner's insurance, underwriting, miscellaneous fees associated with a new mortgage, and prepaid interest to the end of the month.

Interest is paid in arrears on mortgages after the borrower has used the money.  The payment due on the first of the month pays the interest for the previous month and is calculated for a full month.  The prepaid interest covers the time from the closing date to the end of that month.  The borrower's first payment will usually not be the first of the month following the closing date but the next one.

Separate from the closing costs, lenders usually itemize the additional fees collected at closing used to pre-pay portions of the property taxes and insurance to establish the escrow account.  Insurance is always purchased annually in advance which would be due at closing.

The seller will owe the taxes from January 1st to the closing date, and it will generally show as a credit to the buyer if they haven't been paid to the taxing authority for the year yet.  Lenders generally like to have two months of funds for the annual insurance and taxes so they can be paid or renewed before it is due.

Some expenses are paid outside of closing like the inspection fees that would be due to the provider at the time they are made.

While both buyers and sellers are responsible for paying certain closing costs, it is possible for a buyer to negotiate for a seller to pay part or all their closing costs.  VA loans restrict the buyer from paying certain fees and they become the responsibility of the seller.  Such fees include attorney fees, agent fees, escrow fees to establish the account, rate lock fees, appraisal fees or inspections ordered by the lender.

The actual expenses will be determined by the lender and special provisions in the sales contract. Your agent can supply you with an estimate of closing costs you typically will be responsible for at the beginning of the transaction and again at the time the sales contract is written.  Buyers will receive an estimate from their lender at the time of application.

Tuesday, January 9, 2024

Tap into your home equity five ways



Your home is not just a place to live; it's a valuable asset that can serve as a financial resource when you need it most. One of the significant advantages of homeownership is the opportunity to build equity over time, which can be accessed in various ways to fund life's important milestones or unexpected expenses.

Whether you're looking to undertake a home improvement project, consolidate debt, cover education expenses, or simply ensure financial flexibility for the future, your home equity can be a powerful tool to achieve your goals. By understanding the options available and the implications of each, you can leverage your home's value to enhance your financial well-being and seize opportunities that come your way.

Home Equity Loans are a fixed amount loan using the equity in the home as collateral. The borrower receives a lump sum and pays it back in regular monthly installments over a fixed term, typically at a fixed interest rate.

A Home Equity Line of Credit is similar to a credit card; a HELOC provides a revolving line of credit using the home's equity as collateral. Homeowners can borrow as much or as little as they need up to a specified limit, and interest is only paid on the amount borrowed.

 A Cash-Out Refinance involves refinancing the current mortgage for more than the homeowner owes and pocketing the difference. Essentially, homeowners replace their existing mortgage with a new, larger loan and get the difference in cash to be used any way they want.

A Reverse Mortgage is available to seniors, typically 62 and older and allows homeowners to convert part of their home equity into cash without having to sell their home or pay additional monthly bills. Instead of making monthly payments to a lender, the lender makes payments to the borrower.

Homeowners can choose to sell their current property and purchase a less expensive one, using the profit from the sale (equity) for other purposes. This is a more drastic approach as it involves moving, but it can release a significant amount of equity.

Each of these options has its own advantages and considerations, so homeowners should carefully evaluate which method best fits their needs and consult with financial professionals before making decisions.

Tuesday, January 2, 2024

Why you should check the claim history on the home before you make an offer



Buying a home is a big decision, and there are a lot of things to consider. One important factor to consider is the home's claim history. A home's claim history can tell you a lot about the property, including its potential risks and liabilities.

To identify potential risks because a home with a history of claims may be more likely to experience future claims. This could be due to the location of the home, the age of the home, or the materials used in construction.

The cost of insurance can be higher for homes with a history of claims. Insurance companies factor in the risk of future claims when setting premiums.

You may be able to negotiate a lower price if you discover the home has a history of claims. This is because the seller may be motivated to sell the home quickly to avoid future claims.

The Comprehensive Loss Underwriting Exchange (CLUE) is a database that tracks insurance claims filed on homes.  A CLUE report can be purchased for a fee, and it will show you the number and type of claims that have been filed on the property within the last seven years.  

Sellers are entitled to one free copy of their LexisNexis CLUE report each year; there is a nominal fee for additional, original reports.  Contact LexisNexis by calling 888-497-0011 or by emailing consumer.documents@lexisnexisrisk.com.  As a potential buyer, your agent can request a copy of the report from the listing agent who may have to ask the seller to order it themselves, if they haven't done so recently.

Another option is to instruct your home inspector to look for signs of damage that may have been caused by previous claims.

Checking the claim history of a home is an important part of due diligence in the home buying process.  It is important to remember that the claim history is not a perfect predictor of the future. Just because a home has had claims in the past does not mean that it will have claims in the future. However, the claim history can give you valuable information that can help you make an informed decision about whether to buy the home.