home ownership http://www.wisebread.com/taxonomy/term/6943/all en-US 9 Things Sellers Should Watch Out for During Escrow http://www.wisebread.com/9-things-sellers-should-watch-out-for-during-escrow <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/9-things-sellers-should-watch-out-for-during-escrow" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-505598422.jpg" alt="making it through escrow" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>When selling real estate, such as a home or condo, you'll have to go through escrow &mdash; a process in which a third party holds your property and the buyer's funds until both you and buyer meet your contractual obligations.</p> <p>While waiting for your home to close can feel like forever (average escrow time ranges from 30 to 40 days, depending on the state and type of sale), escrow is a necessary process to make sure that your buyer is capable of making payments and your property is thoroughly inspected. Here are some key things you should do to make sure that your escrow period goes smoothly.</p> <h2>1. Fine tune your property's description</h2> <p>When you receive a first offer from a buyer, you'll notice that the offer will include a clause with a description of your property. It's best practice to add to the description, &quot;Exact legal description to follow in escrow.&quot; This is to cover the possibility that some material changes are found during the escrow process and to set the expectation that such changes could happen. For example, an escrow officer may uncover clerical or filing errors that could affect the deed or survey of your property. Once the full legal description of your property is set by your escrow company, the company will include that lengthy description in the title report.</p> <h2>2. Limit additional prorations and closing adjustments</h2> <p>During escrow, you should continue paying all obligations related to your property, such as mortgage payments, insurance premiums, taxes, and homeowner's dues. However, your costs will be prorated once you close, usually based on a 30-day month. (The terms of the proration are usually spelled out in the purchase contract.) For example, if you were to close your sale on the ninth of the month, you would be responsible for the first nine days of the month and you would receive a refund for the other 21 days in your final payment.</p> <p>Watch out if a buyer sneaks the words &quot;any other acceptable to buyer&quot; into the list of prorations and closing adjustments. This would open the door for a buyer to include expenses that aren't really your responsibility, such as the installation of a central air conditioning unit or keyless entry system not discussed prior to sale. If you see the phrase, &quot;any other acceptable to buyer,&quot; include an instruction in your counteroffer to delete that description and replace with &quot;none.&quot;</p> <h2>3. Keep the definition of your title objective</h2> <p>In your offer, you'll find a section that describes all aspects regarding the title of your property. In there, a clause will state that you agree to convey your property to the buyer free and clear of all liens and encumbrances save for some exceptions, such as an easement (somebody having the legal right to cross your property without owning it) or a rule from a homeowner's association.</p> <p>Under this clause, again look out for a buyer including &quot;any other acceptable to buyer&quot; in the list of exceptions, which could cause delays in escrow. It's best to delete those words and replace them with &quot;exceptions of record.&quot; Examples of exceptions of record are the discovery that a third party, such as a mortgage lender or the federal government, have a monetary claim to your property or a neighbor has invaded your property without you realizing (such as with a misplaced fence). This way, title exceptions will be set objectively and not be subject to opinions.</p> <h2>4. Tighten time frames for buyer's obligations</h2> <p>During escrow, it may seem that the seller has a long list of obligations to meet. In reality, the buyer also has several obligations, such as acting in good faith to obtain a mortgage loan, if applicable; delivering an approval letter of the mortgage; and providing actual payment.</p> <p>Ask your agent what time frames are appropriate for a buyer to complete these and other obligations. Use those benchmarks to evaluate the number of days presented by your buyer to complete those tasks. Depending on your scheduled closing date, you'll often find that those time frames can be shortened.</p> <h2>5. Shorten time for review of seller's disclosure</h2> <p>As part of the escrow, you'll have to fully and accurately disclose in writing to your buyer any fact, defect, or condition that would be expected to measurably affect the value of your property. Some examples include water damage to a wooden floor, a nasty carpet stain, or termite damage. The rule of thumb is that the more you disclose, the better. It demonstrates that you're acting in good faith and accurately describing your property.</p> <p>Since you put so much time and effort into this long list of disclosures, you want your buyer to review it and commit to it within a short period of time. Talk with your agent about what is an appropriate review time for the seller's disclosure in your local housing market.</p> <h2>6. Budget for buyer's contingencies<strong> </strong></h2> <p>During the inspection, a buyer will go beyond the items that you disclosed and will also focus on his or her own checklist. Here are some examples of items that your buyer could be on the lookout for:</p> <ul> <li>Installation of smoke detectors.</li> <li>Inspection of moisture in a bathroom, kitchen, or other room.</li> <li>Proper grounding of electrical outlets.</li> <li>Installation of a ground fault circuit interrupter (GFCI) near a bathroom sink.</li> <li>Replacement of broken faceplates at outlets.</li> </ul> <p>Plan ahead for such expenses and build a cushion in the original listing price and counteroffer price, if applicable, to cover for such contingencies. While you want to sell your property sooner rather than later, you also want to make sure that you settle on a price high enough to cover these and all other expenses involved in the sale. Most real estate agents can show you a list of preferred contractors who can provide you quotes at reasonable prices.</p> <h2>7. Take out clauses to deliver existing warranties and plans</h2> <p>In the spirit of knowing what they're really getting themselves into, a buyer may include a clause to bind you to submit at closing all warranty documents covering improvements of the property, instruction booklets for included appliances, original blueprints of architectural or engineering drawings, and other types of documents.</p> <p>Save yourself a headache and mark such clauses as &quot;not applicable.&quot; When you're in the process of emptying your home, chances are you won't be able to find those documents or will misplace them. Don't commit to delivering those documents in writing, but feel free to provide them if they're readily available.</p> <h2>8. Limit scope of last-minute cleanings</h2> <p>When you got your property showing-ready, you probably spent big bucks in getting carpets professionally shampooed, windows professionally cleaned, and bathrooms scrubbed down. Keep all receipts for those expenses and don't budge at requests to repeat cleaning services a couple of days before closing. As long as you've done a good job to maintain the cleanliness of your home, especially if you already moved out before listing, there's no real reason to do a deep cleaning again.