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Providing information to help homeowners stay informed and make good decisions.

Appraisal Challenges [INFOGRAPHIC]

Appraisal Challenges [INFOGRAPHIC].

Short Sale Rush Is On | Realtor Magazine

Short Sale Rush Is On | Realtor Magazine.

Retirement Home Now?

Maybe you’re not ready to move into it but that doesn’t mean that you shouldn’t take advantage of the present opportunities to acquire the home you want to live in during retirement. The combination of the low interest rates, reduced prices and lower competition may never be this good again in our lifetimes.

The rental market is strong and a tenant could pay for your retirement home. The cash flows are attractive and the yield is bound to be stronger than what you’re currently earning. Even if you don’t retire to this home, it could be a placeholder to control the costs of the home you do move into.

One thought would be to finance it with a 15 year loan that will have a lower rate than that of a 30 year loan and it will obviously amortize in half the time. Even if you don’t have the home paid for by the time you retire, your equity will be larger.

Ideally, if you sell your current home when your move into this retirement home, you may be able to take up to $500,000 of tax-free gain for a married couple. That profit could be used to fund your retirement.

With home prices and mortgage rates certain to rise, this may be one of the best decisions you can make. We want to be your personal source of real estate information and we’re committed to helping from purchase to sale and all the years in between.

Managing Deductibles

The purpose of insurance is to shift the risk of loss to a company in exchange for a premium. Most policies have a deductible which is an amount the insured pays out of pocket before the insurance starts covering the cost of the loss.

In the process of managing insurance premiums, policy holders often consider adjusting their deductibles. Lower deductibles mean less money out of pocket if a loss occurs but obviously, results in higher premiums. Higher deductibles result in lower premiums but require that the insured bear a larger amount of the first part of the loss.

A small fire in a $300,000 home that resulted in $2,500 of damage might not be covered because it is less than the 1% deductible. If the homeowner can afford to handle the cost of repairs in exchange for cheaper premiums, it might be worth it. On the other hand, if that loss would be difficult for the homeowner, a change in the deductible could be considered.

It is a good idea to review your deductible with your property insurance agent so that you’re familiar with the amount and make any changes that would be appropriate.

Single-Family Homes for Rentals

Single-family homes used for rental property have distinct advantages over other types of investments.

An investor can borrow 75-80% at fixed interest rates on appreciating assets with definite tax advantages and reasonable control. The financing alone is attractive compared to some investments that require 50% cash and have floating rates at prime plus for one or two years.

Home prices have adjusted 30-40% around the country, mortgage rates are incredibly low and rents have risen in the past two years due to more demand and shorter supply. Indicators like these point to a strong and sustained rental market.

Consider you bought a $125,000 home for cash that would rent for $1,250 per month. With $15,000 income and allowing for property taxes, insurance and maintenance, it is still reasonable to expect $10,000 net income. You’d have an 8% return on investment without considering tax savings or future appreciation compared with 5-year CDs paying less than 1.5% and a 10-year Treasury yield at 1.65%.

The reasonable control has a lot of appeal to many investors who find the volatility of the stock market unacceptable and don’t want the risk associated with some of the alternative investments. Please contact me if you’d like to know more about available opportunities.

Which Value Do You Use?

What your home is worth depends on why you ask the question. It could be one value based on a purchase or sale and an entirely different value for insurance purposes.

Fair market value is the price a buyer and seller can agree upon assuming both are knowledgeable, willing and unpressured by extraordinary events. This value is generally indicated by the comparable market analysis done by real estate professionals.

Insured value is determined for the proper insurance coverage. Replacement cost could actually exceed the cost of new construction when additional expenses are incurred for demolition and the added complexities of matching existing construction.

Homeowners are generally more familiar with their home’s market value. Since it can be lower than the replacement cost, owners should review the insured value with their property insurance agents periodically. Under-insuring could invoke a co-insurance clause that may limit the settlement and increase your out of pocket expenses.

Mortgage Commitment Letter – the real loan approval letter :: SoundBiteBlog.com

Mortgage Commitment Letter – the real loan approval letter :: SoundBiteBlog.com.

Second Homes Treated Differently

While a principal residence and a second home have some similar benefits, they have some major differences. A principal residence is the primary home where you live and a second home is used for personal enjoyment while limiting possible rental activity to a maximum of 14 days per year.

The Mortgage Interest Deduction allows a taxpayer to deduct the qualified interest and property taxes on a principal residence and a second home. The interest is limited to a maximum of $1,000,000 combined acquisition debt and a combined $100,000 home equity debt for both the first and second homes.

The gain on a principal residence has a significant exclusion for taxpayers meeting the requirements. The gains on second homes must be recognized when sold. Even if you sell a smaller second home and invest all of the proceeds into a larger second home, you’ll need to pay tax on the gain.

Tax-deferred exchanges are not allowed for properties having personal use including second homes.

If the home is owned for more than 12 months, the gain is taxed at the long-term capital gains rate. If the home is owned for less than 12 months, the gain is taxed as ordinary income which would be a considerably higher rate.

The article is intended for informational purposes. Advice from a tax professional for your specific situation should be obtained prior to making a decision that can have tax implications.

If I’d Only Bought

We’ve probably all said or at least thought “if I knew then, what I know now, I would have done things differently.” We should have stayed in school longer. We should have listened to our parents. We should have bought Apple stock in 2002 for $8.50 or gold in 2000 for $300.

Years from now, if we look back at 2012, it may be clear that this was the best buyer’s market ever. The prices are down nationwide 35-40% from four years ago, mortgage rates have never been this low and rents are rising. Few homes have been built in recent years to keep up with a growing population. There may never be a better time to buy homes than now.

The housing affordability index which is considered to be good at 100 has increased to over 200 for several months. Shrinking inventories and rising prices in some markets are causing the index to fall for the first time in years.

This ‘buying” opportunity applies equally to acquiring a home to live in or to rent as income property. It is estimated that about one-third of the homes purchased last year were done by investors. It is reasonalbe because the positive cash flows far exceed most other investment alternatives.

The question we’re all faced with this year is whether we’ll be saying we seized or missed an opportunity of a lifetime.

Gift or Inherit

Transferring the title of a home from one person to another may seem simple but it could have a significant tax implication.

When a person inherits property, the basis is “stepped-up” to fair market value at the time of the decedent’s death. On the other hand, a gift has a carry-over basis which means that the recipient receives the unrealized gain also.

As an example, let’s say an elderly parent, in an attempt to get their affairs in order, gives their home to their adult child. The rationale might be that they are the sole beneficiary and will get the property eventually. In an effort to settle things early, unnecessary income tax may be incurred.

If the home was purchased for $20,000 and worth $100,000 at the time of transfer, there is a possible gain of $80,000. However, if the adult child inherited the property at the time of the parent’s death, their new basis would be $100,000 or the fair market value at the time of death and the possible gain would be zero.

This is meant to be an example and many other variables could be involved. If you’re concerned about a situation, you should seek specific advice from a tax professional. As always, I’m here to help you I can as your real estate professional.

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