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February 2015     






Investing in Real Estate

As with all investments real estate investment has it own risks and the decision to invest should be carefully considered. As a landlord there are certain costs that you will need to cover, potential vacancy problems that may strain your ability to pay your mortgages, and liability issues. It is important that you speak with an expert before putting yourself in a situation where you can potential over-extend yourself.

With that in mind, I have included some of the basic property types and benefits associated with real estate investment.

Single-family residence. First time real estate investors are usually advised to buy a single family detached home and rent it out as it's market value appreciates. The reason for the popularity is that they are relatively easy. They are easy to buy, easy to finance, and they hold appeal to buyers and renters. Also, if you find that the real estate investment game was not the right choice for you they are relatively easy to turn over. Mortgage brokers know this-so these properties are also usually easier to finance and refinance.

Vacation property and second homes. Investment options in this category are myriad, from outright purchase to fractional-interest contracts and timeshares. Even if the property isn't income producing, it can appreciate into a worthy investment, and mortgage interest is fully deductible. If you do rent the property when it's not in use, realized income and tax obligations depend on what percentage of the year it's kept for "personal use"-a tightly defined term you should discuss with a real estate attorney.

Apartment properties. Apartment properties require a long-term commitment, as well as a substantial investment of borrowed and equity capital, but due to the availability of professional managers they often don't demand a lot of personal time. If you are the do-it yourself type then you might find yourself spending your weekends painting, advertising vacancies, and repairing faucets - though the higher return might be worth it for you. They can have mortgage loans of up to 100% of value, while other investment types may require all cash. Loans can be amortized or paid with the income generated by rents.

Condominiums. Condominium investments provide a bit of extra risk. Their market value appreciates more slowly than for detached single-family residences, and rental rates usually aren't high enough to cover mortgage, property tax, and maintenance fees.

Vacant land. Vacant land is probably the least liquid and therefore usually the weakest choice for a profitable shorter-term investment. While undeveloped land is easy to maintain, it nearly always takes longer to appreciate and longer to sell.

Commercial property. To reduce personal liability and offset the greater expense of these properties, some investors form or join a limited liability company. Because of the extremely high risks involved with this type of agreement, consulting a real estate attorney is essential before taking this step. You probably shouldn't consider this arrangement if you aren't personally familiar with the other partners and their business expertise.



Refinancing: Do’s and Don’ts

Low mortgage rates have prompted most of us to at least think about refinancing our home. Locking in an interest rate below 5 percent could end up saving you big money if interest rates continue to rise in the future. The following tips should help you get the best deal possible if you do decide to refinance.

Do talk to your own lender first. You may be able to skip some expenses, like an appraisal, if your mortgage is fairly new.

Do compare fees and closing costs as carefully as interest rate. These can vary widely.

Do see whether your lender is able to switch your escrow from the old mortgage to the new one, so you don't have to prepay. This isn't common, but it's very handy.

Do make sure to get the loan you want. There are numerous accounts of borrowers who sign up for a loan guaranteed to lower their payments, only to learn their payments are lower because they do not include taxes and insurance.

Don't refinance for small gains. Mortgages cost money. It would be counter productive to pay $4,000 in closing costs to lower your payment by $35.

Don't believe "no closing costs." If they are advertising no closing costs it is likely that they make their profits with higher interest rates.

Don't dismiss an adjustable rate if you know you'll move -- for example, a 5/1 ARM. Today with good credit and no points, you could lock in about 4.5 percent interest for five years. Your rate will move after that, probably up.

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Your money

Interior Painting 101

Have you recently walked through your living room and felt that something just does not look right? You take a quick look around and mentally note the different elements of the room trying to determine what feels out of place.

You realize that the problem is not your furniture or decor and you wonder what could be wrong. Then you look at the walls. The bright orange paint that appealed to you 15 years ago has finally begun to lose its charm. Or perhaps the color is perfect; however you have recently begun to notices chips, cracks, and even fading of the paint.

Depending on the level of your discontent you will make one of two choices: replace it with a new coat of paint or live with it. If you do decide to replace it, here are a couple tips to get you started:

Brush Basics - There are generally two brush options for you to choose from: natural bristle brushes and synthetic bristle brushes. The synthetic is best for latex paints, for oil-based paints you can use either natural or synthetic brushes.

Tape Talk - One of the best pieces of advice is to buy plenty of low tack and use it to tape off baseboards, moldings, and doorknobs. It will save you time on cleaning.

Patience is a Virtue - When applying multiple coats of paint, allow the walls to dry to the touch between applications. Premature brushing of the second coat can ruin the job by pulling up the first coat of paint.

Market

Existing-Home Sales Rebound in December

Despite low inventory conditions, existing-home sales bounced back in December and climbed above an annual pace of 5 million sales for the sixth time in seven months, according to the National Association of Realtors®. Median home prices for 2014 rose to their highest level since 2007, but total sales fell 3.1 percent from 2013.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 2.4 percent to a seasonally adjusted annual rate of 5.04 million in December from a downwardly-revised 4.92 million in November. From a year ago, December sales were higher by 3.5 percent and are now above year-over-year levels for the third straight month.

Lawrence Yun, NAR chief economist, says sales picked up in December to close a 2014 that got off to a sluggish start but showed encouraging signs of activity the second half of the year. "Home sales improved over the summer once inventory increased, prices moderated and economic growth accelerated," he said. "Sales were measurably better in the second half – up 8 percent compared to the first six months of the year."

"A drop in housing supply in December raises some affordability concerns in the months ahead as minimal selection and the potential for faster price appreciation could offset the demand from buyers encouraged by a stronger economy and sub-4 percent interest rates," says Yun. "Housing costs – both rents and home prices – continue to outpace wages and are burdensome for potential buyers trying to save for a downpayment while looking for available homes in their price range."

According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage in December fell to 3.86 percent, its lowest level since May 2013 (3.54 percent), and down from 4.00 percent in November. The average annual rate was 4.17 percent in 2014.

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