Location, location, location - known as the 3 most important factors when buying a property, and it is easy to see why. The location of your property dictates how much yield you get, and how much capital growth, which ultimately decides how well you do.
And yet people still get it wrong...
Most investors only consider location within the area they live ... rather than asking themselves where else they may gain even better and higher returns. It may seem to make sense to invest in a location near to you - you can pop in to check on it, help fix any problems, and keep eye on local market better.
However, this approach to property investment could be costing you thousands, or even tens of thousands of pounds, euros or dollars in lost opportunities in the long term. Compare this to professional property investors, who own property all around the country they live in, or even all around the world. By asking themselves "Where can I buy property that will give me a great return?" instead of asking "What's available down the road?", they stack the odds in their favour.
Investing in property is all about the numbers, this is something I realised very early on - forget about whether you would like to live there or whether the property is down the street from you. Instead, what I pay attention to is:
The likely return - yield, and capital growth
Buying costs and selling costs, including taxes
Cost to borrow money, ie interest rates
How attractive the property will be for likely tenants/buyers
So how do you recognise a great location?
To build wealth through investment property, you need a location where there will be capital growth ie where the property will rise in value, which builds wealth, which can ultimately allow you to purchase additional properties, and build up a portfolio.
Factors that suggest growth include:
1. Growing, developing economy eg Countries entering EU, regenerated towns
2. Demand outstripping supply ie more people want property than can be supplied, usually due to increased numbers arriving which could be due to higher birth rate, high numbers of jobs created, lower prices than similar properties else where, immigration laws being relaxed.
3. Low cost of borrowing – if interest rates are very low, people are more likely to buy, in particular for buy to let, as they will be confident can cover all costs and make good yield. It is for the above reasons that UK investors have started to look overseas recently, and why international investors target developing countries, and growing cities when deciding where to invest.
It is for the above reasons, why UK investors have been looking overseas over the last year or so, and why international investors target developing countries, and growing cities when choosing where to invest. Remember the location of your investment will dictate how well your investment performs.
Alan Forsyth is a full time property investor and developer with 10 years experience in UK and overseas. He is managing director of http://www.property-investment-tips.com which offers free independent advice and tips on property investment, courses, countries, strategies, mortgages and much more - with a free newsletter every 3 weeks giving latest tips and offers to over 500 investors. Sign up today at the site for free independent advice!
http://www.choiceofhomes.com/propertylocation.htm
Wednesday, September 12, 2007
How Much Should I Pay For This House?
We probably answer this question for someone a couple times every week. The problem is that they don’t have a good formula for determining the most they can pay and still make a profit – so they’re scared to make any offer. Here’s what we use for single family homes:
The (MAO) Maximum Allowable Offer is calculated by first determining what the house will be worth after renovation - the ARV (After Repaired Value); less the rehab dollars required; less the Buy/Sell/Hold (B/S/H) costs; less profit margins.
MAO = ARV – Rehab – B/S/H – Profit
So let’s break that down a little further. To determine the ARV, study comparable sales data. Comparable sales are those properties which sold in the last 6 months to 1 year, and within ½ to 1 mile from the subject house. But other factors must be considered as well. The more characteristics between the properties that are similar, the more valid the data. Make sure that the house itself is similar in square footage, bedrooms and baths, age, style, and architecture. Don’t worry about condition except as it will affect the amount of rehab dollars required. Next, look at the neighborhood and the individual street. Do they look the same? Or is the comparable property on a beautiful street while the subject property is on a street riddled with empty littered lots and boarded up houses? The point is to view the potential investment as your end homeowner occupant will. If they could buy your completed investment on the bad street, or a house on the beautiful street – either for $150,000 – which would they choose? The other house of course. Which means your house is not worth the same – it must sell for less to attract a buyer.
Rehab dollars differ from renovator to renovator depending whether they do the work themselves, or use cheap subs, or use an expensive general contractor. The scope of the work should be the same – it is whatever is required to make the investment look like the comparable houses (unless the plan is to sell well under market value). We do not attempt to obtain all of the various contractor bids when we are making offers. All the real deals would be sold before we’d ever have an offer together! Instead we’ve developed ranges of rehab dollars based on the overall condition of the home. Is it an exact science? No, but neither are the bids – there will always be something missed. So why not work with a guide that is probably 90% accurate and allows for quick offers?
