Timeshare worth it?

When I was in college, one of my roommates’ parents had a timeshare.

They weren’t going to use it one of the weekends it was their “turn,” so we decided, as roommates, to take a mini-vacation and stay in the timeshare.

It was a lot of fun, and it got me thinking that maybe, when I grew up, I’d like to rent or buy timeshare.

I’ve changed my mind since then, however. I don’t think a timeshare is right for me — and certainly not the type of timeshare that locks you in to one specific location. What happens if you don’t want to vacation in the same place year after year? There are other timeshare options available out there now, and some might even be a good deal, if you are a certain sort of person.

Timeshare Options

First, it’s a good idea to learn about your available timeshare options. The traditional timeshare requires that you make an upfront payment for the right to use a specific condo, or hotel room, or resort, or some other vacation option for a certain time period. For instance, you might buy the right to use a three-bedroom condo at a ski resort in Park City for two weeks a year (one week in winter, and one week in summer, perhaps). You might also be required to pay yearly maintenance fees on top of your initial, upfront payment.

Another option, though, is growing in popularity: A points program. You buy a certain number of points up front, and these points can be used for stays at resorts in a timeshare network. This means that you aren’t limited to a single location every year. You can exchange points, and stay in different places, and make reservations for different times of the year. (Be aware, though, that in some cases you need to reserve as much as a year in advance, due to the popularity of some resorts.) You can buy or earn more points, and you might need to pay a maintenance fee.

Before you commit to a timeshare, make sure you understand the system used, and the limitations.

Selling Your Timeshare

One of the things to be aware of is that few experts consider timeshares to be investment options that are likely to earn you a return. In some cases (check the terms of your agreement) it is possible to rent out your timeshare if you can’t use it at a specified time, or you can share it around with your friends and family. This can offset some of your costs. Selling your timeshare, though, is likely to result in a loss. Due to the large number of timeshares on the market, flipping your timeshare for a profit is a rather unlikely scenario. Timeshares aren’t exactly traditional real estate investing.

If you are considering a timeshare, go in realizing that it is likely to be an investment of time and sentiment, and not one that will provide you with financial returns.

Will You Use It?

For some people, a timeshare works. They use the timeshare, or they rent it out or have family and friends that can use it. Others, though, buy timeshares and find themselves locked in to expenses — and they don’t always use the timeshare. And consider whether or not you could create your own vacation for cheaper. After all, even if you have the resort location, your timeshare purchase won’t cover airfare, good, entertainment and other expenses. You might be able to put together a trip for much less than the annual cost of a timeshare.

Think about why you want a timeshare before you purchase one. Honestly evaluate whether or not you will use one, and consider the costs. Only you know whether a timeshare is worth it for you.

Have you purchased a timeshare? What has been your experience?

photo credit: jwinfred

Buying a Foreclosure

I t is no surprise; there are a LOT of Foreclosures in the Real Estate market right now.

It is also no surprise these houses can be bought at steep discounts.

In fact, Foreclosures, in my opinion, are the hottest thing going in Real Estate investing.

The market is full of them, and the banks are holding thousands back, so as not to flood the market even more. As most of you know, banks are not in the business of Real Estate. They are in the business of loaning money. When a bank gets a Foreclosure, it is a toxic asset on the banks books. Now, more than any other time in history, banks are dumping these toxic assets for pennies on the dollar.

Before you quit your day job and decide you are going to get rich buying and selling Foreclosures, know this:

The Pre-Foreclosure

The first stage of the Foreclosure process is known as Pre-Foreclosure. This means the individual who owns the mortgage is behind on their payments. Depending on the bank, the payments could be between 3-12 months behind. Yes, some banks do not start the Pre-Foreclosure period for 12 months!

At this stage, the owner is still living in the house. Interest and penalties are accruing on their loan, but the only thing that is really happening is their credit score is going down (rapidly) and they are getting a lot of letters in the mail from the bank. The bank has not decided to go full blown foreclosure yet, as they are attempting to work something out with the home owner and save themselves the very high cost of the foreclosure process.