</p> <h2>9. Double check for addendums</h2> <p>In addition to combing through the contract, you'll also want to read through any addendums made by the buyer that could replace the rules of the contract in case of a conflict. Here are three addendums to watch out for:</p> <ul> <li>Request to remedy unpermitted work: In this scenario, a buyer would ask you to get permits for any renovations completed without one. You shouldn't agree to this type of addendum because there are many instances in which you can complete renovations without a permit. Depending on homeowner's association bylaws, some renovations may not require a permit at all, such as the installation of a bathroom sink or replacement of kitchen cabinets. Other type of work completed before a bylaw being introduced may be exempt of a requirement, such as noise proofing of a wooden floor.</li> </ul> <ul> <li>Concession: Reject clauses that allow the buyer to submit a repair or credit request in writing. While the buyer has the right to inspect your property in different ways, you should be the one deciding on how to procure acceptable ways to comply with the buyer's requests.</li> </ul> <ul> <li>Timeline contingency: The longer the escrow process lasts, the greater the chance for a sale to fall through. Delete in its entirety any timeline addenda requesting if a deadline falls on a weekend or federal or state holiday that it be moved to the next business day.</li> </ul> <p>Escrow is the final stretch of a home sale. Keep a positive attitude and stay in touch with your escrow officer and agent. You got this!</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/9-things-sellers-should-watch-out-for-during-escrow">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-tips-to-sell-your-condo-fast">6 Tips to Sell Your Condo Fast</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-reasons-a-home-sale-could-fall-through">5 Reasons a Home Sale Could Fall Through</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/23-hidden-costs-of-buying-an-old-house">23 Hidden Costs of Buying an Old House</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-questions-real-estate-agents-hear-most-often">8 Questions Real Estate Agents Hear Most Often</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/youre-ready-to-make-an-offer-on-a-house-now-what">You&#039;re Ready to Make an Offer on a House: Now What?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing buyers clauses contingencies escrow expenses home ownership inspections real estate agents selling a home Mon, 13 Nov 2017 08:30:15 +0000 Damian Davila 2051607 at http://www.wisebread.com 23 Hidden Costs of Buying an Old House http://www.wisebread.com/23-hidden-costs-of-buying-an-old-house <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/23-hidden-costs-of-buying-an-old-house" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/piggy_bank_money_000021065464.jpg" alt="Learning the hidden costs of buying an old house" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Buying an old house may seem like a great way to save some money. The purchase price is typically much lower than a newer house, especially considering the cost per square foot. Older homes tend to be located closer to downtown areas, which can be convenient and reduce transportation expenses. Plus, you may see potential to fix up an old house yourself and sell it for a profit.</p> <p>However, it's easy to overlook hidden costs that can hit you soon after you buy that old house, all of which trump any potential financial gains. Here are some of the hidden costs I learned about the hard way after I bought a 120-year-old farmhouse.</p> <h2>1. Big Energy Bills</h2> <p>The heating bill for our old farmhouse was over $300 per month before we added insulation. Check the utility bill history before buying an older house to see what kind of energy costs you are signing up for!</p> <h2>2. Air Conditioning</h2> <p>Older houses may not have air conditioning at all, or may only have a window unit in one room. Installing central air costs a few thousand dollars.</p> <h2>3. Furnace</h2> <p>Older houses may have older furnaces. Although a furnace can last 50 years or more, at some point the furnace will become unsafe or ineffective and will need to be replaced at a cost of thousands of dollars.</p> <h2>4. Roof</h2> <p>The roof of a house wears out over time and eventually needs to be replaced. Depending on how many layers of shingles have been installed, you may be able to add another layer, or you may need to tear off all of the roofing material and start over. Be prepared to spend a few thousand dollars if you need a new roof.</p> <h2>5. Exterior Painting</h2> <p>Wood siding requires periodic repainting. You can repaint a house yourself, but this is time consuming. It took me five months to repaint my house, working mostly on weekends and evenings. Hiring someone to repaint a house can cost thousands of dollars depending on the size of the house and the condition of the siding.</p> <h2>6. Siding Replacement</h2> <p>If you don't want to paint wood siding, you can upgrade to vinyl. The biggest problem with this is that new siding can cost $30,000 or more.</p> <h2>7. Window Replacement</h2> <p>Older houses often have single pane glass windows. With respect to energy efficiency, single pane glass windows are almost as bad as leaving the window open. Upgrading windows costs around $300 per window. Older houses tend to have a lot of windows, so this can add up quickly.</p> <h2>8. Lack of Storage</h2> <p>Older houses usually have much less closet space than newer homes. This means you may need to buy wardrobes and other furniture for storage, or install cabinets, or build closets yourself.</p> <h2>9. Electrical Services</h2> <p>Older houses may have an undersized electrical panel. Modern houses need at least 100 amp service to handle appliances and lighting. Upgrading the service panel can cost a few hundred dollars.</p> <h2>10. Electrical Outlets</h2> <p>New houses have abundant electrical outlets in every room, but older houses may only have one or two in each room. If you don't want to use extension cords, you may need to have some outlets installed at a cost of over $100 each.</p> <h2>11. Old Electrical Wiring</h2> <p>The insulation on old electrical wiring starts to crumble and can be a fire hazard. Old wiring is hard to deal with, since it can be difficult to remove and replace with new wiring. Rewiring an old house can be incredibly expensive.</p> <h2>12. Lead Paint</h2> <p>Before 1979, lead paint was used for both interior and exterior surfaces. Older houses may have lead paint, which is hazardous and expensive to remove. You may need to resolve any lead paint issues before you can sell an older house.</p> <h2>13. Asbestos</h2> <p>Another hazard in older houses is the potential to encounter asbestos. Asbestos was used for insulation and may be used in old floor tiles as well. Removing asbestos can be expensive and requires special equipment and expertise.</p> <h2>14. Wet Basement</h2> <p>Older houses may have settled over the years, resulting in cracks in the basement which leads to dampness and water issues. If you are planning to use the basement of an older house for storage or to remodel it into living space, make sure there are no water problems first.</p> <h2>15. Insulation</h2> <p>My old farmhouse had no insulation in the walls or under the floor! I added insulation and was able to recover the cost in a few years from lower energy bills &mdash; but initially, this cost thousands.</p> <h2>16. Well Expenses</h2> <p>If your older house has its own well to supply water, you are responsible for all costs of maintaining the well. I had to replace a well pump at a cost of about $2,000 and then had to add a chlorinator to resolve a bad water test result before I could sell the property.</p> <h2>17. Small Garage</h2> <p>You may be in for a surprise when you try to pull your SUV or minivan into the garage of an older house for the first time &mdash; it may not fit! Measure the garage or try to pull your car in when looking at an older house to make sure you will have a place to park.