Buy/Sell/Hold costs include expenses such as appraisals, attorney fees, title search & title insurance, loan origination fees, debt service, utilities, insurance, taxes, real estate commissions, and closing fees paid on behalf of the end buyer. Again, these costs vary depending on each investor’s individual situation. In the Atlanta area, 15% of the ARV seems to be a good average allocation for B/S/H costs. If you are the renovator, calculate your specific B/S/H costs, then utilize that percentage for future offers.
Profit margins are the fun part of the equation. How much do you want to make? If you’re wholesaling the property, you also want to consider how much you should leave in the deal for the investor buyer to make the deal attractive.
That’s it. That’s how you calculate the most you’ll pay for a property. But that’s not what you SHOULD pay. It is the maximum you’ll pay. It is the deal-breaker. You will not pay one penny over the MAO. Your negotiations should lead you as far below the MAO as possible. The difference in amounts is additional profit in your pocket. What you SHOULD pay is the minimum price below the MAO that the seller will accept.
We call this the MIN-O.
http://www.choiceofhomes.com/housefairvalue.htm
The (MAO) Maximum Allowable Offer is calculated by first determining what the house will be worth after renovation - the ARV (After Repaired Value); less the rehab dollars required; less the Buy/Sell/Hold (B/S/H) costs; less profit margins.
MAO = ARV – Rehab – B/S/H – Profit
So let’s break that down a little further. To determine the ARV, study comparable sales data. Comparable sales are those properties which sold in the last 6 months to 1 year, and within ½ to 1 mile from the subject house. But other factors must be considered as well. The more characteristics between the properties that are similar, the more valid the data. Make sure that the house itself is similar in square footage, bedrooms and baths, age, style, and architecture. Don’t worry about condition except as it will affect the amount of rehab dollars required. Next, look at the neighborhood and the individual street. Do they look the same? Or is the comparable property on a beautiful street while the subject property is on a street riddled with empty littered lots and boarded up houses? The point is to view the potential investment as your end homeowner occupant will. If they could buy your completed investment on the bad street, or a house on the beautiful street – either for $150,000 – which would they choose? The other house of course. Which means your house is not worth the same – it must sell for less to attract a buyer.
Rehab dollars differ from renovator to renovator depending whether they do the work themselves, or use cheap subs, or use an expensive general contractor. The scope of the work should be the same – it is whatever is required to make the investment look like the comparable houses (unless the plan is to sell well under market value). We do not attempt to obtain all of the various contractor bids when we are making offers. All the real deals would be sold before we’d ever have an offer together! Instead we’ve developed ranges of rehab dollars based on the overall condition of the home. Is it an exact science? No, but neither are the bids – there will always be something missed. So why not work with a guide that is probably 90% accurate and allows for quick offers?
Buy/Sell/Hold costs include expenses such as appraisals, attorney fees, title search & title insurance, loan origination fees, debt service, utilities, insurance, taxes, real estate commissions, and closing fees paid on behalf of the end buyer. Again, these costs vary depending on each investor’s individual situation. In the Atlanta area, 15% of the ARV seems to be a good average allocation for B/S/H costs. If you are the renovator, calculate your specific B/S/H costs, then utilize that percentage for future offers.
Profit margins are the fun part of the equation. How much do you want to make? If you’re wholesaling the property, you also want to consider how much you should leave in the deal for the investor buyer to make the deal attractive.
That’s it. That’s how you calculate the most you’ll pay for a property. But that’s not what you SHOULD pay. It is the maximum you’ll pay. It is the deal-breaker. You will not pay one penny over the MAO. Your negotiations should lead you as far below the MAO as possible. The difference in amounts is additional profit in your pocket. What you SHOULD pay is the minimum price below the MAO that the seller will accept.
We call this the MIN-O.
http://www.choiceofhomes.com/housefairvalue.htm
What is a Foreclosure?
A foreclosure is an action taken against a property owner by seizure of his/her real property. It can be for many reasons. The main cause is delinquent payments on a mortgage. The mortgage company or second and even third mortgage holders contact the owner, then the trustee (usually an attorney) to begin the process. If it is VA guaranteed or FHA insured, many times they offer assistance or alternatives. Then the appraisal is ordered to determine fair market value.
