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By Tony McMahon | Agent in 20601
  • How can a first-time homebuyer ward off PMI?

    Posted Under: Home Buying, Financing, How To...  |  September 18, 2012 12:30 PM  |  407 views  |  No comments

    By Dr. Don Taylor, Ph.D., CFA, CFP  

    Dear Dr. Don,

    Is there any way for a first-time homebuyer to get away from private mortgage insurance? I indicated to my lender that my goal was to have a mortgage payment of $1,000, and I ended up with $1,000 plus mortgage insurance.

    -- Christina Complains

    Dear Christina,
    Sure, there are several ways for a first-time homebuyer to avoid paying private mortgage insurance, or PMI. The first is to have a loan-to-value, or LTV, ratio on the property of 80 percent or less, based on the home's appraised value.

    One way to get to an 80 percent LTV when you don't have a 20 percent down payment is to do a piggyback loan. With a piggyback loan, you borrow 80 percent LTV on a first mortgage and at the same time take out a second mortgage, typically for 10 percent of the home's appraised value. Then, you come up with a 10 percent down payment. This is also known as an 80/10/10 mortgage. The downside of this type of mortgage is that the interest rate on the second mortgage tends to be significantly higher than the interest rate on the first mortgage.

    Another alternative to making PMI premium payments is to have the mortgage insurance payment baked into the interest rate. You have a higher interest rate on your loan but aren't making separate premium payments. It will, however, show up in the form of a higher monthly mortgage payment.

    I try to remind homeowners that PMI on a conventional mortgage doesn't last forever, and it gives them the opportunity to buy a home with a down payment less than 20 percent. The lender must cancel the policy when a strong payment history allows your loan balance to fall to 78 percent of what had been the appraised value of the property at closing.

    Your lender has an annual obligation to remind you about your options concerning canceling PMI. A lender isn't required to consider any increase in your home's value over time (which would shrink your LTV) but may be willing to do so with proper documentation.

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  • Make Your Air Conditioning Dollars Go Farther

    Posted Under: Quality of Life, Going Green, How To...  |  July 8, 2012 8:48 PM  |  500 views  |  1 comment

    By Monica Bullock 

    When temperatures rise outside, it's natural to seek cool shelter indoors. For many people, that means flipping on the air conditioning unit and taking it easy. Keeping the air cool is more than a luxury for some families; elderly parents and young children cannot tolerate excessively high temperatures. However, the need for air conditioning puts many families at financial risk. A pricey combination of rising fuel costs and high electrical demand make summertime electric bills hard to manage.

    According to Energy Star, the American family pays nearly $1,000 a year on heating and cooling their homes; that figure is above other electrical costs! You don't have to risk exposing your loved ones to brutal heat to save money. Take advantage of some money-saving tips and beat the summer heat.

    -- Help circulate cool air through the home by placing an oscillating fan in family rooms, like a living room or dining room.

    -- Keep the temperature at constant temperature and avoid dropping the thermostat too low. Lowering the temperature costs you money and won't cool the home any faster.

    -- Raise the thermostat 2 to 3 degrees before you leave for work if no one will be home. The energy experts at APS say that moving the temperature up 5 degrees for eight hours a day can save you $3 to $5 a month.

    -- Install a whole house fan system. Whole house fans pull the hot attic air out of the home and keeps the air circulating, giving your home a cooling effect. This move could chill your home by a few degrees.

    -- Replace old air conditioning units. If your window unit is a decade old, it needs to be replaced with an energy efficient unit. If your home has central AC, have the thermostat calibrated and the system charged yearly. APS says homeowners should replace their older SEER units (Seasonal Energy Efficiency Ratio) to save energy bucks. Replacing a unit with a SEER rating of 10 with one that has an 18 SEER rating you could save up to 50% on your AC costs annually.

    -- Change the air conditioning filters regularly; once a month is suitable. Good air flow across the filter will cut down on cooling costs and stop allergens from floating around your home. FPL Energy Services say that air filters cost between $10 and $25 a piece, but replacing them can save you 5 to 15 percent on your monthly bill.

