Will a Refinance Now Make Sense For You?

We bought our current home in the beginning of 2018, home values have gone up and mortgage rates have gone down. We initially put 10% down on our purchase, bumping our rate up a little from what could have been had we put down 20% lowering the bank’s risk and our interest rate. Since then, home values have continued to rise and our balance has been payed down about $6,000.00 . We’re just at the crest of seeing comparable homes selling for 20% more than we owe on our current home.

By speaking with a few lenders (let me know if you need a good referral) I’m finding that for about $3,000.00 all in we can do a rate and term refinance and get our rate down to about 3.8%. However, we can also spend about another $3,900.00 or so and buy our rate down to 3.5%! This combined effort would chop off about $308.00/month from our housing expense forever and cost about $6,900.00 today.

However.. when you look at the $308.00/ Month we’ll be saving, remember you need to go earn that money and then pay tax on it, and then make that payment. A dollar saved is not a dollar earned, it’s a dollar saved is a dollar + your tax bracket earned. So, if we’re in a 22% tax bracket, $308.00×1.22=$375.76 saved every month in pre-tax dollars (we don’t need to go earn & pay taxes to make that payment).

Let’s multiply that by 12 & see how much we’ll save each year, and how long it’ll take to recoup the cost of a refinance. $375.76×12=$4,509.12 saved every year. Ok, so lets take $6,900.00 and divide it by $4,509.12=1.53 This means in 1.53 years we will have received all of our refinance-cost investment back, and as we plan to hold this home forever (whether we stay or move) the rest is all savings of $4509.12/year in after-tax dollars, or a 65.34% annual return on your dollars spent. That’s a pretty good return!

It may or may not make sense for you to refinance. A few things to consider would be:
1. When did I buy my home?
2. How much more equity is now in my home? (do not trust zillow, speak with a professional)
3. What % did I put down? If it’s less than 20% & comparable home values have risen, you may able to eliminate your mortgage insurance (which is no longer tax-deductable)
4. What is my current interest rate & what can it be today if I refinance?
5. How long do I plan to stay in my home & how much would I save every month if I do refinance?
6. If I’m planning to stay for awhile, does it make sense to buy my rate down even further? (points paid are tax-deductable)

I am no longer a lender, never was a tax professional, and I am not providing advice as either. That being said, my previous experience as a lender benefits me personally in this case, and can benefit you if you’re looking to buy or sell as well. If you need a referral to a good lender, please let me know! If you need to buy or sell now, please consider me on your short list of licensed Realtors to interview!


Las Vegas Home-buyers, You DON’T Need To Pay a Realtor! How We Just Saved a Buyer $19,700.00 On a $190K Purchase.

Many people are shopping for homes right now and there is a LOT that goes into buying one.  As a home buyer in Las Vegas, you do NOT need to pay your Realtor!   Whether you’re buying a pre-existing home, or new construction, the SELLER pays YOUR agent! 

Why would you not take advantage of the experience & advice of some one who lives & breathes real estate, especially if it costs you nothing?! Some agencies do charge a brokerage fee to cover the overhead of a large office, staff and the broker’s profitability.  Our brokerage operates by sharing commission between your agent (myself) and the agent’s broker rather than adding fees to your transaction.  We also operate with streamlined overhead costs so we remain profitable without needing to tack on small fees you would be required to pay for.

So now that you know you can have an agent, who’s constantly updated with market statistics, ever changing laws regarding real estate, and brings years of experience to the table at no cost to you, why would you not take advantage of this?  The seller or builder (if buying new), is paying commission to your agent.  This is a cost the seller, not the buyer will save if you don’t have representation.  Then there’s also the potential for you to loose money or buy a home it turns out is a lemon, because your contract is not written in a way that protects your unique situation.

Even in for sale by owner situations of previously owned homes, the seller is trying to save the same commission that you’re hoping to save, and now you’re both negotiating the sale of an asset with a LOT of moving parts & contractual nuances that could cost you thousands if not familiar.  Statistics show you’ll be able to get a much better deal by using a Realtor.  I’ve even heard that appraisers don’t value a home the same way if it’s sold FSBO, which can complicate the deal even more.

The Story

Let me give you an example of client’s we’re closing a purchase for today.  Let’s call them Frank and Julia.  Frank and his wife have lived here a long time and already own a home that’s bigger than they need.  The market being where it is; now is an excellent time for Frank & Julia to downsize to a condo now that their kids are moved out and self-sufficient.  They weren’t in a rush, as they have a place to live, and wanted to get a great deal on something perfect for them.  We looked at dozens of condos over 3 months & even wrote offers on two that didn’t work out for different reasons, one of which was otherwise perfect, but had POLYBUTYLENE (PB) TUBING PIPE, as found by my favorite master inspector (referrals to other phenomenal professionals is an added benefit to working with a great Realtor).  This plumbing represented a risk of pipe bursting and future flooding.  We recovered our earnest money & moved on.