It can also be for medical bills, delinquent taxes and other liens, even credit cards. "The purpose of this foreclosure is for collection of a debt" is usually printed in the legal section of the newspaper as well as some other publications, such as local business papers and law papers.
Many people feel that they can purchase these properties for almost nothing and sometimes that is the case, especially tax sales. If the property is " free and clear" of other liens then it is solely based on the taxes, penalties and interest due. I know of some that have sold for less than a few thousand dollars.
The owner has the right to cure the default right up to the very last minute before the sale. A pay off statement is prepared including the delinquent payments, trustee fees (usually 5 % of the remaining balance of the loan), processing fees, property inspections, appraisal and any other thing the mortgage company can think of. The problem is not only coming up with the funds but knowing what charges are and if they are legitimate. I have only heard of lawyers and accountants challenging mortgage companies on over or false charges.
Suzie has been in the business twenty years as a licensed real estate agent, broker and certified residential appraiser who majored in real estate and architecture. She hopes to improve the industry one step and one person at a time. Other professionals in the same fields as well as educators have contibuted.
http://www.choiceofhomes.com/foreclosuredefinition.htm
It can also be for medical bills, delinquent taxes and other liens, even credit cards. "The purpose of this foreclosure is for collection of a debt" is usually printed in the legal section of the newspaper as well as some other publications, such as local business papers and law papers.
Many people feel that they can purchase these properties for almost nothing and sometimes that is the case, especially tax sales. If the property is " free and clear" of other liens then it is solely based on the taxes, penalties and interest due. I know of some that have sold for less than a few thousand dollars.
The owner has the right to cure the default right up to the very last minute before the sale. A pay off statement is prepared including the delinquent payments, trustee fees (usually 5 % of the remaining balance of the loan), processing fees, property inspections, appraisal and any other thing the mortgage company can think of. The problem is not only coming up with the funds but knowing what charges are and if they are legitimate. I have only heard of lawyers and accountants challenging mortgage companies on over or false charges.
Suzie has been in the business twenty years as a licensed real estate agent, broker and certified residential appraiser who majored in real estate and architecture. She hopes to improve the industry one step and one person at a time. Other professionals in the same fields as well as educators have contibuted.
http://www.choiceofhomes.com/foreclosuredefinition.htm
How you should deal with Dual Real Estate Agents?
Dual real estate agents represent both buyer and seller. The concept of dual agency is legal in most U.S. states. However, most consumer advocacy organizations recommend against using a dual agent - reason being the existence of an inherit conflict of interest for the agent. Real estate agents receive a commission based on the selling price of the property. The higher the price, the higher the real estate agent's commission, so the reasoning of these organizations is that dual agents never really have the buyer's best interests at heart. The case could also be vice-versa - the agent could be in a position to manipulate his seller into selling the property at a given price because he has a buyer ready to buy at that price.
Given the drawbacks of using a dual agent, should you even consider using the services of one? Well, there are laws governing the practices of dual agents. In spite of the disadvantages mentioned, if a dual agent is able to get you a good deal there shouldn't be a reason to stop you.
A dual agent needs to disclose to both the buyer and seller that he is representing both parties and both have to agree, in writing. Dual agents are bound by law and ethics to treat both buyers and sellers honestly, equally, and fairly. Dual agents can be prevented from divulging confidential information about each party to the other as it could adversely impact negotiating positions.
When you're dealing with a dual real estate agent, you need to remember that the agent's primary objective is to close the deal - a difference in price margin to you is not going to impact his real estate commissions as much. It's very difficult for a dual agent to truly and equally represent both parties, since the conflicting interests make that inherently impossible. As a buyer or seller, you would need to be more alert and be in a position to make the right decisions for yourself.
Be sure the exact nature of your relationship with the dual agent is clear and have him mention what services he will be performing for you, how he will be paid, and how any conflicts of interest that arise during the transaction will be handled.
http://www.choiceofhomes.com/dualagents.htm
Given the drawbacks of using a dual agent, should you even consider using the services of one? Well, there are laws governing the practices of dual agents. In spite of the disadvantages mentioned, if a dual agent is able to get you a good deal there shouldn't be a reason to stop you.
