Joe Houghton's Blog

Buying a home can be one of your most significant investments in life. Not only are you choosing your dwelling place, and the place in which you will bring up your family, you are most likely investing a large portion of your assets into this venture. The more prepared you are at the outset, the less overwhelming and chaotic the buying process will be. The goal of this page is to provide you with detailed information to assist you in making an intelligent and informed decision. Remember, if you have any questions about the process, I'm only a phone call or email away!

 

The Best Investment

As a fairly general rule, homes appreciate. Some years will be more, some less. The figure will vary from neighborhood to neighborhood, and region to region.  For this example lets assume that homes appreciate an average of 5% a year.

Five percent may not seem like that much at first. Stocks (at times) appreciate much more, and you could earn over six percent with the safest investment of all, treasury bonds.

But take a second look…

Presumably, if you bought a $200,000 house, you did not pay cash for the home. You got a mortgage, too. Suppose you put as much as twenty percent down – that would be an investment of $40,000.

At an appreciation rate of 5% annually, a $200,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your annual "return on investment" would be a whopping twenty-five percent.

Of course, you are making mortgage payments and paying property taxes, along with a couple of other costs. However, since the interest on your mortgage and your property taxes are both tax deductible, the government is essentially subsidizing your home purchase.

Your rate of return when buying a home is higher than most any other investment you could make.

If you are moving to a home for the first time, you are going to be very pleased with all the new space you have available. You may have to even buy more "stuff."

 

Income Tax Savings

Because of income tax deductions, the government is basically subsidizing your purchase of a home. All of the interest and property taxes you pay in a given year can be deducted from your gross income to reduce your taxable income.

 

For example, assume your initial loan balance is $150,000 with an interest rate of eight percent. During the first year you would pay $9969.27 in interest. If your first payment is January 1st, your taxable income would be almost $10,000 less – due to the IRS interest rate deduction.

Property taxes are deductible, too. Whatever property taxes you pay in a given year may also be deducted from your gross income, lowering your tax obligation.

Stable Monthly Housing Costs

When you rent a place to live, you can certainly expect your rent to increase each year – or even more often. If you get a fixed rate mortgage when you buy a home, you have the same monthly payment amount for thirty years. Even if you get an adjustable rate mortgage, your payment will stay within a certain range for the entire life of the mortgage – and interest rates aren’t as volatile now as they were in the late seventies and early eighties.

Imagine how much rent might be ten, fifteen, or even thirty years from now? Which makes more sense?

Forced Savings

Some people are just lousy at saving money, and a house is an automatic savings account. You accumulate savings in two ways. Every month, a portion of your payment goes toward the principal. Admittedly, in the early years of the mortgage, this is not much. Over time, however, it accelerates.

Second, your home appreciates. Average appreciation on a home is approximately five percent, though it will vary from year to year, and in some years may even depreciate.. Over time, history has shown that owning a home is one of the very best financial investments.

 

Freedom & Individualism

When you rent, you are normally limited on what you can do to improve your home. You have to get permission to make certain types of improvements. Nor does it make sense to spend thousand of dollars painting, putting in carpet, tile or window coverings when the main person who benefits is the landlord and not you.

Since your landlord wants to keep his expenses to a minimum, he or she will probably not be spending much to improve the place, either.

When you own a home, however, you can do pretty much whatever you want. You get the benefits of any improvements you make, plus you get to live in an environment you have created, not some faceless landlord.

 

 

More Space

Both indoors and outdoors, you will probably have more space if you own your own home. Even moving to a condominium from an apartment, you are likely to find you have much more room available – your own laundry and storage area, and bigger rooms. Apartment complexes are more interested in creating the maximum number of income-producing units than they are in creating space for each of the tenants.

If you are moving to a home for the first time, you are going to be very pleased with all the new space you have available. You may have to even buy more "stuff."