    -- Hang insulated curtains in your windows. Sheer curtains look nice, but they don't provide any barrier between you and the outdoor heat. Keep windows covered during hot afternoons.

    Also, do a walk through of your home while the air is on. Check for leaks around windows and doors. Sometimes your energy dollars simply float out the window!

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  • Renters' tips for reducing summer cooling bills

    Posted Under: How To..., Rental Basics, Property Q&A  |  June 28, 2012 7:46 PM  |  528 views  |  1 comment

    By Gary Foreman 

    Dear New Frugal You
    I live in Georgia where the summers are hot. Wish I had rented a place where the electric was included because my summer electric bills are killing my budget. Being in an apartment, many of the tips I see just don't apply to me. I can't add insulation or plant shade trees. Is there something I can do to keep the AC from frying my budget? -- Jayde

    Dear Jayde,
    Yes, rented homes get just as hot as owner-occupied homes in the summer, and true, renters don't have all the options that are available to homeowners to reduce the cost of air conditioning. That doesn't mean that you have to sweat your budget all summer. There are some tools you can use to keep frugally cool.

    Let's start with something a little offbeat. It may seem strange, but you can use a psychological ploy to make yourself feel cooler. It begins with this concept: Colors affect how we feel. It's a concept you can use to chilling effect.

    Kathy Woodard, author and editor of TheBudgetDecorator.com, suggests that, "Using color can change the visual temperature in a room. Cooling colors include light or bright blues, greens and violets. Combine these colors with fresh white for a 'hot' take on a cool look. These colors can be used on walls, soft furnishings or with painted furniture pieces for a quick summer update that takes the scorch out of summer!"

    In your question you mentioned insulation. And, you're right, adding insulation to the walls or attic of a rental is the purview of the owner. But there are other ways to make insulation work for you.

    The purpose of insulation is to keep hot and cold air separated. There are a number of techniques available to you. All cost a little money, but you should recover your costs in lower electric bills.

    Ever notice how hot it gets sitting near a window with the sunshine pouring through? If you're hot, the air in your apartment is hot, too. Window tint is an excellent way to bounce the heat-generating rays back outside. Tint manufacturers claim they can reduce your bills by up to 30 percent. Applying tint is an easy do-it-yourself job. You probably need the landlord's approval first (check your lease), but a wise landlord would say "yes" to your request. Begin by measuring your windows and then go to a home center. You'll be surprised how affordable the tint is.

    Another way to keep the hot air outside is to create an air pocket. Even before modern double-pane window designs, people put up storm windows in the winter. The idea is simple. Create a space where an air pocket acts as a buffer between the outside and inside. That air pocket will absorb much of the outside cold or hot and keep the inside more livable.

    You can accomplish the same thing for just a few dollars without buying double-pane windows. The simplest way is to buy some heavy clear vinyl and attach it to the inside of the window frame. You don't need to create a perfect air seal, but a better seal will make it more effective. I've seen people use hooks at the four corners of the window frame. Also some have made a simple frame out of 1-by-1 lumber or even cardboard. You don't need much of a structure -- just something to hold the vinyl in place.  

    Energy-saving drapes can accomplish the same task. They are more expensive, but they do look better and you can take them with you when you move. Another advantage is that you can open them when the sun isn't shining on the window.

    Don't forget about caulking. Yes, it's something that the landlord should be doing, but even if you have to do it yourself, the job is easy and the caulking is cheap. The results will easily repay you for materials and effort.

    Next, reduce the amount of heat that you generate in your apartment. Cooking is a major heat producer. With rising food prices, most of us can't afford to eat out or bring in meals every day. We can cut down on the use of stovetop and oven. It's a perfect time to break out the tabletop grill and slow cooker. In fact, if you have an outdoor patio area you might even move the slow cooker outdoors. And, if your apartment allows for it, a barbecue grill will keep all the heat outdoors.

    Remember that not every meal needs to be a hot meal, meal, especially in summer. It's a great time to consider a lighter diet. Your body and swimsuit will thank you for it.

