Emergency Ready Kit

The Federal Emergency Management Agency (FEMA) recommends that all Americans have some basic supplies on hand in order to survive for at least three days if an emergency occurs. It is recommended that the Ready Kit should be assembled well in advance of an emergency.

The concept is to be able to survive for at least 72 hours until local officials and relief workers arrive on the scene. The disaster could be wide-spread and involve a lot of people that makes it difficult for relief workers to reach everyone immediately.

• Water, one gallon per person per day for at least three days
• Food, at least a three-day supply of non-perishable food
• Battery powered or hand-crank radio and a NOAA weather radio with tone alert and extra batteries for both
• Flashlight and extra batteries
• First aid kit
• Medications (prescription and basic)
• Whistle to signal for help
• Dust mask to help filter contaminated air and plastic sheeting and duct tape to shelter in place
• Moist towelettes, garbage bags and plastic ties for personal sanitation
• Wrench or pliers to turn off utilities
• Manual can opener for food
• Local maps
• Cell phone with chargers, inverter or solar charger
• Family and emergency contact information
• Extra cash
• Emergency blanket
• Pet supplies if necessary

Click here for a print version of this list and additional items to consider adding to an emergency ready kit. The American Red Cross has a suggested list for first aid kits and has other items available for purchase at their online store.

Forced Savings

One of the big banks has a voluntary program available that transfers $100 each month from your checking account to your savings account. In five years, the account owner would have over $5,000 because of a type of forced savings. 

Similarly, when a person buys a home with a standard amortizing loan, each month, a part of the payment is used to reduce the principal loan amount. Amazingly, over $4,000 would be applied toward the principal in the first year of a $250,000 mortgage at 4% for 30 years. In five years, the loan amount would be reduced by almost $25,000 through normal payments.

The other dynamic that is in play is that while the unpaid balance is being reduced, appreciation causes the value to increase. The difference between the two makes the equity grow even faster. Three percent appreciation on a $250,000 home would increase its value in five year by almost $40,000.

A 30-year mortgage of $250,000 will be paid for in 30 years. At an average of 3% appreciation, the asset would be worth about $600,000. If you continue to rent, the asset belongs to your landlord instead.

Many experts believe that the homeowner benefits from the forced savings of amortization and the leveraged growth that takes place in the investment. It has been observed in the tri-annual Consumer Finance Survey by the Federal Reserve Board that homeowner’s net worth is considerably higher than that of renters.

More Equity...More Options

The more equity in your home, the more options you have. Since equity is determined by the difference between value and what is owed on a property, when homes lost value during the Great Recession, homeowners’ equity decreased.

Negative equity occurs when the value is less than the mortgage owed. According to CoreLogic, 91% of all mortgaged properties have equity and only 4.4 million properties remain in negative equity at the end of the second quarter in 2015.

A homeowner, who qualifies, can release part of their equity by refinancing the existing loan and taking out additional cash or by getting a home equity loan. The benefits include:

• To get a lower rate on your current mortgage
• To finance capital improvements on your home
• To payoff higher interest rate debt such as credit cards or student loans
• To purchase items that would not have deductible interest like personal cars, boats, etc.

It could be as simple as waiting for positive home equity so owners can move to another home without having to pay out-of-pocket expenses to sell their home.

Two things everyone needs to know about plumbing

The first thing every homeowner needs to know about plumbing is how to turn the water off in case of an emergency. It’s like having a fire extinguisher; you hope you never need it but you want it just in case you do.

Generally, the cutoff is in the front of the home. There may be a separate cutoff box on the owner’s side of the meter. If not, the owner needs to be able to open the water meter and turn it off there. This will require a water meter key which can be found at a local home improvement store and a wrench. Once you have the key, practice opening the meter door and check out how the shutoff valve works. Then, put the key in a quick and easy place to find when you need it.

The second thing a homeowner needs is a recommendation of two good plumbers. Having a backup name is always good in case your first choice can’t make it when you need them.

