Tuesday, October 27, 2015

Real Cost of Housing

A variety of factors have led to a shortage of rental units, especially single family homes, and as a result, rents have been steadily increasing nationwide. In most markets, it is considerably less to own than to rent.House composite.png

In some cases, the total house payment is less than the rent for a similar size and condition home which supports a purchase. However, when you factor in some of the financial benefits like principal reduction, appreciation and tax savings, the difference becomes even more dramatic.

Let’s look at an example of a $250,000 home with 3.5% down payment and a 4.50% mortgage for 30 years. We’ll assume a 3% annual appreciation, 25% federal tax bracket, $1,200 annual maintenance and current rent of $2,100 a month.

The total house payment with property taxes, insurance and mortgage insurance premium would be $1,834 a month. Once the principal reduction, appreciation, tax savings and maintenance have been considered, the net cost of housing is about $673 a month. It costs a tenant over $1,400 more a month to rent than to own which would amount to $17,000 in the first year alone. That’s almost twice as much as the down payment to get into the home.


In this example, the down payment of $8,750 grows to almost $94,000 in seven years due to appreciation and amortization of the loan. Owning a home is one of the few investments available that allow these personal and financial benefits.

One of the obstacles in the past five to seven years has been a borrower’s inability to qualify for a mortgage but new programs and relaxed requirements have allowed more people to be eligible for mortgages. The important step is to talk to a trusted mortgage professional very early in the home search process. Your REALTOR® can make recommendations based on experience from actual closed transactions.

Use the Rent vs. Own calculator to see what the benefits might be in your price range.

Tuesday, October 20, 2015

6 Reasons for Rentals

Rental homes have several distinct advantages compared to alternative investments. These advantages coupled with the opportunity for a higher yield make it a clear choice for some investors.Income Property.png

  1. Most investments must be paid for in cash. Stocks can be purchased with 50% cash but if the value goes down, more cash has to be used to keep the margin at 50%. Rentals can readily be financed with only 20-25% down payment.
  2. Most loans made for business or investment purposes are at a floating interest rate compared to the prevalent fixed-rate mortgage on non-owner occupied real estate.
  3. Terms for investment loans if possible are generally six months to a year with a possible renewal but real estate commonly has long term loans up to 30 years.
  4. Real estate has a long-term history of appreciation.
  5. Real estate enjoys tax advantages like long-term capital gains treatment, cost recovery and tax deferred exchanges that are not available to many other types of investments.
  6. Single family homes and similar properties give the investor a reasonable amount of control to make improvements and manage the property which are limited to simply determining when to buy and sell for other investments.

The ins and outs of stocks, bonds, mutual funds, commodities and other investments are unfamiliar with most people. It is obviously possible for anyone to invest in them but the lack of knowledge about how they work could make it more difficult to have a successful outcome. On the other hand, homeowners can use their experiences to select, manage and sell with much more confidence using a single family home for rental purposes.

To find out more about investing in rental properties, contact your real estate professional.

Tuesday, October 13, 2015

Your Best Investment

According to a Federal Reserve report on Consumer Finances, homeowners' net worth is 36 times greater than that of renters. Building on that study, the National Association of REALTORS® believes that by the end of 2015, the factor will grow to 41 times greater.36x.png

There can be several factors that contribute to this disparity but an important one is the forced savings that is achieved due to an amortized mortgage. A portion of the payment goes to the reduction of the principal balance of the mortgage which increases equity in the home.

Appreciation is also a major contributor to homeowners’ equity. Homes, in most areas, have consistently increased in value over the long term and during the past four years have experienced solid growth. Many economists expect home prices to increase in the next five years.

Let’s look at a scenario where a qualified buyer considers three different options to see what their investment would be in five years: purchase a certificate of deposit, invest in the stock market or buy a home. The following assumptions are made: a $250,000 home with an $8,750 down payment with a 4.5% mortgage for 30 years and 3% annual appreciation; CD rate at 2% and a 5% return in the stock market.

The $8,750 would grow to $9,661 in the certificate of deposit, to $11,167 in the stock market and to $69,900 in equity with a home purchase. That is over a six times growth in the same period of time due to the amortization of the loan and the appreciation.

Check out Your Best Investment to compare possible differences in your price range.

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Tuesday, October 6, 2015

The Cost of Co-Signing

It seems fairly innocuous; a friend or family member wants you to co-sign on a loan because they don’t qualify. They assure that they’ll make the payments; they’re quite convincing and very appreciative. You don’t want to disappoint them and after all, it’s not like it’s going to cost you anything…is it?Caution CoSign.png

Think of it this way. They couldn’t get a loan unless you co-sign for them. If they don't make the payments, the lender is going to look to you to repay the loan plus late and collection fees. The lender may be able to sue you, file a lien on your home or garnish your wages.

And it’s not just money that you could be losing, it could be your credit too. Co-signing a loan is a contingent liability that could affect your debt-to-income ratio and your ability to borrow.

Co-signing is an obligation to repay the debt if the other signer is unable. You could be out the money and unable to recoup the loss because you don’t have control of the asset. The impact on your credit could take years to recover.

Before you obligate yourself, consider all of the ramifications involved in co-signing a loan for someone.

Thursday, October 1, 2015

Reflections from 20 Years in Pearland . . . From Broke Realtor to Rich Realtor! Part 1

I just realized that October 2015 marks 20 years since I moved my real estate business to Pearland.  It seems like yesterday that I drove down 288 from The Heights, turned left on FM 518 and drove this new road all the way down to Prudential Allied and never hit a traffic light!  518 was nothing but open land with lots of "for sale" signs down each side.  I told myself, "wow, this looks like it will become 1960 one day!"

I was driving a 1984 Oldsmobile Delta 88 that we'd nicknamed "Old Father" because we told everyone that my father gave it to us.  The real truth was that my new Suburban had been repossessed and I bought the Oldsmobile for $2,000 (no down, $100 per month) because I was flat broke.  The only reason I didn't file bankruptcy at that time was because I didn't have the money to pay a bankruptcy lawyer.  Thus, I simply learned how to hang up on bill collectors and became callous to their daily ritual calling.

Thankfully, Mary Starr (then broker/owner/manager at Prudential Allied) took pity on me and hired me to work in her terrific office.  And with no one to fall back on except me, I put blinders on and went to work.  And I worked hard from early each morning to late each night.  I had to not only learn the Pearland real estate market, but I had to go into heavy lead generation mode and build a business. And so I did.

Later, the title add-on above became the title of a coaching program I developed for a RE/MAX of Texas state convention presentation entitled, "From Broke Realtor to Rich Realtor," a step-by-step guide to helping agents embrace technology with little to no money invested and create a dynamic business using the RE/MAX LeadStreet system.  (This is still part of our training at RE/MAX Top Realty today for agents with no money who want to grow their income.)

Today, RE/MAX Top Realty enjoys the status of being the largest RE/MAX office in Houston, and was named "2015 Best Place to Work" by Houston Business Journal, an accomplishment that I am very proud of.  But it's not about me, it's about the outstanding agents, directors, coaches, mentors, staff, and our extended family of dedicated professionals.

And even though this month marks 20 years in Pearland, it is my 40th year as a Realtor and November will mark 15 years as owner of RE/MAX Top Realty.  And with my new kidney, I am looking forward to the next 40 years!  And stay tuned, because we have some exciting news to be unveiled soon about our strategies of service to help more buyers, sellers, and real estate agents create businesses beyond their expectations!

And by the way, are you registered as an organ donor?  Please do right now at www.DonateLifeTexas.org . . . become someone's hero!  Jose is my hero!