The positive to buying at this stage of the foreclosure process is you obviously have a motivated seller. Depending on their situation, they may be willing to sell their house very cheap, in order to avoid foreclosure and save what they can of their credit.

The negative is they may not have a lot of equity in the house, and therefore their motivation may not be a factor. It does not do an investor any good to buy a house when it is worth what the seller owes on it (or as is the case with many properties in this market, the house is not worth what the seller owes). You look for motivation but you make purchases on equity.

Without getting too deep into investment strategy, know that in some cases it may be worthwhile to make up delinquent payments and purchase the house with creative financing. We will not discuss that in this post, but know it is a viable option and one we will discuss in future posts.

The Short Sale

The next stage in the Foreclosure process is when you can buy the house on a Short Sale. A Short Sale is when the bank is willing to take less for the house than what is currently owed on the property. There is no set time period for when a house goes from Pre-Foreclosure status to the bank being willing to do a short sale on it.

When the bank has decided it will take a Short Sale, it has basically come to the conclusion the current home owner is not going to be able to make up their back payments and continue with the mortgage. The only reason a bank will accept a short sale is to forego the long process and high cost to Foreclose on the delinquent mortgage.

There are a few positives and a LOT of negatives to buying in this stage of Foreclosure. Some investors love to buy at this stage, but as you will see it is a lot of work, takes an extremely large amount of time and rarely produces a deal.

The positives to buying a house as a short sale is this, you can get a very steep discount…. That is about it! The negatives are the following: The current homeowner has to apply for a Short Sale, sending in a lot of financial information basically convincing the bank they are no longer in a position to pay their mortgage. This takes forever!

Once the house has been approved for a Short Sale, the current owner must agree to your price and then send it to the bank for approval. This process also takes forever (several months). A short sale can easily take 6-9 months to go through, and I have seen cases in which it took over one year.

Here is the scary reality of short sales, it may be to the very end and you think the deal you have been working on for months is about to go through and BOOM, the bank rejects it. There is money to be made in Short Sales, but it is definitely not a method to base your investment business around.

Going to the Auction

photo credit: Great Beyond

The third stage of the Foreclosure process is when the property is being auctioned at the courthouse steps. This is the most dangerous time to buy, and only seasoned investors should attempt to buy at the courthouse auction! At this stage, the bank has gone through the legalities of the Foreclosure process and the house is going up for auction. The bank will send a representative to bid at least what is owed on the property, and anyone who is willing to pay above that can buy the house.

The positives of this are, if there is a ton of equity in the house, you may have a shot at getting a good deal. Here are the negatives. The individual often times may still be in the house at this stage! Even if you buy it, they may trash it as they are leaving. Hence, you have no way to calculate what your repairs will be on the house.

Also, at this stage, the bank does NOT necessarily remove all liens from the property. You may buy the house and discover there is a mechanics lien, a lien from the city or various other liens that YOU have now inherited.

Also, every state has a period of redemption for the previous home owner to catch up the mortgage and all of the fees, after the auction sale. Granted, this is VERY unlikely, but it is something to consider. Also, at the courthouse steps, the buyer is required to put a large sum of money down as a deposit, with a very small window to come up with the remaining balance.

If you are not a cash buyer, you will have a very hard time buying these properties. Once again, there is money to be made by purchasing homes at the courthouse auction but it is very dangerous, and there are several things you may discover once you purchase the property that completely change the financial outlook of the deal.

If the phrase “Buyer beware” was ever appropriate, it is when buying at the courthouse steps!

REO…Speedwagon? Not quite

The final stage of the Foreclosure process is my favorite. This is the point where the house becomes an “REO.” Once an auction on the courthouse steps takes place and no one bids more than the banks bid, the property goes back to the bank and becomes an REO or “Real Estate Owned” property.

At this point, the bank has been dealing with this toxic asset for quite a while, with no money coming in and only money going out! You must understand the banks costs, to understand why they are extremely motivated to sell these properties.

As previously stated, the bank has had this non-performing asset on their books for a long time. They have spent money on attorney’s fees, property preservation, insurance etc. Most big banks have thousands of these non-performing assets and they need them off the books badly.

