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Things Have Changed

8/10/2020

Things Have Changed

The soothsayer in Shakespeare's Julius Caesar issued his famous warning "Beware the Ides of March."  Who knew that in 2020, around the middle of March, the world, as we knew it, would force such dramatic changes on us from the Coronavirus.

In America, it has brought our economy to its knees as we sheltered in place for over four months.  During this time, changes have affected our lives and many of those changes could be permanent.

Previously, smaller homes were becoming the trend for not only efficiency but upkeep so owners would have more time to do things including travel.  Now, travel is minimal and our world, in some respects, is reduced to our home.

For families with children, their home has become a school.  With so many people working from home, it has become our office or store or studio.  If there is more than one working adult in a home, it needs to have space for each party to work.  The home fitness industry is experiencing record sales in exercise equipment so the home can become a gym.

Since we're all spending more time at home, it is also the place to recreate.  We're cooking more; a larger kitchen and dining area would be nice.  We want to enjoy the yard, garden, pool or balcony and our current home may not even have them or we'd like to upgrade. 

People are wanting and needing more space to do all of these things at home.  Many experts are anticipating that these changes we thought were temporary may be part of the new normal even after a vaccine and cure have been discovered.

If you have had any of these thoughts and would like to know more about how to buy or sell a home in our current market, we would love to tell you about the many options available while being responsible to stay safe.  Whether it is buying for the first time, moving up or moving on, I would like to help.  Call me at (269) 488-9292.

Realtors Thoughts on the Recovery

7/20/2020

REALTORS Thoughts on the Recovery

The National Association of REALTORS® just released the Market Recovery Survey of a random sampling to close to 100,000 members conducted June 24-26, 2020.  The following statements are the members' opinion on various aspects of the recovery to the Covid-19 pandemic as it relates to real estate.

In response to the safety of buyers, sellers and agents, REALTORS® are expecting within the next year to have increased demand for the following technologies used to market properties:

  • 67% - Zoom or other video technology to communicate with clients
  • 66% - virtual tours
  • 63% - live virtual tours conducted by agent using video
  • 60% - virtual open houses

Nine out of ten respondents indicated that some of the buyers have returned to the market or never left the market.  Agents currently working with buyers report that slightly more than half of buyer's timeline has remained the same with about the same level of urgency.  27% believe the buyers have more urgency.

The most popular reason cited by buyers with an increased timeline is that the delay during the pandemic has amplified their demand for a new home.  Others realize that new home features would make their home life more comfortable.  Some buyers are wanting to buy before a potential second peak of Covid-19 occurs. 

During the week the survey was taken, three out of four buyers saw the home in person physically while 26% did not.

Roughly 2/3 of the buyers are looking for the same features as they were prior to Covid-19 while new feature considerations include home office, space to accommodate family, larger home for more space, place to exercise and bigger kitchen.

Most buyers are looking for the same type home, however, respondents reported that 13% are moving away from multi-family properties to a single-family home and only 1% are going from SFH to multi-family.

89% of respondents stated that some of the sellers have returned to or never left the market.  Only 23% reported more urgency to sell a home due to the pandemic.

On the commercial side, 2/3 of REALTOR® respondents felt like the demand for office space would decrease and 72% felt that retail space demand would decrease.

The stats mentioned in this article pertain nationwide.  To find out specifics in your market, call your REALTOR® Shelly Pattison at (269) 488-9292.

What Kind of Properties are These?

2/25/2020

What kind of properties are these?

It is the way the property is used that determines the type of property it is, not what it looks like.  Based on the intent of the owner, the property could be a principal residence, income property, investment property or dealer property.

A principal residence is a home that a person lives in.  There can be only one declared principal residence.  It is afforded certain benefits like deducting the interest and property taxes on a taxpayers' itemized deductions, up to limits.  Up to $250,000 of gain for a single taxpayer and up to $500,000 for a married couple filing jointly can be excluded from income if the property is owned and used as a principal residence for two out of the previous five years.

An income property is an improved property that is rented for more than 12 months.  The improvements can be depreciated based on a 27.5-year life for residential property or 39-years for commercial property.  This is a non-cash deduction that shelters income.  When the property is sold, the cost recovery is recaptured at a 25% tax rate.