Some homeowners prefer to go the do-it-yourself route. There are plenty of DIY videos on the Internet but having the name of a good plumber if the job gets out of hand can be the tool that saves the day.

Our business puts us in touch with some of the most reliable and reputable service providers and we’re willing to share their names with you. Regardless of whether you “do it or delegate it”, being familiar with the basics can be very helpful.

Look at a Rental This Way

Appreciation, tax advantages, cash flow, leverage and equity build-up contribute to the rate of return on rental real estate. If that sounds confusing and it’s keeping you from investing in rentals, try looking at it a different way.

Consider this, look at only cash flow and equity build-up to determine whether to buy the property. They are easy to calculate and their outcomes are both reliable and predictable.

Most homeowners, based on their familiarity with their own home, should feel more comfortable with a rental than alternative investments. A conservative strategy is to purchase slightly below average price range homes in a predominantly owner-occupied neighborhood. Collect the rent, pay the bills and make necessary repairs.

A cash on cash rate of return is determined by dividing the cash flow before taxes by the cash invested in the property. It considers all of the “real world” income and expenses related to the property.

The equity build-up occurs from the normal process of amortization with an increasingly larger portion of each payment applied to reduce the principal loan amount.

In this hypothetical example, the combination of the Cash on Cash and the Equity Build-up is almost 12% which is considerably higher than certificates of deposit and bonds and nowhere near as volatile as stocks or mutual funds.

In most of today’s markets, rents are expected to continue to rise and due to a low inventory of homes for sale coupled with growing demand, prices will continue to rise. Even though there is value in appreciation, tax advantages and leverage, they could be considered an unexpected bonus to this basic rate of return.

One-button Pricing?

An Automated Valuation Model, AVM, is a computer approach that looks at public records to make a determination based on square footage, comparable sales and other elements. It is as easy as putting your address in a blank but unfortunately, AVM results may only be accurate about 20% of the time.

A popular AVM, Zestimate®, states “It is considered a starting point at determining a home’s value.” While an AVM contains some of the same information as a comparable market analysis, it lacks a critical human factor.

Having a pair of experienced eyes consider aspects that are not easily quantified can make a big difference. A skilled professional can tell which properties are truly comparable. A knowledgeable expert can recognize features, floorplans and other things that can affect value but are difficult to quantify.

Even if a person isn’t ready to sell their investment, they like to know its value. It is easy to find the price of stocks or mutual funds on any given day but the value of a home is more difficult.

Regardless of whether you’re just curious as to how much your home is worth or are ready to monetize your equity, I’m available to give you that information without obligation. If you’re not ready now, just keep this letter for when you are.

Resource Central

Homeowners should recognize that the same trusted professional who helped them buy or sell their home can be a valuable resource while they own their home too.

Think of your REALTOR® as an indispensable homeowner’s resource who can make recommendations about a variety of services that homeowners will use throughout the tenure in their home. This experience far exceeds personal experience because of the day-to-day activities working in the industry.

• To recommend reputable and reasonable service providers.
• To offer information about your community, nearby businesses and local agencies.
• To solicit general homeowner knowledge such as protesting your property tax assessment, determining fair market value, determining the best improvements and other things.
• To assist with advice and suggestions about maintenance, protecting value and saving money.

Our goal is to have a long-term relationship with you. We want to help you be a better homeowner not only when you need to buy or sell but all of the year’s in-between. We want to earn a recommendation to your friends. We want you to consider us your REALTOR® for life.

At least consider a shorter one

Affordability and stability are reasons homebuyers choose a 30-year fixed rate mortgage. It makes the payment lower than a 15-year mortgage and the principal and interest portion of the payment will be constant for 30 years.

A common belief among homeowners for decades was that they would always have mortgage payment. The Great Recession has caused many individuals to rethink that concept and make plans to get their home paid for sooner.

For people who can afford it, shorter term mortgages will provide a lower interest rate and build equity faster. A 3.09% 15-year fixed-rate mortgage compared to a 3.87% 30-year loan will have a $562.42 higher payment.