The positives to buying at this stage are many. First, once the property is an REO, when the bank sells the property, they are required to deliver a clean title and remove all liens. Hence, you will not have any surprises once you have bought the house.

Also, no one will be living in the house at this point. The bank has seen that the previous owners have vacated the property, with no chance of redeeming their loan. The negatives to buying at this stage are, the previous owners often leave the house in poor condition. Depending on how you look at it, this may not be a negative at all. The worse condition a property is in, the better the discount. When you become good at estimating repairs, this is simply a factor that will go into your offer.

This may surprise you, but as investors, the house matters very little when it comes to getting a check.

I am not saying the condition of the property plays no role when deciding to pursue an investment, but the condition of the house is not the main factor. My point is, do not stray away from houses that smell like cat pee or are in bad shape, there is money there! Many of the current houses on the market will not be financeable through a bank, due to their condition. This only serves as a bonus for you, the investor!

As of this writing, Fannie Mae, Freddie Mad and FHA (Federal Housing Administration) alone hold nearly 250,000 REO homes. As an investor, the foreclosure market is definitely something you should be paying attention too.

While there are various stages of foreclosure and each stage carries a different amount of risk, each stage also allows the opportunity to create a huge amount of wealth. While there are several avenues to focus on when trying to make money in Real Estate, in this market, few come close to the power of harnessing equity out of bank distressed REO’s.

Focus on your education and learn the foreclosure process, and then go make some money!

A few years ago, after watching nearly every single episode of Flip This House, I was determined that I was going to be a real estate mogul. I remember bragging to a friend, after making my first offer on a duplex, how I planned on buying 10 more rental properties in the next year. Reflecting back, I was an idiot.

I severely overpaid for my first property and was fortunate to get out of the deal without losing any money. I was lucky. I quickly learned that I had no clue about how to really make money with real estate.

Never forgetting my real estate investing blunder, I was thoroughly impressed when I met my buddy Eric Moorman. How fitting that I met Eric when he came to the door of my old home when we were trying to sell it “For Sale By Owner”.

He was a real estate investor and made us a leasing option deal in the event our house didn’t sell by the time our dream home was complete. After hiring a realtor, our house sold fairly quickly, and we didn’t need to take Eric up on his offer.

Fast forward to present day, Eric had called me up and wanted to take me to lunch to inquire about my investment services. I quickly flipped the script on him when I learned how successful he was with is real estate business.

This guy is 29 years old and his real estate business made over $250,000 last year.

Now remember….we don’t live in a large metropolitan area where he’s flipping million dollar properties. Our largest city (which most of the U.S. would call a “town”) has a population just over 25 thousand. That’s it.

As you can see, that is pretty darn impressive. And he’s not stopping. He’s planning to do more than that this year. <Go Eric, Go!>

I know many people are interested in making money in real estate, especially if you can do it with no money down. I’ve asked Eric to share his story as well as some strategies that anybody can do. This is his first post and he plans on sharing more in the future.

Enter Eric…….

+++++++++++++++++++++++++++++++++++++++++++++++++

I have been a full time Real Estate Investor for the past three years.  The reason I got started was a mix of desperate need (I had a Masters degree, could not find a job and was BROKE), and the promise of huge profits, very quickly with little to no knowledge of the business and no start up money.  I was more than qualified to meet those requirements.

I had never taken a single class on Real Estate, had no idea how to fix ANYTHING (let alone conduct a complicated rehab project) and most importantly, I had NO MONEY!  The one advantage I had going into this business was a father who was an amazing mentor.  Growing up, he was the quintessential entrepreneur.  He was a C.P.A. by day and ran several successful businesses on the side.  I looked up to him with absolute awe, and still do.

At my lowest financial point, my father came to me and said,

“Eric, here is a check.”

I, being a recent Masters graduate, thought this was a gift, and was extremely excited.  The words that came out of his mouth next were probably the scariest, but most important he ever said to me.  He said,

“I am cancelling your account on my cell phone plan.  Here is enough money to get your own plan started, and the rest is up to you.”

Excuse me?  This is not a check to go to the beach for a week and relax before I start my job hunt?  This is not enough to get me by the next few months until I find my “dream position at a career with a starting salary of at least 100 K?”

