Leverage - A Maximum Advantage

Leverage gives the user a maximum advantage whether it is physically lifting a large object or rapidly building equity in a home. In the case of the home, the high loan-to-value mortgage allows the profits made to be greater than simply the cash invested.

A $250,000 home can be purchased on a FHA loan with a 3.5% down payment of $8,750. If the home appreciates at 2% a year, in seven years the equity will grow to $75,920 due to the appreciation and the amortization of the mortgage. That would be a remarkable 36.2% rate of return.

It is estimated that homeowners have a 45 times higher net worth than renters. Since the obvious difference is that renters don’t own a home, owning a home is a distinct advantage. The leverage that allows a borrower to control a much larger asset with a small down payment gives them a return on the much bigger asset than on just the down payment.

Another interesting contribution is the forced savings that occurs with each payment made on the mortgage. A portion of the payment is applied to principal so that the loan will be paid in full by the end of the term, usually 30 years. The amortization on the 4% mortgage example from above has approximately $4,300.00 paid in the first year to reduce the principal which increases the owner’s equity in the home.

For people who have the necessary funds for the down payment and good credit, buying a home can be a financially stabilizing event. While research on the Internet can provide valuable information, there is no substitute for having a face-to-face meeting with a trusted professional to determine your specific facts.

Digital Showings

Ask any real estate professional if they have sold a house without the buyer having physically seen it and they’ll most likely tell you they have. While it may have been an unconventional sale, it is more prevalent today than it was twenty or even ten years ago.

The digital world of the Internet has changed the process of buying a home. It is evolving as people have become more comfortable with the reliability of the information available.

Getting in a car and driving around all day looking at homes that may or may not fit your needs or wants is not productive for buyers or the agents.

The quality and the quantity of pictures has dramatically improved in the last twenty years. Buyers and agents alike can view a property online and get a fairly accurate idea of the condition and layout of home and whether it warrants a physical visit. Videos can “walk” you through the house to be able to assess if the floorplan will work for you.

The 2015 Profile of Home Buyers and Sellers reports 89% of all buyers cited an online website as an information source with real estate agents being a close second at 87%. 42% of all buyers looked online for properties for sale as the first step taken during the home buying process.

Interestingly, 87% of buyers in 2015 purchased their home through a real estate agent or broker compared to only 68% in 2001. The agent services deemed most valuable to buyers were help finding the right home to purchase (53%) and help to negotiate the terms of sale (12%) and the price (11%).

A challenge for sellers is to understand that the digital showings are a critical part of today’s process. They save time and money for both buyers and sellers and are convenient because they can be done at any time of day and from anywhere. The difficulty is the seller’s feelings of inactivity when they believe their home is being shown frequently.

Agents can share statistics that show a variety of digital activity like number of unique visitors, length of time spent on the listing site as well as the other features that were accessed. 65% of all buyers walked through the home they purchased after they viewed it online.

Pay Yourself First

The principle to pay yourself first has been referred to as the Golden Rule of Personal Finance.

The concept is that one of the first checks you write each month is for your own savings. The rationale is that if there is no money left after a person pays their bills, there is nothing to contribute to savings or investments that month.

By establishing a priority to save, a person realizes that the balance of their monthly income must cover living expenses and other discretionary spending. This is a much different strategy than saving what is left over from monthly expenses and other spending.

Many financial experts have likened an amortizing mortgage to a forced savings account because a portion of each payment is applied to the reduction of the principal amount owed. Some homeowners have taken that concept further with a shorter term mortgage to build equity faster.

In the example below, a $250,000 mortgage at 4% interest is compared with two different terms. The 30 year mortgage would have payments of $1,193.54 each month with the first payment having $360.20 being applied to the principal. Each payment would have an increasingly larger amount applied to the principal.

The 15 year mortgage would have payments of $1,849.22 each month with the first payment having $1,015.89 being applied to the principal. The $665.68 difference in payments goes toward reducing the loan amount and acts like a forced savings.

A homeowner might opt for the longer term and intend to put the difference in the two payments in a bank savings account each month or make an additional principal contribution to pay the mortgage down. However, as any person responsible for paying household bills knows, there will always be something that comes up that could hijack your intentions.

By committing to the shorter term mortgage, a borrower is committing to make the higher payment each month and the benefit is that it will reduce your principal balance faster.