</p> <h2>18. Water Line for Refrigerator</h2> <p>Refrigerators that dispense water and ice are a relatively new invention. To put one in an older house, you may need to install a water line for your fridge.</p> <h2>19. Old DIY Projects</h2> <p>In an older house, you may encounter old do-it-yourself projects that are not up to code or are just plain ugly and need to be removed and redone. (See also: <a href="http://www.wisebread.com/15-cool-diy-home-improvements-for-50-or-less">15 Cool DIY Home Improvements for $50 or Less</a>)</p> <h2>20. Nothing Is Square</h2> <p>One thing that struck me when I moved from my old farmhouse to a brand new house was how square and level everything was in the new house. Improvements in an old house can be more challenging &mdash; and more expensive &mdash; because nothing is level due to settling over the years.</p> <h2>21. Uneven Steps or Sidewalks</h2> <p>Having uneven steps or sidewalks at an older house may seem like a minor problem, but this presents a trip hazard and it is expensive to correct.</p> <h2>22. Historic Restrictions</h2> <p>Some older houses may be classified as historic. This designation may result in restrictions on the type of remodeling and additions that can be done, and even what color you can paint it. This can force you to spend more than you planned on remodeling and can limit your potential to upgrade an older house and sell it.</p> <h2>23. Endless Projects</h2> <p>Constantly spending money for home improvement and remodeling expenses is a big drag on your budget. Those trips to buy more building materials and paint every weekend add up to significant money. It can easily end up being less expensive to buy a newer house that requires less work than taking on all of the challenges of fixing up an older house, even if the initial purchase price is lower.</p> <p>Before deciding to buy an older house, get a home inspection by an inspector experienced with older houses. Review the inspection report and make a list of all of the upgrades and repairs you think the house needs. Consider all of the hidden costs of buying an older house before taking the plunge.</p> <p><em>Do you live in an old house? How &quot;charming&quot; is it?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dr-penny-pincher">Dr Penny Pincher</a> of <a href="http://www.wisebread.com/23-hidden-costs-of-buying-an-old-house">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-things-sellers-should-watch-out-for-during-escrow">9 Things Sellers Should Watch Out for During Escrow</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-hidden-housing-costs-new-homeowners-dont-expect">10 Hidden Housing Costs New Homeowners Don&#039;t Expect</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-you-need-to-know-about-homeowners-associations">What You Need to Know About Homeowners&#039; Associations</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/everybodys-wrong-about-how-much-house-you-can-afford">Everybody&#039;s Wrong About How Much House You Can Afford</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-myths-about-real-estate">6 Myths About Real Estate</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing buying a house expenses hidden costs home ownership old houses Wed, 10 Feb 2016 18:00:02 +0000 Dr Penny Pincher 1651573 at http://www.wisebread.com Here's How to Save Thousands on Your Mortgage http://www.wisebread.com/heres-how-to-save-thousands-on-your-mortgage <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/heres-how-to-save-thousands-on-your-mortgage" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/house_with_key_000056935922.jpg" alt="Learning the risks and opportunities of a short-term mortgage" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Hate the thought of paying hundreds of thousands of dollars in interest on a mortgage loan? A 10-year <a href="http://www.wisebread.com/the-surprising-reasons-your-fixed-rate-mortgage-payment-could-rise">fixed-rate mortgage loan</a> or other type of shorter-term financing might help reduce your interest payments.</p> <p>Most consumers apply for a mortgage loan with a term of 30 or 15 years &mdash; but you'll pay a lot of interest over that time. For a 30-year fixed-rate mortgage (even at a low rate), you could pay more than $100,000 in interest if you take the full three decades to pay off your loan. That's why a 10-year mortgage can help you cut your interest costs dramatically. But first consider the pros and cons:</p> <p>&quot;Taking on a new mortgage to buy a home can involve different factors than when refinancing an existing loan to a lower interest rate,&quot; said Kevin Gallegos, vice president of Phoenix operations for Freedom Financial Network. &quot;When purchasing, the consumer must take into account a few more variables: what they can afford, but also how secure they are in their jobs and what the chances are of moving in a few years.&quot;</p> <h2>Pros</h2> <p>Gallegos says that there are several positives to taking on a shorter-term mortgage, such as lower interest rates. He said that 10-year mortgages often come with rates that are as much as 1% lower than what borrowers would find on a 15-year or 30-year fixed-rate mortgage.</p> <p>Then there's the lower total interest borrowers will pay if they hold their loans to full term. Gallegos gives this example: On a 30-year fixed-rate $200,000 mortgage with an interest rate of 4%, buyers will pay a total of $144,000 in interest if they take the full three decades to pay off their loan.</p> <p>If they instead take out a 10-year fixed-rate mortgage loan with an interest rate of 3.07% &mdash; not an unusually low rate for a shorter-term loan for a borrower with a solid credit score &mdash; they'll pay a total of just $32,500 in interest if they take the full decade to repay their loan. That's a difference of over $111,000!</p> <p>And here's another key benefit: If you take out a shorter-term loan, you'll build equity in that home faster. You can then tap that equity for emergency cash if you need it in the form of home equity lines of credit or home equity loans.</p> <h2>Cons</h2> <p>There are downsides to taking on a shorter-term loan. Your monthly payment will be considerably higher. On that $200,000 10-year loan with an interest rate of 3.07%, you'll pay $1,937 every month just for principal and interest. That monthly figure doesn't include anything you pay to cover property taxes and homeowners insurance.</p> <p>With a 30-year mortgage loan of $200,000 and an interest rate of 4%, you'll pay just $955 each month in principal and interest.</p> <p>Gallegos also says that shorter-term loans come with higher risk. What if you or your spouse lose a job? What if you have to take a pay cut or you suffer a medical crisis? You might be able to afford that larger mortgage payment now, but is there enough room in your budget to afford it should your finances suddenly take a hit?</p> <p>This is why Gallegos recommends that homeowners always have breathing room in their budgets. Financial experts say that your housing expenses should total no more than 35% of your gross monthly income. But to be on the safe side, you might want to make sure that your housing expenses eat up no more than 28% of your gross monthly income.</p> <p><em>How long is your mortgage?