This check is basically a,

“I have raised you long enough, and now your on your own check?”

That was exactly what the check was, and I was forced to sink or swim.  That is the key to my story.  I had no back-up plan.  I had to find something and make it work, or I was going to be exactly what I always feared, ordinary.  Thinking back on those days, they were nothing short of terrifying, but they made me who I am today, and I would not change them for anything.

A few days after my dad gave me the check, he knew I was scared and doing everything I could to find a job and fast.  He had been investing in Real Estate on the side for several years, and told me he thought I may be good at it.  Seeing as how I had no job prospects, I decided to listen to some of his CD’s and read a couple of his books.  The one thing I remember from everything I heard and read was how easy the instructors made Real Estate investing out to be.  Work 10 hours a week and make six figures a year!  This was the promise they made, and I jumped in head first.

After listening to the CD’s countless times and reading everything I could get my hands on, I decided it was time to give it a try.  The first obstacle I faced was the fact I had no money to buy a house.  Forget the part where I had no idea how to construct a deal, negotiate with a seller or figure out what in the world to do with a house if I did buy it.  Those were all questions I was too naive to contemplate in the beginning, but what I did understand very well was a simple fact, I had no money to buy anything, let alone a house.

However; all of the “Gurus” promised I needed no money or credit to buy houses, alas began my start in Real Estate investing with Lease Options, Options and Wholesaling.  When you hear you can buy houses with no money, it is true.  I have done this several times and made a lot of money doing it.  Let’s look at a few of the ways this works, with some of the positives and negatives to each.  Did I mention the “Gurus” forgot to say there are actually negatives in Real Estate investing?

Before I get started, let me say I am only going to give an extremely basic explanation of these ideas.  I could easily write a book on each one alone, but here are the bare bones to investing with no money or credit.

Lease With an Option to Buy

The first is acquiring a property using a “Lease with an Option to Buy.”  This is where you lease a property from a seller for a set amount of money each month, with the exclusive right to purchase the property within a certain time frame.  There is no closing at the onset of this transaction, simply a contract stating the agreement.

Now that you have a contract with your seller, you find a “tenant buyer” to move into the property.  You sign a Lease with an Option to Buy with them, and hence, you have a sandwich Lease Option.  Your tenant buyer will give you a Non-Refundable deposit for their exclusive right to Option the property at a set price for a set amount of time and pay you a monthly lease while they are living in the property.

As a side note, I never sign anything or conduct any Real Estate transactions without my attorney reviewing the documents.  It’s worth the money, trust me.  We’ll talk more about the importance of attorneys in another post.

As I stated, there is much more that goes into putting a Lease Option transaction together, but that is basically how it works.  There are several positives and negatives to this type of transaction.  Let’s take a minute to look at a few.  First, let’s look at the positives.  You have acquired a property with no money, and made money from your tenant buyer with their Non-Refundable deposit, as well as their monthly payment (You should always make money on the monthly spread between your buyer and seller.

I have a rule of at least $200 positive cash flow a month per property.  I have some as high as $600, but as a rule, I like to have at least $200 per house each month).  In theory, your tenant buyer will at some point go to a bank and cash you out, and you will make a big chunk of money when he/she does that.

Check #1

Here is the reality, and something you will not hear at a majority of Real Estate Investing seminars, where the individual speaking is attempting to sell you his/her program.  Ninety percent of the time, your tenant buyers are B & C credit buyers.  They are attracted to your “Rent to Own” program, because no bank would EVER loan them money.  In this economy and market, these buyers are everywhere.

The reality is, few of them (only 10% in my experience) actually clean up their credit and end up buying the house.  Also, you will have a huge number that you will be forced to evict and will tear up the property.  I say this not to scare you, but to prepare you if this is the Real Estate vehicle you choose to pursue.  If you do this, make sure you get a huge Option deposit to cover lost rent, attorney’s fees and damage done to the property.