    Another heat producer is your water heater, if it's in the living area. Get an insulating blanket -- available at any local home center -- and wrap that heater. Keeping the hot air from escaping reduces the amount of time the heater runs, which will save you money. In addition, the blanket prevents hot air from being released into the room. It's a twofer!

    Don't forget your computer generates a lot of heat, too. It's a good idea to turn it off when you're not using it. The same thing applies to incandescent bulbs. If you don't need the light right now, you're wasting electricity and creating extra heat for your air conditioning unit to remove.

    Speaking of your AC, there are things that you can do to make sure it runs as efficiently as possible. Replace or clean your AC filters monthly. Filters cost a dollar or two. Airflow around the outside portion of your air conditioner is important, too. Clear away any bushes that could be blocking airflow.

    And, the final step is to raise your thermostat. A 2- or 3-degree change could reduce your bill by 10 percent. Use ceiling or room fans to make up the difference.

    I hope all of these tools keep you frugally cool this summer!

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  • Maximizing space in your garage

    Posted Under: Remodel & Renovate, Design & Decor, How To...  |  June 23, 2012 12:00 PM  |  913 views  |  No comments
    By Brittany aka Pretty Handy Girl 

    Does getting something out of your garage involve running an obstacle course or seem more like a treasure hunt? Is your garage like a time capsule of layered storage against the walls? Unless you are the owner of a Garage Mahal, your garage is likely pressed for storage space. Older homes tend to suffer from pre-SUV and single car syndrome which translates into a smaller garage with little to no excess space.

    If your garage is on the small to medium size, I guarantee that you have unused space within. 

    The most commonly overlooked storage space is over your head. If you have room beyond the garage door tracks, simply building hanging storage that attaches to the ceiling joists will gain you additional space for excess lumber and/or tubs of seasonal decor. If you have exposed vaulted rafters, you may be able to lay some planks down for additional storage up there. And if you want the convenience of being able to access that overhead storage, there are a few companies that sell motorized or mechanical platforms that raise and lower your storage when needed.
    Garage walls are prime real estate for shelving, hooks and hanging space. Simple brackets and sturdy shelves can do wonders for getting paint, sports equipment and other things off the floor. But don't skimp on the materials -- make sure to spend a little extra money to buy heavy duty brackets and shelves that can withstand the weight of garage storage items.

    If you live in an earthquake zone, make sure to secure shelved items with some bungee cords or built-in fences. Pegboard is versatile for storage that can change per your needs. If there is a tool, there is a pegboard hook for it. Yard tools like shovels, rakes, and other tools are easily hung from double hooks. A curved pair of hooks is made specifically to handle your drill. And, a tray for all your toolbox hand tools can be purchased from your local home improvement store.

    (Photo: Flow Wall System)
    A step up from pegboards are slat walls (similar to retail display walls). You can purchase a wide variety of components to add to the slats. Cabinets, bins, hooks and shelves all pop into the grooves in the panels and can be moved around very easily. When you are finished it looks like you hired a professional to install an attractive wall storage unit.

    (Photo: House of Hepworths)

    If you prefer more of a DIY approach to wall storage, try searching online for garage storage tutorials, like this one for a custom built storage hook system for hanging bikes and scooters (should you be one of those families that are overrun by 2 wheel vehicles.)

    (Photo: Pretty Handy Girl)

    Storage that takes up valuable floor space needs to be minimal. Building or purchasing shelving units that hug the wall is one solution. Upright bins and tubes can create a corral that holds yard equipment and sports gear for easy access.

    (Photo: Pretty Handy Girl)

    Clear storage drawer sets are perfect for providing water resistant storage for those little items. Gloves, tape, and other odds and ends fit neatly and can be easily seen through the bins. Label the drawers for added convenience.

    (Photo: Pretty Handy Girl)
    A rolling storage cart can be used as moveable storage. It can rest beside or in front of other objects and be moved out of the way when you need to access items behind it. This tool storage caddy holds a multitude of power tools all in one convenient location.