($5,000.00 saved in instant equity)

Next we found a great condo, a little dated in the finishes & appliances but in the perfect neighborhood & right next to the pool & spa with a 2 car garage.  We got it under contract for $190,000.00; it appraised for $195,000.00 (we did this by analyzing the seller’s motivation against our buyer’s position & presenting our offer in a way that allowed both parties to win).  Again our master inspector found that while the A/C (27 years old) was currently working, it was likely on it’s last functional year.

($6,000.00 Saved in professional negotiation)

We brought in a quality A/C contractor for expert opinion & he agreed in writing for negotiation.  We also found the water heater was at the end of it’s life cycle, though still functioning at time of inspection.  A water heater that ruptures while you’re out of town represents much more in potential loss than just replacing the unit, that had to be accounted for as well.  The window panes were mostly in good shape, but upon close inspection the seals (glazing beads) were giving out due to age & sun exposure.  I contacted four different window companies to get an estimate of repairs for my clients.

In total to remedy these items we were able to negotiate a $6,000.00 closing credit, offsetting all of Frank & Julia’s additional costs, such as lender fees, escrow fees, title fees, recording fees, pro-rations for taxes, HOA costs, and everything else that you may not even know you need to pay to buy a home (again, a good realtor can give you estimates of what these total costs will be so you’re prepared to not just buy the home, but actually close the deal).

($8,300.00 saved in financial strategy)

Now, Frank and Julia have worked hard all their lives and are good with their finances.  They were prepared to put down 20% on their purchase, have good credit, and were planning about $18,000.00 in remodeling expenses post-closing.  As we neared close, Frank’s mortgage lender suggested putting down another 5% ($9,500.00)  to avoid the bump in his mortgage rate due to the property being a condo.  As I know Frank & Juila planned to live here for about 5 years, the difference in rate would save about $20.00/month or over the life of their loan, about $1,200.00 saved over projected 5 years of ownership for a cost of $9,500.00..  Not an ideal scenario.  I spent years as a loan officer, originating mortgages & really educating myself on returns on investments in real estate in particular over the last 3 years every. day.  I pointed out to Frank that as we’d negotiated more than we needed for closing costs in seller concessions, the best thing to do would be to buy down his rate with the remainder of the $6,000.00 and keep the $9,500.00 in his bank, especially since their plans to remodel had gotten more elaborate & expensive than initially projected.

(A bonus $400.00)

We had a problem.  A good problem.  Frank & Julia still had more money in seller concessions than we had closing costs & buyers aren’t allowed to just keep the difference for no reason.  However the remaining $400.00 or so is just about the total Frank spent on inspections & estimates.  I suggested to my client’s loan officer that since Frank had already paid these inspections & I had invoices showing payment related to closing the transaction, but paid outside of escrow; that Frank may be able to be reimbursed for these costs.  Now Frank & Julia just got their inspections paid by the seller, leaving them buying a condo for nothing more than their original 20% down payment and the cost of an appraisal.

Every transaction is unique and I can guarantee your deal won’t go exactly like this, every seller is different, every home is different, and every deal is different.   I can guarantee that given your unique situation, I will put your needs first, take care of you and your transaction to the best of my ability & capitalize on every opportunity we find in your interest.

(Total savings $5,000.00 + $6,000.00 + $8,300.00 + $400.00 = $19,700.00)

(Total Cost to Client of using a Realtor = $0.00)

In this market; wouldn’t you like to work with me?  I’d love to work with you.  Even if you’re THINKING of buying or selling and not quite ready, Call Me Today as time to prepare can only benefit your bottom line.

 


Two Books For Understanding Financial Calculations – Without an MBA

Without a doubt, investing in real estate is best done with a firm grasp of the financials involved. Financial calculations can appear daunting to say the least. With a quick look at the HP-12C financial calculator shown above you’ll quickly begin to wonder what the heck all those buttons do. While I don’t use all of them, using a similar calculator to quickly and accurately assess your costs and returns involved in real estate can help you immensely when evaluating investment opportunities. Is it better to invest in a vehicle that returns 16% annually but compounds only every three years, or an investment that returns 12% but can be compounded every two?

I recently did calculations for this example above & found, though compounding interest periods are a vital component of assessing how your money will grow or shrink overtime, the 16% return that compounds every three years is indeed a better investment for my 18 year horizon. In order to do this I had to use both my HP-12C and an excel spread sheet. Excel has many of the calculations the 12C does built right into it, but I’ve been really enjoying using the HP after reading a book that is basically half education on how money works, and half instruction manual to the HP-12c. This book relies heavily on the use of this exact calculator to illustrate it’s figures & if you’re looking for a solution you can carry around in your pocket without needing to lug your laptop around, I’d highly recommend reading it. The title is “Taking The Mystery Out Of Money” by Lonnie Scruggs, a now deceased investor who focused on flipping mobile homes. You don’t need to be interested in mobile home investment to benefit from his knowledge about how money works, and the material is so beneficial I’m left wondering why this book isn’t required reading somewhere along the education cycle of a high school senior.

