Tag Archives: Expectations

Verify Your Property Taxes

Taxes“Do you ‘know’ when your mortgage company paid your Property Taxes?  Almost everyone who has a mortgage on their home pays their Property Taxes each month into an escrow account, expecting the mortgage company to pay them.  Be aware of when your lender is paying taxes each year.”

Denise Buck & Ed Johnson – DC Metro Realty Team

 

If you have a mortgage with an escrow account to pay your property taxes and insurance, you expect the company servicing your loan to pay this year’s taxes this year so that you can deduct them on your 2014 income tax return. After all, your monthly payment includes 1/12 the annual amount so there will be money available for them to be paid on time.

IRS requires that expenses must actually be paid in the year that a deduction is to be taken.

The predicament occurs when you’ve made your payments but the mortgage company didn’t pay the taxing authority in the tax year they were due. If they paid your 2014 taxes in January of 2015, they wouldn’t be deductible for you until you file your 2015 income tax return.

Verify with your lender after you make the December payment that they did indeed pay your property taxes. The question for your lender’s customer service is: “Have you or will you pay the 2014 property taxes this year so I’m eligible to deduct them on my 2014 income tax return?”

Realize Tax Savings Sooner

W4 Allowances“Taking extra allowances on my W-4 is something I have practiced for about 30 years now.  At first it was just a way to get a little more money during the year.  But then I realized that I could take a little more, and then afford to ‘save’ more all during the year and earn ‘interest’ all year long!  It’s a balancing act that takes a little practice and tweaking, but it can really pay off once you get it in place.  Most years I only get about $200-$300 back at the end because I’ve already received the rest and invested it.”

Ed Johnson – DC Metro Realty Team

A homeowner’s tax saving benefit is generally realized when they file their federal income tax return after the money has been spent for the interest and property taxes. Some people look forward to the refund as a means of forced savings but some people need to realize the savings during the year.

It is possible to adjust the deductions being withheld from the homeowner’s salary so they realize the benefit of the savings prior to filing their tax returns in the form of more money in their pay checks. Employees would talk to their employers about increasing their deductions stated on their W-4 form.

By increasing the exemptions or deductions, less is taken out of the check and the employee will receive more in each pay check. If a person over-estimates their exemptions and therefore, underpays their income tax, they might incur interest and would have additional tax to pay when they filed their tax return.

Buyers considering this strategy should seek tax advice and discuss it with their human relations department at work. Additional information is available on the Internal Revenue Service website about Completing Form w-4 and Worksheets.

Home Improvements that Pay Off

Home Improvements“Everyone thinks that upgrading and improving different areas in the home will add value.  Unfortunately that’s not always true.  Sometimes you need to do upgrades in order to prepare you home for Sale, but that’s so you can compete in the market, not add value. Sometimes you want to change something so that it will meet your personal desire or taste, again, it may not add value.  Be aware of what adds value so that you have realistic expectations on the return for your investment.”

Denise Buck & Ed Johnson – DC Metro Realty Team

Despite what you see on TV and what the conventional wisdom says, most of the home improvement projects with the greatest return on investment are unglamorous. According to Remodeling Magazine’s 2014 Cost vs. Value report, you’ll recoup the greatest percentage of your investment on projects such as replacing the front door with a steel one, adding a wood deck, replacing old siding, replacing the garage door and replacing old windows. Also contrary to conventional wisdom, most home improvement projects do not return more than your investment when you sell. In fact, the average remodeling project only recoups 66 cents for every $1 you spend on it. To get the highest percentage of your remodeling dollars back when you sell, here’s what to improve, what not to improve and why.

Best Options: Practical, Midrange Projects

Do you want to get back 96.6% of what you spend on a home upgrade? Then replace your old front door with a new, mid-range steel door with a clear dual-pane half-glass panel and a new lockset. You’ll spend an average of $1,162 for this project, but you’ll get back $1,122 when you sell, Remodeling Magazine reports. Another project in the same price range is replacing your garage door for $1,534; you’ll recoup $1,283, or 83.7%. You won’t need a home-equity loan to tackle these projects, and their low cost and high impact on curb appeal make them smart choices.