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/heres-how-to-save-thousands-on-your-mortgage">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-times-its-actually-okay-to-be-underwater-on-your-home">6 Times It&#039;s Actually Okay to Be Underwater on Your Home</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-surprising-things-lenders-check-besides-your-credit-score">4 Surprising Things Lenders Check Besides Your Credit Score</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-times-a-refinance-is-the-wrong-move">3 Times a Refinance Is the Wrong Move</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-benefits-of-carrying-a-mortgage-into-retirement">5 Benefits of Carrying a Mortgage Into Retirement</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-things-sellers-should-watch-out-for-during-escrow">9 Things Sellers Should Watch Out for During Escrow</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing 15-year loan 30-year loan home ownership interest rates loans short-term mortgages Thu, 10 Sep 2015 13:00:10 +0000 Dan Rafter 1549174 at http://www.wisebread.com 6 Times It's Actually Okay to Be Underwater on Your Home http://www.wisebread.com/6-times-its-actually-okay-to-be-underwater-on-your-home <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-times-its-actually-okay-to-be-underwater-on-your-home" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/house_mortgage_water_000021615609.jpg" alt="Times it&#039;s okay to underewater on your home" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>In the last decade or so, it's become quite common for people to find themselves underwater on their home loans. When real estate values plummeted around 2008, millions of people ended up owing more than what their properties were worth. This led to mass foreclosures and big financial problems throughout the country.</p> <p>Being underwater on your home is rarely a good thing, but there are some cases when homeowners can get through unaffected as long as they are responsible and otherwise in good financial shape.</p> <p>Here's a look at some cases when owing more than you own is not the worst thing in the world:</p> <h2>1. If You Have No Immediate Plans to Sell</h2> <p>The best advice for anyone who is underwater on their home is to stay put. It's obviously hard to predict what life may throw at you, but if you've purchased a home with the intention of staying in it for a long time, being underwater on <a href="http://www.wisebread.com/6-money-moves-to-make-for-tomorrows-mortgage">your mortgage</a> doesn't matter too much. This is especially true if you have a fixed-rate mortgage and are making the monthly payments without trouble. Someone who continues to live in a home really doesn't need to worry about its value. If you keep making payments, you'll eventually own the home free and clear, no matter what happens to real estate values.</p> <h2>2. If You're Working to Make Your House More Valuable</h2> <p>You might find yourself underwater, but if it's because you've spent money to boost the overall value of the home, it's probably okay. Maybe you renovated the entire kitchen or even added a family room or bedroom. Maybe you spent money to finish the basement. This money should be viewed as an investment that will pay off down the road. Just make sure you continue making payments on the mortgage in the meantime, as you wait for the value of the home to shoot up.</p> <h2>3. If the Home Is Generating Healthy Rental Income</h2> <p>If you're renting out the home and have tenants with good credit, being underwater is okay. If you're lucky, the rental income will meet or even exceed the mortgage payments. Be sure to have a plan if the rental income goes away, however.</p> <h2>4. If You Want to Offset Capital Gains</h2> <p>Generally speaking, selling a house for less than you paid for it isn't a good thing. But if the house is not your primary residence, there may be ways to save on your taxes by selling at a loss. If you own a rental property for more than a year, you may be able to sell it at a loss and have this count as a reduction of your income. This is called a <a href="http://www.irs.gov/publications/p544/ch03.html#en_US_2014_publink100072547">section 1231 loss</a>, according to the IRS. You can also use a capital loss to offset a capital gain, if you made a profit on another property. Note that this only works for investment properties, not for properties serving as your primary residence.</p> <h2>5. When Your Property Taxes Will Be Reduced</h2> <p>One of the silver linings about seeing a house decline in value is that you might pay less in property tax. If you're paying 1.25% annually in property tax, and your house has declined in assessed value by $50,000, that's a $675 savings. If your plan is to stay in the house for a long time, then you should be pleased to pocket a little bit of extra savings. Note that in these cases, there may be a difference between the home's market value versus the local government's assessed value for tax purposes, so check with your municipality.</p> <h2>6. If You Are Getting a Good Return on Your Money Elsewhere</h2> <p>These days, interest rates are so low that there's less of an incentive to make extra mortgage payments. You may feel tempted to boost your payments to ensure that your equity is more than what you owe, but if you have no plans to sell immediately, you may be better off placing that money in the stock market or other investments. As long as you continue making payments on the house, you may find that earning a 9% return from an index fund is a better deal than pumping the mortgage.</p> <p><em>Have you ever been underwater on a home? How did you deal with the situation?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/6-times-its-actually-okay-to-be-underwater-on-your-home">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-benefits-of-carrying-a-mortgage-into-retirement">5 Benefits of Carrying a Mortgage Into Retirement</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/whats-faster-for-mortgage-payoff-100-month-extra-or-1-payment-year-extra">What&#039;s Faster for Mortgage Payoff: $100/Month Extra or 1 Payment/Year Extra?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-biggest-regrets-of-new-homeowners">8 Biggest Regrets of New Homeowners</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-surprising-things-lenders-check-besides-your-credit-score">4 Surprising Things Lenders Check Besides Your Credit Score</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/when-it-makes-sense-to-apply-for-a-mortgage-loan-without-your-spouse">When It Makes Sense to Apply for a Mortgage Loan Without Your Spouse</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing home ownership loans mortgages values Mon, 11 May 2015 15:00:11 +0000 Tim Lemke 1414191 at http://www.wisebread.com The 4 Most Overpriced U.S. Housing Markets http://www.wisebread.com/the-4-most-overpriced-us-housing-markets <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-4-most-overpriced-us-housing-markets" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000007148318_Large.jpg" alt="housing market" title="housing market" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>A great deal has changed since the housing bust of last decade. No longer are many markets in the Southwest hugely underpriced due to high foreclosure rates. Instead, most of the country has since normalized &mdash; and in some big-city markets, home prices are back at pre-recession peaks. While the average American home is still <a href="http://www.marketwatch.com/story/10-most-overvalued-and-undervalued-housing-markets-2014-10-01">undervalued by approximately 3%</a>, homes in some of the biggest metropolitan areas are actually overvalued by up to 19%. (See also: <a href="http://www.wisebread.com/you-shouldn-t-buy-a-home-if?ref=seealso">You Shouldn't Buy a Home If&hellip;</a>)</p> <p>If you're considering purchasing a home in the coming months, it behooves you to know which markets are overpriced. Here's a look at the four most overpriced U.S. housing markets.