The second book is definitely more real estate focused in-depth, but uses Microsoft Excel Read More


The Four Pillars of Real Estate Investment

Hopefully, you’re someone who owns not only their own home, but also another asset that generates cash flow.  If you are a real estate investor, you’ll realize many benefits when done correctly.  The four pillars of real estate as an investment vehicle are:

  1. Cash flow:  Simply put, if you can rent the home or apartment out for more than it costs to pay the mortgage, keep it in good repair, and account for vacancy (months with no income, but still expenses) you have an asset that is making you money while you sleep.  If you want to invest in rental property, having an agent like myself who personally invests & understands the costs are more than (rent) minus (mortgage, taxes & insurance) is vital!  Things like vacancy, repair, capital expenditures, and management are important to consider, even if it’s a new home and you plan on self-managing.
  2. Mortgage pay-down:  Simply put, if you’ve answered yes to the previous criteria, your tenants are paying off your property a little bit every month.  If you’re on a 30 year fixed mortgage, your payment is the same every month.  Initially, most of that dollar amount is going to interest, but as time goes on, more of it pays down the amount you borrowed, called principle which by the end of year 30 will have a balance of zero.
  3. Tax-favored investment environment:  Residential improvement on property is calculated by the IRS to depreciate to nothing in 27.5 years (though the value of the land does not depreciate).  That means every year you can write off 1/27.5th of the amount you purchased the home for (minus the cost of the land), as well as the mortgage interest, property taxes, insurance and repairs.  Due to new tax law changes, the first 20% of your income is tax free.  Meaning if you made $10,000.00 in one year, the basis for taxation begins at $8,000.00 before those other benefits.
  4. Appreciation: We suggest buying for cash flow not speculative appreciation like so many did in the early to mid 2000’s (especially on Adjustable Rate Mortgages!).  However let’s dig a little deeper into how this works, as it is a potential benefit of Real Estate investment.  Let’s say you buy an investment property for 25% down; you’re into it for 1/4 of the cost and the rest is financed (with tax-deductible interest). If the property appreciates 5% in one year, the appreciation applies to the entire purchase price, not just the 1/4 of that you paid for in cash.  So this means your actual return on cash put down would be four times that.  For simple math, lets say your bought something for $100,000.00, put $25,000.00 down, and it appreciated 5% in one year; or $5,000.00.  Now that $5,000 is 5% of $100,000.00, but it’s a 20% return (or 4 times that) on the $25,000.00 you put down.

Understand that there is so much more to all of this, and this brief synopsis is only meant to start you thinking.  In no way are we offering legal, tax, or investment advice.  Please consult your professionals in those areas for specific advice as it applies to your situation.  If you’d like to speak with me directly about these or any other real estate related ideas, we’re happy to share more of our personal experience, contacts for professionals, resources & real estate sales experience with you. Reach me directly on our Contact page & let’s speak soon.


Buying a Home – The Financially Responsible Way.

If you’re like many people who just moved to a new area, or decided you’d like to stop making your landlord rich & start building some real wealth for your family, you may be getting excited about buying a home.  You’ve got a lot of things to consider before you jump into a car & start looking at something you saw online.

Firstly, are you qualified to complete a purchase?  If you haven’t spoken with a mortgage lender yet, you may be getting excited for nothing.  Do you know what your credit score is, do you know what credit score you’ll need to secure a decent loan?   How about a good loan?  There are many ways to get an idea of your credit score & credit history if you’re just getting started.  The easiest is by using a site such as CreditKarma.com.  Keep in mind, nothing is truly free, your credit information is provided to you here in exchange for the ads offering you credit cards & other loans.  Provided you can avoid any temptation to to get a card you don’t need (which may actually temporarily hurt your score, depending on your situation) you may be well served to keep an eye on your score & find ways to improve it before making a large purchase such as a home.

Once you know where your creditworthiness lies, it’s time to think about down payments & closing costs.  Yes, you may be able to get an FHA loan with very little money down.  Again, nothing is free, since March of 2013 this now comes with a PMI (private mortgage insurance) monthly fee that will now stay on your loan until it is paid off or refinanced.  That being said, if you can get into a property in an area where appreciation will result in your equity growing substantially over the next few years, your ability to refinance out of the FHA into a conventional loan may happen more quickly than if you were just paying down 20% of what you bought it for.

For example, I buy a $100,000.00 house with 3.5% down My loan would be for $96,500.00 . In the first few years, most of your monthly payments are going to interest, not paying down the principle much.   However if in a few years, appreciation has been good in the area, maybe my home is now worth Read More