The equity would be $66,903.04 greater on the 15-year term at the end of seven years. Even after you consider the higher payment on the shorter term, the equity difference is still almost $20,000 greater.

By choosing a 15-year loan, a borrower is committing to the higher payment for the term of the mortgage in exchange for a slightly lower interest rate. Another approach would be for the borrower to acquire a 30-year mortgage and make payments as if it were on a 15-year term. The slightly higher rate would allow the borrower the flexibility of not having to make the higher payment in the event he could not afford it on any particular month.

Discussion with your Insurance Agent

Insurance and homeowners go together like peanut butter and jelly. Lenders require fire insurance at a minimum for homes with a mortgage but many owners opt for a more comprehensive coverage with a homeowner’s policy.

However, comprehensive doesn’t mean that everything is covered. Filing a claim is not the time to learn that you don’t have the right coverage. Discuss the following issues with your insurance agent to get a better understanding of your policy and whether some adjustments might be in order.

• Flooding?
• Rising water? 
• Mold?
• Earthquakes?
• Pools?
• Termites?
• Certain kinds of pets or breeds of dogs?
• Limits on jewelry and cash?
• Deductible amount?

The whole concept behind buying insurance is to transfer the risk of loss that you cannot afford for an annual premium that you can. Price and coverage need to be considered when comparing policies. Call your agent and make sure you understand what you’re insured for and if there are alternatives available.

Real Cost of Housing

A variety of factors have led to a shortage of rental units, especially single family homes, and as a result, rents have been steadily increasing nationwide. In most markets, it is considerably less to own than to rent.

In some cases, the total house payment is less than the rent for a similar size and condition home which supports a purchase. However, when you factor in some of the financial benefits like principal reduction, appreciation and tax savings, the difference becomes even more dramatic.

Let’s look at an example of a $250,000 home with 3.5% down payment and a 4.50% mortgage for 30 years. We’ll assume a 3% annual appreciation, 25% federal tax bracket, $1,200 annual maintenance and current rent of $2,100 a month.

The total house payment with property taxes, insurance and mortgage insurance premium would be $1,834 a month. Once the principal reduction, appreciation, tax savings and maintenance have been considered, the net cost of housing is about $673 a month. It costs a tenant over $1,400 more a month to rent than to own which would amount to $17,000 in the first year alone. That’s almost twice as much as the down payment to get into the home.

In this example, the down payment of $8,750 grows to almost $94,000 in seven years due to appreciation and amortization of the loan. Owning a home is one of the few investments available that allow these personal and financial benefits.

One of the obstacles in the past five to seven years has been a borrower’s inability to qualify for a mortgage but new programs and relaxed requirements have allowed more people to be eligible for mortgages. The important step is to talk to a trusted mortgage professional very early in the home search process. Your REALTOR® can make recommendations based on experience from actual closed transactions.

Use the Rent vs. Own calculator to see what the benefits might be in your price range.

6 Reasons for Rentals

Rental homes have several distinct advantages compared to alternative investments. These advantages coupled with the opportunity for a higher yield make it a clear choice for some investors.

1. Most investments must be paid for in cash. Stocks can be purchased with 50% cash but if the value goes down, more cash has to be used to keep the margin at 50%. Rentals can readily be financed with only 20-25% down payment.
2. Most loans made for business or investment purposes are at a floating interest rate compared to the prevalent fixed-rate mortgage on non-owner occupied real estate.
3. Terms for investment loans if possible are generally six months to a year with a possible renewal but real estate commonly has long term loans up to 30 years.
4. Real estate has a long-term history of appreciation.
5. Real estate enjoys tax advantages like long-term capital gains treatment, cost recovery and tax deferred exchanges that are not available to many other types of investments.
6. Single family homes and similar properties give the investor a reasonable amount of control to make improvements and manage the property which are limited to simply determining when to buy and sell for other investments.