Homeowner Advisory

Similar to an annual wellness physical, homeowners should consider an annual review of the financial elements of their home. It’s particularly valuable based on the fact that their home and its equity is generally, one of their largest assets.

• List of similar properties recently sold and currently available
• Information on challenging property tax assessment
• Refinance Analysis to:
  • lower your rate
  • shorten the term
  • make improvements
  • eliminate mortgage insurance
  • remove a person from the loan
  • eliminate credit card debt
  • combine loans
  • take cash out of the equity
• Equity Accelerator to retire the mortgage within a specific period of time
• Repairmen and contractors recommendations
• Information on rental property opportunities

We’d be happy to provide this information at no obligation as part of our on-going commitment to providing homeowner information, both in general and specifically, to our contacts. It is part of a long-term strategy whereby we hope to earn your loyalty and referrals when you do need our services to buy or sell.

It's a Big Difference

Let’s say that you just won $8,750 on a lottery scratch-off ticket. You’ve decided to be frugal and invest the money and have decided on three alternatives: buying a certificate of deposit, a mutual fund or use the money as a down payment for a $250,000 home.

To compare the three alternatives, let’s look at the equity in each one three years from now.

The certificate of deposit can be invested at 1.3% in today’s market and you believe you can reasonably earn 5% on a mutual fund. You expect the home to appreciate at three percent a year.

The certificate of deposit would be worth $9,096 at the end of three years and the mutual fund would be worth $10,129. However, the equity in the home at the end of three years would be $45,204. That is a four time’s higher yield on the home.

One of the main reasons for the big difference is that the buyer benefits from leverage: the use of borrowed funds to increase the results. The $8,750 down payment is controlling a $250,000 investment. The appreciation is determined by the price and not merely by the cash invested. Another factor is that the loan balance is smaller at the end of five years than originally borrowed due to amortization.

There are certainly other factors to consider such as maintenance and other expenses but when the financial benefits are as strong as they are, it certainly deserves a much closer investigation. One of the first things to consider is whether the borrower can qualify for a mortgage and the only satisfactory way to be certain is to get pre-approved by a trusted mortgage professional.

Use the Your Best Investment calculator to make your own projections.

Is Understanding Costing You Money?

People tend to fear what they don’t understand. Homeowners understand fixed rate mortgages and remember the horror stories of people who lost their homes because they could no longer afford them when their adjustable rate mortgages went up.

Interest rates on fixed-rate mortgages have been so low for enough years, that borrowers haven’t even given much consideration to an adjustable rate mortgage. Changes in the way adjustable rate mortgages are now made make them much safer for borrowers who understand how they work but also know they’ll only be in the home for a limited period of time.

Adjustable rate mortgages can go up or down according to an index that the lender has no control. The amount that can be adjusted is limited by caps for each period and for the life of the loan. While there are different periods for ARMs, the most popular lock the first period for five to seven years and then, can adjust annually after that.

One quick and easy way to determine whether an adjustable may be a viable alternative to a fixed would be to determine the maximum payment adjustments possible to find out when the savings from the early years are exhausted which would be the breakeven point. If the borrower is certain they’ll move prior to that date, the ARM will definitely provide a lower cost of housing.

The breakeven point for a $250,000 mortgage would be 8 years 3 months comparing a 2.9% 5/1 adjustable-rate with 1 and 5 caps to a 3.8% fixed-rate mortgage. In the initial five-year period, the payments on the ARM would be $124.32 lower and the unpaid balance would be $3,522 less than the fixed-rate to make a total savings of $10,981.

Whether you’re buying or refinancing, get some good advice from a trusted lending professional about the adjustable-rate alternative. If you’re only going to be in the home a short time after the mortgage is made and your tolerance for risk allows you to feel comfortable, the ARM may be the best choice for you. Check out this ARM Comparison to use your own numbers.

What's That Smell?

Homeowners may be totally unaware that their home has an unpleasant odor. It can be unrecognizable to them but immediately apparent to visitors on entering the home.

Candles, aerosol spray or even chocolate chip cookies can’t get rid of the smell. To eliminate the odor, the source of the smell first has to be removed and then, the affected areas can be treated.

