Archive for October, 2007
Home Ownership As A Savings Plan
October 13th, 2007 Categories: Buying
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Home Ownership As A Savings Plan
Home ownership is one of the things that make this country great. There are not many places on the planet you can with little or no money own land and then resell it for a profit and through proper planning not pay taxes.
It serves as a savings plan and has tax advantages to go along with it. If you bought a house in 1975 for $27,000, financed at 7% interest, your principal and interest payment would be $179.00 per month. This would make the total payments of the house $64,440.00 (not including taxes and insurance). It is safe to say that that property would be worth at least $150,000.00 today. If you factored in $2,400 per year for taxes insurance and maintenance for 30 years that comes to another $72,000.00 totaling $136,440.00 with a yield of $13,560.00 plus a place to live for 30 years.
The federal government believes that homeownership is important enough to the American economy that HUD (Housing and Urban Development) a cabinet level position. The tax code encourages home ownership. Currently the tax code allows a homeowner to deduct the interest on mortgage and the property tax from their income tax. Based on the above example the interest that was paid over the 30 years $37,667.40. Let us assume that the tax bracket was 20% that is another $7,533.48 in savings. Now the total cash realized is up to $21,093.48 plus a place to live for 30 years. If you had managed to maintain the property for $6,000 less or if it were worth $6,000 more than the above example that would be the price you paid plus a place to live for 30 years.
As of October 1997 the Capital Gains tax reform of allows you to sell your primary residence every two years and not pay taxes on the gains, $250,000 gain per individual and $500,000 per married couple. Before the 1997 reform you were allowed to buy a replacement property of equal or greater value.
Based on the above example a family can by a property and sell it and exempt the profit or gain from tax up to $250,000per individual and $500,000per couple.
My advice to empty nesters sitting on a large equity position is to convert to a lower maintenance lifestyle and invest the balance of equity back in real estate.
This is not to serve as tax advice, seek help from a CPA.
If you need a referral contact me.
| Discussion: 3 Comments »
Why Real Estate Works
October 13th, 2007 Categories: Investing
Here is a part of a Robert Kiyosaki newsletter someone had emailed me about 6–7 years ago, hard to remember now. I had retyped it and have it saved in a small book with other prices I will share. Obviously the principles of investing haven’t changed.
Why Real Estate Works
“Real estate is the simplest, most reliable, and most consistent vehicle to convert even a little financial intelligence into cold cash,” says Rich Dad advisor and author Dolf de Roos Ph.D. in Real Estate Riches. Real estate is an asset that keeps pace with inflation, generates wealth, and shelters it from taxes. The majority of the wealthiest people in the world own real estate. What do the rich know about real estate that you don’t? Their secrets are:
• Cash flow
• Leverage
• Tax Benefits
Cash Flow
“The beauty of real estate investments is when you open your mailbox and your rent checks are there,” says Dolf de Roos. If you have invested wisely and your property is truly an “asset,” it should be generating a positive cash flow. The cash flow is passive income, so it’s taxed at a lower rate than earned income. So how many rental properties can you afford if you have a positive cash flow coming in on a monthly basis from these investments? As many as you can get your hands on!
Leverage
The easiest way to understand the lesson of leverage is to consider a situation where you have $10,000 to invest. You want to compare the return on a paper asset purchase (stocks) with the possible return on a $100,000 piece of property. You could purchase the stock for $10,000 cash, or, you could put a down payment on the property. Your choice is to create an asset worth $10,000, or one worth $100,000. The benefit of leverage is using other people’s money, in this case $90,000 of the bank’s money, to accelerate the growth of your net worth. How is this possible? Say both the stock and properties go up by 10 percent. Your stocks would worth $11,000 a profit of $1,000. However, your property would have appreciated to $110,000, a profit of $10,000. In this case, leverage is the difference in profit of $1,000 and $10,000.
Tax Benefits
Current tax law allows many benefits for the real estate investor such as:
1. Sell a house and $250,000 (single) or $500,000 (married) of your gain from the sale tax free. The only requirement is you must have lived in the house for two of the past five years.
2. For those with a flair for decorating or skill in home improvements, consider buying a home that you can fix up. Let’s say that after fixing up the house and occupying it for two years, you sell it for a profit of $30,000. If you normally pay, 31% federal and state taxes on your income, you would have to make an additional $43,480 in earned income to equal $30,000 after tax.
3. Defer tax gain from a property sale by exchanging it for another of like-kind.
4. Offset investment real estate income with depreciation to reduce your tax on income from the property. While you receive cash flow from the property, you may pay little or no tax on the cash you receive depending on the amount of depreciation.
5. Refinance the property for tax free cash after your property has appreciated.
Rich Dad advised,”… invest your excess cash and hold your wealth in real estate. It may not be the most exciting investment, but if you invest wisely, it will keep you the most happy and secure.” By purchasing rental property, you will gain a source of ongoing passive income as well as hedge against inflation, since rents can be raised. So regardless of what the stock market does, you can receive steady income from your rental properties each month. Fortune, as they say, favors the prepared mind. So, do your research, and then step ahead.
| Discussion: 1 Comment »
Bungalow
October 12th, 2007 Categories: Architecture
Bungalow
Most people think of the brick bungalows that were popular in Salt Lake around 1910-1920, which really are more like a craftsman that will be featured in the near future.
