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Indecision May Cost More

More has been lost due to indecision than was ever lost to making the wrong decision.” Interest rates have as much effect on housing costs as price and when they are both trending upward, it can be very expensive to wait.

There can be some legitimate reasons for postponing a purchase such as needing to save the down payment, improve your credit or waiting to find out about a possible transfer. The problem is that prices and interest rates could, and very likely will, go up in the future.

If the price of $250,000 home went up 5% and the interest rate went from 4.5% to 5.25%, the payments would increase by $176.42. The additional cost over a seven-year period would be close to $15,000.

The questions that indecisive buyers need to ask themselves is…

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Indecision May Cost More

More has been lost due to indecision than was ever lost to making the wrong decision.” Interest rates have as much effect on housing costs as price and when they are both trending upward, it can be very expensive to wait.

There can be some legitimate reasons for postponing a purchase such as needing to save the down payment, improve your credit or waiting to find out about a possible transfer. The problem is that prices and interest rates could, and very likely will, go up in the future.

If the price of $250,000 home went up 5% and the interest rate went from 4.5% to 5.25%, the payments would increase by $176.42. The additional cost over a seven-year period would be close to $15,000.

The questions that indecisive buyers need to ask themselves is…

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Would-be to Should-be

Some would-be buyers have emotional reasons to own a home like having a place of their own where they can raise a family, feel safe and secure and enjoy their friends’ company. Other buyers’ dominant reasons might be financial in nature such as building equity or lowering their cost of housing.

Regardless of what might be motivating people to want their own home, it is easy to justify that now is a good time to purchase. Let’s look at a $250,000 example using a FHA loan.

The total payment will be about $1,835 dollars a month. If the payment is lower than the rent a person is paying, that should encourage a person to continue investigating.

In this example, when you consider the monthly principal reduction, the monthly appreciation and the tax…

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An Alternative to Paying Tax Today

The cartoon character Wimpy would say that he’d gladly repay you Tuesday for a hamburger today. Some real estate investors say a similar thing to Uncle Sam to be able to hold on to their proceeds from the sale of an investment and agree to pay the tax later.

The benefit of a 1031 exchange is that it allows the investor to defer the tax due from the sale into the replacement property. This allows more money to be reinvested. In the example shown, the investor has 27% more to invest now by deferring the tax into the future.

The property to be exchanged must be like-kind which means real estate for real estate.   Rental property can be exchanged for other rental or investment property.  Personal-use properties like a first or second home are not eligible…

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Rentals are IDEAL

Rental homes are the IDEAL investment because they offer a higher rate of return than other investments without the volatility of the stock market. With certificates of deposit and bonds at less than 2%, people need an alternative investment that they understand and with a reasonable amount of control.

In this case, IDEAL is an acronym identifying the advantages of rental properties.

• Income from the monthly rent contributes to paying the expenses and a return on the investment.
• Depreciation is a non-cash deduction that shelters income for some investors.
• Equity buildup occurs with amortized mortgages because each payment is composed of interest owed and principal reduction to retire the loan by the end of the term.
• Appreciation is…

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Tax Benefits of Home Ownership

U.S. taxpayers have enjoyed specific tax benefits for home ownership since personal income tax was introduced by the 16th amendment in 1913. While these benefits may not be the primary reason that motivates a person to buy a home, they are still tangible and not available to tenants.

The exclusion of capital gains tax on the profit made from a home is unique from other investments and provides homeowners significant savings. Single taxpayers can exclude up to $250,000 gain and married taxpayers up to $500,000 gain. During the five-year period ending on the date of sale, a taxpayer must have: owned the home for at least two years; lived in the home as their main home for at least two years; and, ownership and use do not have to be continuous nor occur…

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Before You Pay Cash for a Home

The National Association of REALTORS® reports in its 2016 Profile of Home Buyers and Sellers that 12% of all buyers paid cash for their home.

Before paying cash for a home, a buyer should decide if they might put a loan on the home in the near future.  It may affect the ability to deduct the interest on a mortgage placed on the home at a later date.

Homeowners can currently deduct the interest on up to $1 million of acquisition debt which are the borrowed funds used to buy, build or improve a home. Paying cash for a home establishes acquisition debt at zero. The only deductible interest to the owner would be home equity debt which is limited to $100,000 over acquisition debt.

Paying cash certainly seems like a simple decision but it may limit a…

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What Would You Give?

Yogi Berra said he’d give his right arm to be ambidextrous. While most first-time home buyers are not going to that extreme, it is interesting to see what sacrifices are being made according to the National Association of REALTORS® 2016 Profile of Home Buyers and Sellers.

• 43% – cut spending on luxury or non-essential items
• 34% – cut spending on entertainment
• 27% – cut spending on clothes
• 14% – canceled vacation plans
  9% – earned extra income through a second job
• 7% – sold or decided not to purchase a vehicle
• 44% – did not need to make any sacrifices

Forty-percent of first-time buyers experienced some difficulty during the mortgage application and approval process. Single, male buyers expressed a higher incidence of difficulty…

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Mortgage Loans from Relatives

Occasionally, when dealing with close relatives who might also become heirs, signing a note and handling the paperwork properly may seem like a needless effort but it could mean the difference in being able to take a legitimate interest deduction.

Home mortgage interest is deductible only if the loan is a secured debt which involves the buyer signing an instrument like a mortgage or deed of trust that makes the ownership of the home security for the debt. That instrument must then be recorded or otherwise perfected according to state or local law and the home, in case of default, must be able to satisfy the debt.

In a family situation, a parent, grandparent or other relative may decide to loan a buyer the money to purchase a home because they have…

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Proof of Purchase

People who experience a property loss are usually asked by their insurance company for proof of purchase which can come in the form of a receipt or current inventory of their personal belongings.

Even the most organized people might find it challenging to find receipts for all the valuables in their home. If the inventory isn’t up-to-date, a homeowner might forget to add some items to the claim and may not recognize the omission for long after the claim is settled.

The inventory can serve as a guide to make sure a homeowner gets compensated for all the loss.

Photographs and videos can be adequate proof that the items belonged to the insured. A series of pictures of the different rooms, closets, cabinets and drawers are helpful. When video is…

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