You can repair kitchen counter mishaps with only a little time and money. Big boo-boos, however, will need professional help.
Repair kitchen counters (http://www.houselogic.com/articles/green-clean-countertops-keep-food-prep-safe-chemicals/) that show a history of wine spills, dropped pans, and unidentified sharp objects, and you'll maintain the value of your kitchen and home. You can easily hide some counter mishaps, (http://www.hometips.com/repair-fix/countertops-laminate-chips-burns.html) while only professional contractors can solve other surface problems. Here's a look at counter cures and lost causes.
Granite
Even granite counters suffer kitchen wear and tear. But you can make them shine with a little time and know-how. After you fix them, don't forget to reseal them.

Cracks, chips, scratches: Fill nicks in granite by building up layers of epoxy resin colored to match the stone. Clean the area first with acetone, which breaks down grease. Be sure to open a window for ventilation.

Stains: The type of stain--wine or ink, oil or bleach--determines the type of poultice you'll need to suck it out. A paste of flour and hydrogen peroxide pulls out grease, oil, bleach, and ink stains; a mix of flour and bleach cleans wine stains. If you want to go commercial, check out Alpha, Aqua Mix, and StoneTech stone cleaners. Cost: $6 to $20.
Solid surface counters
Solid surface countertops, such as Corian (http://www2.dupont.com/Corian_Global_Landing/en_US/index.html), are man-made from resin, acrylic, and other materials. They're tough but not impervious to scratches and stains. To repair minor scratches, rub a white polishing compound on the area with a wool pad, then apply a countertop wax.

For deeper scratches or cuts, call a professional. Figure labor costs at about $15 to $35 an hour. If you need to replace portions of the counter, figure at least $35 to $65 per square foot.
Laminate
Fixing gouges or covering burns in laminate is tough for mortals, though repairing minor problems is doable.
    •Fix small chips (http://www.diynetwork.com/how-to/how-to-repair-laminate-countertops/index.html) with laminate repair paste that matches the color of the countertop.

    •Cover scratches with countertop polish or car wax.

    •Fix peeling laminate with contact cement applied to both surfaces and pressed back into place.

    •Remove coffee and tea stains with vinegar or a paste of baking soda and household cleaner.

Bigger problems will require replacing the damaged stretch. Laminate comes in a billion colors, but finding an exact match for an old counter could be difficult.

To get the look you want, replace the counter. Labor will cost $15 to $35 per hour; countertops range from $3/linear ft. for Plain Jane straight-edged laminates to $100/linear ft. for laminates with a beveled edge that look like granite.
Tile
If you've planned ahead and stockpiled old tiles, then grab a few and replace cracked or scratched areas. If you don't have extra tile, then attempt the following first aid:
    •Wipe away scratches with a dab of toothpaste on a clean cloth.

    •Work epoxy glue into cracks with a toothpick, then color with matching oil-based artist paint.

    •Remove old grout with a utility knife, then replace with a rubber trowel.

Stainless steel
Stainless steel countertops become scratched, stained, and dull over time. While you'll never completely remove scratches, you can buff them into a warm patina by massaging with vegetable oil.

Remove stains with a paste of baking soda and dish soap. A sprinkle of Barkeeper's Friend (http://www.barkeepersfriend.com/) will remove stains without scratching.
Jane Hoback is a veteran business writer who has written for the Rocky Mountain News, Natural Foods Merchandiser magazine, and ColoradoBIZ Magazine.

Article From HouseLogic.com

By: Jane Hoback
Published: January 14, 2011

“Visit Houselogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®."

Protect against break-ins with a security check that shows where the entrances to your house--your doors--are vulnerable.

The easiest way for an intruder to get into your house is by coming through the door. All of your efforts to protect your home, including an electronic home security system, are useless if your doors aren't secure. Before you invest in an alarm system, conduct your own home security check (http://www.houselogic.com/articles/do-it-yourself-home-security-check-5-essential-steps/) of the entry points to your house.

Think like a burglar

First, stand back: is your front door visible from the street, or is it obscured by bushes? A door that's covered by shrubbery offers thieves the perfect chance to break in without being seen.

Trim back or remove shrubbery that offers cover for potential intruders.

Upgrade strike plates and deadbolts

Open all doors and check the strike plates, the metal fittings that catch bolts and latches. Chances are, they're fastened to the soft wood of the door jamb with two screws only. Not good. Upgrade security with four-screw strike plates ($3) and 3-inch screws that bite all the way into the stud behind the jamb.