“Curb appeal is the biggest selling factor,” says Diana George, founder of Oakland, Calif.,-based Bay Area real estate brokerage Vault Realty Group. “If the house looks unkempt on the outside, buyers automatically assume the same will apply to the interior of the house.

If you can afford to spend more, consider projects such as adding a 16’ x 20’ wood deck, which costs $9,539 on average but recoups 87.4% of its cost; replacing 10 old 3’ x 5’ windows with new, double-hung, wood or vinyl ones, which costs close to $11,000 for wood and nearly $10,000 for vinyl but recoups about 79%; or replacing vinyl siding, which costs $11,475 for 1,250 square feet but should bring back $8,975 when you sell.

“Windows, garage doors and decks aren’t necessarily big-ticket items in terms of price or luxury,” George says, but “updating these items gives the home an instant facelift and contributes to a modern aesthetic, which is exactly what potential homebuyers want to see when they drive up to look at a new home.”

Pricier Projects

Two of the priciest – but still relatively worthwhile – improvements include attic bedrooms and basement remodels. These projects will set you back tens of thousands of dollars, but are a relatively inexpensive way to increase your home’s useable square footage compared with an addition. Minor and major kitchen remodels also make the cut, as do bathroom remodels. However, while it may be true that kitchens and bathrooms sell houses, forget about doubling your money. You’re likely to recoup just 82.7% of your $18,856 cost on a minor remodel of a functional but dated 200-square-foot kitchen; 74.2% on a $54,909 major kitchen remodel and 72.5% on a $16,128 remodel of a 5’ x 7’ bathroom. These are the types of expensive projects you might be tempted to finance with a home-equity loan, but you should think twice before borrowing money and paying 6% interest or more to finance a project with a negative return.

The costs Remodeling Magazine provides are averages. If you can get a project completed well for less, you might be more satisfied with the percentage of its costs you get back when you sell your home. Costs vary by geographic region, project size and scope, and the quality of finishes you choose.

“Bathroom upgrades can be done for a minimal cost using materials that look expensive, but are quite affordable,” says Jeff Dumas, owner and broker at Home Ventures Realty in Tempe, Ariz., where he’s rehabbed and sold residential properties for more than 10 years. “Most of the time, I can take an average starter home, put in a new tub with a porcelain tile backsplash, new toilet and vanity, tile the floor, and use some decorative hardware for about $1,500 to $2,000. The results are amazing and help the wow factor when potential buyers are viewing the property,” he says.

Surprising Disappointments

Backup power generators and roofing replacements are among the projects on which homeowners will recoup the least at resale. You might get back just 67.5% of the $11,742 you spend on a generator and 67.6% of the $18,913 you spend on a roof. Also at the bottom of the list are sunroom additions, bathroom additions and master-suite additions. These projects are expensive and involve weeks or months of disruptive construction, so don’t take them on unless they’re for your personal enjoyment and you’re planning to stay in your home for years to come. Remodeling a home office is the least worthwhile project on the list, recouping just 48.9% of the $28,000 it’s likely to cost.

That being said, some of these projects are more valuable if you live in areas where they’re in higher demand. In the West South Central region, which includes storm-prone areas in Texas, Oklahoma and Louisiana, a backup generator will recoup 86% of its cost, on average.

By Amy Fontnellie, Originally Published on Yahoo Homes

‘Bad’ Rules of Thumb for Retirement

retirement-planning-283x249“We’ve all heard words of wisdom from our parents and grandparents over the years and other friends and relatives.  But was it always right?  What was it based on?  Today and tomorrow are  very different times than when previous generations were preparing for retirement.  Make sure you understand the impacts of some of those old Rules of Thumb for Retirement.”

Denise Buck & Ed Johnson – DC Metro Realty Team

What makes a good rule of thumb? It should be memorable, pithy and, above all, useful. It also shouldn’t overreach; it just gives good guidance. “Measure twice, cut once” is a great example. It doesn’t try to explain carpentry. It just reminds us to take our time, be precise and avoid making a mistake that can’t be undone. (Not bad for four words.)