A dual agent needs to disclose to both the buyer and seller that he is representing both parties and both have to agree, in writing. Dual agents are bound by law and ethics to treat both buyers and sellers honestly, equally, and fairly. Dual agents can be prevented from divulging confidential information about each party to the other as it could adversely impact negotiating positions.
When you're dealing with a dual real estate agent, you need to remember that the agent's primary objective is to close the deal - a difference in price margin to you is not going to impact his real estate commissions as much. It's very difficult for a dual agent to truly and equally represent both parties, since the conflicting interests make that inherently impossible. As a buyer or seller, you would need to be more alert and be in a position to make the right decisions for yourself.
Be sure the exact nature of your relationship with the dual agent is clear and have him mention what services he will be performing for you, how he will be paid, and how any conflicts of interest that arise during the transaction will be handled.
http://www.choiceofhomes.com/dualagents.htm
What To Expect In Closing Costs On A Home Purchase
Many are taking advantage of this year’s low mortgage rates to purchase a home. Pent up with excitement, many families, who have scrimped and saved for a down-payment, jump for joy when the mortgage lender finally approves their application. But, they should realize that there’s a whole new set of expenses that must be covered before actually closing on the sale.
New homeowners are often taken aback by up-front closing costs such as mortgage and title insurance, attorney fees, recording fees and loan points, which can run into the thousands of dollars. But there is no need to be afraid of these charges. With a little background on their purpose and shrewd financial foresight, closings can be a breeze.
A lender’s charge for processing the loan can be determined at the beginning of your buying process. Referred to as “points,” these charges are expressed as a percentage of the total loan. For instance, three points are equal to 3 percent of the borrowed amount. “Points” can also become a tool for negotiation with the lender and seller. In a buyer’s market, home sellers will often agree to pay mortgage fees in order to close a deal.
Title insurance can be a substantial expense. The one-time title fee, including search and examination, averages around $430 for a $100,000 home, but it’s recommended that you check with a local title insurance agent ahead of time to effectively determine what you’ll owe before closing.
Additional costs, such as attorney charges, and recording, transfer and inspection fees, can also be predicated ahead of time by the buyer. Most often pest and survey inspections, although included in the official closing statement, are conducted and paid for long before the closing date. However, buyers should consider them as additional up-front costs.
Some closing costs, such as “points,” are fully tax deductible that tax year if you show proof of a separate lump sum payment. They are not deductible in a few cases when the loan is the result of re-financing rather than a home purchase. Application, appraisal, documentation and broker fees can not be deducted.
Some states require payment of property taxes at closing. In some instances, buyers and sellers are asked to put money into an escrow account that will cover any past and future tax obligations. Be sure to check with an attorney or real estate agent before the closing to determine your property tax commitments.
Also, be prepared to pay any assessments if buying a condominium or into an association-governed property. Fees for credit reports, notary public seals and assumptions, which includes the processing of official documents, may also arise.
Knowing what total closing costs will be before starting your home search can help you better understand what price range is right for you. In the end, the process of closing on a mortgage will be easier than you think, leaving more time to plan for your new home.
http://www.choiceofhomes.com/homeclosingcosts.htm
New homeowners are often taken aback by up-front closing costs such as mortgage and title insurance, attorney fees, recording fees and loan points, which can run into the thousands of dollars. But there is no need to be afraid of these charges. With a little background on their purpose and shrewd financial foresight, closings can be a breeze.
A lender’s charge for processing the loan can be determined at the beginning of your buying process. Referred to as “points,” these charges are expressed as a percentage of the total loan. For instance, three points are equal to 3 percent of the borrowed amount. “Points” can also become a tool for negotiation with the lender and seller. In a buyer’s market, home sellers will often agree to pay mortgage fees in order to close a deal.
Title insurance can be a substantial expense. The one-time title fee, including search and examination, averages around $430 for a $100,000 home, but it’s recommended that you check with a local title insurance agent ahead of time to effectively determine what you’ll owe before closing.
Additional costs, such as attorney charges, and recording, transfer and inspection fees, can also be predicated ahead of time by the buyer. Most often pest and survey inspections, although included in the official closing statement, are conducted and paid for long before the closing date. However, buyers should consider them as additional up-front costs.