When conducting your home security check, make sure exterior doors have deadbolts that throw at least a 1-inch bolt. Ask your locksmith to upgrade to Grade 1 or Grade 2 locksets and deadbolts ($25 to $80), the most secure options.

Check garage doors

Back doors and garage doors are more likely to be attacked than the front door. If you have an attached garage, disable the automatic opener and lock the garage door before you go away on a long trip. The door leading from the garage into the house should be outfitted with the same hardware as exterior doors and kept locked at all times.

Patio doors are vulnerable

Sliding doors leading to a patio can be a home's weak spot. To beef up security:

    •Closely inspect the doors and their hardware.

    •Replace any missing or broken locks.

    •Consider installing locking pins to prevent the doors from sliding.

    •Get into the habit of locking the doors, not just the screen, when patio doors are unattended.

Replace your entry door

Check the construction of your entry doors (http://www.houselogic.com/articles/choosing-an-exterior-door/). Those made of steel, solid wood, and impact-resistant fiberglass are all good choices for security. If you must have glass, make sure it is tempered or reinforced for added strength. Expect to pay $1,400 to $2,300 for an exterior replacement door, including installation.

Strengthen the lock on your outdoor storage shed

Don't ignore the doors on your outdoor storage shed, especially if you store tools there; they could be useful to a burglar. As with house doors, the best option is a secure deadbolt. If your shed doors are unable to accommodate a deadbolt, a heavy-duty slide bolt ($15 to $25) secured by a padlock is a good substitute.?

Joseph D'Agnese is a journalist and book author who has written numerous articles on home improvement. He lives in North Carolina.

 

Article From HouseLogic.com

By: Joseph D'Agnese
Published: November 12, 2010

Visit Houselogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.

Your property value will be higher if you live in a community where you can quickly and comfortably walk from your home to schools, parks, and stores, according to one study.

If you're able to walk instead of drive to the store for a gallon of milk, you and your neighborhood home values may benefit from the exercise. A 2009 study sponsored by CEOs for Cities (http://www.ceosforcities.org/pagefiles/WalkingTheWalk_CEOsforCities.pdf), a national consortium of civic and business leaders, found that homes in neighborhoods with good walkability (http://www.houselogic.com/articles/boost-your-neighborhoods-walkability/) are more valuable than similar homes in neighborhoods where residents have to drive to get to amenities.

Walkability raises home values

Walkability adds anywhere from $4,000 to $34,000 to home values, according to the study. The bigger, more urban the city (think San Francisco or Chicago), the bigger the boost in home prices walkability adds. Neighborhoods in cities with less dense populations like Tucson, Ariz., or Fresno, Calif., have the smallest boost in home prices from being walkable.

The availability of public transportation also played a role. The higher home values tended to show up in walkable neighborhoods near good public transportation (http://www.houselogic.com/articles/public-transportation-adds-value-home/) where people could live without an automobile.

To reach that conclusion, the study looked at 94,000 real estate sales of comparable homes in 15 major markets. In 13 of those markets, the walkable neighborhoods had higher home values than further-out neighborhoods with similar homes.

Walkability: The closer, the better

The study also looked at home prices in relation to a neighborhood's "Walk Score," which measures how close the homes were to 13 amenities including restaurants, coffee shops, schools, parks, stores, and libraries. Homes within a quarter mile to one mile of the 13 amenities earned the highest walk scores and had the highest values compared with similar homes with lower walk scores.

The authors speculate that walking also has important social benefits-having a lot of people walking around signals that an area is safe, convenient, lively, and interesting.

Home buyers may also be putting a value on the time and money they'll save by having nearby amenities, even if they drive the three blocks to have dinner at that nearby café, the authors say. It's also possible that the serendipity of having a café nearby just adds value to your home. Maybe that $34,000 is based on the value of knowing that when you don't feel like cooking dinner, the chef down the street does.

Sacha Cohen is a Washington, D.C.-based writer and founder of DCGoingGreen.net and grassfed media. She has written about sustainable travel, green buildings, and green communities for the Washington Post and Planet Green.

 

Visit Houselogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.

