Six Reason to Consider Rental Homes

Single-family homes offer an investor the ability to borrow large loan-to-value amounts at fixed interest rates for long terms on appreciating assets, tax advantages and reasonable control. Some of these characteristics are not available through other investments.rental advantages-2-250.png

75-80% loan-to-value mortgages are available on most residential properties up to four units. Comparatively, the stock market allows you to borrow up to 50% on a stock but if the price goes down, they will require additional cash to keep the ratio at or below 50%. If it isn’t available, your stock can be sold to satisfy the loan.

Real estate investors call getting a long-term mortgage putting an investment to bed. The fixed-rate and the 20-30 year terms are exceptions to loans for most other investments, if they’re available at all.

Real estate tends to go up in value over time. There can be a lot of variables that affect the price like supply and demand, condition and available mortgage money, in addition to the general economy.

Rental real estate has several different tax advantages. The profits are taxed at lower, long-term capital gains rates for investors who have owned the property for more than 12 months. While the property is being rented, investors are given a non-cash deduction based on cost recovery of the improvements. Tax deferred exchanges can also be available if specific conditions are met which allow an investor to postpone paying the tax on the gain.

It isn’t necessary to have a partner with most rental homes if the investor can qualify for the mortgage. This allows investor control to make all the decisions that an owner is entitled such as setting the rent, making improvements and determining when to sell.

Rental real estate can earn a much higher rate of return than other available investments while providing income during the holding period. It certainly is worth investigating the possibility with a real estate professional who understands and works with rental properties.

Rule of Thumb….or Foot?

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So you have a new house, or a new apartment, or even just new paint and furniture…and you need some flooring help….If you’re looking for an area rug but don’t know where to start, let’s begin with the basics.

  • Buy big ~ but not too big, the size of the seating area rather than the size of the room is perfect.
  • Your furniture should fit on the rug if possible ~ at least the front legs of the couch, a few feet on each side of your bed, and dining room chairs should all fit on the rug.
  • Be colorful ~ this is your place to use accent color and texture.
  • Ask advise ~ once it’s down it’s hard (but not impossible) to roll back up and return!

There are many professional home decorators that would love to come into your home and help you pick out the perfect rug (and anything else you need!). But if it’s just one rug at a time, then part of the fun is shopping isn’t it?!

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.42271463-250.jpg

  • 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 than single females and married or unmarried couples.

Pre-approval from a qualified mortgage lender before the home search process begins is still considered the best advice for all buyers who will purchase with a mortgage. Your real estate professional can make recommendations for a loan officer that could help you avoid unnecessary aggravations.

2017 resolutions, starting today!

Yes, I know it’s February, but I suspect that the resolutions you made on New Year’s Eve have all been set aside and forgotten. So why not try something a bit more realistic now that the pressure of losing weight treadmill and working out is over?

I would suggest that a great way to start (the rest of) 2017 is to take a look at your credit score, and see how you can improve it.  With credit scores determining not only if you can purchase a home, your credit score also plays a big part in obtaining insurance, credit cards, etc.

If you’re planning on purchasing a home house , the best thing to do is meet with a lender (and yes, I can make recommendations!).  The lender will pull your credit and if changes need to be made, will make suggestions.

If you’re already a homeowner, or not yet ready to become one, you can pull your own report for free once a year at www.annualcreditreport.com

Once you know your “number” and if it needs improvement, here are 5 things you can do:

  • If there are errors on your report, dispute them ~ it will take some time and effort but really help!
  • Set monthly goals to pay down credit cards ~ start with the small ones and then use that money to tackle the larger ones!
  • Set up payment reminders ~ it’s easy to forget a payment with so much going on in our busy lives, so my reminder system saves me once or twice a month!
  • Set up auto pay on your accounts ~ but remember to have the money in the account when the payment comes out!
  • Use cash whenever you can ~ but remember that having credit is a plus on your report so don’t close out accounts, just keep the balance low and pay on time!

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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.35442708-250.jpg

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 it available and it isn’t earning much in certificates of deposit. They offer to loan it for a rate equal to what a conventional lender is charging but without the fees.

While it may appear to be a win-win situation, there could be problems if things are not done correctly. Even if the borrower makes the payments, they are not entitled to an interest deduction unless three criteria are met: 1) sign a debt instrument specifying the terms 2) securing and record the debt properly and 3) the home is sufficient collateral for the loan.

It would be prudent to consult with an attorney before you sign the final settlement papers to be comfortable that both buyer and the lender-relative are complying with IRS regulations. For more information, see IRS Publication 936 – Home Mortgage Interest.

To generate or not to generate?

When we hear the words “snow storm” (at least here in the Northeast!), it seems to produce a run on certain items…..bread and milk, shovels and salt/sand at the very least.  But as a homeowner it also seems to get us motivated to looking into alternative power sources, as snow also brings the possibility of power lines down and a loss of electricity!  So if you don’t have a wood stove to help heat things up, which we don’t as of this year, we start to think about generators.

portable-generator

You could go to your local hardware store and pick up a portable generator, but they can be in short supply just like the bread and milk once the storm starts!

A better solution may be a whole house, permanent generator, which will start on it’s own and supply power to the entire house as soon as your “regular” power decides to go out.

Now I could try to explain how that all works, but since I have a Real Estate license not an electrical license, I think it’s best to leave all of that up to a professional.  But I can recommend some really great electricans who would be more than happy to answer your questions, like: What size do I need? Is a permit needed? Are there setbacks to worry about? Do we need to have it inspected? What powers the generator?whole-house-generator

And while it’s already February 1st, there’s lots of time left for our power to go out leaving us cold and dark…so think about what might be best for you and start planning!

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.receipts or inventory.png

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 used, consider commenting as it is shot and be sure to go slow enough and close enough to things becoming recorded.

For your convenience, download a Home Inventory, complete it, and save a copy off premise. Good places for your inventory could be a safety deposit box or digitally, in the cloud if you have server-based storage available like Dropbox.