An investment property could be an improved property or vacant land that does not produce income and is not eligible for depreciation or cost recovery.  The gain on both income and investment properties are taxed at a lower, long-term capital gain rate and are eligible for a tax deferred exchange.

Second homes are properties that a taxpayer primarily uses for personal enjoyment but is not their principal residence.  For IRS purposes, it is treated as an investment property in that the gain is taxed at preferential long-term rates if it is held for more than 12 months.   However, it is not eligible for exchanges because personal use properties are excluded from that benefit.

Properties that are built or bought to make a profit are considered inventory and are labeled dealer properties.  The gain is taxed at ordinary income rates and they are not eligible for section 1031 deferred exchanges.

The financing available differs considerably based on the intent of the owner which determines the type of property.  Owner-occupied homes, used as a principal residence, are eligible for low down payment mortgages like VA, FHA, USDA and conventional ranging from nothing down to 20%.

A second home, in most cases, requires a minimum of 10% down payment.  Investment and Income properties, generally, require 20% or more in down payment with some possible exceptions.  There is not any long-term financing available for dealer property.

Why Put More Down

2/17/2020

Why Put More Down

The least amount in a down payment is an attractive option when people are thinking of buying a home.  A common reason is to have cash available for furnishing the new home and  possible unexpected expenses.

Some people don't have any options because they only have enough for a minimum down payment and the closing costs.  For those fortunate buyers who do have extra money available, let's look at why you'd want to do such a thing.

Most loans in excess of 80% loan to value require mortgage insurance to protect the lenders for the upper portion of the loan if the home were to go into foreclosure.  FHA requires an up-front premium of 1.75% of the amount borrowed plus a monthly amount of .85% on the balance.  FHA mortgage insurance premium must be paid for the life of the loan.

Mortgage insurance on conventional loans varies depending on the borrowers' credit and the amount of down payment being made.  Unlike FHA, when the unpaid balance reaches 78% of the original amount borrowed, the mortgage insurance is no longer needed.  If the home enjoys rapid appreciation, after a period, the lender may allow the borrower to get an appraisal to show that the unpaid balance is now less that 78% of the current appraised value.

The premium for mortgage insurance on conventional loans can be paid as a single premium upfront in cash or financed into the mortgage.  A second option would be monthly mortgage insurance included in the payment until it is no longer needed.  A third option could be lender-paid MI where the cost is included in the mortgage interest rate for the life of the loan.

VA loans do not require mortgage insurance but there is a one-time funding fee of 2.3% that can be paid in cash at closing or added to the amount borrowed.  Disabled veterans and Purple Heart recipients are not required to pay the funding fee.

Putting at least 20% down payment on a home not only will avoid the mortgage insurance, it could also help you to get a little lower interest rate.  Since the loan to value is lower, there is less risk for the lender.

A $350,000 with a 10% down payment at 4% interest could have a monthly mortgage insurance cost between $70 to $130.  A trusted mortgage professional can help you assess the options you have available.  It is always better to make some of these decisions before you start shopping for a home.

This is another reason it is good to start by getting pre-approved with a trusted mortgage professional.  If you need a recommendation, call me at  (269) 488-9292.

Personal Finance Review

1/27/2020

Personal Finance Review

Even if Benjamin Franklin never actually used the expression "a penny saved is a penny earned", the reality is that it has been a sentiment for frugality for centuries.  He did say: "Beware of little expenses; a small leak will sink a great ship."  At the end of the day, it is not about how much you make as much as it is about how much you keep.

The first step in a personal finance review is to discover where you are spending your money. It can be very eye-opening to have a detailed accounting of all the money you spend.  Coffee breaks, lunches, entertainment, happy hour, groceries and the myriad of subscription services you have contribute to your spending.

This revelation can lead you to obvious areas where savings can be accomplished.  The next step is to dig a little deeper to see if there are possible savings on essential services.