What makes a bad rule of thumb? How about this: it doesn’t work. Or worse, it brings about exactly the opposite of what you intended. Retirement is full of advice that sound reasonable but may be bad for your retirement health. Here are three to be wary of:

Rule of Thumb #1: Save 3% of Salary for Retirement

The most frequent auto-deferral rate into a 401(k) is 3% of pay, probably because it typically maxes out the company match. Unfortunately, 3% is just not going to get the job done.

Think of it this way: you will likely work for about 40 years and retirement can last up to 30. That means 40 years of pay checks need to be spread across 70 years. Common sense suggests that 3% (even with a company match) is not going to be enough provide the spending you’d like once you’re in retirement.

Our recent research suggests that 10 to 13% is more reasonable. If that sounds like a lot, think of it this way: paying your future self 13% of your current pay can buy you 30 years of retirement spending. It may actually be a bargain.

Rule of Thumb #2: The 4% Drawdown

Let’s say you retire with one million dollars in savings. One of the most common rules of thumb is that the first year you should withdraw 4%, or $40,000. Next year, add a cost of living adjustment, say 2.5%, and take out $41,000. And so on.

The risk here is that if the market moves against you, the odds increase that a rigid withdrawal plan will increase the odds of running out of money. If the market rallies, the opposite can happen and you will leave behind a large unspent surplus. (Great for your heirs, of course, but you would have enjoyed retirement less than you could have.)

So what’s a better rule of thumb? Probably one based on a dynamic amount, a percentage of your portfolio. You may have less to spend some years, and more others, but the risk of spending down your assets is substantially reduced. What’s more, as you get older and have a shorter retirement period to fund, you can increase the percentage.

Rule of Thumb #3: 120 minus Your Age

We know that it makes sense to have a more conservative portfolio as you get older. This Rule says the equity percentage in your portfolio should be 120%, minus your current age. So a 60 year old should have 60% equity while a 75 year old should have 45%. We can quibble over the percentage, but this sounds reasonable, right?

Well, no. And here’s why. Let’s say the 60 year old is retired and the 70 year old is healthy, happy, still working and plans on working until 75. The 70 year old can actually tolerate more risk than the 60 year old because she has five years of future wages to grow her assets and offset market loses. The 60 year old has no more future wages to offset losses and may feel that 60% equity is too high.

This idea of factoring future wage potential into the allocation is actually what some investment strategies do, and why a 30 year old (with 35 years of wages ahead of him) has more equity exposure than a 60 year old with only five years of human capital left.

Originally published in ‘The Street’ By Chip Castille, Managing Director, BlackRock

What to Know about Home Appraisals

Home Apprasails“Whether buying, selling or refinancing, when you use a mortgage, a home appraisal will usually play a major role in in the transaction.  You’ll want to understand how the appraisal process works and how an appraiser determines a home’s value.”

Denise Buck & Ed Johnson – Dc Metro Realty Team

What Is a Home Appraisal?
An appraisal is an unbiased professional opinion of a home’s value.  Appraisals are almost always used in purchase and sale transactions and commonly used in refinance transactions.  In a purchase and sale transaction, an appraisal is used to determine whether the home’s contract price is appropriate given the home’s condition, location and features.  In a refinance, it assures the lender that it isn’t handing the borrower more money than the home is worth.

Lenders want to make sure that homeowners are not over-borrowing for a property because the home serves as collateral for the mortgage.  If the borrower should default on the mortgage and go into foreclosure, the lender will recoup the money it lent by selling the home.  The appraisal helps the bank protect itself against lending more than it might be able to recover in this worst-case scenario.

The Appraisal Process and How Appraisal Values Are Determined
Because the appraisal primarily protects the lender’s interests, the lender will usually order the appraisal.  According to the Appraisal Institute, an association of professional real estate appraisers, a qualified appraiser should be licensed or certified (as required in all 50 states) and be familiar with the local area.  Federal regulations state that the appraiser must be impartial and have no direct or indirect interest in the transaction.  Fannie Mae requires appraisers to certify that they have experience appraising similar properties in the same geographic area.

A property’s appraisal value is influenced by recent sales of similar properties and by current market trends.  The home’s amenities, number of bedrooms and bathrooms, floor plan functionality and square footage are also key factors in assessing the home’s value.  The appraiser must do a complete visual inspection of the interior and exterior and note any conditions that adversely affect the property’s value, such as needed repairs.