These narrow, rectangular one and one-half story houses originated in California during the 1880s as a reaction to the elaborate decoration of Victorian homes. The style then moved eastward to the Midwest in the early 20th century, where it remained popular until the Great Depression. Bungalows have low-pitched gabled or hipped roofs and small covered porches at the entry. The style became so popular that you could order a bungalow kit from Sears and Roebuck catalog. The name “bungalow” had its origins in India, where it indicated a small, thatched home.
Source: Realtor.org
Tags: Salt+Lake+City, Architecture, Real+Estate
| Discussion: 1 Comment »
What is a Home Inspection?
October 12th, 2007 Categories: Buying
What is a Home Inspection?
A home inspection is an objective visual examination of the physical structure and systems of the house. It should be performed by a professional Home Inspector trained and dedicated to the profession. The purpose of the home inspection is to assist the buyers in making an informed decision concerning the property they plan to purchase. It will bring the buyers dreams face to face with the reality that no house is perfect and all homes require regular maintenance. It should also be understood that the inspection is visual (if a problem is hidden in the walls the inspector can’t see it) and it is not technically exhaustive. It is kind of like going to your family doctor, if he sees something of concern he is likely to send you to a specialist for further evaluation.
So how do you know what will be checked on a typical home inspection? Many years ago the American Society of Home Inspectors, ASHI, developed the standards for a home inspection. These standards can be viewed at www.ashi.org. Other home inspector organizations have also developed standards but all are very close to the ASHI standards. Briefly, the standards dictate that the inspector inspect the Structure, Exterior, Roofing, Plumbing, Electrical, Heating, Air Conditioning, Interiors, Insulation & Ventilation and Fireplaces and solid fuel burning appliances. The standards require that the inspector report on systems that are not functioning properly, are significantly deficient, unsafe or near the end of their service lives.
Buyers may want to consider additional tests or inspections that are not generally covered in a standard home inspection. Environmental concerns such as Radon Gas, Lead Paint, Asbestos and Mold can be assessed by having samples evaluated by a qualified laboratory or special equipment. Many home inspectors can offer these services but almost always at an additional cost. Other inspections to consider are Wood Destroying Organisms (termite), Sprinkler systems, Stucco intrusive moisture inspections, and energy audits. It is also a good idea to have all the gas/oil burning appliances inspected and adjusted for safe and efficient operation.
The Home Inspection is a major part of the buyers due diligence to assess the condition of the house. The buyer should select a reputable inspector and expect a professional report to assist them with their decisions concerning the purchase of the house. Many unpleasant surprises can be avoided with a good Home Inspection.
| Discussion: 2 Comments »
Pre-Approved Versus Pre-Qualified For A Mortgage Loan
October 11th, 2007 Categories: Mortgage
Getting pre-approved versus pre-qualified
It is a common mistake for borrowers to think they are completely approved for the loan when they have talked to a loan officer over the phone or even in person. The loan officer may have given them different ideas on loan programs that are available and even given them a good faith estimate.
There is a big difference between being pre-qualified and being pre-approved. If you have only talked to a loan officer over the phone or in person and they have pulled credit but you have not given them any of your documents to support what you have told them such as pay stubs, W2’s, bank statements etc., chances are you are only pre-qualified and still need to go through underwriting.
Why is getting pre-approved so much better? A lot of times when I talk to a borrower over the phone they will tell me what they make but once I get the actual documents I find more income or less. This can change the entire approval and how much of a home you can afford.
By going through the process of getting your documents to the lender and then getting a full underwriting decision, once you have found a home you will basically get the appraisal, insurance and title and close. If you haven’t gone through the steps of gathering your documents, this can hold up the loan and your closing.
Many of the agents I work with will not even start showing houses until the buyer has been pre-approved by a loan officer and have gone through the underwriting process. The underwriter is someone that works directly for the source of the money and approves the loans. By getting pre-approved means you have given them all the information needed and required to document all that is stated. If these items have actually been verified the closing can happen very quickly and without issues.
A sample letter that I will give for a pre-qualification only is as follows:
To Whom It May Concern:
In regards to Joe borrower and their Mortgage Loan Pre-qualification; we are pleased to inform you that they have been pre-qualified based on our review of their credit.
Full underwriting approval will be contingent to an acceptable appraisal, title, insurance, liabilities, Income and assets. This file may also be subject to additional conditions/information needed by the Lender/Underwriter, upon receipt of the required documentation.
Versus a pre-approval letter:
To Whom It May Concern:
In regards to Joe borrower and their Mortgage Loan Pre-approval; we are pleased to inform you that they have been pre-approved based on our review of their credit, income and assets.
This approval is subject to receipt of purchase contract, acceptable appraisal and title, insurance.
Getting pre-qualified is a good first step; Take the next step and get your information to your loan officer so you can make sure you are set and when you find that great home.
| Discussion: 2 Comments »
The Millionaire Real Estate Investor
October 11th, 2007 Categories: Books, Investing
The Millionaire Real Estate Investor
ANYONE CAN DO IT… Not everyone will… Will you?