    When you are ready to reclaim your garage, be sure to look up, down and all around for underutilized space. And don't forget to elevate items that can get wet if you pull in a soaking wet car.

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  • 5 Dirt-Cheap Home Staging Ideas

    Posted Under: Home Selling, How To..., Property Q&A  |  April 20, 2012 5:34 AM  |  391 views  |  No comments

    No one wants to look at a dirty, smelly home -- especially not prospective buyers. So make sure your house or condo shines from top to bottom.

    Page says cleaning and deodorizing a home before every showing "should be first and foremost."

    Rearrange the rooms in your home to reel in prospective buyers. Make sure each room has a distinct, useful purpose.

    Ridding your home of clutter is another simple way to get buyers to focus on the bones of the house, not the titles in your CD collection.

    "This is the hardest thing for most people to do because they are emotionally attached to everything in the house," Page says.

    Packing away personal items is one of the simplest -- and cheapest -- things you can do to sell your house or condo quickly, according to Page and Radice.

    By Melissa Neiman 

    When it comes to selling your home, appearance is everything. But hiring a professional "stager" to prepare the home for prospective buyers can cost anywhere from $50 to $150 per hour, according to Jessica Page, a Realtor with Innovative Real Estate in Denver.

    Fortunately, homeowners can take matters into their own hands.

    Page, along with veteran Florida Realtor Jennifer Radice, of Coldwell Banker in Boca Raton, share expert tips for staging your home that cost next to nothing.

    "The reason you want to 'de-personalize' your home is because you want buyers to view it as their potential home," Page says.

    Prospective buyers won't be able to picture themselves in the house if they're surrounded by dozens of photos of your children and grandparents.

    "Pictures are extremely distracting. You cannot believe how long potential buyers will stop and stare at people they do not know in photos," says Radice, who also recommends removing any religious items from plain view.

    "You want your home to show like a model," Radice says.

    In addition to attracting the buyer, "you want the buyer's agent to enjoy showing the home. You never know whom they may have, if this particular buyer is not interested," says Radice, who is in the top 1 percent of Realtors nationwide.

    The cost: $2 to $3 for a roll of packaging tape. You already have the scissors on hand and you can often score the boxes for free from a neighborhood store.

    "After years of living in the same home, clutter collects in such a way that may not be evident to the homeowner. However, it does affect the way buyers see the home, even if you do not realize it. Clutter collects on shelves and countertops, and in drawers, closets, garages, attics and basements," she says.

    Radice recommends removing items from countertops in the kitchen and bathrooms.

    "If you have kids, get rid of the toys all around the house. For all you know, the buyers could be empty nesters," Radice says.

    She suggests putting things in boxes and neatly stacking them in the corner of the garage. Anything extra should go in a small, rented storage unit.

    Even better, ask a friend or relative to hang onto your items for free.

    "Pack up 90 percent of your home," Radice says.

    The cost: The price of a storage unit varies (around $45 a month for a 5-foot-by-5-foot unit).

    Page suggests touring builders' models to see how the rooms are furnished.

    "Builders are experts on preparing their product for prospective buyers," she says.

    Radice says closets should be "neat and organized."

    "The pair of shoes that you haven't worn in 10 years, get rid of," she says.

    If your home has been painted recently, consider yourself ahead of the game. If not, take a paintbrush to the rooms that need it most. Sellers who paint the interior of their home will see a large return on the investment, Page says.

    "Fresh, neutral paint on the walls, trim and doors is worth its weight in gold -- it makes everything appear clean and new," she says.

    The cost: Anywhere from $12 to $50 per gallon for paint, plus another $10 to $50 for other painting supplies (primer, brushes, drop cloths, etc.) You can get back some of that money as a refund on your taxes for any items you donate to charity (such as those extra shoes in the closet).

    The goal is to help buyers imagine themselves living in the home, Page says.

    "When buyers see an unkempt home or smell something when they first walk in, they become turned off immediately," Page says. "They can rarely see past it to look at all of the great features in the home."

    Radice suggests having the house professionally cleaned so that everything is spotless -- windows, sliding glass door tracks, garage, basement, ceiling fans, etc.

