Real estate Archives - The Free Financial Advisor

Down Payment or Investment Opportunities?

June 17, 2020 by Jacob Sensiba Leave a Comment

The current dilemma I am having is whether to stash my savings for a down payment on a house or contribute to my Roth so I have cash available for buying opportunities.

I’m pinching pennies, and I’m saving money wherever I can so that cash is accessible when I need it. I just don’t know what to do with it.

Do I put it towards a down payment or set it aside for investment opportunities. Like most things in life, the answer will lie somewhere in the middle.

Down payment

I’ve mentioned in prior reflections that I’m renting right now.

I’m renting because I got divorced and exhausted all of my savings on the down payment for my house. That house is currently being rented by another family, and my ex-wife and I still own it.

That’ll help build equity into the house so we receive more if/when we decide to sell, which is good.

I’m happy with my current living arrangements. I like the place. I like the neighborhood. My commute to work is 2 minutes, and I’m close to all of my family and friends. All good things.

The only bad part is I have no outdoor space to call my own. I have no yard.

I’m trying to frame it positively by saying that I’m not spending my time on yard work, and instead, have more time to spend with my son/work on myself when he’s not here. These are both very good things.

However, I want to give my son a space to play. A place to put a jungle gym and a sandbox. A place where he can just run around and have fun.

I want to give him that because he deserves it. I want to use my savings for a down payment on a house so we can have a place to call our own.

Investment opportunities

Here’s the second part of my dilemma. I see a lot of chances to put my money to work in the market.

I’m able to play the long game because of my investment philosophy and my training. The best investors I have long term time horizons.

What I mean to say is I can see past the present and I have an idea of what my investments can do over the long term, and the [possible] reward for investing now can’t be ignored.

That’s why I’m having a difficult time deciding what to do.

What will I do?

As a parent, you want to give your kids everything. I want to have a place we can call our own.

At the same time, I know how valuable it is to start saving and investing early so I can take advantage of compounding returns.

So here’s what I’m thinking. I’m going to develop a “savings plan”. I’ll take the dollar amount for an ideal down payment and how far in the future (in terms of years) when I’ll want to use it.

I’m thinking of $25,000 for a down payment and four years until I’ll use it. I’ll, then, divide $25k by 48 to get my monthly savings goal. Anything over that number I’ll put in my Roth.

That’ll take care of saving for a house and for retirement.

My Last Reflection:

My Experience with Life Insurance

Guide to Cash Home Buyers: 3 Ways They Help You Sell Your House

August 24, 2019 by Susan Paige Leave a Comment

Cash home buyers are a relatively new trend, but have become an alternative to selling your house traditionally through an estate agent. Cash house buyers are generally companies with a team of people that are experts in surveying, estimating, buying, and selling houses. By having all of these skills in the business, they don’t have to rely on third-party people or companies to estimate or survey your house. This means you can get an estimate on your house very quickly, and the company will make a cash offer for your house. This comes with several advantages.

Avoiding selling fees

As cash home-buying companies have all of the stuff necessary to make the sale, you avoid the significant fees that come with selling a house. This includes the money spent on getting an estimate, which will usually be done by a third party for a cost. It also includes solicitor fees. Usually, both you and the seller will pay solicitors to do all of the communications and negotiations. With a cash home seller, this isn’t necessary. Some cash home sellers will try to add in a fee for the survey and estimate of the value of your home. If this is the case, then make sure to avoid them, as some can charge over $1000 for this service. Find a company that’s as inclusive as possible.

Quick sale

Most house sales take a considerable amount of time. Depending on if the house is a new build or not, you may find yourself in a chain of sellers all needed to get confirmation on the purchase of their own home before you can buy theirs. If one sale falls through, then you’ll need to wait for your seller to buy a new house before you can move in. This process can sometimes take a year or even more. This is how cash home buyers can help. Because cash home buyers are never in a chain and are buying your house with cash, the time of the sale is reduced significantly. There’s no waiting for your seller to find a new house, and there are no issues with mortgages falling through.