Is there money to be made with Lease Options, yes.  If you find the right tenant buyer, regardless if he/she buys the house, you will make money on the Option deposit, and the monthly rent spread.  If you are not forced to evict this person, and he/she does not tear up the house when they leave, consider yourself lucky.  Is Real Estate investing with Lease Options easy?  No Way.  I have had more headaches from Lease Options than any other type of transaction.

On one hand, you have a seller yelling at you to sell their house and get the loan out of their name; regardless of how long a time frame you have to get it done.  On the other hand, you have a B/C credit buyer that is far less than motivated to do what he/she needs to actually finance the house.  If you engage in this type of transaction, you MUST have a thick skin and be ready to deal with lawsuits, headaches and no where near the profit potential you have been promised by the “Gurus.”  I have over twenty Lease Options going on at this very moment.  I still do them, but I am very cautious and semi-reluctant to pursue more.  The main reason for this is there is easier money to be made in Real Estate, and I will show you not only what it is, but how to do it….. the right way.

Check #2

Option a Property

A second way to make money in Real Estate investing without money or credit is to “Option” a property.  This type of transaction is similar to a Lease Option, but very different as well.  Consider it a Lease Option’s cousin, who is much hotter and more fun.

Here is the simple difference between the two.  With a Lease Option, the seller has agreed to take a monthly payment for a specific amount of time, with a set purchase price to come at some point in the future.  I do not accept any less than 5 years for these transactions and try to get ten years.  With an “Option” to buy a property, the seller is not accepting monthly payments.  They have simply given you the exclusive right to buy a property at a certain price for a certain period of time.

Why would a seller choose one over the other?

Let’s look at a few circumstances and reasons that may persuade a seller to decide one way or another.

With an Option, the seller can continue to live in the house.  At the same time, he/she will continue to make the monthly payment and take care of all maintenance and repairs.  The seller may not want to accept monthly payments, with the idea of someone else is living in their house.  While they may be motivated to sell, the thought of someone else eating dinner and walking around naked where they raised their children may be too much for them to handle.  Also, they may not have the time required for a Lease Option.  If a seller is ten months behind on their payments with foreclosure knocking on the door, and you (the investor) does not want to make up those payments, but there is still a TON of equity in the house, an Option may be your only choice, short of paying cash.

Check #3

With a strait “Option” the seller has nothing to lose.  You have a set amount of time to buy their house, which you will only do if and when you find a buyer at a higher price than you have an Option for.  In this type of transaction, your target audience is not the B/C credit buyer, but rather the individual with cash or the ability to go to a bank and get a loan.

The positives of this, for you the investor, are as follows:  You are not dealing with tenant buyers, repairs left by tenant buyers, angry sellers, evictions, lawsuits, monthly payments with no tenant buyer…… the list goes on and on.  The negatives are you do not make any money at all, unless you successfully find a qualified buyer within the time allotted in your Option to buy.  The seller benefits because they pay no Real Estate commission, and they have the privilege of living in the house while you are trying to sell it.

Selling Wholesale

A third way to make money in Real Estate actually can require the investor to have cash, although it is not required.  This technique is by far the best and easiest way for new, inexperienced investors to make “quick” money in Real Estate.  In fact, this is by far the best and easiest way for veteran and seasoned investors to make “quick” money in Real Estate.

Wholesaling is the art, and I use that word on purpose, of being able to accurately value the potential value of a property and buy it so low, you can quickly sell it for cash to another rehabber or end user, without EVER fixing a thing, regardless of how good or poor the condition of the property.

Now, you may say, I do not need cash for this.  I can simply Option the property for a wholesale price and then sell it to a rehabber or end user.  You are absolutely correct, but getting an owner to accept a wholesale price is rare.  You will make 100 wholesale offers to owners before one is accepted.  Where you will have much better luck is buying foreclosures from banks.

While a majority of your initial offers will still be rejected by banks, they are MUCH more likely to accept a wholesale offer.  They also will NEVER allow you to Option the property.  They only accept cash and will even require you to have Proof of Funds before they even look at your offer.  If you can stomach hearing no several times a day and maintain a constant follow up file with all wholesale offers made, you will make more money in Real Estate than most “house flippers” you see on TV.