Some closing costs, such as “points,” are fully tax deductible that tax year if you show proof of a separate lump sum payment. They are not deductible in a few cases when the loan is the result of re-financing rather than a home purchase. Application, appraisal, documentation and broker fees can not be deducted.
Some states require payment of property taxes at closing. In some instances, buyers and sellers are asked to put money into an escrow account that will cover any past and future tax obligations. Be sure to check with an attorney or real estate agent before the closing to determine your property tax commitments.
Also, be prepared to pay any assessments if buying a condominium or into an association-governed property. Fees for credit reports, notary public seals and assumptions, which includes the processing of official documents, may also arise.
Knowing what total closing costs will be before starting your home search can help you better understand what price range is right for you. In the end, the process of closing on a mortgage will be easier than you think, leaving more time to plan for your new home.
http://www.choiceofhomes.com/homeclosingcosts.htm
Tips to First-Time Home Buyers
There is no doubt that every American holds a vision to acquire a home of their own. This article gives you an insight on how to go about acquiring that home you've always wanted. This is a guide that may be of use to many first time home buyers.
Now some of us know that for many, home buying may be a complex and a daunting job. Home buying involves a whole lot of procedures which require some amount of research. Here below are a few helpful tips on buying a home for the first time:-
Using Available Resources
You need information in hand before going out scouting for homes in the market – information with regard to the prevailing market rates, taxes, neighborhood, etc. There are many sources from where you could obtain such data but the most effective and useful is the internet. The internet not only assists you in understanding the prevailing market conditions without the services of a real estate agent but also provides as a useful resource for locating homes on your own.
Budgeting for Costs
This emphasizes on the willingness and ability to spend. It’s wiser going about your home purchase with a pre-approved loan as it not only helps in your home negotiations but also keeps you in check with your spending ability. It is also advisable for you to try and pay at least 20% as down payment as it would avoid you from having to shell out more on what is known as PMI - private mortgage insurance – (an additional cost incurred on the mortgage to protect the lender incase you default on the loan).
Purchase Season
It is more advantageous in searching for a home during the winter season as people are busy during this holiday period and hence there is less buying demand. This is where one can utilize the opportunity to pick a home and also underbid on the asking price.
Smaller Mortgage Companies
It is very important that one takes into mind the profile of the specific mortgage company that one is handling with. Most people end up with the big companies only because of its image and popularity created, where in fact the smaller companies are more efficient in terms of customer service as well as their rates. This is due to their minor investment in advertising and such related expenditure. Hence it is advisable to go for smaller mortgage companies instead of bigger ones.
Home Inspection
Lastly and most importantly one must have a look-over the house as a final check before making the big decision. Last-minute inspections are always required just to avoid any later discovery of damages or leakages in the house. There have been some who after investing millions of dollars later uncovered the damages that came along with the house. Therefore inspection is a must!
Conclusively, it may be noted that the complexities involved in purchasing a home for the first time would be much simpler if one were to take heed of the advice mentioned above. All in all, here’s wishing you wishing you a happy home buying experience!
http://www.choiceofhomes.com/firsttimehomebuyers.htm
Now some of us know that for many, home buying may be a complex and a daunting job. Home buying involves a whole lot of procedures which require some amount of research. Here below are a few helpful tips on buying a home for the first time:-
Using Available Resources
You need information in hand before going out scouting for homes in the market – information with regard to the prevailing market rates, taxes, neighborhood, etc. There are many sources from where you could obtain such data but the most effective and useful is the internet. The internet not only assists you in understanding the prevailing market conditions without the services of a real estate agent but also provides as a useful resource for locating homes on your own.
Budgeting for Costs
This emphasizes on the willingness and ability to spend. It’s wiser going about your home purchase with a pre-approved loan as it not only helps in your home negotiations but also keeps you in check with your spending ability. It is also advisable for you to try and pay at least 20% as down payment as it would avoid you from having to shell out more on what is known as PMI - private mortgage insurance – (an additional cost incurred on the mortgage to protect the lender incase you default on the loan).
Purchase Season
It is more advantageous in searching for a home during the winter season as people are busy during this holiday period and hence there is less buying demand. This is where one can utilize the opportunity to pick a home and also underbid on the asking price.