Times have changed and inventory is starting to accumulate a little. Because of that it is now time to be investing in Real Estate. The quick buck strategy of a screaming hot market is exactly that a quick buck thing. Real Wealth is created by buying and keeping real estate. As inventory starts to gather, bargains are starting to become available. Remember you sell real estate for cash, you keep it for wealth.
There are lots of real estate books and seminars on how to make a killing being a real estate investor. This is a no nonsense work hard and over time…
Thoroughly researched with interviews and insights from more than 100 millionaire real estate investors who have struck it rich through Keller’s concepts and practices, this book shows you how to:
• Think Like a Million: Develop the mind-set and financial strategies of a millionaire investor
• Buy a Million: Amass a real estate portfolio with a market value of a million dollars or more
• Own a Million: Turn investments into an asset-based business with ever-increasing net worth
• Receive a Million: Build an investment empire that provides a million dollars a year in passive income
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Art Deco
October 11th, 2007 Categories: Architecture
Although this is not a very popular model of home in Salt Lake, there are few scattered around.
The 1925 Paris Exhibition Internationale des Arts Decoratifs launched the Art Deco style, which echoed the Machine Age with geometric decorative elements and a vertically oriented design. This distinctly urban style was never widely used in residential buildings; it was more widespread in public and commercial buildings of the period.
Towers and other projections above the roofline enhance the vertical emphasis of this style, which was popularized by Hollywood movies of the 1930s. Flat roofs, metal window casements, and smooth stucco walls with rectangular cut-outs mark the exteriors of Art Deco homes. Facades are typically flush with zigzags and other stylized floral, geometric, and “sunrise” motifs. By 1940 the Art Deco style had evolved into “Art Moderne,” which features curved corners, rectangular glass-block windows, and a boat-like appearance. Popularized in the United States by Finnish architect Eliel Saarinen, the style enjoyed a revival in the 1980s.
Source: Realtor.org
| Discussion: 1 Comment »
Important HUD Ruling On FHA Down Payment Assistance
October 10th, 2007 Categories: FHA
Important HUD ruling on FHA Down Payment Assistance:
• On October 1, 2007 HUD published a final regulation that establishes that a prohibited source of down payment assistance is a payment that consists, in whole or in part, of funds provided by any of the following parties before, during, or after closing of the property sale: the seller, or any other person or entity that financially benefits from the transaction; or any third party or entity that is reimbursed directly or indirectly by the seller, or any other person or entity that financially benefits from the transaction.
• This regulation is effective October 31, 2007. Therefore, in order for a homebuyer to use down payment assistance derived from a seller the homebuyer must have entered into a contract of sale (including any amendments to the purchase price) that was signed by the homebuyer on or before October 30, 2007. However, in accordance with a settlement agreement resolving previous litigation between the Nehemiah Progressive Housing Development Corporation (Nehemiah) and HUD, this regulation will not apply to the Nehemiah down payment assistance program until April 1, 2008. Therefore, in order for a homebuyer to use down payment assistance derived from a seller under the Nehemiah program, the homebuyer must have entered into a contract of sale (including any amendments to the purchase price) that was signed by the homebuyer on or before March 31, 2008.
Please contact your TB&W Sales Representative should you have any questions.
| Discussion: 2 Comments »
Rich Dad Poor Dad What The Rich Teach Their Kids About Money
October 6th, 2007 Categories: Books
Rich Dad Poor Dad What The Rich Teach Their Kids About Money– That The Poor And Middle Class Do Not! By Robert T. Kiyosaki with Sharon L. Lechter C.P.A.
I highly recommend this book. It is a good mind set book on how to view money and education. How wealth is created and kept. It is not a get rich quick book and far from it.
I do not intentionally read get rich quick books. Kiyosaki advocates buying property and learning to keep the money you make. I also recommend his second book “The Cash Flow Quadrant”
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Furnace Time In Salt Lake City
October 6th, 2007 Categories: Salt Lake City
It is that time of year again. Cold damp and the furnaces are coming on.
Change or clean your furnace filter
When was the last time you changed or cleaned your furnace filter? Failing to check the filter regularly can be costly: dust and dirt can work their way into the blower and coil assemblies, reducing the furnace’s operating efficiency and eventually damaging the motor.
In fact, heating technician say more than half their service calls are caused by simple dust and dirt clogging up vital motor parts!
Most dealers recommended changing disposable filters once a month, or cleaning reusable filters every other month.
Clear outdoor exhaust vents
During the winter, be sure to clear snow and ice away from the intake and exhaust vents outdoors. If the vents become blocked, dangerous carbon monoxide fumes can back up into the house, and the furnace could shut down.
Schedule an annual tune-up
An annual checkup by a service technician is also a good idea - especially if you have a natural gas system. The technician will check the flues and temperature settings, examine the heat exchanger for cracks, and check the safety mechanisms.
A $50-$100 annual tune-up can reduce your heating costs by five percent – and it’s the best prevention against deadly carbon monoxide poisoning.
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