</p> <h2>Denver, Colorado</h2> <p>While Denver's home market is only overpriced by about 7%, it's <a href="http://www.denverpost.com/business/ci_26289384/price-hikes-slowing-but-denver-housings-verge-unaffordable">nearing unaffordable</a> for many of the city's residents. In May, housing in Denver cost, on average, 33.64% of income. In a balanced market, that number is closer to 30%. This means that residents are spending more money on housing, so they are spending less on other things, like food and entertainment. Denver isn't yet <em>unaffordable</em>, but you may find it hard to purchase a home there unless your income is well above average for the area.</p> <h2>Honolulu, Hawaii</h2> <p>While Honolulu no longer&nbsp;<a href="http://www.valuewalk.com/2014/02/honolulu-ties-new-york-as-most-overpriced-us-city/">ties with New York</a> as the most overpriced city in America when it comes to housing, homes there are still overvalued by about 10%. Hawaii is known for its high cost of housing, caused in part by the fact that there is a limited amount of land available for construction. In addition, nearly all building and repair materials must be imported, which makes it more expensive to build and maintain homes. If you're buying a home in Honolulu, keep in mind that you're likely to pay inflated local prices.</p> <h2>California</h2> <p>While it's an oversimplification to say that all homes in California are overvalued, most of the large metropolitan areas have significantly overpriced housing. Los Angeles and Orange County tie at the top of the list, with houses overvalued at 15%. San Francisco is next, at 12%, followed by Riverside-San Bernardino at 11%, San Jose at 10%, and Oakland at 7%. California has long been known for its high cost of living, and it doesn't look like that will change anytime soon.</p> <h2>Texas</h2> <p>Texas is a state with some significant disparity when it comes to home value. Homes in at least a couple of metropolitan areas, though, are overvalued. In fact, Austin topped Trulia's most recent list, with houses there overpriced by 19%. Houston also made the top 10, though homes there are only overvalued by 8%. These two cities are growing quickly &mdash; some may even say that they are experiencing something of a renaissance. Growth like that almost always causes home prices to go up, but when it happens this fast (especially in Austin), there may come a time when <a href="http://finance.yahoo.com/blogs/top-best-most/overpriced-housing-markets%E2%80%94headed-for-a-bubble-165358921.html">the bubble has to burst</a>.</p> <h2>Does It Matter?</h2> <p>Whether your local housing market is overvalued may matter more to certain types of buyers. If you're planning to live in a home for a long time, for example, you may be willing to pay a bit more. Or, if it's cheaper to buy a house than to rent one, then whether your housing market is overpriced will be less of a concern.</p> <p>If, on the other hand, you're getting into real estate as an investment (or you hope to resell within a few years), you'll care a lot more about what's happening in your housing market.</p> <p>In general, however, if you're ready to buy a home and can comfortably afford to do so, then go ahead &mdash; interest rates are low and it may yet be possible to score a great deal.</p> <p><em>Are you looking to buy a home in one of the overpriced markets? How do you think about your home's value as you consider the future?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/sarah-winfrey">Sarah Winfrey</a> of <a href="http://www.wisebread.com/the-4-most-overpriced-us-housing-markets">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-questions-real-estate-agents-hear-most-often">8 Questions Real Estate Agents Hear Most Often</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-most-expensive-zip-codes-in-the-country">10 Most Expensive Zip Codes in the Country</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-things-sellers-should-watch-out-for-during-escrow">9 Things Sellers Should Watch Out for During Escrow</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-a-buying-a-foreclosed-home-ever-a-good-idea">Is Buying a Foreclosed Home Ever a Good Idea?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-famous-houses-from-film-and-tv-you-can-buy">7 Famous Houses From Film and TV You Can Buy</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing home buying home ownership home prices housing market rental prices Tue, 13 Jan 2015 18:00:07 +0000 Sarah Winfrey 1277861 at http://www.wisebread.com Your House Is a Hobby, Not an Investment http://www.wisebread.com/your-house-is-a-hobby-not-an-investment <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/your-house-is-a-hobby-not-an-investment" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/home-1008037-small.jpg" alt="home" title="home" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>We recently sold our first house. We bought the house just over four years ago and put a lot of time, sweat, and money into it. Luckily, we bought a fixer-upper at the right time and unlike many people, we were able to sell it and get the money we put into it back out. But, since the housing crash in 2008, I've probably heard the phrase &quot;a house isn't an investment&quot; about 5,000 times. So if you shouldn't think of your house as an investment, what should you think of it as? My answer &mdash; a hobby. (See also: <a href="http://www.wisebread.com/things-i-wish-i-knew-before-i-bought-my-second-house">Things I Wish I Knew Before I Bought My Second House</a>)</p> <p>Here are my four top reasons that a home is a hobby, not an investment.</p> <h2>1. You Should Only Do It If You Will Love It</h2> <p>There is no such thing as a low maintenance house. <a href="http://www.wisebread.com/the-5-best-washing-machines">Washing machines</a> break, furnaces need tune ups, windows need washing, lawns need mowing. Home repair can be fun, but you should only willingly take it on if it's something you'll enjoy. Like with a hobby, you don't have to love every minute of it, but generally you should enjoy the extra work that goes into being a homeowner. If you're unsure of whether or not you should move, check out <a href="http://womensmoneyweek.com/should-you-move-checklist/">my checklist</a>.</p> <h2>2. You Will Sink a Lot of Money Into It</h2> <p>Even if you buy a house that's &quot;move-in ready&quot; the house-inspector is more than likely going to recommend some additional work to be done right after you move in. And even after you move in, things will start breaking. Small items also add up &mdash; items like curtains or shelves. (Seriously, if you've never bought a house you probably have no idea how much <a href="http://www.wisebread.com/how-to-make-your-own-curtains">window coverings like shades and curtains</a> cost.) Besides the tangible items, there are dollars you spend that you'll never see again, like homeowners insurance. (My renter's insurance policy used to be $13/month; homeowners insurance is closer to $100.) Many hobbies are pricey, but <a href="http://www.wisebread.com/what-it-really-costs-to-own-a-home">homes are even pricier</a>.</p> <h2>3. You Will Sink a Lot of Time and Energy Into It</h2> <p>Almost all hobbies have a learning curve that require a lot of time to climb and once you've learned your hobby, you will continue to spend hours pursuing it. Homes similarly take a lot of time. Beyond the start up maintenance (perhaps wallpaper to be removed and walls to be painted), day-to-day maintenance takes time and effort. And before long, you'll have a major project to undertake, such as a bathroom or kitchen remodel, or a roof to replace. Even if you hire someone to do most of the maintenance and remodeling, you still have to spend the time and energy choosing the right person to hire and then making choices about tile options, paint color, etc. These are not small tasks.</p> <h2>4. Your Taxman Thinks Your House Is a Hobby</h2> <p>Another reason to think of your house as a hobby and not an investment is that the IRS sees your home that way (at least sort of).