Lower stress

Selling a house is a traditionally stressful job. There’s a lot of money at stake, and the process can take a long time. This is particularly stressful if you need to sell the house of a loved one that has passed, or if you need to sell quickly to get the money to cover another investment. This is where cash house buyers can be very useful. You can get your house sold in a short amount of time with the least amount of stress possible. Be aware that the amount that a cash house buyer will buy your house will typically be 10-15% lower than if you sold privately through an agent. Some of these fees will be covered by the saving you make in fees, though, and the rest can be attributed to the cost of having a stress-free sale.

Investing In Commercial Real Estate: A Different Breed Than Residential Real Estate

September 13, 2013 by Average Joe 7 Comments

When I first heard of commercial real estate investing, I envisioned concrete and strip malls…the type of stuff that’s killed the unique atmosphere of American cities. However, imagine my surprise when I actually dug into commercial real estate and found that along with the occasional ugly strip mall, there are unique opportunities, provided you know how to evaluate properties.

Commercial Real Estate In A Nutshell

Commercial real estate invests in places where businesses operate. While you may think of retail shops or restaurants, there are huge opportunities in office buildings, doctor’s offices and other specialty properties.

Should I Buy Individual Properties?

This argument is similar to a stock vs. a mutual fund. If you want the opportunity for a larger return, purchase an individual property. However, if you’re looking for steady returns that gravitate toward the NAREIT Index average, you’re better off with a fund, ETF, or REIT.

How Is Commercial Real Estate Different than Residential?

You can diversify your risk with commercial real estate – Because in most cases you’ll have multiple tenants, you’ll only lose a portion of your income if one breaks the lease.

Commercial leases are much longer – While residential leases may go a year or two, commercial leases may be three, five, or longer.

You’ll need more cash up front – First, you’ll need the right lender who understands commercial real estate. Second, they’re probably going to demand 30 percent or more of the cost upfront as a down payment.

You’ll receive more ongoing cash – Commercial properties are bigger income generators than residential properties.

How to Buy Individual Properties

As with anything, the key to picking the right properties lies in working with the right team of professionals (such as Elena Vlasyuk in Los Angeles). If you have a good team in your corner, you’ll be able to more quickly identify top opportunities and spring on them.

There are many websites that aggregate news about real estate, such as National Real Estate Investor. By staying on top of current trends, you can begin to understand the world of commercial real estate.

Want Commercial Real Estate Without The Hassle?

You’re probably better off looking for a mutual fund, ETF, or closed REIT. Of the three, closed REITs can give you the most unique opportunities but are also fraught with fees and risk. Unless you know the details of the pool you’re stepping into, non-traded REITs should be avoided. Instead, by finding a good commercial REIT fund or ETF, you can invest less money, receive competitive real estate returns, and liquidate a portion whenever you need cash.

Still not sure if you’ve decided which is right for you? Start off with your plan and you’ll avoid making a bone-headed financial move.

Photo: MoneyBlogNewz

6 Wacky Ways to Sell Your House Fast

November 20, 2012 by Average Joe 44 Comments

While I’m in Ohio kicking my family’s butt at board games over the holiday, Dominique Brown agreed to take over the reins for a day. Thanks, Dom!

For those of you who don’t know him from our podcast, Dominique Brown is a financial planner, landlord, personal finance blogger and video blogger. He is the owner of YourFinancesSimplified.com where he talks about everything from being a new father to his worst financial mistakes. He is also the owner of InsiderRealEstateTips.com where he talks exclusively about real estate. He’s been featured at The Huffington Post and H&R Block. You can find him either on Twitter, Facebook, Youtube or Instagram.

Maybe your adjustable rate mortgage is about to put the ARM on you. Maybe you just took that once-in-a-lifetime job halfway across the planet. For whatever reason, you need to sell your house fast. When your back is against the wall, you might try some of these unusual methods to sell your house fast.

Saturate the Internet

It may surprise you to know that 66% of folks shopping for homes begin their search online. For this reason, make certain your realtor has your property listed on the internet. The top five sites are Trulia.com, Homes.com, Craigslist.org, Zillow.com and Yahoo.com. While there are other sites, these top-of-the-heap places give your property greater exposure, hopefully shortening the time to sell your home. Don’t overlook social media sites like Facebook, LinkdIn, and Twitter. Send out copies of your listing to everyone on your contact list. Start a blog about your home, talk up the neighborhood, schools, and nearby attractions, such as parks or community centers.