  • Get comparative quotes on car, home, other insurance.
  • Review and compare utility providers.
  • Review plans on cell phones.
  • Consider eliminating the phone line in your home.
  • Review plans on cable TV, satellite for unused channels and packages or receivers.
  • Consider entertainment alternatives for cable like Hulu or Netflix.
  • Review available discounts on property taxes.
  • Consider refinancing home ... lower rate, shorter term or cash out to payoff higher rate loans.
  • Consider refinancing cars.
  • Call credit card companies to ask for a lower rate. 
  • Consider transferring the balance from one card to a new card with a lower rate and then, pay off the balance as soon as possible.
  • Review all the automatic charges on your credit cards ... do you need or still use the service?
  • Discover late fees that are regularly being paid and eliminate them.
  • Review all bank charges for accounts and debit cards; determine if they can be reduced or eliminated.
  • Pay your bills on time and avoid all late fees.
  • Monitor your bank account and avoid over-draft charges.
  • Some companies have customer retention departments that can lower your rates to retain your business.

A strategy that some people use is to report their credit cards as lost so new cards will be issued.  When they are contacted by the companies to get a valid credit card, they can determine if the service is still needed.

The money you save can ultimately help you in the future for a rainy day, an unanticipated expense, a major life event or retirement.  Cutting back now will give you more later, possibly, when you need it even more.  Tennessee Williams said "You can be young without money, but you can't be old without it."

Take the Standard Deduction & the Home!

1/20/2020

Take the Standard Deduction & the Home

Now that the standard deduction is increased to $12,200 for single taxpayers and $24,400 for married ones, many homeowners are better off with the standard deduction than itemizing their deductions to write off their mortgage interest and property taxes.  There was some speculation that without the tax advantages, homeownership is not the investment it once was.

By looking at the other benefits, you can see that homeownership is still one of the best investments people can make.

A $275,000 home financed with a 4.5%, 30-year FHA loan would have an approximate total payment of $2,075.  The difference in the value of the home and the amount owed on the mortgage is called equity.  Two things cause equity to increase: the home appreciating in value and the principal loan balance being reduced with each payment made on an amortizing loan.

In this example, if the home were appreciating at 2% annually, the value would increase by $5,500 the first year which would be $458.33 per month.  At the same time, with each payment made, an increasing amount would reduce the unpaid balance which would average $363.00 a month in the first year.

The homeowner's equity would increase over $800 a month.  Instead of paying rent, the homeowner is building equity in their home.  It becomes a forced savings and lowers their net cost of housing.  In seven years, the homeowner in this example would have $80,901 in equity instead of seven years of rent receipts.

This example doesn't consider tax advantages at all.  If the homeowner would benefit from itemizing their deductions, it would lower their cost of housing even more.

The IRS recommends each year to compare the standard and itemized deductions to see which would benefit you more.  Items such as substantial charitable donations, mortgage interest, property taxes and large out-of-pocket medical expenses could increase the likelihood of itemizing deductions.

You can see the benefits using your own numbers without tax advantages by using the Rent vs. Own.

Title Insurance

11/27/2019

Most people who have car, home and health insurance have probably made claims and wouldn't consider being without it.  However, it might be difficult to find a homeowner who has made a claim on their title insurance which could lead a person to think that it may not be necessary. 

Title insurance covers the largest investment most people have and if there was a loss, it could be devastating.  Title insurance indemnifies the policy holder from financial loss sustained from defects in the title to the property.  The policy holder is determined by their interest in the property.  

An owner's title policy protects the owner of the property from title issues that may arise other than the mortgages that are being placed on the property at the time of purchase.  The title of the property goes back in time to check that clear title (no unsatisfied liens or levies and poses no question to legal ownership) was passed from owner to owner up to the current seller.

A mortgagee's or lender's policy protects the lender by guaranteeing they have an enforceable lien on the property and legal claims from parties asserting they have a claim against the property.  Lender's generally require the borrower to provide this coverage.

The title search is an examination to determine and confirm legal ownership and if there are clouds on the title so the seller can pass a clear title.  A cloud is defined as any document, claim, unreleased lien or encumbrance that might invalidate or impair the title to real property.

If a person passes title to a buyer that has unsatisfied liens on the property, the new buyer could become responsible for the money owed and it could affect their ability to sell the property in the future.

Unlike most insurance that has a specific term and periodic premiums, title insurance covers the insured for a single premium.  An owner's policy lasts for as long as they or their heirs have an interest in the property.  It guarantees the title up to the date and time that the property was deeded to you and recorded in the public records.

The majority of homes purchased in America have title policies insuring the new owner.  You could live in the home for five, ten or twenty years without an incident.  Then, when you're ready to sell the home, a title claim could happen.  The title policy would still protect you at that point.  It is a peace of mind coverage that is part of the investment in your home.