Money can be made in Real Estate in several different ways.  I will never claim a particular technique is not worthy of your time.  They all work, some just better than others.  The smartest and best investors do not focus their time solely on rentals or rehabs.  They never swing a hammer or do rehab work themselves.  The best and most successful Real Estate investors are the ones who focus on being transaction engineers and becoming masters of negotiation, relationships with other investors and accepting the fact that the real money is made in pushing paper, not hammering nails.

As you grow in your Real Estate investing career, you will always want a constant portfolio of different types of transactions going on at the same time.  Some investors focus on one particular strategy and make a lot of money.  However, I would rather have the knowledge to take any deal that came my way and turn it into cash.

I constantly have a steady stream of wholesales, lease options, rehabs, new construction and anything else I can get my hands on.  As previously stated; all of these strategies (and many more I have not mentioned in this article) have their place and can make money.  However, for the new investor, dead set to make the millions of dollars promised by the “Gurus,” focus on Options and Wholesale deals.

The truth is, having cash is not necessary to make money in Real Estate investing, but it does make the process easier.  As you advance in your career, you will want to find a way to acquire some cash, whether it be from private money lenders or banks.  The transactions are cleaner and with experience your confidence to properly manage a deal and the money at risk will increase.

But for now, make a mess with as little risk as possible and keep the faith that there is a check at the end of the tunnel.  For me, the first check I earned was small, but it gave me the confidence to keep going.  It was nice to see the bigger checks to follow suit. I promise, they were not easy to come by, but with the proper training, hard work and a little luck, it can easily be your name on these checks.  Let me show you how to get there.

Payday

photo credit: woodleywonderworks

Yesterday, I offered my take on when it might make sense to rent a home vs. buying. Today, Miranda offers her two “cents” on the topic.

One thing that the housing market crash taught us is that not everyone is ready to buy a home. We are so used to thinking of home ownership as part of the American Dream that we sometimes forget that it is impractical for some people to buy a home. However, if you are in a stable financial position, and you have prepared ahead of time, it can make sense to buy. You can use an online calculator to help you make that decision. Here are some things to think about as you consider whether or not you are ready to buy a home or keep renting:

Renting Vs. Buying- All Comes Down to Your Finances

In some cases, you are better off renting while you organize your finances, and figure out what you will be doing for a while. Before you buy, make sure you that you can truly afford the home, and run the numbers. There are some people who rent for years and years, perfectly happy to avoid some of the hassles that come with home ownership, and to invest money they would be paying on home expenses for larger returns. Be sure to figure out how much the tax break will really help you, and make sure that you are truly in a position to buy before you take the plunge.

This is a guest post Miranda Marquit is a journalistically trained freelance writer and professional blogger working from home. She is a contributor for Mainstreet.com, Personal Dividends and several other sites. Miranda is not affiliated or endorsed by LPL Financial. The opinions voiced in this material are for general information and are not intended to provide specific advice and/or recommendations for any individual.

The American dream for many people may be to become a homeowner, but it doesn’t always make sense to buy. There are times when it makes more sense to rent. After graduating college, I was still single (but dating my future wife to be) and I had the opportunity to buy a house with some buddies of mine. Having the mentality that it’s always better to buy than rent I almost nearly pulled the trigger. Luckily, “sense” kicked in (or should I say my future wife ) and I opted to not buy it. Primarily, because we had no idea what the future held and it made more sense to just rent and leave our options open. In our case it didn’t make sense to buy, but that could be different for your situation. If you’re thinking about buying a house, here are some tips to know when renting makes more sense:

Your Credit Is Less Than Great

While it’s often possible to obtain a mortgage with a less-than-perfect credit score, the lower your credit score the higher your interest rate will be. A FICO score that’s below 620 will pretty much guarantee the only mortgage lender you qualify for will be a “predatory lender”. Until you’re able to improve your credit score, people with low credit scores might want to consider renting instead of buying a home.

Although young, this did not affect us. We had excellent credit scores at the time and that proved to be vital when it was time to buy our first home.