The ins and outs of stocks, bonds, mutual funds, commodities and other investments are unfamiliar with most people. It is obviously possible for anyone to invest in them but the lack of knowledge about how they work could make it more difficult to have a successful outcome. On the other hand, homeowners can use their experiences to select, manage and sell with much more confidence using a single family home for rental purposes.

To find out more about investing in rental properties, contact your real estate professional.

Your Best Investment

According to a Federal Reserve report on Consumer Finances, homeowners' net worth is 36 times greater than that of renters. Building on that study, the National Association of REALTORS® believes that by the end of 2015, the factor will grow to 41 times greater.

There can be several factors that contribute to this disparity but an important one is the forced savings that is achieved due to an amortized mortgage. A portion of the payment goes to the reduction of the principal balance of the mortgage which increases equity in the home.

Appreciation is also a major contributor to homeowners’ equity. Homes, in most areas, have consistently increased in value over the long term and during the past four years have experienced solid growth. Many economists expect home prices to increase in the next five years.

Let’s look at a scenario where a qualified buyer considers three different options to see what their investment would be in five years: purchase a certificate of deposit, invest in the stock market or buy a home. The following assumptions are made: a $250,000 home with an $8,750 down payment with a 4.5% mortgage for 30 years and 3% annual appreciation; CD rate at 2% and a 5% return in the stock market.

The $8,750 would grow to $9,661 in the certificate of deposit, to $11,167 in the stock market and to $69,900 in equity with a home purchase. That is over a six times growth in the same period of time due to the amortization of the loan and the appreciation.

Check out Your Best Investment to compare possible differences in your price range.

The Cost of Co-Signing

It seems fairly innocuous; a friend or family member wants you to co-sign on a loan because they don’t qualify. They assure that they’ll make the payments; they’re quite convincing and very appreciative. You don’t want to disappoint them and after all, it’s not like it’s going to cost you anything…is it?

Think of it this way. They couldn’t get a loan unless you co-sign for them. If they don't make the payments, the lender is going to look to you to repay the loan plus late and collection fees. The lender may be able to sue you, file a lien on your home or garnish your wages.

And it’s not just money that you could be losing, it could be your credit too. Co-signing a loan is a contingent liability that could affect your debt-to-income ratio and your ability to borrow.

Co-signing is an obligation to repay the debt if the other signer is unable. You could be out the money and unable to recoup the loss because you don’t have control of the asset. The impact on your credit could take years to recover.

Before you obligate yourself, consider all of the ramifications involved in co-signing a loan for someone.

Finding the Best Mortgage

As rates are inching up but still very affordable, buyers should remember that there is an alternative to a fixed rate mortgage that can provide the lowest cost of housing for the homeowners who understand the parameters.

A $300,000 fixed-rate mortgage at 4% has a principal and interest payment of $1,432.25 per month for the entire 30 year term. A 5/1 adjustable mortgage at 3% has a $167.43 lower payment for the first five years and then, can adjust, up or down, based on a predetermined index.

Another interesting fact is that the unpaid balance on the ARM at the end of the first five years is $4,624 lower than the fixed-rate mortgage. The total savings in the first five years on the ARM is $14,669.00.

Adjustable rate mortgages are not the right choice for everyone but buyers should at least consider the options based on their individual situation. It could be an obvious choice for a buyer who is only going to be in the home for five years or less.

Use the ARM Comparison worksheet to see what possible savings you could have based on your actual numbers. A trusted mortgage professional can help you to understand the advantages and disadvantages based on your situation. You need the facts to make the best decision.

Cut Mortgage Insurance

Making additional payments toward the principal of your mortgage will do three things for the homeowner: save interest, build equity and shorten the term on fixed rate mortgages.

These things should be beneficial enough to justify the extra payments but another huge advantage is available to those who have private mortgage insurance on their loan. Mortgage insurance rates vary but can range from seventy-five to two hundred dollars a month on a $200,000 mortgage.

Lenders are required to automatically terminate mortgage insurance when the principal balance reaches 78% of the original value of the property. It is important for homeowners to monitor their balance because sometimes lenders may inadvertently fail to terminate the coverage.