    "This is worth the money spent," Radice says.

    She also recommends baking cookies in the oven, bringing cinnamon sticks to a slow boil in a pot of water or using air freshener to mask smells before each showing. Ridding the home of litter boxes is also a must.

    The cost: Varies by the location and size of the home cleaning service, but typically less than $100 to clean a four-bedroom, 2,500-square-foot home. Cookie dough runs about $3.

    Whatever you do, do not overlook the home's exterior when selling.

    "Curb appeal is just as important as cleaning the inside of the home -- it's the buyer's first impression of your home," Page says.

    Radice agrees. "You only have one chance to make a first impression. There are so few buyers out there -- you want your home to stand out."

    Mow the lawn, make sure the sidewalk and driveway are free of clutter and debris, and ensure the house number is easily visible.

    It may also be beneficial to pressure-clean the exterior of your home, driveway and sidewalk, if needed.

    Another valuable low-cost solution? Mulch.

    "Mulch is cheap and covers a multitude of sins. It makes everything look trim and neat," Radice says.

    The cost: Mulch costs around $3 per bag.The cost of renting a pressure washer varies, but you may be able to get one from a local hardware store for around $50 per day. It may cost double that to purchase a pressure washer. Professional cleaning with a pressure washer for a 2,500 square-foot-house may set you back about $250.

  • 8 Ways to Improve Senior Housing

    Posted Under: Quality of Life, Market Conditions, How To...  |  April 6, 2012 7:18 AM  |  296 views  |  No comments

    By Philip Moeller 

    Retirement income
     and healthcare affordability have been widely cited as growing challenges to an aging society. Now, according to a new report, housing should also take its place as an enormous unmet need for rising numbers of older Americans. "Housing an Aging Population--Are We Prepared?", a report by the nonprofit Center for Housing Policy in Washington, says the answer in most cases is a clear "No."

    "Considerable attention is focused on the rising healthcare costs of an aging population--and rightly so," the report says. "But the housing and supportive services needs faced by the very same people receive comparatively little notice. Even today, federally subsidized rental programs meet the needs of only about one in four eligible households regardless of age."

    Nearly half of lower-income older Americans spend more than half of their income on housing, and roughly a quarter spend between 30 and 50 percent, the report says. As people get older, housing requires ever-larger percentages of income. "The incomes of older adults tend to decline with age--as reflected in rising poverty rates," it explains. "But property taxes, maintenance, and utility costs all tend to rise over time for both older homeowners and renters."

    Even the good news about gains in longevity is cause for concern, the Center says. Growing numbers of seniors are reaching their 80s and 90s. Many of them will be disabled and require special housing assistance. There are now more than 26 million households that include at least one person age 65 or older. Nearly 40 percent of them, or 10 million, include at least one disabled senior.

    If they stay in their own homes and age in place, these seniors will need potentially costly changes to improve their home's safety and accessibility. "Given the strong desire of most older adults to age in place," the report says, "it is important to expand access to the services that many individuals need to live independently, such as meal preparation; assistance with bathing, dressing, or grooming; assistance taking daily medication; and housekeeping services."

    In many cases, disabled seniors would receive better care and social support if they moved into apartments and other group assisted-living facilities. But there are not enough such units to meet the need, and the ones that do exist are too expensive for many older people.

    Even now, government housing programs are overwhelmed by senior demand and underfunded to meet current needs. The scale of the problem will only grow as the number of older Americans increases. "By 2050, the population of individuals aged 65 or older will increase 120 percent from 40 million to more than 88 million," the report says. "One in every five Americans will be 65+. The numbers of Americans aged 85 or older will more than triple over the same period to 19 million."

    The Center did not put any price tag on what it might cost to address the nation's growing senior housing problem. It did recommend action--and a "sense of urgency"--in eight areas:

    1. Make homes more affordable. Lower-income seniors would get property-tax relief and older renters would qualify for housing vouchers.

    2. Assist with home modification. Low-income homeowners and qualifying landlords would get assistance to retrofit dwelling units to make them senior-friendly and safer.