Frequent Job Relocation or Employment Instability

Does your job require you to relocate often, or is there a chance you will have to relocate sometime within the next few years? If you have to sell a home, it needs to appreciate a minimum of 10% in order to cover the expenses associated with selling. If your home doesn’t have time to appreciate in value, you’ll lose money when you sell it. One common example is if you are in the military where you’re always on the move. Unless you are quite certain you aren’t relocating any time soon, renting is probably a better solution.

While there is no such thing as job security, you probably have a reasonable idea whether or not you have a chance of being laid off or fired. Keep in mind that compensation during unemployment is rarely (if ever) enough to replace your lost income; and during tough economic times you can’t assume you’d be able to run out tomorrow and find a new job. If there is a good possibility you could be laid off or fired, renting makes more sense. When you rent a home, you may have to downgrade to a lower-rent apartment; but if you own a home and can’t keep up with the mortgage payments, you’ll go into foreclosure and damage your credit.

Unable to Afford Home Maintenance and Repairs

photo credit: kfisto

When you buy a home, you need to consider more than just the mortgage and taxes associated with the home. Experts predict that homeowners need about 5% of the home’s purchase price available to maintain the home or make repairs. I know that I’m no “Jack Handy”, so if something breaks; I’m calling the repair man to fix it. After paying the routine expenses of owning a home, will you have additional funds available for maintaining and repairing it? If not, renting is a better option since the landlord or management company is responsible for maintenance and repairs of the property.

When Renting Costs Less

Finally, one of the most obvious reasons for choosing to rent instead of buying a home is when renting simply costs less. If you can rent a property for $2,000 a month and it would cost you $6,000 a month to own a similar property – does becoming a homeowner make financial sense? Some people argue that the tax deductions available for homeowners actually make home owning more attractive than renting, but the deductibles rarely add up to the additional expenses paid.

If you’re still not sure that’s why it always makes sense to to talk with qualified financial planner or tax professional to help analyze your situation. I’ve seen too many cases where young people were so eager to “live the American Dream” and get their first home that they didn’t realize all the little things that come along with being a homeowner. Slow down and do your homework before you take the plunge. Remember the friends that ended up buying the house we were living in? They still own itand have been trying to sell it for over two years.

photo credit: ASurroca

Mortgages come with “points” – a polite synonym for fees or premiums that your lender charges for loan origination or refinancing. The math on points is simple: one point equals 1% of the amount of the loan you take out, two points equal 2%, and so forth. While the math is easy, the real value of a point is not always so simply calculated.

There really is a point. Why would you want points? Well, when you buy a point or two along with your mortgage, you get a lower interest rate and a lower monthly payment. Pay $3,000 for a point now, and you could save that much and more later on over the course of the loan.

Are Mortgage Points Pointless?

But it may seem pointless. The problem is, points don’t move when you do. Who stays in one home for 30 years these days? If you have a 30-year loan and you sell your home and move five years from now, you lose the points and the benefits that go with them. The same applies when you refinance. There’s also the interest rate aspect. Let’s say you buy two points at 6% interest when you get your mortgage. What if two years later, interest rates fall to 4%? You’ll regret your purchase.

Are Mortgage Points Tax-deductible?

Sometimes. Usually, points are amortized over the duration of your mortgage – that is, paid off in installment payments over the life of the loan. But you might be able to deduct the cost of these points at tax time.

If you took out your mortgage to buy or refinance your primary residence, you could qualify for a deduction in the tax year you took out the loan, if your loan meets certain conditions. The IRS has a 9-point test, and the key points are:

1. Points must be a percentage of a principal amount clearly defined on the settlement statement
2. Points can’t be paid in place of separately stated amounts elsewhere on the settlement statement
3. Funds supplied by the buyer + points paid by the seller must be equal to or greater than points charged
4. Points charged must not be excessive, and
5. Charging of points must be “an established business practice” for such a mortgage. If you buy a home and the seller pays any points, you can deduct those points.

If you’re refinancing, there is no quick tax break. Points have to be amortized, unless you are using part of the loan for home improvement. Then a partial deduction is allowable.

If you’d like more information on mortgages and the financial questions linked to them, speak with a qualified mortgage professional today.