</p> <p>Without getting too deep into tax matters, if you buy a stock for $100 and then the stock loses money and you have to sell the stock for $50, you'll probably get to <a href="http://www.wisebread.com/tax-deductions-to-start-thinking-about-now">deduct on your taxes that $50 you lost</a>. But, if you buy your house for $100,000 and sell it for $50,000, <a href="http://www.irs.gov/Help-&amp;-Resources/Tools-&amp;-FAQs/FAQs-for-Individuals/Frequently-Asked-Tax-Questions-&amp;-Answers/Capital-Gains,-Losses,-Sale-of-Home/Losses-(Homes,-Stocks,-Other-Property)/Losses-(Homes,-Stocks,-Other-Property)">you aren't going to see a tax deduction</a>. So the IRS doesn't see your house as an investment. Instead, it's more similar to a hobby. Again, without making things too complicated, you can't deduct losses for hobbies. For instance, if you knit and sell the occasional sweater for a total of $1,000 a year, you can't claim a deduction for the $4,000 you spent on yarn and knitting equipment that year (this is a loss of $3,000, which you could deduct if you were running a business).</p> <p>I love being a homeowner (most days), but not because my house is an investment. Thinking of it as a hobby is a far more realistic way to view it.</p> <p><em>Do you think of your house as an investment? As a hobby? Or as something else entirely?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/elizabeth-lang">Elizabeth Lang</a> of <a href="http://www.wisebread.com/your-house-is-a-hobby-not-an-investment">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/low-interest-rates-do-not-make-homes-affordable">Low Interest Rates Do Not Make Homes Affordable</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-things-sellers-should-watch-out-for-during-escrow">9 Things Sellers Should Watch Out for During Escrow</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/23-hidden-costs-of-buying-an-old-house">23 Hidden Costs of Buying an Old House</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-you-should-ask-for-a-clue-report-before-buying-a-home">Why You Should Ask for a CLUE Report Before Buying a Home</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-pros-and-cons-of-paying-cash-for-a-house">The Pros and Cons of Paying Cash for a House</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing buying a home home ownership Tue, 13 Aug 2013 09:36:48 +0000 Elizabeth Lang 980981 at http://www.wisebread.com Low Interest Rates Do Not Make Homes Affordable http://www.wisebread.com/low-interest-rates-do-not-make-homes-affordable <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/low-interest-rates-do-not-make-homes-affordable" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/2683703739_818b785616.jpg" alt="real estate signs" title="real estate signs" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>Does the sales price of your home matter if the mortgage rate is low enough?</p> <p>If you ever thought about buying a home, the recent all-time low mortgage rates must be enticing. And this is exactly how the government wants everybody to feel, by the way. In an effort to keep homes affordable (as they claim), the federal reserve is driving down interest rates to record lows. But is what they are doing helping? Let's take a look.</p> <p>Just a short couple of years ago, interest rates were at 6 percent. For a $300,000 mortgage, the payment would have been $1798.65 a month. With the interest rate at 4.5 percent, the monthly payment drops to $1520.06. So far so good, because it costs us less to own our home.</p> <p>But wait a minute.</p> <p>Most people don't just refinance and lower their payment. These days, with rates at 4.5 percent, roughly the same monthly payment ($1798.73, to be exact) could get you a $355,000 mortgage. So what do people do? Instead of buying a $350,000 home with their down payment and loan approval letter, they shop for a $400,000 home. And who can blame them? An extra $50,000 almost always gets them a nicer place. Sometimes, it would actually allow them to pay more for a house than they otherwise would.</p> <p>For example, they might have been able to get the house for $350,000 if they tell the seller that the offer is all they are approved for, but if a buyer can muster up $400,000, he might end up offering $360,000. Same house, higher transaction price. Having a lower interest rate also allows more people to qualify for a home. This is a good thing for someone who couldn't afford the payment before, but it drives prices higher because of more demand, ultimately lowering affordability for everybody.</p> <p>In other words, lowering interest rates gets more people thinking about buying a home and drives up demand. Most of the time, that's a noble and worthwhile goal, since home ownership is still a dream of many. But as you've witnessed in the last decade, allowing more people to own homes mindlessly is just reckless. What we really need to do is make homes affordable so financially responsible people can actually afford the payments, which is only achievable through lower home prices.</p> <p>I'm a homeowner too, so the selfish side of me is thinking that high-priced homes are good. But for the economy to grow and our country to be a place people want to be in the future, nice homes need to be affordable without government intervention. Unaffordable home prices will never get us there. Please allow homes to be affordable again for the hard-working American.</p> <p><em>Related articles from MoneyNing:</em></p> <ul> <li><em>How to Recast Your Mortgage</em></li> <li><em>First Time Home Buyer Tips and Guide</em></li> </ul> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/david-ning">David Ning</a> of <a href="http://www.wisebread.com/low-interest-rates-do-not-make-homes-affordable">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-buying-a-home-the-missing-manual">Book Review - Buying a Home: The Missing Manual</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-it-the-end-of-6-real-estate-commissions">Is It the End of 6% Real Estate Commissions?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/root-cause-of-the-financial-crisis">Root cause of the financial crisis</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/real-estate-appraisals-ten-things-most-people-just-dont-understand-about-them">Real Estate Appraisals - Ten things most people just don&#039;t understand about them</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/welcome-to-container-city-how-shipping-containers-are-recycled-into-green-dwellings">Welcome to Container City - How Shipping Containers Are Recycled into Green Dwellings</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Financial News Real Estate and Housing buying a home government home ownership housing interest rate mortgage real estate Wed, 04 Aug 2010 17:00:31 +0000 David Ning 196125 at http://www.wisebread.com 6 Myths About Real Estate http://www.wisebread.com/6-myths-about-real-estate <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-myths-about-real-estate" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/real estate.jpg" alt="home" title="home" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p class="MsoPlainText">When stock markets go down, people tend to thank their lucky stars they own real estate, and others yet rush to the real estate market as a safe haven. But real estate isn’t always what it is cracked up to be either. Here are six common myths about owning real estate. </p> <p class="MsoPlainText">&nbsp;</p> <h2 class="MsoPlainText">&quot;Bricks &amp; Mortar are as Solid as it Gets&quot;</h2> <p class="MsoPlainText">While technically this is true (a hammer will prove this fact, albeit leaving a bit of a mess in your living room), real estate is not to be considered a solid investment that is impervious to market fluctuations. <strong>You can lose