Typically, appraisers use Fannie Mae’s Uniform Residential Appraisal Report for single-family homes.  The report asks the appraiser to describe the interior and exterior of the property, the neighborhood and nearby comparable sales.  The appraiser then provides an analysis and conclusions about the property’s value based on his or her observations.

The report must include a street map showing the appraised property and comparable sales used; an exterior building sketch; an explanation of how the square footage was calculated; photographs of the home’s front, back and street scene; front exterior photographs of each comparable property used; and any other information, such as market sales data, public land records and public tax records, that the appraiser uses to determine the property’s fair market value.  An appraisal costs several hundred dollars, and generally the borrower pays this fee.

What Homebuyers Need to Know
When you’re buying a home and you’re under contract, the appraisal will be one of the first steps in the closing process.  If the appraisal comes in at or above the contract price, the transaction proceeds as planned.  If the appraisal comes in below the contract price, however, it can delay or derail the transaction.

Chances are neither you nor the seller wants the transaction to fall through.  As the buyer, you have an advantage in that a low appraisal can serve as a negotiating tool to convince the seller to lower the price so the transaction can move forward.  The bank won’t lend you or any other prospective buyer more than the home is actually worth.  While appraisals help buyers avoid overpaying for homes, a seller may feel that a low appraisal is inaccurate and be reluctant to drop the price.  If a bad appraisal is standing between you and your home purchase, look into getting a second opinion via a second appraisal.  Appraisers can make mistakes or have imperfect information.

What Home Sellers Need to Know
As a seller, a low appraisal, if accurate, means you will have to lower your home’s price to get it sold.  Lenders won’t approve loans for more than a home is worth, and holding out for an all-cash buyer who doesn’t require an appraisal as a condition of completing the transaction is unlikely to net you a higher sales price.  No one wants to overpay for a home.

Unfortunately, recent distressed sales in the surrounding area can lower your home’s appraisal value.  If you feel that your home’s value has been dragged down by the sales prices of nearby foreclosures and short sales, you may be able to convince the appraiser that your home is worth more if it’s in significantly better condition than those properties.  Sellers should also know that federal guidelines (intended to eliminate the inflated appraisal values that contributed to the housing crisis) sometimes cause appraisals to come in below fair market value and can make low appraisals difficult to challenge.

What Refinancing Homeowners Need to Know
If you’re refinancing a conventional mortgage, a low appraisal can prevent you from refinancing your home.  The home needs to appraise at or above the amount you want to refinance for your loan to be approved.  However, if your existing mortgage is an FHA mortgage, you can refinance without an appraisal through the FHA Streamline program.  FHA Streamline is a great option for underwater homeowners.

The Bottom Line
When everything goes smoothly, the home appraisal is just another box to tick on a loan-closing checklist.  When the appraisal value is lower than expected, the transaction can be delayed or even canceled.  Regardless of which situation you encounter in your home buying, selling or refinancing experience, a basic understanding of how the appraisal process functions can only work in your favor.

Real Estate Investing – Cash Flow & Equity

Investor Calcs“If you have ever thought about buying investment properties, now may be a good time with interest rates still low.  Here is a strategy that we are currently helping our investors with in Today’s Market.  Give us a call today and let us help you analyze the numbers to see if this can work for you.”

Denise Buck & Ed Johnson – DC Metro Realty Team

 

Many years ago, Las Vegas hotels would entice customers with inexpensive rooms, meals and entertainment so they would gamble. It may have worked initially but if you’ve been to Las Vegas recently, the bargains are gone. Hotels expect each division to be a profit center on its own. As a consumer, I might not like the changes but as an investor, I’d have to be pleased with increased profitability.

Years ago, real estate investors used to accept negative cash flow buoyed by tax incentives in hopes of making a big payday due to appreciation when they sold it. Today’s investors are focusing on tangible, current results like cash flow and equity build-up.

Cash flow is the amount of money you have left over after collecting the rent and paying the expenses. Since rents have gone up considerably due to supply and demand in the last few years and mortgage rates are at near record lows, income is up and expenses are down, making the cash flows attractive.