Try eBay

I know this sounds wacky, but for about $150, this is a cost effective way to create buzz about your home, and can land you a ton of traffic. The auction is not binding, and if you choose not to accept any offers, that is your privilege. If you need to sell your house fast, consider this part of your advertising expense. Who knows…you might sell your house fast!

Got Kids?

Put them to good use. I read about a couple that had “Buy My House” T-shirts made for their children and all their children’s friends. This shouldn’t get you into hot water with Children and Family Services and hey…a lead is a lead, right?

Incentivize Your Broker

Offer your broker a bonus for a quick sale. The bonus should parallel your need to sell your house fast. Avoid cash bonuses. Offer a weekend get away to Las Vegas, Chicago, or Atlantic City. Maybe your broker is a sports fan and would appreciate getting tickets for that big game. Use your imagination. That’s why I suggest you avoid cash. So boring!

Incentivize Your Buyer

Offer to pick up the full boat on closings costs. Maybe you could sweeten the deal by prepaying the property taxes for few months. This could really help a first time buyer.

Price it Right

Work closely with your broker to arrive at a selling price that is attractive, but not so attractive as to arouse suspicion in potential buyers. If you price your house too far below the rest of the market, prospective buyers may think something is amiss with the home, the neighborhood, or the schools. This is a balancing act, and if your broker is clear on your goal to sell quickly, then together you can arrive at a Goldilocks’ price—not too high, not too low, but just right. Another way to sell your house fast and still get a fair price is getting in touch with NeedToSellMyHouseFast.com, a trusted home buyer famous for buying houses in cash.

Some people think that under pricing your home is “good thing.” These people believe that market forces will come into play. They believe potential buyers will actually bid against one another and force your selling price into line with market prices. You and your broker will have to make that call.

Don’t Forget the Basics

Don’t get caught up in the wacky things you are doing to speed the sale of your home and forget the basics. Do not make that mistake. You still need to make certain your home is in good repair inside and out. Make sure the rooms are clear of clutter. Keep the dishes washed and the kitchen spotless. Bathrooms should always be spotless too. If you have pets, consider boarding them with friends or with a kennel. Not everyone is a fan of the furry friends. Make sure you mow the lawn, put toys and tools away and repair any problems with outbuildings or fences. When your broker is showing your home, it is usually best for you to be absent. Spend some time visiting open houses. This is a good way to get ideas for highlighting your property, and it is free.

If you have had experience with selling your house fast, let us know about it. Have you had success in making a fast sale?

Mortgages for a Young Borrower

October 6, 2012 by Average Joe 8 Comments

Thanks to RefinanceMortgageRates.org for the guest post!

For a young adult, purchasing a home has many advantages. Home owners can quickly establish good credit, accumulate equity, build net worth, and create a sense of stability for themselves. Also, going through the process of buying property at a young age allows buyers to become familiar with a good long term asset class: real estate.
However, before a young adult decides to embark on home ownership, there are a few important points they absolutely must understand. By understanding the steps involved in the mortgage process and accurately planning your budget, you will have more success in keeping and maintaining your loan.

How Do I Establish Credit to Qualify For A Loan?

To secure a good mortgage interest rate, you will need to have an established credit record and at least two years on the job at the same company at a consistent pay rate.
Establish your credit by finding and using a secured credit card. This type of credit requires you to place a deposit against the card which equals your credit limit. Don’t be confused between a secured credit card and debit card; only the former will ensure that the company reports your good standing to the credit bureaus.

As you begin making timely payments on your new card, look to establish other lines of credit. Do not, however, create too many lines. Mortgage companies worry about a metric called your debt to income ratio. Too much debt will show you with an unbalanced credit health, and will make it difficult for you to secure good mortgage interest rates. A good rule of thumb is to never exceed 50 percent of your credit limit in charges on your credit clines and cards. This will help you achieve the highest credit score possible without a mortgage.

After two years on the job and a credit history of 18 at least months, it’s time to begin shopping for a mortgage!