Mortgage insurance is a necessary but expensive requirement for many people who are limited to a down payment of less than 20%. Eliminating the need for it can save thousands of dollars over time.

The Consumer Financial Protection Bureau, CFPB, issued a compliance bulletin on August 4, 2015.

Lower the Rate & Deduct the Interest

A home can easily be a person’s largest personal asset and it can be a powerful tool to increase financial stability also.

Since most mortgages are amortizing, the loan becomes a forced savings account that reduces the unpaid balance with each payment. The equity could be used to improve a homeowner's financial position involving other loans.

While every homeowner recognizes that they can deduct the interest paid on their mortgage, it is surprising how many don’t know that they can write-off the interest on up to $100,000 of home equity debt assuming there is sufficient equity in the home.

The real advantage to a homeowner is that the money borrowed can be used for any purpose and the interest is still deductible. Homeowners could payoff high-interest rate credit card debt or student loans with a considerably lower rate on a mortgage and deduct the interest on the home-equity debt.

Replacing debt with lower rate loans that have deductible interest can be a strategic decision to financial stability and a debt-free environment. A trusted mortgage professional can help you analyze your individual situation to determine if it would be better to refinance with a cash-out first-mortgage or a dedicated home equity loan.

Things That Kill Your Credit

Some people take their credit for granted and don’t start paying attention to it until they need it. The problem with this is that it could delay if not altogether cause the loan to be denied.

The most common issue is not correcting items on your credit report. A large majority of credit reports have errors but not all of them are critical. Since it takes time to remove them, it is a good practice to review your free credit reports from each Experian, TransUnion and Equifax once a year at www.AnnualCreditReport.com.

Another problem is making late payments. One 30-day late payment could be enough to cause a borrower to pay a higher interest rate or even be denied a loan. Payments have a due date and even when they allow a few days before a late fee kicks in, if it isn’t on-time, it is late.

Maxing out credit cards is another big problem. Ideally, a person wants to have an outstanding balance of no more than 30% of their available credit. As the percentage of available credit decreases, the credit score will go down.

Bad credit can not only keep you from getting the loan you want, it can raise your rates on the insurance you buy. In a study released by the Consumer Federation of America, people with good credit paid less than people with average and poor credit. Their results indicate that some customers with poor credit scores were charged about twice as much as those with excellent scores.

A prudent idea if you are going to be moving to a larger home is to get pre-approved with a trusted mortgage professional before you sell your current home. Occasionally, sellers find out after they’ve sold their home that they can’t qualify for another mortgage.

Checking for Water Leaks

An unexpected, larger-than-normal water bill could lead a person to think that they might have a leak. Before incurring the cost of a plumber, it is fairly easy to run your own test.

Locate your water meter. They’re usually in the front of the house, near the street. In some cases, you might need a meter key to open it; they can be purchased at Lowe’s, Home Depot or other hardware stores.

Step One - Write down the numbers on the meters to get a current reading. Don’t use any water for thirty minutes. If the meter shows water usage during the test period, proceed to step two.

Step Two - Shut off the valves to all of the toilets. If you have a pool with an automatic filler, it has a similar device. Repeat the test again for the same thirty minute period. If the numbers haven’t changed this time, it indicates that the toilets probably need servicing.

If the numbers have changed during step two, it is an indication there may be a leak and it will need to be tracked down. This could be the time to call a plumber or plumbing leak specialist. Your water department may have a consumer help line that can offer suggestions also.

More Home for a Lower Cost of Housing

What if you could live in a larger and possibly newer home for less than you are currently? Would you consider moving? Do you want to hear more?

Interest rates, while they’re expected to go up, actually took a small dip and are still hovering at the 4% or below mark for a 30 year mortgage and almost one percent less for a 15 year term.

Let’s assume that you have a $225,000 mortgage currently at 6% which has a principal and interest payment of $1,348.99. With a 4% rate, you could have a $282,561 mortgage with the same payment. A $57,000 more expensive home could help you get what you need most such as more square footage or a different location or a newer home.