If the cash flow is sufficient, you could have a good investment even if the value of the property never increased. Cash on Cash does not consider appreciation and measures the cash flow before tax advantages by the initial investment. A rental with $3,170 CFBT (Cash Flow Before Taxes) divided by an initial investment of $29,000 would generate a 10.93% Cash on Cash rate of return.

Low down payments on investor properties are also a thing of the past. Non-owner occupied mortgage money is available but the investor should expect to put down 25-30%. An advantage of having a smaller mortgage is a lower payment.

Most mortgages are amortized loans with both principal and interest due with each payment. The forced savings of the principal contribution builds equity in the property and can be considered a part of the rate of return.

A $100,000 mortgage at 4.5% for 30 years would have $1,613.29 applied to principal in the first year. Divide that by the same $29,000 initial investment and the amortization would generate another 6%.

Without factoring in appreciation or tax advantages, this rental example generates much more than most alternative investments. There certainly are many different aspects that affect the risk and return on rental investments. If you haven’t scrutinized single-family rental opportunities in a while, you should look again.

Do You Have a Home Inventory? Get One!

Homeowner Checklist“Hopefully, you’re fortunate enough to have never had a major incident at your home.  But if you did, would you know what was missing or damaged?  Would you know what you paid for it?  How long you had owned it?  Take these steps to be prepared,  just in case.”

Denise Buck & Ed Johnson – DC Metro Realty Team

 

 

How old is your bedroom furniture and what did you pay for it? Don’t know? That’s okay, let’s try an easier question. When did you buy the TV in your family room and is it a plasma, LCD or a LED?

Whether you are the victim of a burglary, a fire or a tornado, most people are comforted they have insurance to cover the losses. However, unless you’ve filed a claim, you may not be familiar with the procedures.

The adjustor will want to know the date and how the loss occurred. Assuming you have contents coverage, the claim for personal belongings is separate from damage to the home.

You’ll be asked to provide proof of purchase, like receipts or cancelled checks, or a current inventory. If they’re not available, you can reconstruct an inventory from memory. The challenge is trying to remember things you may not have used for years and may not miss for years more.

Relying on memory can be a very expensive alternative. A prudent homeowner will create a home inventory with pictures or videos while all of their belongings are in the home and they can see them.

Download a home inventory to make your project a little easier.

Quick Fixes Before You Sell Your Home

Curb Appeal“When you’re going to put your home on the Market, it pays to put a little time into sprucing it up a bit.  There are so many little things that go unnoticed around your home, even though you walk by them every day.  We can help you with this, and most of these don’t cost much, but have a big pay off in buyer appeal.”

Denise Buck & Ed Johnson – Dc Metro Realty Team

If you are selling your home, nothing matters more than making a good first impression. Get potential buyers to stop and notice your property by amping up its curb appeal. With a few inexpensive fixes, you can help your home stand out.

If you are selling your home, nothing matters more than making a good first impression. Get potential buyers to stop and notice your home by amping up its curb appeal. With a few inexpensive fixes, you can help your home stand out.

The #1 thing to keep in mind: Make sure your home looks well cared for. Achieving a fresh, modern look doesn’t have to be difficult or expensive. 

Spend a Little, Change a Lot

1. If your house numbers are weathered, buy new ones in a style that matches your home’s character. Or paint the old ones to give them new definition.

2. Has your mailbox seen better days? Paint it for a fresh pop of color or swap it out for a new one. You’ll notice an instant difference.

3. If the lighting fixtures near your front door scream “dated,” look for some trendy, inexpensive replacements that are available at most hardware stores.

4. If the hardware on your doors, windows and other areas has been painted over, is getting rusty or is coming unhinged, repair or replace it.

5. Want to take your home’s exterior from drab to fab? Add plants, whether they’re in window boxes, containers or a garden, their color and lushness can transform your house into something special.

6. If you’re lucky enough to have a porch, show it off with comfortable furniture, like a glider or Adirondack chair, to add a friendly, welcoming touch.