What Are The Down Payment Requirements?

Place at least 20% of the purchase price down on the home you’re purchasing to receive the best mortgage rates from a commercial lender. I know what you’re thinking: this could be a significant amount of money for a young up-and-coming borrower. If you have the ability to save this sum in a short time…do it. This will secure low interest rates and create instant equity in your new property.

If you’re unable to save such a large amount in a short period of time, check out something called “mortgage insurance.” This type of insurance is offered by agencies such as the Federal Housing Authority (FHA), Veterans Administration (VA), Department of Agriculture (Farm Home), and occasionally even from private insurers.
Mortgage insurance allows you to place as little as 3.5% down on your home. Here’s why: the insurance policy states that the mortgage will be paid even if you default. Banks feel much more comfortable with this in place. However, there’s more good news about these programs. They allow for lower credit score qualifications, enabling more people to purchase homes.

As a last resort, you may also wish to consider borrowing money from family or friends for the large down payment. It should be noted that many banks now frown on this method for down payments. You will need to speak with your preferred lender to glean whether they’ll allow you to borrow money for a down payment.

How Much Loan You Can Afford? (Income Guidelines)

This is perhaps the most important thing a young borrower should understand. Your monthly mortgage payment should never exceed 33% of your monthly bring home pay. For example, if you bring home $3000 a month after taxes and insurance premiums, your mortgage payment should not exceed $990 per month. By keeping to this guideline, you should have enough budget room to easily afford your loan.

Many lenders will provide mortgages that are up to 40% of bring home pay. This creates risk for both the borrower and the lender. The average person needs at least 67% of their income to pay for living expenses and saving for their future. Once you pass this threshold, other areas of your life are certainly going to feel the weight of the mortgage.

The best thing you can do for your credit and lifestyle is to only purchase a home you can afford on your current salary. As your life develops, your career blossoms, and your need for a larger home increases, you can sell your current home and purchase one based on your new income and desires.

This information was provided by RefinanceMortgageRates.org. Click here for more information on mortgage, refinancing and housing.

Photo Credit: Kimubert

My Favorite Quirky College Saving Strategy

August 14, 2012 by Average Joe 28 Comments

My niece, Madeline, heads to the College of Charleston today. Good luck, Maddie!

Sometimes people don’t want to invest in a 529 college savings plan. I understand that thinking. Once college is over, the investment is gone and what does mom or dad have to show for it? Hopefully you have an educated child with a good enough job to afford a really big house. They might even let you sleep in their guest room if you’re lucky.

What if there was a way to save toward college but keep the investment AFTER junior finished graduation? Wouldn’t that be cool?

There is such a beast, but there are caveats, as there are with any investment:

First, you have to be interested in rental real estate.

Second, you have to have enough money for a down payment on a piece of property.

Here’s how it works:

Find a house near the school junior plans to attend. Make your best deal for the home. There are plenty of sites that discuss how to purchase rental real estate. I recommend you read Paula Pant’s story Is This House a Good Investment at Afford Anything.

Interest rates are low now, so this is an especially good time to jump on this strategy.

Complete the purchase and perform any needed repairs to rent it.

Ask junior if any friends would like to live in the house with him/her. If not, place an advertisement in the local newspaper and on Craig’s list. PT Money recently ran a good story about how to check the credit of your renters (read Find a Tenant: Credit Check and Screening). The kids might not have any credit, but mom or dad probably do.

Rent the house for enough to cover the mortgage costs and upkeep. Even if junior’s friends become your renters, make sure everyone pays a security deposit and signs a lease. Keep it professional.

…and here’s where it gets fun.

Hire junior to be your property manager. For this to work, JUNIOR MUST DO SOME ACTUAL LABOR. Make a list of official duties, create a pay scale, and have junior sign an employment agreement.

Pay junior a wage. You may want to hire a local payroll firm to deduct taxes and create an actual paycheck (this service costs far less than you’d imagine). If he does well, give him bonuses liberally.

Junior uses the wage to pay tuition costs.

At tax time, claim the rental house income and expenses on your taxes. This includes the cost of junior’s labor.