Cigarette smoke is particularly offensive to people.  It is very common for buyers to refuse to even consider looking at a home where smoking is allowed. This odor permeates the air in a home and soaks into carpets, furniture, drapes, clothing and even the building materials like drywall and cabinets.

Pets may be considered part of the family but it is still a problem when the animals are not adequately house-broken. Urine isn’t just absorbed by the carpet but also the padding and in some cases, the subflooring. Sometimes, walls and floors have to be treated and sealed before painting and new floor covering can be installed.

If a casual friend doesn’t want to hurt your feelings about the jeans you’re wearing, you can bet the ranch that they won’t tell you about the odors in your home. You’ll need to rely on your closest friends to tell you the truth or maybe your mother-in-law.

Remember to Get Your Annual Credit Report

You are probably aware that Federal law entitles you to a free copy of your credit report annually by each of the three credit bureaus: TransUnion, Experian, and Equifax. By regularly looking at each of these reports, you can determine if there are any errors on them and be aware of your credit worthiness.

Instead of ordering all three at the same time, experts recommend that you stagger them throughout the year. This will let you look at your credit at three different times during the year instead of only once a year.

An easy way make this happens on a timely basis is to set a recurring appointment on your digital calendar whether it is on your phone, your email program or a contact manager. Make the appointment to order a free credit report from www.AnnualCreditReport.com a recurring event to take place every four months. You’ll order one report from each of three companies once a year.

You can record that date and the bureau you ordered the last report in the appointment’s note section so that you’ll have a history and won’t try to order the same report twice in one year.

This isn’t just for people who are trying to clean-up their credit. This procedure allows you to monitor your credit to be sure that your report is accurate. You might even discover that someone is illegally using your good credit.

It's Your Advantage

Technology has certainly streamlined the home buying process and introduced things that help purchasers make better decisions. Buyers have enthusiastically embraced video tours, digital signatures and the enormous amount of information available about a home, neighborhood, schools and neighbors.

The ironic thing is that buyers are ignoring the one single thing that can help them secure the “right” home. Talking to a lender or using a financial calculator is not pre-approval.

Pre-approval requires written verification on employment and income and ordering a credit report for the purpose of obtaining a mortgage. A mortgage credit score is different than what a person might see from credit reporting websites. 

Pre-approval gives buyers the confidence to know the amount they can borrow which can result in bargaining power when dealing with a seller or competing against another offer. Transactions can close quicker once a buyer has been pre-approved.

If any issues are discovered in the initial process, the purchaser and lender will have more time to correct them compared to trying to get it done during the loan approval period as stated in the sales contract.

Most lenders best interest rates are only available to the best borrowers. You might get approved on a loan but at a higher rate than you expected which could make a significant difference in the monthly payments.

The “right” home without financing will never have the buyer’s address. Getting pre-approved with a trusted mortgage professional is one of the first steps in the buying process. It can definitely be an advantage that will benefit you in negotiations and ultimately, during the time you own the home.

Early Burnout Could be Good

Most of us understand the expression "burning the candle at both ends" to mean working so hard that you burn yourself out. Normally, that wouldn’t be a good idea unless it is intentional.

If the candle is your mortgage and the strategy is to get it paid off early, being “burned out” would be a good thing. One end of the candle would be your regular mortgage payments and the other end would represent additional principal contributions.

Since the Great Recession, lenders have been reporting a higher than normal number of borrowers getting shorter term mortgages not only when they purchase the home originally but when they refinance them also. It seems like the mindset of America’s homeowner has shifted a little from the belief that they will always have a house payment.

The extra $100, $200 or $500 in your checking account isn’t earning interest. Additional principal contributions with your regular payments on a fixed rate mortgage will save interest, build equity and shorten the term of the mortgage.

Wealth management is about making financially wise choices. If having your home paid for by retirement age is one of your goals, making extra contributions regularly could get you there. Use this Equity Accelerator to see how it will affect your loan.

Emergency Ready Kit

The Federal Emergency Management Agency (FEMA) recommends that all Americans have some basic supplies on hand in order to survive for at least three days if an emergency occurs. It is recommended that the Ready Kit should be assembled well in advance of an emergency.

The concept is to be able to survive for at least 72 hours until local officials and relief workers arrive on the scene. The disaster could be wide-spread and involve a lot of people that makes it difficult for relief workers to reach everyone immediately.