HouseLogic talks with HOA management expert Thomas M. Skiba about smart ways to tackle today's homeowner association challenges.

Volunteering for a homeowners association or condominium association board of directors is rewarding, but it's also challenging. Foreclosures, delinquencies, and a tight economy are making a tough job tougher.

With so many potential challenges, what should HOA leaders concentrate on in the year ahead?

HouseLogic.com got the answer to that question and others from one of the country's foremost HOA experts, Thomas M. Skiba, CEO of the Community Associations Institute based in Alexandria, Va.

HL: What's the top priority for HOAs?

Thomas Skiba: Operating budget shortfalls. For the most part, we've found associations cutting back where they can. In areas where foreclosures and delinquencies are common, associations have trimmed budgets, raised dues, or charged special assessments.

Sometimes, you don't have a choice about spending money. You can only cut so much--you have to fix a leaking roof as soon as possible. You can put a hiatus on capital improvements and capital repairs. If the pool needs painting, it can slide until next summer.

HL: After tightening the budget, what's the next priority for boards?

TS: In stressful economic times, communication between the board and residents grows more important. You have to address collections (http://www.houselogic.com/articles/delinquent-hoa-fees-how-collect/), even in a small association. If the level of delinquent homeowners grows too high, homeowners may not be able to refinance and new buyers may have trouble getting a mortgage.

HL: Why is that?

TS: Mortgage lenders set rules about what proportion of homeowners in an association can be delinquent. If your community goes above a lender's limit, they won't finance purchases or refinances of homes in your association.

HL: There's a limit like that on renters and vacant units, too, isn't there?

TS: Homeowners often rent their units out when they can't sell them, but having too many renters can also limit the flow of mortgage money to your community. Lenders set limits for that, too.

Homeowners who walk away from their units and don't pay association fees may cause you to raise the dues for everyone else to cover expenses. Some associations are foreclosing on owners to force banks to assume ownership of vacant units.

HL: What's the next most important issue for community association boards to address?

TS: Reserve funding, especially for condominiums. How much is your association saving, and how much do you already have in the bank to fund future maintenance and replacement of your clubhouse, pool, storm water containment system, elevators, roof, or parking lots?

If you have large reserves and lots of physical assets to manage, invest in a professional reserve study. Once you know what you need to set aside, you can decide whether you're going to fund at 100%, or fund at 60% to 70% and make up the balance out of operating expenses.

HL: Once an HOA has its fiscal priorities straightened out, what should it take on next?

TS: Community management. There are things your HOA needs to do to manage itself well in the current housing market. You may need to put limits on rentals, create new policies that prohibit owners from using community amenities when they're late on their dues, or create a volunteer work group to weed the flower beds of vacant units.

Legal issues and liabilities should also go on your list. The downturn in the economy hasn't led to a downturn in liability related to the physical structure or the application of rules.

Say you decide you can afford to open the pool, but not provide lifeguards. Could that change your liability if someone drowns? If you run out of snow removal funds, you're still liable if someone slips on an icy sidewalk.

Make sure you understand your obligation to mitigate risk and that you're adequately insured.

HL: Any final words of advice?

TS: Follow your own rules in a consistent, fair, and equitable way. Don't believe it when the media portrays all associations as badly run, inefficient organizations that take advantage of homeowners. The reality is the vast majority of people who live in associations are happy with their home, and believe their association is doing a good job.

Dona DeZube, HouseLogic's News Editor, has been writing about real estate for more than two decades. As president of her homeowners association for over a decade, she answered countless calls about people who didn't pick up after their dogs and got to work with a lot of fabulous neighborhood volunteers.

Renting out your house can be a smart financial move, as long as you calculate your costs carefully.

You have a single-family house you'd like to rent out. Perhaps you're temporarily relocating for work, or maybe you inherited your childhood home from your parents, and you're not quite ready to part with it yet.

Renting can be a profitable choice, but it requires an investment of time, money, and organization to make it work. Here's how to determine whether renting out your house is worth the cost.

Calculate your monthly expenses

You want to charge at least enough to cover your monthly outlay. So the first step is to use our free downloadable worksheet to calculate your costs. Start with regular expenses like mortgage, maintenance, and homeowners association dues.