Why this works:

You’re receiving a huge discount on your college expenses AND collecting any excess rent plus keeping any appreciation on the property.

Junior, at best, is collecting the wage while in the 10% tax bracket. You’re probably in the 25% bracket if you’re like most people who read financial blogs. You save 15% off the cost of your college simply by paying junior to take care of your property for you, plus you have a built-in manager (no real out of pocket additional expense…you were going to have to pay that money out anyway for school costs).

Additionally, you receive MORE savings off of the education expense because you’re deducting junior’s salary as an expense from your taxes.

I need to be 100% clear here: this can’t be a tax avoidance strategy. You’re asking for an IRS audit that you’ll lose if you simply buy a house a funnel funds for junior’s college through your property costs.

Your goals should be: 1) own rental real estate; 2) make a gain on your investment by deducting all legal costs of owning property; and 3) employ junior for a fair wage as he/she heads to college. If junior uses this money for school, great.

If not, you’ll have other ways to make your child sorry they didn’t listen to a good parent’s advice!

Photo: College: 401k 2012

My Experience in Landlording 101, or I’m Not Donald Trump

July 6, 2012 by Average Joe 7 Comments

I’ve been renovating my rental property this week and haven’t had enough time to pick a Blog Post of the Week! Instead, you get obscure ramblings from an over-caffeinated blogger….I’ll have a Blog Post of the Week! again next week for you. Have a great weekend!

I Never Wanted To Be A Landlord

When I was an advisor, I’d hear horror stories from my clients with tenants. Early on I learned that I probably didn’t have the stomach for some of the negotiation and strong-arming that it takes to work with tenants. I prefer REITs for my real estate exposure.

But, after my home didn’t sell when we moved to Texas, I realized that I had two choices: short sale or try my hand at tenants. I opted for choice #2. I wasn’t completely green. I’d read extensively about landlord/tenant contracts, strategies and tactics so I could be useful to clients. While “fun” might not be the right word, it’d be educational to try it first hand.

The surprise? I didn’t know how much I’d like it.

I’m no Donald Trump and am still too much of a pushover. I want to be a little more callous with my tenants because they realize they can get away with stuff (and do). An example: my tenant the last three years was late with her rent EVERY MONTH. The good news is that I wrote a $100 late fee into the contract, which she gladly paid EVERY MONTH. I got used to her checks two weeks late and came to enjoy the $1,200 extra income from her.

Lessons Learned From Landlording

Is landlording a word? Probably not (Pages doesn’t think so….), but I’m running with it. That’s the kind of rebel I am.

Don’t rent a furnished place unless you’re okay with everything being ruined OR you write penalties into the contract. None of our furniture matched our new house (of course, that would be made too much sense….), so we left most of the furniture there. My tenant, a school teacher, was excited about getting a home with nice stuff. Imagine my surprise three years later when my sofa, living room chair and desk were all destroyed. She apologized a ton, but no cash exchanged hands.
Bolster your reserves or keep credit handy for surprises. We had a water leak, tree fall down, bathroom fan breakdown and flooding in the basement. If I didn’t have a reserve, there would have been trouble.
Either live close to your rental or find reliable help. There are many people who will collect rent, fix up the house or manage the property, but most aren’t very good (according to my clients who were in real estate). You need great help or have to do as much work as possible yourself. I live halfway across the country from my rental, but have a great handyman, Dave, who is a quick call away, charges reasonable fees and responds lightening fast. To make sure he’s happy, I pay him the SECOND his bill arrives (that’s overstatement, but you know what I mean).
Try to complete each “fix it” project yourself at least once, even if you’re going to find help.
Remember that it’s a relationship with your tenant. My main goal is to have my tenant stay in the house. I’ve tried to make sure the house is well-maintained and I’m accessible so my tenant stays around. That said, I also need to keep up with economics. I’ve looked at rental prices in the area and raised the rent once in the past three years. I was poised to raise it again before I found out she had to move out (through no fault of mine…her son wants her to stay in his house while he’s away on business for two years. I can’t beat “free rent.”)

Are you a landlord? Have you rented from a good or bad landlord? Share your success or horror stories in the comments!

Photos: For Rent: Charleston’s The Digitel