This was prepared by Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative or Broker/Dealer give tax or legal advice.

photo credit: Editor_Tupp

Securities offered through LPL Financial, Member FINRA/SIPC.

Signs point to a rebound. As this recession emerged, many economists felt that it would only fade away when the sector where it all began healed itself. It was in late 2006 when the U.S. real estate bubble began to pop, setting off a chain reaction of shocks that hurt homeowners, lenders, and the entire U.S. economy. Three years later, we have new hope in the real estate sector – and the numbers to support it.

Existing home sales rose 7.2% in July. This was not only the largest monthly gain ever recorded, but the fourth consecutive monthly gain. As the National Association of Realtors noted, the last time residential resales increased for four straight months was in June 2004. Additionally, the number of existing home sales in July 2009 was greater than a year earlier – and that hasn’t happened since November 2005.1

Existing home prices seem to be moving north.

In late August, the S&P/Case-Shiller Home Price Index brought more good news. Prices in 18 of 20 major U.S. housing markets improved in June. On top of that, the Federal Housing Finance Agency’s home price index gained 0.5% in June, on the heels of a revised 0.6% May gain.2 Wellesley College economics professor Karl E. Case (the Case in Case-Shiller) was delighted. “When I saw these numbers, I danced a jig,” he told the New York Times. “It appears that the housing market is stabilizing quicker than people thought it would.”

New home sales jumped an amazing 9.6% in July. Guess what: that was the fourth straight monthly increase. The Commerce Department put the seasonally adjusted annual sales rate at 433,000 – the strongest sales pace since September 2008. New home sales increased by an astonishing 16.2% in the South in July. When you lower prices enough, someone will buy.3
Not only that, equilibrium is slowly being restored in terms of supply and demand. At the end of July, the Commerce Department estimated that 271,000 new homes were for sale in the U.S. – the smallest number since March 1993. At the end of June, there was an 8.5-month supply of new homes on the market; in January, there was a 12.4-month supply.3 So inventory is being cleared out. That would seem to warrant a revival in home construction.

The statistics on housing starts bear this out.

Single-family housing starts increased for the fifth consecutive month in July.4  Mortgage rates are still low. On August 27, interest rates on conventional 30-year fixed-rate mortgages were averaging 5.14%, according to Freddie Mac’s weekly nationwide survey. Contrast that with 2006-2007, when rates on a 30-year FRM averaged more than 6.3%.5,6

The real leading indicators may be in real estate. David Berson, chief economist at California mortgage insurer PMI Group, has tracked real estate market recoveries in relation to the seven American recessions since 1960. He has concluded that all of these recoveries were characterized by – or driven by – gains in housing starts and home sales. On average, his findings indicate that residential resales start improving four months prior to the end of a recession. In the average recovery, single-family housing starts improved for seven months in a row, and new home sales improved for eight straight months.7

Here in late August, new and existing home sales have both increased for four straight months, and single-family housing starts have improved for the last five months.
As Zip Realty’s Patrick Lashinsky told Voice of America, “Affordability is at an all-time high. You have home prices that have dropped 25-30%. You have interest rates at very low amounts and you have consumers who have been waiting to buy. Combine that with the $8,000 tax credit you get if you’re a first-time buyer, and it’s creating a solid demand.” Here’s hoping that demand brings about a great and prompt economic recovery.8

This materials was prepared by Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

photo credit: taberandrew

Citations.
1 realtor.org/press_room/news_releases/2009/08/strong_uptrend [8/21/09]
2 nytimes.com/2009/08/26/business/economy/26econ.html?em [8/26/09]
3 washingtonpost.com/wp-dyn/content/article/2009/08/26/AR2009082601876.html?hpid=topnews [8/26/09]
4 bloomberg.com/apps/news?pid=20601087&sid=afRgwPDl9Yk4 [8/18/09]
5 freddiemac.com/pmms/ [8/27/09]
6 freddiemac.com/pmms/pmms30.htm [8/27/09]
7 bloomberg.com/apps/news?pid=20601109&sid=asbePeKxZbVs [8/27/09]
8 voanews.com/english/2009-08-24-voa41.cfm [8/24/09]