Smaller Mortgage Companies
It is very important that one takes into mind the profile of the specific mortgage company that one is handling with. Most people end up with the big companies only because of its image and popularity created, where in fact the smaller companies are more efficient in terms of customer service as well as their rates. This is due to their minor investment in advertising and such related expenditure. Hence it is advisable to go for smaller mortgage companies instead of bigger ones.
Home Inspection
Lastly and most importantly one must have a look-over the house as a final check before making the big decision. Last-minute inspections are always required just to avoid any later discovery of damages or leakages in the house. There have been some who after investing millions of dollars later uncovered the damages that came along with the house. Therefore inspection is a must!
Conclusively, it may be noted that the complexities involved in purchasing a home for the first time would be much simpler if one were to take heed of the advice mentioned above. All in all, here’s wishing you wishing you a happy home buying experience!
http://www.choiceofhomes.com/firsttimehomebuyers.htm
Out-Of-State Investor's Check List of Questions
Buying a Home is the American Dream. It is more than a place you put your hat at the end of the day. It defines you, protects you, and prospers with you. Yes, Home Ownership is a noble pursuit, but it always starts with this first, important question: Should I buy or Rent my Home? The answer, surprisingly, is not so obvious.
Now the question of “affordability” is an important one, but that’s not the subject of this article. We have a free calculator at our website. You’re welcome to use it. The subject of this article, however, deals with the questions that must be answered, before a renter can migrate into the magical realms of HOME OWNERSHIP.
Here are 5 MAGIC POINTS that you need to examine, on whether or not to BUY or RENT your next Home:
EXPENSES
COMMITMENT
MONTHLY PAYMENTS
TAX RETURNS
WEALTH
1. EXPENSES:
Renting a home requires that you give a check to the landlord each month. That’s it. You’re done. Everything else is simply taken care of for you. When you OWN a home, you are in business for yourself, and this means that you must handle all of the expenses yourself.
You are responsible, of course, for the monthly mortgage payment to the bank...
You must pay all your utilities, including phone, gas, electric, cable, trash, water, etc.
Don’t forget your responsibility to take care of maintenance. Not having enough money in the bank account is not a good enough excuse. If it’s broken, ya gotta fix it!
Don’t forget your Homeowners Association Dues, your Membership Fees, Property Taxes, Special Assessment taxes, insurance…yada, yada, yada.
When you rent a home, you give the landlord a check. When you buy a home, you must ensure that all expenses are met and managed every single month, forever...
2. COMMITMENT:
Renting and Buying have different financial commitments.
To rent a home usually requires a lease. Sometimes it’s month to month; sometimes it’s a 12 month lease. But, no matter what, there’s always a way out. Your commitment is limited to the time you choose to stay and reside there.
When you buy a home, you usually sign a 30 year mortgage, which most people would argue, is like forever. You are committed to ensuring that the payment is delivered to the bank or lender every single month, on time. They don’t care if you want to move at some point. You can sell your home of course, but you can’t just break your mortgage, like you can break your lease.
Buying a home requires a long-term, financial commitment. Renting a Home simply requires that you cut a check each month you reside at the home of choice.
3. MONTHLY PAYMENTS:
It always appears that a renter will pay less each month on monthly payments. Let me shed some light on this subject. Examined closely, this is as far from the truth as the moon to the Earth. Let’s use an example:
As a renter, you pay $800 a month, let’s say, that increases 5% each year. The math may differ with you and your landlord, but you get the idea. Barring rent-control, this is inevitable. Simple enough.
As a Homeowner on a fixed rate loan at $1000 Principal and Interest per month, the payment never changes…Never…Not ever…
In other words, the renter’s monthly rent will eventually SURPASS the homeowner’s mortgage payment…Much faster then you might expect.
In this example, our Renter’s Monthly Payments will exceed our Homeowners Mortgage Payment, in about 6 years.
4. TAX RETURNS:
A renter usually does receive a tax benefit from the State and Federal tax boards each year, sometimes referred to as a “renter’s credit”. But the Homeowner receives a deduction on the Interest paid on their loan. This is a huge benefit to the homeowner.
Let’s use the same example with our $800 renter. At the end of the year, our renter might receive a $600 renter’s credit on their 1040EZ form when doing their taxes. Simple enough.
Our Homeowner, on the other hand, paid a total of $12,000 in mortgage payments, of which about $11,500 went towards INTEREST. This INTEREST is a write-off.