Buy Your Retirement Home Now

11/4/2019

Buy Your 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 mortgage rates, high rental rates, positive cash flows and tax advantages can help you get it paid for by the time you're ready to move into it.

Your tenant could literally buy your retirement home for you.  One idea would be to finance it with a 15-year loan that will have a lower rate than a 30-year loan and it will obviously be paid for in half the time. With every monthly rental check from your tenant, you make the payment on the mortgage which includes a portion that reduces debt and builds equity. Even if you don't have the home paid for by the time you retire, your equity will be larger. 

Consider you sell your current home which could be paid for by then when you are ready to move into this retirement home .  Taxpayers can exclude up to $500,000 of tax-free gain for a married couple. That profit could be used to fund your retirement.

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.  For example, you could buy a home in a destination location now, rent it out and build equity in it until you're ready to use it as your principal residence.  That home would have kept pace with other homes in the area so that you would not be priced out of the market you want to retire to.

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.

Contact us if you'd like to talk about the idea or if you need a recommendation of real estate professional in another city.

Interior Condensation Solutions

10/21/2019

Interior Condensation Solutions

Condensation occurs when the air has too much moisture in it which is felt as high humidity.  The water deposits on various surfaces that are cooler than the air itself.  Several things can contribute to the high humidity such as cooking, dishwashers, clothes dryers, bathing and long showers. 

If the home has a crawl space under the floor, inadequate ventilation or insulation can cause moisture in the home.  There seems to be a difference of opinions about whether to vent or not vent.  First, determine if you are having a problem and then, weigh the options available to find the best solution.

Condensation that forms on windows and other surfaces in your home can cause damage to window trim, frames, drywall, floor coverings and sub-floors as well and the interior framing.

To reduce condensation in a home, the moisture saturating the air needs to be reduced.  Just as steam from a shower can fog a mirror, warm air holds more moisture.  When the air cools, it releases the moisture.  There are other things that can be done to reduce the moisture and the condensation.

  • Adjust humidifier
  • Bathroom and kitchen exhaust fans
  • Circulate the air; ceiling fans can help with this
  • Open windows to release warm air
  • Raise temperature
  • Add weather stripping
  • Window insulation kits
  • Storm windows
  • Move plants that release moisture in the air

The average life of a bathroom exhaust fan is about ten years with kitchen fans lasting about fifteen years.  Regular cleaning can increase the life of the fans.  Bathroom exhaust fans should be vented to the outside and should be run for 15-20 minutes after using the bath or shower to remove the moisture that causes mold and mildew.

Regulating the humidity in a home can protect against damage but it also promotes comfort in the form of breathing, relieving dry skin, sinus problems and sickness in general.  Breathing is easier and the air feels more pleasant.

Downsizing is an Alternative

9/4/2019

Downsizing is an Alternative

It is estimated that over 15% of the population in the U.S. are over 65 years of age.  With one of the most common fears of seniors being their money will run out early, it is understandable that downsizing may be strategy to meet their goals.

Once the kids are grown, have careers, relationships and get a place of their own, parents find they may not need their "big" home like they did before.  In other situations, their lifestyle might have changed, and the house just doesn't "fit" anymore.

The benefits of a smaller home can include the following:

  • Easier to maintain
  • Lower utilities
  • Lower property taxes
  • Lower insurance
  • More convenient location
  • Single level
  • Possibly more energy efficient
  • Possibly lower maintenance

Like any other big change in life, it is recommended that a person should take their time to consider the possible alternatives and outcomes.  Are they going to stay in the same area?  What type of property would suit their needs for the future?

The tax-free exclusion allows a homeowner to take up to $250,000 of gain for single taxpayers and up to $500,000 for married taxpayers.  Part or all of this could be used to generate income for retirement.  Other uses for the equity could include paying off other debt, taking the trip of a lifetime or making a special gift.

There will be expenses involved in selling a home as well as the purchase of a new home.  These will lower the amount of net proceeds you'll have to invest in the new home.

Homeowners should consult their tax professionals to see how this applies to their situation.  Please contact me at (269) 488-9292 or spattison@remax.net if you have any questions about what your home is worth or how long it might take to sell it.  Other things that could be of value are our Homeowners Tax Guide or Sellers Guide.

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