Mortgage real estate

Welcome to the 3rd (is it the third? oh hell, I’m not even sure) edition of the Mortgage and Real Estate Monday Link Up. We’re running a bit late today posting this as I usually get this up either late Sunday or early Monday, but I’ve been pretty busy this weekend, so I put some things on hold. Anyway, thanks to all the people who submitted their articles for inclusion; unfortunately I had to remove a few because they were too spammy. Listen, if you submitted an article and it didn’t show up here, review your site and make it look less spammy; I’m not even all that stringent in my enforcement of this, but when I go to a blog and I have to scroll down past a bunch of ads before I even see the article itself, you’re getting removed and you won’t be able to submit any more articles here. To those who provided valuable content, thank you very much, your articles were all very interesting and I hope my readers enjoy them as much as I did. Happy Monday!

Update: Unfortunately, due to the shady activities of certain website owners, I had to remove quite a few articles submitted here. I’ll be writing a TOS for future articles. I don’t like to take a hard-line stance on what I approve and what I don’t, I want everyone to have their chance to share what they’ve written, but now, due to the unfortunate attempts at wasting my time of a certain few, now-blacklisted, individuals, if you submit an article here and it even smells for a second like it’s a spam blog, or scraped content,  or the blog is “made for adsense,” you will be blacklisted and your article removed.

Money and Finances

Tracy Coenen presents Flip This House lawsuit update posted at FRAUDfiles.

Mortgage Market

Brandon L. presents Did you know this about FHA Loans? posted at FHA Mortgage Center Blog, saying, “FHA loans are a great deal. Learn about why they can save you a ton of money and make buying a home much easier.”

Other

Gavin R. Putland presents Australia, Hong Kong, Singapore & Taiwan: How property taxes affect economic growth posted at Gavonomics.

Larry Russell presents Diversify To Avoid Investment Fraud posted at THE SKILLED INVESTOR Blog, saying, “Stories about investment fraud often seem to include the phrase “his or her life savings.” There should never be a moment during your lifetime when your life savings are not heavily diversified across many investment vehicles and firms.”

Personal Stories

Millionaire Mommy Next Door presents Can Renting Play A Part In The American Dream? posted at Millionaire Mommy Next Door, saying, “I calculated that our net worth could increase significantly if we sold our home, rented an apartment and invested the equity that was, at the time, tied up in the sticks and bricks over our heads. My husband and I fancy our debt-free life. Here are some of the other benefits our lifestyle as renters offers our family.”

Real Estate Market

Karyn presents Consider Buying Your Own Vacation Home posted at All About Orlando, saying, “Florida remains one of the best places to invest in real estate. The year round vacation season and minimal investment required make it the perfect place to purchase a vacation home.”

The Baglady presents San Mateo Home Sellers in Trouble #4 — 10/8/2007 to 10/21/2007 posted at xynny.

Tips & Tricks

Joshua Dorkin presents A Primer on Escrowed Funds posted at Real Estate Investing For Real.…

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Is real estate a good investment

Investments can be analyzed based on 3 main criteria: liquidity, safety, and rate of return. Most investments won’t rank high in all three, instead, there’s some give and take. Investments high in rate of return are usually low in safety, highly liquid investments tend to be less safe, and extremely safe investments tend to be relatively illiquid and have lower rates of return.

Real Estate is no different, however, it has a reputation of being the ultimate investment, so let’s break that down.

One quick note, the economy’s tough, so if you’re looking to invest in real estate with no or bad credit, check this out. You might also want to think about rent-to-own programs, which you can learn about here.

Is Real Estate a Liquid Investment?

Real Estate is one of the most illiquid investments you can make. This shouldn’t come as a surprise to anyone who’s bought, sold, financed, or refinanced a home. It can take weeks or months to be approved for a mortgage or to close a sale or purchase transaction, and the mountain of paperwork that goes into it is no fun for anyone.

Is Real Estate a Safe Investment?

A safe investment is one in which the likelihood of losing your money is low, the less likely you are to lose your money in an investment, the safer it is. So, is Real Estate safe? That depends on who you ask; I’m sure the millions of homeowners going through foreclosure right now because of the market crunch wouldn’t think so. The fact is, however, that no matter who you are, and contrary to popular opinion (which is changing pretty fast), Real Estate does not always appreciate.

The safety of real estate is very much tied up in its lack of liquidity as so many homeowners are finding out right now. Fortunately, if you take the proper precautions and keep in mind that real estate values do not always go up, you can protect yourself from much of the risk involved.

Does Real Estate Have A Good Rate of Return?

Did you ever play that rumor game in grade school where the class gets in a circle and one kid whispers something to another kid and so on, and by the time the “rumor” gets back to the original kid it’s completely different from when it started? That’s a lot like how real estate has gotten the reputation it has; some people have made quite a bit of easy money in real estate during market booms and so began the “rumor” that real estate is the ultimate investment. Boatloads of people invest in Real Estate because they think it has a high rate of return, but the truth may surprise you. In spite of the fact that Real Estate prices shot through the roof over the past several years, you might be surprised to know that taking a step back in time reveals a very different picture.

According to this chart taken from Forbes.com, the S&P 500 has stomped the performance of US home prices over a 20-year period. Since 1980, home prices have increased 247%, whereas the S&P 500 shot up over 1,000%, a staggering comparison.