Let’s see…$600 versus $11,500. Hmmm. I like that math. That equates to a nice healthy tax return for most of us, come April of next year.
Take those thousands of dollars in tax return, and go on a nice Cruise around Jamaica!
5. WEALTH:
It’s arguably much, much harder for a renter to build wealth. There is no built-in mechanism for appreciation, whereas the homeowner has postured themselves wisely for the future.
Let’s say we have a renter that wants to get wealthy. Great! They must go find a business to run, or a stock to invest in, or come up with a great invention, or be the next rock star, or follow a family friends “tip”, and go do Cattle Futures from August to September (just an example, folks…I don’t know anything about cattle…). In any event, most people would be concerned that our renter is following the proverbial “pipe dream” towards wealth.
But let’s say we have a homeowner who wants to build wealth. Great! What do they need to do? Simple….Nothing…Pay the mortgage…Live in the house…Go work your job. That’s it. Real Estate appreciates in value, on average, over the long haul, like no other financial vehicle. It is a virtual certainty, and it is automatic. The homeowner controls the total value of the home. That’s the magic of leverage.
Let me drive the point home: Someone might buy a house at $150,000, let’s say, and over the course of 7 to 10 years, it is completely reasonable to suggest that this very same house could be worth around $600,000.
Renters do not have a built in advantage for building wealth, whereas Real Estate appreciates in value as a virtual certainty. They don’t call home-ownership the “American Dream” for nothing!
SUMMARY:
The subject of deciding on whether to Buy or Rent, is not simple. In the end, it boils down to a question of complexity. Being a Renter is simple. Being a Homeowner is more complex, and yet, that does not mean that it is not within your grasp. It IS!!! There are so many people that are just waiting in the wings, yearning to help you get there. Real Estate Agents, Mortgage Brokers, Friends, Family, etc.
With all of these resources around you, just about anyone can own a home, and in this great country, the American Dream of Home Ownership is completely within all of our grasps!
But do me a favor. Give yourself the time to examine these important questions first. Look within. As we all get older in life, we yearn for more. Buying versus Renting is a common theme in this journey. As we wave goodbye to the younger years, we say so long to the simplicity of life, and we say hello to the promise of prosperity, wealth, and a better tomorrow. We also say hello to higher, more complex things. Often times, it’s simply the willingness to accept complexity that will get you to the understanding you need.
Best of luck on your journey, from Renting to Owning your next Home!
We’ve enjoyed providing this information to you, and we wish you the best of luck in your pursuits. Remember to always seek out good advice from those you trust, and never turn your back on your own common sense.
http://www.choiceofhomes.com/buyorrenthome.htm
Now the question of “affordability” is an important one, but that’s not the subject of this article. We have a free calculator at our website. You’re welcome to use it. The subject of this article, however, deals with the questions that must be answered, before a renter can migrate into the magical realms of HOME OWNERSHIP.
Here are 5 MAGIC POINTS that you need to examine, on whether or not to BUY or RENT your next Home:
EXPENSES
COMMITMENT
MONTHLY PAYMENTS
TAX RETURNS
WEALTH
1. EXPENSES:
Renting a home requires that you give a check to the landlord each month. That’s it. You’re done. Everything else is simply taken care of for you. When you OWN a home, you are in business for yourself, and this means that you must handle all of the expenses yourself.
You are responsible, of course, for the monthly mortgage payment to the bank...
You must pay all your utilities, including phone, gas, electric, cable, trash, water, etc.
Don’t forget your responsibility to take care of maintenance. Not having enough money in the bank account is not a good enough excuse. If it’s broken, ya gotta fix it!
Don’t forget your Homeowners Association Dues, your Membership Fees, Property Taxes, Special Assessment taxes, insurance…yada, yada, yada.
When you rent a home, you give the landlord a check. When you buy a home, you must ensure that all expenses are met and managed every single month, forever...
2. COMMITMENT:
Renting and Buying have different financial commitments.
To rent a home usually requires a lease. Sometimes it’s month to month; sometimes it’s a 12 month lease. But, no matter what, there’s always a way out. Your commitment is limited to the time you choose to stay and reside there.