money investing in property</strong> – a lot of it. </p> <p class="MsoPlainText">Where real estate makes up for market losses in some people’s minds is in the accumulation of wealth through paying down a mortgage and increasing the principal share. You may sell the property at a loss, but end up with more money in your pocket than when you started (if you’re lucky, after fees and commissions). This is an example of <a href="/borrowing-to-invest-helpful-or-hurtful" target="_blank">“good debt”</a>  hard at work; something that can be achieved with modalities that include but are not limited to real estate. </p> <p>  <br /> <h2 class="MsoPlainText">&quot;Fixer-Uppers Mean Big Profits&quot;</h2> <p class="MsoPlainText">Susie bought a fixer-upper for $180,000, and enjoyed renovating it over the following eight years, at which point she sold it gleefully for $270,000. However, once she sat down and took into account the cost of buying and selling, property taxes, and her renovation costs of $35,000, her actual profits from this exercise were less than $20,000. Her effective rate of return (not accounting for inflation, which makes her overall profit even more grim) was less than 1.5% per year. So <strong>although big dollar gains may seem alluring, they aren’t always as profitable as at first blush.</strong> Let’s not forget that unless you enjoy living in squalor while the house is renovated, your quality of life and enjoying your home could be substandard. Or conversely, allowing the home to sit empty while you maintain another home has additional financial costs that affect your rate of return. </p> <p class="MsoPlainText">&nbsp;</p> <h2 class="MsoPlainText">&quot;Real Estate is the Best Tax-Preferred Investment&quot;</h2> <p class="MsoPlainText">Real estate is indeed a mechanism for harboring potentially large gains from taxation, although capital gains-based investments are also tax-preferred. In fact, <strong>if you invest the same amount of money in shares for the same duration you own your home for, you could arguably see even larger after-tax returns</strong>. Most people however, don’t have the stomach or patience to invest hundreds of thousands of dollars into the markets with substantial loans (mortgage-equivalents) to go along with it, and then sit patiently on said market investment for the next 15 years or so. </p> <p>  <br /> <h2 class="MsoPlainText">&quot;You Call All the Shots with Real Estate&quot;</h2> <p class="MsoPlainText">Although you have the ability to decide where, when, and how to buy, and then you have complete control over how the property looks and feels, you don’t call the shots with regards to the evolution of your neighborhood and how it affects your property value. <strong>You could have the spiffiest house on the block, but if the rest of the block isn’t following suit, you won’t likely recoup the money spent to spiff up the place when you sell.</strong> Even one crappy neighbor can ruin the party. </p> <p>  <br /> <h2 class="MsoPlainText">Speaking of Neighbors - and Liquidity…</h2> <p class="MsoPlainText">You may move in to discover that your dreams of popping by the neighbor’s place to borrow a cup of sugar are dashed when you realize your neighbor is a drug dealer with a grow op in the basement, and all manner of folks coming through at all times of the day and night. Or your neighbor could simply be a mean, crotchety person who evolves into the enemy of all that is good in your world. </p> <p class="MsoPlainText">This is when you begin to understand an inherent disadvantage of real estate in comparison to investing in shares: <strong>real estate is not as liquid, and you could be stuck with a nasty situation for longer than you are comfortable with</strong>. Being personally invested in this way can be downright painful. </p> <p>  <br /> <h2 class="MsoPlainText">&quot;Property is Less Volatile Than Shares&quot;</h2> <p class="MsoPlainText">If you could monitor the value of your property every day like you do with stocks, you might just discover that <strong>your rock-solid real estate investment is as wobbly day-to-day as any stock is</strong>. Thank goodness you can’t. Now I wonder what would happen if we couldn’t monitor our stock investments every day…we may all be much richer in the end, with fewer grey hairs for all our worrying about market fluctuations. </p> <p class="MsoPlainText">&nbsp;</p> <p class="MsoPlainText">&nbsp;</p> <p class="MsoPlainText">Having debunked six common myths about real estate,<strong> I must note that if properly incorporated into your overall portfolio, real estate has a very legitimate place as a tax-preferred wealth creation mechanism.</strong> I believe the world is learning some valuable lessons right now about the consequences of overextending ourselves with oversized mortgages. But this too – along with the market fluctuations we are seeing – will pass, and hopefully we will emerge all the wiser as victors…eventually. As with so many investments, give it time. </p> <p class="MsoPlainText">&nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/nora-dunn">Nora Dunn</a> of <a href="http://www.wisebread.com/6-myths-about-real-estate">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/23-hidden-costs-of-buying-an-old-house">23 Hidden Costs of Buying an Old House</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-a-buying-a-foreclosed-home-ever-a-good-idea">Is Buying a Foreclosed Home Ever a Good Idea?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-is-private-mortgage-insurance-anyway">What Is Private Mortgage Insurance, Anyway?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-only-5-rules-you-need-to-know-about-investing-in-real-estate">The Only 5 Rules You Need to Know About Investing in Real Estate</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-get-into-a-good-school-district-for-less">How to Get Into a Good School District for Less</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing buying a house home ownership property investment property management real estate investment Thu, 16 Oct 2008 01:25:37 +0000 Nora Dunn 2522 at http://www.wisebread.com Your equity was always imaginary http://www.wisebread.com/your-equity-was-always-imaginary <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/your-equity-was-always-imaginary" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/land.jpg" alt="Productive land" title="Productive Land" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>You used to hear the term &quot;land rich, cash poor&quot; for people who owned valuable land but didn&#39;t have quite enough money to make ends meet.  It&#39;s an expression that dates back to the days when property was the only kind of real wealth there was.  It&#39;s kind of fallen out of fashion of late.  But as property values keep falling, it&#39;s worth thinking about the ways in which land is wealth.</p> <p>In those days, land was wealth because it produced income--crops, grazing, timber, game, etc.  If the land didn&#39;t produce an income, it wouldn&#39;t be considered especially valuable (so, the owner wouldn&#39;t really be land rich), but it was possible to ruin the income from your land through poor management or bad luck.  That was how you found yourself land rich but cash poor.</p> <p>The only sort of land ownership that most people have any involvement with nowadays is home ownership.  Ordinary urban and suburban plots don&#39;t tend to be particularly productive (although you can grow a garden on one, and actually produce quite a bit), but there&#39;s a second way in which land can be valuable:  You can rent it out.  Or--and this is really the same thing--owning a home makes it unnecessary for you to rent one.</p> <p>Economists use this logic all the time--<strong>not having to spend money</strong> is equivalent to <strong>receiving the same amount</strong>.  