You may also need to upgrade your insurance coverage. Your agent can advise you about adding landlord insurance (http://www.houselogic.com/articles/renting-out-your-home-get-landlord-insurance/), a special type of policy that covers rental properties. As a rule, landlord insurance costs about 25% more than standard homeowners insurance.

If you're renting the house furnished, make sure you're covered for the personal possessions you leave behind. Jane Cline, the insurance commissioner of West Virginia, tells owners to prepare a detailed inventory (http://www.houselogic.com/articles/create-home-inventory-insurance/) of household items. If you're renting the house unfurnished, figure in the costs of moving and storing your items.

Check out prospective tenants

As a practical matter, you'll have to formally check out your prospective renters. MrLandlord.com (http://mrlandlord.com/), an information and service site for landlords, suggests a variety of background checks: credit reports, eviction reports, and criminal background reports. None of these is expensive, but you must get your prospects' permission.

MrLandlord.com charges $8.95 for an eviction report. A combined credit and eviction report is $14.95. If you want to be especially careful, a countywide criminal report costs $29.95.

Account for maintenance and upgrades

Even with the most scrupulous checks, you can't be completely sure renters will take good care of your home. Eva Rosenberg, an enrolled agent (http://www.naea.org) in Northridge, Calif., advises that if you're not within easy driving distance of your rental property, you'll need to arrange for someone else to keep an eye on the place, even if it's just to make sure the lawn is mowed. If the tenants are neglecting upkeep, you'll want to know about it sooner rather than later, since it could be a warning sign of trouble down the line.

Of course, even if the renters are conscientious, problems can crop up: boilers will fail; roofs may leak; washing machine hoses can burst. If household systems or appliances need repair or replacement (http://www.houselogic.com/articles/when-to-repair-or-replace-large-appliances/), you're better off spending the money up front, before the fix becomes an expensive emergency.

You may also want to invest in some of the "extras" that Sue Peters, a broker in Wellfleet, Mass., recommends adding to attract a tenant willing to pay a higher fee. She suggests spending money on air conditioning, expanded-channel cable TV, and a Wi-Fi network.

Don't want the headaches? Hire a property manager

You can save yourself a lot of time and effort if you engage a management company to oversee the property and take care of the details. Some firms charge a percentage of the rental fee, others a flat monthly fee, based on the extent of services. Joe Aimone of GoRenter in Phoenix, Ariz., says his firm offers a variety of services, starting at as little as $50 a month, including general maintenance, rent collection, and--if necessary--eviction.

A management company can help you figure out how much to charge, find and vet tenants, and prepare a lease. It will also pay the real estate taxes on your behalf and present you with an annual 1099 form. Many management companies maintain 24-hour emergency lines and a roster of approved service people, so they can take care of plumbing or electrical problems and bill you later. A property manager will also see that driveways and sidewalks are shoveled, so you don't find yourself with an unpleasant claim against your liability insurance.

Expect to pay a management company 8% to 10% of the annual gross rent, on average, with a $50 to $85 monthly minimum.

Keep scrupulous records

Whether or not you use a management company, you'll have to keep extensive business records. DeDe Jones, CFP, CPA, in Lakewood, Colo., advises owners to save receipts for any expenses and to file them carefully.

The IRS treats maintenance expenditures, like a new hot-water heater, differently from capital improvements, such as a new deck or patio, so you'll want to consult a tax professional. Meanwhile, keep the two types of receipts separate to make tax prep easier. You'll have to file Schedule E on Form 1040 (http://www.irs.gov/pub/irs-pdf/f1040se.pdf), which can also serve as a template for the kinds of records you'll need.

Finally, because of the complex tax and liability issues involved, many financial experts suggest forming a corporation when you become a landlord. An attorney can advise you about whether incorporating makes sense in your situation.

Richard J. Koreto has been editor of several professional financial magazines and is the author of "Run It Like a Business," a practice management book for financial planners. He and his wife own a pre-Civil War house in Rockland County, New York.

Article From HouseLogic.com

By: Richard Koreto
Published: May 21, 2010

Visit Houselogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.