    3. Connect residents to social services. Expand existing caregiving support programs to provide older residents with either home-based or institutional caregiving support, including help for activities of daily living.

    4. Expand transportation options. Lack of public transportation and volunteer driving services is one of the more serious problems, preventing seniors from normal activities and adding to an unhealthy isolation for those who cannot easily leave their homes.

    5. Encourage universal design in new homes. New government subsidized housing should be required to be friendly to seniors, and local building codes should be changed as needed to encourage developers of senior-friendly housing.

    6. Create flexible zoning rules. Diverse housing mixes and high-density rental units should be encouraged with zoning changes, along with efforts to put housing units within walking distance of shopping and other commercial activities.

    7. Preserve and expand the supply of affordable rental housing. More funds and support are needed to maintain the viable housing that now exists as well as build more.

    8. Enhance consumer choice. Different housing models are needed, including public and private efforts, to provide people with wider living choices and also develop more successful solutions that combine senior living, healthcare, and social needs.

  • Investing In Property Out Of State

    Posted Under: Home Buying, How To..., Property Q&A  |  April 5, 2012 6:37 PM  |  392 views  |  No comments

    By Amy Fontinelle 

    B uying and owning property is rarely easy or simple. When the property in question is in a distant location, the challenges multiply. Investing in out of state property might seem appealing if you live in an area where real estate is expensive. It might also appear attractive if you already own property where you live and you want to diversify your holdings. Or you may just want to own a vacation home. But before you make an offer, carefully consider these issues.

    Reasons to Buy 
    One factor that leads people to consider buying property far from home is that property may be more affordable in another state. Perhaps you live in an area like San Francisco or New York City, where property costs are sky high. If you simply can't afford to buy a place where you live or if doing so would require investing the majority of your money in real estate and you'd rather diversify your investments, you may want to look at other cities where market fundamentals are sound but property costs are significantly lower.

    People who live in depressed areas but don't want to move for work or personal reasons may be better off renting in their hometown and investing in real estate where the economy is stronger. For example, if you lived in Las Vegas, the city with the highest foreclosure rate during the housing bust, you might have wanted to buy property in a market where median sales prices remained relatively stable, like Charlotte, North Carolina.

    Perhaps the main reason people decide to invest in property out of state is that the return on investment (ROI) may be better there than it is at home. Purchase prices, appreciation rates, mortgage expenses (if any), taxes, housing regulations, rental market conditions and more are all factors that might be more favorable in another state and will contribute to a property's potential ROI.

    Challenges to Consider
    When you invest out of state, you must overcome your lack of familiarity with the out-of-state real estate market and with its local economic conditions, both at the city level and the neighborhood level. You won't have the same intimate, day-to-day knowledge of a distant market that you have of the market where you live. You don't have an in-depth understanding of the best neighborhoods - or the worst. You will have to rely on word of mouth, research, gut instincts and the opinions of any professionals you hire.

    Understanding the all laws and regulations regarding property ownership and property taxes in a place where you don't live is another major challenge. Even if you read every line of the local codes and ordinances, what it says on paper and what happens in reality don't always match up. It's crucial to talk with property owners in the area to gain a true understanding of local regulations.

    You'll need good contacts in the area to make your investment plan successful, but when dealing with a distant city, you may be starting from scratch in finding quality professionals such as real estate agents, property managers and handymen - the people who will be the key to your success or failure.

    Buying Out of State
    The secret to many out-of-state investors' success is to find and hire an excellent property management company. You'll need them to help you fill vacancies, collect rent, make repairs and handle emergencies. If you lived in the area, you might choose to manage the property yourself, but if you live far away, professional property management is an extra expense you simply must incur to safeguard your investment. As experienced builder and property manager Rusty Meador advises, "No matter how good of a real estate deal you find, it is only as good as its ability to be managed well."

    Be aware that even with a property management company on your payroll, you'll still need to make occasional visits to your property to make sure that what managers and tenants tell you matches reality. This is an additional time and money cost that must be considered.