This economic logic is correct, although you have to take care not to fool yourself about what expense you&#39;re really avoiding, as in the old joke:  </p> <blockquote><p>This guy gets home from work really late.  When his wife asks why, he explains that he decided save 50 cents by walking home instead of taking the bus.  His wife says, &quot;Idiot!  If you were going to do that, you should have saved $5 by walking home instead of taking a cab!&quot;</p> </blockquote> <p>This, then is another way of valuing a home--it&#39;s worth whatever you&#39;d have to pay to rent an equivalent place to live.  (Of course, you need to adjust for any <a href="/renting-is-cheaper">difference in expenses</a>--taxes, maintenance, insurance, water, sewer, garbage, etc.)</p> <p>We&#39;ve mentioned two ways to value land:  its <strong>productive value</strong> and its <strong>rental value</strong>.  The third way to value land at its <strong>market value</strong>.</p> <p>Market value, of course, is the most common way to value anything.  It doesn&#39;t work very well for land for various reasons:  each piece of land is different, most pieces change hands very rarely, owners will resist selling if the sale price won&#39;t cover the mortgage, etc.  (It&#39;s because of all these problems that we even have such a thing as &quot;appraisers.&quot;)</p> <p>Along with all these problems with valuing land by its market value, the worst thing is that it&#39;s prone to lead you to imagine that the &quot;market value&quot; minus what you owe on your mortgage is your &quot;equity.&quot; </p> <p>In <a href="http://www.paidtwice.com/2008/03/10/it-doesnt-matter-what-my-house-is-worth/">It Doesn&#39;t Matter What My House Is Worth</a>, <a href="http://www.paidtwice.com/">paidtwice</a> talks about the difference between equity that&#39;s produced by paying down the mortgage versus the equity that appears out of nothing if the market values of the house goes up.  She makes a good point, which is that if house prices in general are rising, then you can&#39;t translate that latter equity into an improved standard of living:  If you sell and move, your new house is just as overpriced as your old one was; you don&#39;t come out ahead.</p> <p>The fact is, though, that your equity is imaginary whether it&#39;s produced by soaring property values <strong>or</strong> by paying off the mortgage.  Unless you&#39;re going to sell it, your property&#39;s only real value is what it can produce, plus what you can rent it for (or save by not having to rent someplace else).</p> <p>This has always been true.  Hopefully, it&#39;ll be a little more obvious going forward.  Confusion about real value is what leads to bubbles and crashes.  When only a few people get confused, they&#39;re mostly the people who suffer the consequences.  When you get the sort of mass confusion we&#39;ve had over the past few years, though, popping the bubble leads to bad consequences for lots of other people as well.</p> <p>I think we&#39;ll know we&#39;re clear of these economic troubles when expressions like &quot;land rich but cash poor&quot; make sense again.  It&#39;ll mean that people are valuing land by what it&#39;s really worth.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/your-equity-was-always-imaginary">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/weak-credit-you-can-still-get-a-mortgage-despite-tough-lending-standards">Weak Credit? You Can Still Get a Mortgage Despite Tough Lending Standards</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/do-you-really-need-a-20-percent-down-payment-for-a-house">Do You Really Need a 20 Percent Down Payment for a House?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/low-interest-rates-do-not-make-homes-affordable">Low Interest Rates Do Not Make Homes Affordable</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-you-ready-for-home-ownership">Are You Ready for Home Ownership?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-things-sellers-should-watch-out-for-during-escrow">9 Things Sellers Should Watch Out for During Escrow</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing equity home loans home ownership real estate Wed, 12 Mar 2008 13:13:24 +0000 Philip Brewer 1910 at http://www.wisebread.com Are You Ready for Home Ownership? http://www.wisebread.com/are-you-ready-for-home-ownership <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/are-you-ready-for-home-ownership" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/house.jpg" alt="white picket fence" title="white picket fence" class="imagecache imagecache-250w" width="250" height="290" /></a> </div> </div> </div> <p>My husband and I just moved to the Great Northwest, and we batted around the idea of purchasing our first home. We are both college graduates, have great jobs, and we’re ready to live the American Dream! Not only are we ready to live “The Dream”, but the financial aspects of home ownership are certainly appealing. I mean, who likes throwing their money down the toilet every month in rent checks? I sure don’t! So, why would we choose to rent rather than to purchase a home? </p> <p>Everyone will tell you that the first step to purchasing a house is to analyze your budget. Can you afford the monthly mortgage payment? What about taxes, insurance, and maintenance? Would you be able to handle a financial emergency, such as your heater dying (and needing to be replaced immediately!) in the dead of winter? Most professionals will tell you that if you answered yes to all of those questions then you’re on your way to becoming a homeowner. </p> <p>My husband and I answered a resounding “YES!” to all of those questions, but we have decided to rent an apartment rather than to purchase a house. Why? Because we are not ready to be homeowners. Although we want to live the American Dream with a house and white-picket fence, we are not ready for the responsibility of owning a home. Sure, we can afford the mortgage payments, but neither one of us wants to make those payments. We have other financial goals that we want to meet before we take on the burden of a house payment and house maintenance. Additionally, neither one of us likes house or yard work! So, after much deliberation, we decided that we prefer the relatively worry free life-style that renting affords us. </p> <p>Although homeownership is a hallmark of the American Dream, the first step to purchasing a house should be to ask yourself if you’re ready for the <em>responsibility</em> of that Dream. Are you ready for the financial commitment? Are you ready for the preventive and emergency maintenance? Are you ready for the taxes? If you answered “YES!” then you are able to move to the second step of figuring out if you can afford the Dream.<span> </span> </p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/jessica-harp">Jessica Harp</a> of <a href="http://www.wisebread.com/are-you-ready-for-home-ownership">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/details-of-obamas-mortgage-plan-released-will-you-benefit">Details of Obama&#039;s mortgage plan released - Will you benefit?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/low-interest-rates-do-not-make-homes-affordable">Low Interest Rates Do Not Make Homes Affordable</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/your-equity-was-always-imaginary">Your equity was always imaginary</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-things-sellers-should-watch-out-for-during-escrow">9 Things Sellers Should Watch Out for During Escrow</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-much-are-pricey-home-upgrades-really-worth">How Much Are Pricey Home Upgrades Really Worth?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Home Real Estate and Housing home ownership house real estate Fri, 20 Jul 2007 06:11:21 +0000 Jessica Harp 868 at http://www.wisebread.com