So, Real Estate scores low on 2 of our 3 criteria, and the third criterion, Safety, is arguable. Maybe we should be rethinking that common belief that it’s impossible to lose in real estate. Sure, when approached correctly, real estate can be an incredible investment, but it can’t be approached haphazardly. It’s an investment like any other, and it carries risks and rewards, just be careful before jumping into real estate investing without a plan, because it may turn out that it’s not all it’s cracked up to be.…

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Pay Points refinance

A while back I wrote an article about paying points to refinance and why, even though we tend to hate the idea of upfront costs, it can be a huge benefit in the long run. In that article I said that you’d benefit from paying points upfront “when the cost of the buy-down pays for itself before you refinance again.” That’s good advice, but a lot more people will actually benefit from paying points up front, so here’s a slightly more advanced take on the subject.

To make things simple, I’ll use the mortgage rates and loan amount from the post about paying points to refinance. In that particular situation, paying $9,600 in points upfront on a $600,000 loan would save the borrower $300 a month on his or her monthly payment. As a result, the buy-down cost of $9,600 would pay for itself in a little less than 6 years; so, the cost would be worth it if the homeowner expected to remain in the home for more than 6 years. That’s just one side of the story, there’s another side that most people don’t think about.

Put the Savings Toward the Loan

Ok, so if you don’t pay the points, you’re payment is $300/month more than it will be if you do pay the points, so, if it’s up in the air and you can afford to make the higher payment, you should factor in one more thing. Since you were considering the higher payment anyway, what if you were to pay the points and put the $300 savings toward an extra principal payment each month? Well, at the end of the 6 years, the roughly $20k cost will be returned, but what if you then decide to stay in the home until the loan is paid off? At the end of 30 years, you’ll have saved $135,911 in interest payments and you’ll pay off your home 8 months faster!

In Layman’s Terms

So basically, it boils down to this: In this particular situation, if you’re going to stay in the home for at least 6 years, it will benefit you to buy down the rate, but every month you stay in the home past 6 years, you’re going to see extra savings that you wouldn’t have seen had you not paid points for the lower rate.

The Investment Approach

The other option is to pay the points, buy down the rate, save $300 a month and, instead of putting that money back into the loan, you invest the savings. At a measly 4% return, $300 a month will turn into $24,746 after 6 years, $44,619 after 10 years, and a whopping $209,188 after 30 years. You shouldn’t have any problem finding an investment that will pay a 4%.

Now, more realistic returns on, say, the stock market would be around 8-12% – let’s call it 10% for the sake of the demonstration. Investing $300 a month for 6 years at 10% would give you $29,965, after 10 years you’re looking at $62,232, and after 30 years that little ‘ole $300 a month turns into $683,381!

Obviously the investment approach yields the greater benefit and, in fact, the roughly $20k cost of the loan we covered earlier would pay for itself a bit sooner than 6 years using this approach.

It’s All in the Numbers

In California, a $600,000 loan is quite common; ultimately, how the numbers work out will completely depend on your situation and these calculations need to be made by you, your financial advisor, or your mortgage advisor. Whoever does the math, it needs to be done, we’re talking about a lot of money here. So quit sitting on your butt and get to it!…

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Pay off mortgage lose tax deduction

Irvine Mortgage – I was working with a client a while back who brought up a question that a lot of people ask me and it’s one of the most common questions I get asked. This particular client was interested in paying off his home early and wanted to go over some of the ways that he could do that. Toward the end of the conversation he asked, “But if I pay off my home, won’t I lose my tax deduction?”

The home ownership tax deduction is the biggest and one of the few remaining tax deductions for the middle class American, so it’s not something that’s easy to let go of, but there’s an incredibly simple answer to that question.

If I told you that if you give me a dollar, I’ll give you 33 cents back, would you go for that? If so, give me a call, I’m sure we can work something out ;-). All kidding aside, that’s what the home-ownership tax deduction amounts to.

Let’s say you have $85,000 a year in taxable income; if you’re single that puts you in the 28% tax bracket (see chart).

Marginal Tax Rate[Taxable Income] SingleMarried Filing Jointly
10%$0-$7,825$0-$15,650
15%$7,826-$31,850$15,651-$63,700
25%$31,851-$77,100$63,701-$128,500
28%$77,101-$160,850$128,501-$195,850
33%$160,851-$349,700$195,851-$349,700
35%> $349,700> $349,700

Let’s also say the interest payments on your home are $2,500 a month, $30,000 a year. Since your mortgage interest is tax deductible, you can write off all $30,000, which will give you an $8,400 tax refund.

Now, what if you pay off your home? You don’t get the $8,400 tax deduction, but you also don’t pay the $30,000 in interest in the first place. So, why pay $30,000 to get an $8,400 refund in April?

There Are Benefits to Not Paying Off Your Home

Don’t get me wrong, I’m not always in favor of paying off your home, in most cases it needs to be a personal choice you make after you’ve looked at all the options. The tax break can be used to your advantage with arbitrage, which basically means you’re borrowing money to invest and earning more on the investment than you’re paying on the loan. For example, if you pay $30,000 a year in interest, that’s equivalent to 6% on a $500,000 loan. If you receive an $8,400 tax refund, your effective interest rate on that loan is only 4.3%, not 6%; so if you can find an investment that pays more than 4.3%, you’ll be better off not paying off your home.

It’s a great strategy to use, but it’s not quite as simple as it sounds. If you want to know more, get in touch with me and we can see if this is a strategy that may benefit you.

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