    Also, when purchasing rental property, especially rental property out of state, you're likely to encounter higher homeowners insurance rates, higher mortgage interest rates and higher down payment requirements because lenders will consider you a riskier borrower than an owner-occupant. You'll also complicate your tax situation by owning rental property and earning income in more than one state. You may need to hire an income tax professional to keep you in the tax authorities' good graces.

    When considering all of these factors, you may find that being an owner-occupant or purchasing investment property at home is a much simpler and less expensive proposition than purchasing out of state.

    Before You Buy Out of State
    If you're still intent on buying out of state, be sure to heed these additional warnings.

    Do not buy sight unseen - the property may not be what you think it is. Online information on a property can be out of date, and a local real estate agent or property owner who isn't looking out for your best interests might lie to you to close a sale. If you unwittingly become the owner of a nuisance property that violates health and/or safety laws, you can find yourself on the hook for numerous code violations that will be time consuming and expensive to fix. If a property has been vacant for long enough, it can develop maintenance issues that cause such disrepair that the city deems it a safety hazard and bulldozes it. You might even wind up on the hook for the demolition bill.

    Some property investors have found bed bugs, termites, roaches, mice or other pests to be their downfall. Without an in-person visit to the property and a professional inspection to check for these issues, you could become the owner of a property that is not habitable. Scott Paxton of the Rental Protection Agency advises that bed bug complaints have become increasingly common and this problem can be very expensive to get rid of.

    Finding quality tenants is extra important for absentee landlords. You won't be there to keep a close eye on your tenants' behavior or their treatment of the property, nor will you be there to pressure them to pay if the rent is past due. In addition to hiring a top-notch property management company, you want to have tenants that won't cause you or your management company any headaches.

    Finally, if you've never owned property, buying your fist property out of state is extra risky. No matter how many books you read on property ownership, there is no substitute for real-life experience. Without any experience in property ownership and without the firsthand knowledge that comes from living in a property day in and day out, you might miss important property maintenance considerations on your out-of-state property.

    Out-Of-State Alternatives
    If you don't think you want to buy property where you live for whatever reason, there are other ways to get into the real estate market that are much simpler than investing out of state. One option is the real estate investment trust (REIT). Investing in a REIT or REIT ETF is similar to investing in a stock, and you can choose a REIT with a risk/return profile that fits what you're looking for. And just like when you own a stock and you aren't responsible for making decisions about running that company, when you own shares of a REIT you won't have any of the headaches that are associated with actually owning a property.

    You might also take a second look at buying property where you live - even if you don't want to live in it. Maybe you've been renting in San Francisco because you aren't interested in living in the only place you could afford to buy - a 250 square foot condo. But would you be willing to own that condo as a rental property? It's likely to be easier to buy and own a place near your home. It could be more expensive or less profitable, but you may find the extra cost or lower ROI worth the reduced hassle.

    How to Make it Work
    If you are going to buy out of state, buy in an area you are familiar with - perhaps where you went to college or where you grew up. It's better to have some knowledge of the area than none at all. As a bonus, if you buy in an area that you normally visit anyway, your leisure travel can become at least partly tax deductible because you will be adding a business component to those trips to check up on your property.

    Buy in an area with some similarities to the area where you live, such as climate, demographics or property age so that you have some idea of what you're dealing with. If you have lived in a 1960s suburb of California your entire life, don't buy a 120-year-old property in Boston.

    Don't buy a high-risk property. Buy in a primarily owner-occupied neighborhood to attract tenants who are a lower economic risk, says Ryan L. Hinricher, a founding partner of the investment home sales company Investor Nation. A high-quality property will"typically have less maintenance and upkeep. These properties also rent more quickly as they usually have modern layouts and an adequate count of bedrooms and bathrooms," he notes.

    Finally, as mentioned earlier, it's crucial to build a great network of professionals to help you and to occasionally visit your property yourself.

    The Bottom Line
    Investing in property out of state is a high-risk proposition and a major commitment. Before you do it, make sure you truly understand what you're getting into and are prepared to meet all of the related challenges.

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