• Water, one gallon per person per day for at least three days
• Food, at least a three-day supply of non-perishable food
• Battery powered or hand-crank radio and a NOAA weather radio with tone alert and extra batteries for both
• Flashlight and extra batteries
• First aid kit
• Medications (prescription and basic)
• Whistle to signal for help
• Dust mask to help filter contaminated air and plastic sheeting and duct tape to shelter in place
• Moist towelettes, garbage bags and plastic ties for personal sanitation
• Wrench or pliers to turn off utilities
• Manual can opener for food
• Local maps
• Cell phone with chargers, inverter or solar charger
• Family and emergency contact information
• Extra cash
• Emergency blanket
• Pet supplies if necessary

Click here for a print version of this list and additional items to consider adding to an emergency ready kit. The American Red Cross has a suggested list for first aid kits and has other items available for purchase at their online store.

Sam's Tip for Building Wealth: Forced Savings

One of the big banks has a voluntary program available that transfers $100 each month from your checking account to your savings account. In five years, the account owner would have over $5,000 because of a type of forced savings. 

Similarly, when a person buys a home with a standard amortizing loan, each month, a part of the payment is used to reduce the principal loan amount. Amazingly, over $4,000 would be applied toward the principal in the first year of a $250,000 mortgage at 4% for 30 years. In five years, the loan amount would be reduced by almost $25,000 through normal payments.

The other dynamic that is in play is that while the unpaid balance is being reduced, appreciation causes the value to increase. The difference between the two makes the equity grow even faster. Three percent appreciation on a $250,000 home would increase its value in five year by almost $40,000.

A 30-year mortgage of $250,000 will be paid for in 30 years. At an average of 3% appreciation, the asset would be worth about $600,000. If you continue to rent, the asset belongs to your landlord instead.

Many experts believe that the homeowner benefits from the forced savings of amortization and the leveraged growth that takes place in the investment. It has been observed in the tri-annual Consumer Finance Survey by the Federal Reserve Board that homeowner’s net worth is considerably higher than that of renters.

Imagine if you doubled or tripled that net worth by investing in rental properties!  This is the same strategy that I've used to grow my own personal wealth, as well as those I've counseled.  Start with your first home . . . then move to this "buy and hold" strategy.  

In my youth, my wife and I moved every 8-10 months with a "buy and flip" strategy.  We used this for cash flow . . . but what if we'd "held" all those properties?  How rich do YOU want to become?

Call Sam Ferreri, 40+ year veteran of the real estate industry and Team Leader of TheSamTeam.com at RE/MAX Top Realty.  Start your wealth plan for 2016!  Make this your New Year Resolution!  832-200-5656  SamF@Remax.net

My Best Christmas Presents . . . Ever!

Christmas is next week, and as I'm stressed trying to find the "perfect" gifts for everyone, I suddenly realized the best gifts I ever received.  Usually, one must "give" to "get."  And although I always try to give everything I can and then some more, I think I'm remembering what I've received . . . which actually may help me to give!  So, the old adage may be reversed . . . this time only.

First of all, by happenstance, God delivered a wife (and subsequently) a daughter.  Though we're no longer married, she's still a big part of my life and inspiration.  My daughter is married now, and is a beautiful, giving, caring person . . . very smart and she makes me very proud.  Clearly, these were my best gifts.

Next, somehow God sent a young man into my life whom I helped to gain his confidence and inspired him toward a path of greatness . . . and his drive, determination, and internal motivation really compelled him toward achievement.  He gave me one kidney, that turned out to save my life. What a selfless gift!

The most incredible team of real estate agents -- and an incredible staff of directors, employees, and co-workers -- is also a blessing of a gift.  They are my life.

Notice a common theme?  My greatest gifts are gifts of LOVE, not THINGS!  In fact, can you remember the "things" you got for Christmas last year?  A new outfit?  A toaster?  An iPod? Frankly,
I've been trying to remember and for the life of me . . . I can't!  I am so blessed and so grateful for all my gifts!

When I Google-searched "Best Christmas Gifts" (images), it was ALL things (except for a semi-naked lady . . . hmmm . . . ).  Have we lost the true meaning?  Is is really about going into debt?

What's YOUR best Christmas Gift?