If you’re going to be making that payment for years to come, why not allow lower interest rates to help you get the features you want without having to necessarily pay a higher payment. Taking that logic a little bit further, let’s see how utilities can make a difference too.

A newer home could easily have lower monthly utility costs than your current home due to being more energy efficient. Construction materials, windows, doors, insulation, modern HVAC systems and energy efficient appliances all contribute to lower utility costs. A new home with these advantages could easily save a homeowner up to 25-50% on utilities for the same size home.

The concept is simple: get the most home you can for the amount you spend on the payment and utilities. It will take some investigation and your real estate professional can help.

Get Ready for College

One of the important things as a parent is to plan for their children’s education. Let’s look at two different approaches: a savings account or investing in rental real estate.

Assuming your child is five years old and you start putting $250 a month in a savings account earning 2%, in 13 years you’d have $44,497.41 to pay for their college. Anticipating that isn’t going to be enough, you’d have to save $500 a month to end up with $88,995.

Another way would be to make a lump sum contribution of $20,000 today in a mutual fund earning 5% that would be worth $37,713 in 13 years. You’d have to make a $47,196 initial contribution to end up with the same $88,995.

An alternative to savings would be to invest in a $100,000 home in a good area. Assuming a three percent appreciation and rent of $1,000 a month, an initial investment of $23,500 could have a future wealth position of $83,838 at the end of 13 years.

Obviously, this is just an example of why rental homes are the IDEAL investment providing Income, Depreciation, Equity build-up, Appreciation and Leverage. While rentals certainly have more risk and management than a savings account, they do provide an opportunity for a higher rate of return.

If you’re concerned about paying for college tuition in the future, it is certainly worth investigating the possibility of investing in rental homes today.

Where Are the Sellers?

Low inventories resulting in multiple offers are contributing to what experienced agents are calling the most challenging market they’ve ever worked. While buyers with resources may find the market difficult, purchasers with minimum cash and credit are struggling to find and get into a home.

First-time buyers feel the impetus to purchase because they’re renting and are concerned about being priced out of the market with rapidly appreciating prices and rising interest rates.

Sellers may not feel the same urgency because they already own a home. While they might find it appealing to change homes, they may not feel a pressing motivation causing them to act.

In some cases, sellers are so attached to their low interest rate mortgage that instead of selling, they’re keeping the home for a rental property. This may be a good investment for people with additional cash resources for the down payment and closing costs on the replacement property.

Why now is a good time to sell:

1. The economy is strong.
2. The majority of home sales occur in the months of May through September.
3. Many buyers find it preferable to move in the summer because their children are out of school and they can avoid the winter weather.
4. Mortgage rates are still very low but are starting to rise.
5. Current low inventories in most markets result in higher prices and less competition.

Contact your real estate professional to evaluate the opportunities of making a move.

Wait a Year...It Won't Matter?

There is a frequently quoted expression “more money has been lost from indecision than was ever lost from making a bad decision.” Regardless of the extent of its accuracy, most people can recall when procrastination has cost them money.

There are markets so short of inventory that buyers have become frustrated after losing bids for several homes and have decided to wait until more homes come on the market. In the meantime, the shortage of homes is driving the prices up more by the month.

There are buyers who can’t find what they want for the price they want to pay and think that waiting will somehow change things. In some cases, what they want just keeps moving farther and farther away from them.

The other dynamic in play is, of course, the mortgage rates. While they’ve remained low for several years, most experts agree that they’re going to rise; it’s just a matter of when. If you look at what positive increases in both of these would do, it becomes apparent that waiting will matter.

A $250,000 home purchased today on a FHA loan at 4% for 30 years will have a principal and interest payment of $1,151.76. If a buyer were to wait a year and the price increased 5% and the rate went up by 1%, the payment would increase by over $200 a month. In a seven year period, the increased payment alone would cost the buyer over $17,000.

Use the Cost of Waiting to Buy calculator to see how much it will matter based on the home you want to buy and what you think the prices and rates will do in the next year.