Real Estate Information Archive

Planning for retirement is obviously important and many times, an activity plagued by procrastination. Some people plan to have their home paid for by that magical date so they won’t have payments after they retire. It makes sense to eliminate a large recurring expense before they quit working.

One strategy would be to be make regular principal contributions in addition to the payments so that it will eliminate the debt by the target retirement date.

Let’s say that a homeowner refinanced their $200,000 mortgage at 4% last year with the first payment due on May 1, 2012. Under normal amortization, the home would be paid for at the end of the term; 30 years in this example.

By making additional principal contributions with each payment, it would accelerate the payoff on the home. An extra $250.00 a month would pay off the mortgage in 10 years. $524.55 extra with each payment would pay off the loan in 15 years; and $796.23 would pay off the loan in 12 years.

Having a home paid for at retirement has the obvious benefit of no house payment. It is also a substantial asset that could be borrowed against or sold if unanticipated events should occur.

Another strategy might involve purchasing a smaller home now to use as a rental that you intend to live when you retire; see Retirement Home Now.

To make some projections to pay off your own mortgage, use this Equity Accelerator.

It all seems perfectly reasonable: one person is not satisfied with what he can earn currently in the market and another wants to find the most attractive mortgage to purchase their home. It can be a good match but the IRS has specific rules that govern the transaction.

The loan must be done in a business-like manner with a written note specifying the loan amount, interest rate, term and collateral. IRS requires that the mortgage be a recorded lien in order to allow the interest deduction.

Sometimes, these friends and family situations have a less than normal interest rate on the mortgage. However, the rate charged in the note is regulated by the minimum applicable federal rate which is published monthly by IRS according to current Treasury securities. For October 2011, the rate is 2.95% for terms over nine years.

The seller must report the interest paid to them along with the name, address and Social Security number on schedule B when the buyer uses the property as their principal residence.

A mortgage between family and friends can be good for both parties. It may allow the borrower a slightly lower rate without the expenses of a traditional lender while giving the note holder a higher rate than they can earn in available investments. Your tax professional can guide the transaction whether you're a buyer or seller and your real estate professional can help arrange to have the documents drawn and filed.

The IRS has given special consideration regarding the sale of their jointly-owned principal residence after the death of a spouse. If the surviving spouse does not remarry prior to the sale of the home, they may qualify to exclude up to $500,000 of gain instead of the $250,000 exclusion for single people. 

• The sale needs to take place after 2008 and no more than two years after the date of death of the spouse
• Surviving spouse must not have remarried
• Both spouses must have used the home as their principal residences for two of the last five years prior to the death
• Both spouses must have owned the home for two of the last five years prior to the death
• 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 gain in your principal residence, it would be worth investigating the possibilities. 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.

Converting a Home to a Rental

What's keeping you from taking advantage of the low prices and mortgage rates available today? Concerned that you may need to sell in a few years and won't be able to get your equity out of your home?

Suppose a buyer purchases a home and finds out that they need to move in two years. Instead of selling the home, they could convert it to a rental. It's possible that it could have a positive cash flow even with the small down payment. In most cases, the conversion would not accelerate the mortgage.

The price of homes and low interest rates combined with a very strong rental market in most areas has attracted a lot of investors. Non-owner occupied mortgages generally require 20-30% down payment compared to a 3.5% down payment for a FHA owner occupant.

The following example looks at a home that might have been purchased as a principal residence and then converted to a rental at the end of two years. There are certainly lots of variables to consider but the high indicated rate of return merits closer examination of the possibilities.

For the buyer who has good credit and ample funds for down payment and acquisition costs, there may never be as good a time to buy a home as now. For the buyer who is concerned that they might have to move in the near future, converting it to a rental might make a great investment opportunity.

It's not fair! 29% of all sales made in June and July 2011 were cash. How does a buyer who needs a mortgage compete with a cash buyer?

You've been looking for a home for months after thinking about it for years. You've found the home you want and meets your family's needs. You write a contract but before it's even presented to the seller, another offer comes in. With all the homes on the market, you'd think you wouldn't have to deal with multiple offers but you'd be surprised how many times it does happen.

There are some proven strategies that can minimize the advantage of an all-cash buyer.

1. Get pre-approved and submit the letter from the lender with the offer
2. Move fast to minimize competing with other offers
3. Submit larger than normal earnest money to show your sincerity
4. Be flexible about closing and possession
5. Avoid unnecessary contingencies in the contract
6. Write a letter emotionalizing why you want the home

Significant Problems

"The significant problems you face today cannot be solved at the same level of thinking you were at when you created them." Albert Einstein

The housing market has definitely caused significant problems for some people but is also providing some amazing opportunities for others. Agents aren't like retailers who wake up one day realizing they have the wrong merchandise on the shelves.

Everyone needs a place to live and whether you rent or buy, you pay for the house you occupy. While the home for sale remains the same, the methods that produce results have to change.

Listing agents are diametrically opposed to the objectives of buyer's agents. This is not to say that there cannot be a win-win situation but each agent is trying to negotiate the best price and best terms for their client.

Financing can make listings more marketable and structure a transaction to provide the buyer with the cheapest cost of housing. Personal experience is a great teacher but a very expensive way to learn. An expert, like a Residential Finance Consultant can provide information and tools to make better decisions to be able to profit in the current market.

A typical household uses 185 to 300 gallons of water a day and the majority of it goes down the drain from the toilet and the shower. Updating your commodes will serve as a conservation effort while lowering your water bill.  

Today's toilets use less water, prevent staining and resist clogging better than the older toilets and you might be surprised at how easy they are to install. Replacements generally cost from $100 to $300.  

Toilets made in the 1950's used, on average, seven gallons per flush. Compare that with one that only uses 1.6 gallons per flush and it's a big saving. Multiply by the times a toilet is flushed in a year and the number of toilets in your home and it will save a lot of water.

Watch this video to see how easy the project is done and even if you decide to hire a plumber, you'll have a better understanding of how it works.

There are homeowners that would like to have a larger/nicer home but are patiently waiting for the market to improve. A frequently heard objection is that they can't sell their home for what it is currently worth.

Buying up in a down market is actually advantageous because while you might get less for the home you're selling, you're also getting the larger home for less. For instance, if you had to sell a $200,000 home for a 10% discount, you might feel that you left $20,000 on the table. However, buying a $300,000 for the same 10% discount would put you $10,000 ahead on the sale and purchase.

The other obvious matter is that when the mortgage rates increase while you're waiting for the market to improve, it dramatically increases your cost of housing with higher payments. The cost of housing is affected by price and mortgage rates.

To accurately evaluate your current options, you need facts and assessment tools that will provide you the information to make an informed decision.