By the way, may I suggest a new home for Christmas?  Call me at 832-200-5656 to find yours!  -Sam & Team, RE/MAX Top Realty . . . and it does follow my theme . . . Home is where the Heart is . . . it's not just a "thing."  God bless you and Merry Christmas . . . and best wishes for a terrific 2016!

More Equity...More Options - Grow Your Personal Wealth with Single Family Real Estate

The more equity in your home, the more options you have. Since equity is determined by the difference between value and what is owed on a property, when homes lost value during the Great Recession, homeowners’ equity decreased.
Negative equity occurs when the value is less than the mortgage owed. According to CoreLogic, 91% of all mortgaged properties have equity and only 4.4 million properties remain in negative equity at the end of the second quarter in 2015.
Since home values have been rising, imagine if you had bought some rental properties that mostly pay for themselves. You could be growing long-term wealth that will help you significantly in your "relaxing" years!  This is a strategy that I have implemented for a long time . . . and my "senior years" are fast approaching, though I don't seem to "relax" or even "slow down!"  On the contrary, I follow my mission of helping people grow their personal wealth through single family home ownership.
A homeowner, who qualifies, can release part of their equity by refinancing the existing loan and taking out additional cash or by getting a home equity loan. The benefits include:

• To get a lower rate on your current mortgage
• To finance capital improvements on your home
• To payoff higher interest rate debt such as credit cards or student loans
• To purchase items that would not have deductible interest like personal cars, boats, etc.

It could be as simple as waiting for positive home equity so owners can move to another home without having to pay out-of-pocket expenses to sell their home.  And if you have rental properties, you can multiply the cash effect by the number of properties.
Why wait?  Get started today!  Call Sam . . . get vested!  832-200-5656

For over 40 years, I've been helping people just like you achieve their real estate goals.  Buying or Selling, Call Sam and Get Moving!  TheSamTeam.com  832-200-5656 #remaxtoprocks

Two things everyone needs to know about plumbing

The first thing every homeowner needs to know about plumbing is how to turn the water off in case of an emergency. It’s like having a fire extinguisher; you hope you never need it but you want it just in case you do.

Generally, the cutoff is in the front of the home. There may be a separate cutoff box on the owner’s side of the meter. If not, the owner needs to be able to open the water meter and turn it off there. This will require a water meter key which can be found at a local home improvement store and a wrench. Once you have the key, practice opening the meter door and check out how the shutoff valve works. Then, put the key in a quick and easy place to find when you need it.

The second thing a homeowner needs is a recommendation of two good plumbers. Having a backup name is always good in case your first choice can’t make it when you need them.

Some homeowners prefer to go the do-it-yourself route. There are plenty of DIY videos on the Internet but having the name of a good plumber if the job gets out of hand can be the tool that saves the day.

Our business puts us in touch with some of the most reliable and reputable service providers and we’re willing to share their names with you. Regardless of whether you “do it or delegate it”, being familiar with the basics can be very helpful.

Investing in Rental Homes may be YOUR best hedge . . . read my blog

Appreciation, tax advantages, cash flow, leverage and equity build-up contribute to the rate of return on rental real estate. If that sounds confusing and it’s keeping you from investing in rentals, try looking at it a different way.
Consider this, look at only cash flow and equity build-up to determine whether to buy the property. They are easy to calculate and their outcomes are both reliable and predictable.
Most homeowners, based on their familiarity with their own home, should feel more comfortable with a rental than alternative investments. A conservative strategy is to purchase slightly below average price range homes in a predominantly owner-occupied neighborhood. Collect the rent, pay the bills and make necessary repairs.
A cash on cash rate of return is determined by dividing the cash flow before taxes by the cash invested in the property. It considers all of the “real world” income and expenses related to the property.


The equity build-up occurs from the normal process of amortization with an increasingly larger portion of each payment applied to reduce the principal loan amount.
In this hypothetical example, the combination of the Cash on Cash and the Equity Build-up is almost 12% which is considerably higher than certificates of deposit and bonds and nowhere near as volatile as stocks or mutual funds.
In most of today’s markets, rents are expected to continue to rise and due to a low inventory of homes for sale coupled with growing demand, prices will continue to rise. Even though there is value in appreciation, tax advantages and leverage, they could be considered an unexpected bonus to this basic rate of return.
Regardless, at the end of the day, you have a fully paid-up investment that has some significant cash value down the road.  Personally, this has been my own "senior strategy" for a few years.  In 2016, the first 3 rentals of mine will be paid off entirely!  Then, the return starts to grow exponentially. Many people facing the senior years would welcome a nice cash flow to supplement any retirement account (or social security) which they may or may not have.
To find out more about investing in rental properties, call The Sam Team at RE/MAX Top Realty.  832-200-5656 or email SamF@Remax.net.  At The Sam Team, it's all about YOU!