When you buy a home, you usually sign a 30 year mortgage, which most people would argue, is like forever. You are committed to ensuring that the payment is delivered to the bank or lender every single month, on time. They don’t care if you want to move at some point. You can sell your home of course, but you can’t just break your mortgage, like you can break your lease.
Buying a home requires a long-term, financial commitment. Renting a Home simply requires that you cut a check each month you reside at the home of choice.
3. MONTHLY PAYMENTS:
It always appears that a renter will pay less each month on monthly payments. Let me shed some light on this subject. Examined closely, this is as far from the truth as the moon to the Earth. Let’s use an example:
As a renter, you pay $800 a month, let’s say, that increases 5% each year. The math may differ with you and your landlord, but you get the idea. Barring rent-control, this is inevitable. Simple enough.
As a Homeowner on a fixed rate loan at $1000 Principal and Interest per month, the payment never changes…Never…Not ever…
In other words, the renter’s monthly rent will eventually SURPASS the homeowner’s mortgage payment…Much faster then you might expect.
In this example, our Renter’s Monthly Payments will exceed our Homeowners Mortgage Payment, in about 6 years.
4. TAX RETURNS:
A renter usually does receive a tax benefit from the State and Federal tax boards each year, sometimes referred to as a “renter’s credit”. But the Homeowner receives a deduction on the Interest paid on their loan. This is a huge benefit to the homeowner.
Let’s use the same example with our $800 renter. At the end of the year, our renter might receive a $600 renter’s credit on their 1040EZ form when doing their taxes. Simple enough.
Our Homeowner, on the other hand, paid a total of $12,000 in mortgage payments, of which about $11,500 went towards INTEREST. This INTEREST is a write-off.
Let’s see…$600 versus $11,500. Hmmm. I like that math. That equates to a nice healthy tax return for most of us, come April of next year.
Take those thousands of dollars in tax return, and go on a nice Cruise around Jamaica!
5. WEALTH:
It’s arguably much, much harder for a renter to build wealth. There is no built-in mechanism for appreciation, whereas the homeowner has postured themselves wisely for the future.
Let’s say we have a renter that wants to get wealthy. Great! They must go find a business to run, or a stock to invest in, or come up with a great invention, or be the next rock star, or follow a family friends “tip”, and go do Cattle Futures from August to September (just an example, folks…I don’t know anything about cattle…). In any event, most people would be concerned that our renter is following the proverbial “pipe dream” towards wealth.
But let’s say we have a homeowner who wants to build wealth. Great! What do they need to do? Simple….Nothing…Pay the mortgage…Live in the house…Go work your job. That’s it. Real Estate appreciates in value, on average, over the long haul, like no other financial vehicle. It is a virtual certainty, and it is automatic. The homeowner controls the total value of the home. That’s the magic of leverage.
Let me drive the point home: Someone might buy a house at $150,000, let’s say, and over the course of 7 to 10 years, it is completely reasonable to suggest that this very same house could be worth around $600,000.
Renters do not have a built in advantage for building wealth, whereas Real Estate appreciates in value as a virtual certainty. They don’t call home-ownership the “American Dream” for nothing!
SUMMARY:
The subject of deciding on whether to Buy or Rent, is not simple. In the end, it boils down to a question of complexity. Being a Renter is simple. Being a Homeowner is more complex, and yet, that does not mean that it is not within your grasp. It IS!!! There are so many people that are just waiting in the wings, yearning to help you get there. Real Estate Agents, Mortgage Brokers, Friends, Family, etc.
With all of these resources around you, just about anyone can own a home, and in this great country, the American Dream of Home Ownership is completely within all of our grasps!
But do me a favor. Give yourself the time to examine these important questions first. Look within. As we all get older in life, we yearn for more. Buying versus Renting is a common theme in this journey. As we wave goodbye to the younger years, we say so long to the simplicity of life, and we say hello to the promise of prosperity, wealth, and a better tomorrow. We also say hello to higher, more complex things. Often times, it’s simply the willingness to accept complexity that will get you to the understanding you need.
Best of luck on your journey, from Renting to Owning your next Home!
We’ve enjoyed providing this information to you, and we wish you the best of luck in your pursuits. Remember to always seek out good advice from those you trust, and never turn your back on your own common sense.
http://www.choiceofhomes.com/buyorrenthome.htm
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