Common-Sense Fixes

1. Repair anything that is chipped, peeling or cracked, including garage doors, fences, gutters, sidewalks and more. Sand, patch and repaint as needed.

2. Wash your windows. Simple enough, right? It’s amazing how appealing cleanliness can be! Plus, natural light is a major selling point.

3. Pick up debris on your lawn and edge the grass. A manicured edge shows you care about the details. Prune bushes and trees to maintain their shape. 

4. Remove weeds growing between the cracks in your driveway. While you’re at it, seal the cracks and clean up any oil spills, too!

5. For night showings, put your outdoor lights on a timer to warmly welcomebuyers. If you can, install a spotlight and aim it at a tree or an especially nice feature of your house.

Originally published in American Home Shield Newsletter

While on Vacation, don’t forget…

Check the garage“When planning what your going to do on your vacation, don’t forget to plan what will and won’t be going on at home, while you’re away.”

Denise Buck & Ed Johnson – DC Metro Realty Team

 

Planning a summer trip is usually focused on what you’ll do, see and experience. Enjoy it even more by spending a little time before you leave to make sure your home is safe while you’re gone.

Consider these suggestions along with your other normal efforts:

  • Tell your neighbors you’ll be out of town and to be aware of any unusual activity.
  • Notify your alarm company .
  • Discontinue your postal delivery.
  • Use timers on interior lights to make it appear you’re home as usual.
  • Don’t make it easy for burglars by leaving messages on voice mail or posting on social networks.
  • Post on social networks about your vacation AFTER you’ve returned.
  • Remove the hidden spare keys and give one to a trusted neighbor or friend.
  • Lock everything, double-check and set the alarm.
  • Take pictures of your belongings in case you need them.
  • Disconnect TVs and other equipment in case of unexpected power surges.
  • Adjust your thermostat.
  • Arrange for lawn care.
  • Consider disconnecting the garage door opener.
  • Put irreplaceable valuables in a safety deposit box.

It’s nice to go out of town on a well-deserved trip and it’s always nice to get back home…especially when it is just the way you left it.

Be a Considerate Buyer when Buying a New Home

Handing over keys“As a Buyer, when you are looking at homes, and especially when deciding to make an offer, always remember to be considerate of the Seller.  More than once we have seen deals go south because one or both parties thought the other was being unreasonable or inconsiderate.  In contrast, we have also seen offers and negotiations go very well when the Seller ‘liked’ the Buyer.  Even though in the end this is a business transaction, it is also a very personal and emotional time for those involved.  Please follow these tips when you set out to buy your next home.”

Denise Buck & Ed Johnson” – DC Metro Realty Team 

Consideration associated with a contract is generally thought to be the price and terms but being sympathetic and courteous towards the seller could make a difference in getting the home you want.

Business people, like store owners, expect to deal with customers and even come to expect behavior that might not be accepted in a purely social atmosphere. Homeowners, on the other hand, may not be aware of what to expect. They are opening the sanctity of their home to the public for review and criticism. Buyers may be detached from emotional feelings while the sellers might react unfavorably to comments that are taken personally.

  1. Be on time for appointments; cancel if necessary. The sellers may be rearranging their schedules and making an additional effort to make it convenient for you to see the property.
  2. Be a good guest and respect the seller’s privacy. Look at the home and avoid looking at the seller’s personal items; there is no reason to look in refrigerators or furniture drawers.
  3. Don’t sweat the small stuff. Try to focus on critical items of a home like location, floor plan, layout, size and not dwell on cosmetic items that are easily and inexpensively changed.
  4. It’s not a good negotiating technique to list the defects. Most people become defensive when presented with a list which could have the opposite effect of helping you get a better deal.
  5. Limit your visits until you actually own the home. It’s natural to be excited and making plans to move into your new home but it is still the seller’s until closing and they’re making plans to move too.
  6. Negotiations are generally finished when a contract is completed. It can be frustrating to continually be asked for “one more thing.” Make a deal with the seller and live with it. If there’s something you’re not sure about, specify it in writing in the contract.

Some things are obvious: the seller wants the most for their home and the buyer wants to pay the least possible. Showing consideration to the seller about things that don’t have anything directly to do with price can actually benefit the buyer.