One-button Pricing?

An Automated Valuation Model, AVM, is a computer approach that looks at public records to make a determination based on square footage, comparable sales and other elements. It is as easy as putting your address in a blank but unfortunately, AVM results may only be accurate about 20% of the time.

A popular AVM, Zestimate®, states “It is considered a starting point at determining a home’s value.” While an AVM contains some of the same information as a comparable market analysis, it lacks a critical human factor.

Having a pair of experienced eyes consider aspects that are not easily quantified can make a big difference. A skilled professional can tell which properties are truly comparable. A knowledgeable expert can recognize features, floorplans and other things that can affect value but are difficult to quantify.

Even if a person isn’t ready to sell their investment, they like to know its value. It is easy to find the price of stocks or mutual funds on any given day but the value of a home is more difficult.

Regardless of whether you’re just curious as to how much your home is worth or are ready to monetize your equity, I’m available to give you that information without obligation. If you’re not ready now, just keep this letter for when you are.

Resource Central

Homeowners should recognize that the same trusted professional who helped them buy or sell their home can be a valuable resource while they own their home too.

Think of your REALTOR® as an indispensable homeowner’s resource who can make recommendations about a variety of services that homeowners will use throughout the tenure in their home. This experience far exceeds personal experience because of the day-to-day activities working in the industry.

• To recommend reputable and reasonable service providers.
• To offer information about your community, nearby businesses and local agencies.
• To solicit general homeowner knowledge such as protesting your property tax assessment, determining fair market value, determining the best improvements and other things.
• To assist with advice and suggestions about maintenance, protecting value and saving money.

Our goal is to have a long-term relationship with you. We want to help you be a better homeowner not only when you need to buy or sell but all of the year’s in-between. We want to earn a recommendation to your friends. We want you to consider us your REALTOR® for life.

At least consider a shorter one

Affordability and stability are reasons homebuyers choose a 30-year fixed rate mortgage. It makes the payment lower than a 15-year mortgage and the principal and interest portion of the payment will be constant for 30 years.

A common belief among homeowners for decades was that they would always have mortgage payment. The Great Recession has caused many individuals to rethink that concept and make plans to get their home paid for sooner.

For people who can afford it, shorter term mortgages will provide a lower interest rate and build equity faster. A 3.09% 15-year fixed-rate mortgage compared to a 3.87% 30-year loan will have a $562.42 higher payment.

The equity would be $66,903.04 greater on the 15-year term at the end of seven years. Even after you consider the higher payment on the shorter term, the equity difference is still almost $20,000 greater.

By choosing a 15-year loan, a borrower is committing to the higher payment for the term of the mortgage in exchange for a slightly lower interest rate. Another approach would be for the borrower to acquire a 30-year mortgage and make payments as if it were on a 15-year term. The slightly higher rate would allow the borrower the flexibility of not having to make the higher payment in the event he could not afford it on any particular month.

Discussion with your Insurance Agent

Insurance and homeowners go together like peanut butter and jelly. Lenders require fire insurance at a minimum for homes with a mortgage but many owners opt for a more comprehensive coverage with a homeowner’s policy.

However, comprehensive doesn’t mean that everything is covered. Filing a claim is not the time to learn that you don’t have the right coverage. Discuss the following issues with your insurance agent to get a better understanding of your policy and whether some adjustments might be in order.

• Flooding?
• Rising water? 
• Mold?
• Earthquakes?
• Pools?
• Termites?
• Certain kinds of pets or breeds of dogs?
• Limits on jewelry and cash?
• Deductible amount?

The whole concept behind buying insurance is to transfer the risk of loss that you cannot afford for an annual premium that you can. Price and coverage need to be considered when comparing policies. Call your agent and make sure you understand what you’re insured for and if there are alternatives available.