The new tax law doubles the standard deduction and it is estimated that over 90% of taxpayers will elect to use it. However, even without considering tax benefits, homeownership has convincing advantages.

Amortized loans apply a specific amount of each payment to the principal amount owed to retire the loan over the term. Some people consider it a forced savings account; when the payment is made, the unpaid balance is reduced. Besides the personal and social reasons for owning a home, one of the most compelling is that it is cheaper. Principal reduction and appreciation are powerful dynamics that reduce the effective cost of housing.

The price of homes going up over time is appreciation. While there are lots of variables and it is not guaranteed, it is easy to research the history of an area and make predictions based on supply and demand.

Interest rates are still low and can be locked-in for 30 years. Without considering the tax benefits at all, the appreciation and the amortization dramatically affect the “real” cost of owning a home.

Consider a $250,000 that appreciates at 2% a year for the next seven years instead of paying $2,000 a month in rent. In the example, the payment is less than the rent being paid even including the property tax and insurance.

When you factor in the monthly principal reduction and appreciation and consider additional owner expenses like maintenance and possible homeowners association, the net cost of housing is considerably lower than the rent. In this example, reduced cost in the first year alone is more than the down payment required on a FHA loan.

Based on the assumptions stated, the down payment of $8,750 could grow to $73,546 in equity in seven years. Can you name another investment with this kind of potential that also provides you a place to live, enjoy, raise your family and share with your friends?

Use this Rent vs. Own to make projections using your own numbers and price range. We’re available to answer any questions you have and to find out what it will take to own your own home.

Mortgage loans for more than 80% loan-to-value typically require private mortgage insurance. Mortgage insurance reimburses the lender if a borrower defaults on a loan. PMI is expensive, and homeowners should be aware of how to remove it when certain conditions have been met.

Other methods to eliminate PMI sooner than through normal amortization include the following:  A borrower can request in writing for the lender to cancel the PMI when the mortgage balance has reached 80% of the home’s original appraised value. However, they are required to eliminate it when the balance reaches 78%. It is a good idea to monitor this, especially if additional principal contributions are being made to pay off the loan early.

• If the value of the home has increased, the owner may consider refinancing with a loan that does not require PMI. There will be refinancing charges involved but you can determine how long it will take to recapture those costs from the monthly savings.
• Some lenders will consider using a new appraisal to verify that the home’s mortgage is below the 80% requirement. Find out in advance from your lender if they will accept this procedure and get the names of approved appraisers they will recognize. The cost of an appraisal could range between $450 to $600.
• Another strategy is to make additional principal contributions on a regular basis to reduce your mortgage balance to 78-80% level that would allow the lender to eliminate the PMI.

Mortgage insurance is not required on VA loans regardless of the loan-to-value. FHA mortgages made after June 3, 2013 are required to have Mortgage Insurance Premium for the life of the loan. For FHA loans made prior to that date, the MIP should automatically cancel when the loan-to-value ratio reaches 78% and has been in effect for a minimum of five years.

To obtain additional information specific to cancelling your mortgage insurance, contact info can usually be found on the annual statement provided by your mortgage servicer.

It can be shocking to hear how many people spend more time planning their vacation or next mobile phone purchase than planning for retirement. It is hard to imagine that they are expecting Social Security will take them through their golden years. A person who has paid in the maximum each year to social security can assume to receive about $30,000 a year.
There’s an easy rule of thumb used to estimate the investable assets needed by the time they retire to generate a certain income. The target annual income is divided by a safe, conservative yield to determine the investable assets needed.Every adult in the work force, should go to SSA.gov to find out what they can expect based on their planned retirement age. Since it probably won’t be the amount you need to retire comfortably, at least you’ll know how much you’ll be short so that you can devise an investment plan.

A person who wants $80,000 annual income generated from a 4% investment would need investable assets of $2,000,000. If a person had $500,000 now, they would need to accumulate $1.5 million more by the time they retire. They would need to save about $100,000 a year to be ready for retirement in 15 years.

If saving that amount does seem possible, an IDEAL alternative could be to invest in rental homes. The familiarity of rental homes like owning a personal residence can reduce some of the risk. Rentals also enjoy other characteristics like income from the operation, depreciation in the form of tax shelter, equity buildup from the amortization of the loan, appreciation and leverage from the borrowed funds controlling a larger asset.

Some investors explain the strategy by buying good rentals with mortgages and having the tenant to retire the debt for you. Single family homes offer the investor an opportunity to meet their retirement and financial goals with an investment that is easily understood and controlled.

An Retirement Projection calculator can give you an idea of how many rental homes you’ll need to supplement your social security and other investments.

The benefit of insurance is to transfer the risk of loss to a company in exchange for a premium. The deductible is an amount the insured pays out of pocket before the insurance starts covering the cost of the loss. The challenge is to balance the risk an insured can accept with the premium being charged.

Insurance companies offer deductibles as a specific dollar amount or as a percentage of the total amount of insurance policy. The amount is usually shown on the declaration page of homeowner and auto policies.To manage insurance premiums, policy holders often consider adjusting their deductibles. Lower deductibles result in less money out of pocket if a loss occurs in return for higher premiums. Higher deductibles will lower premiums but require that the insured bear a larger amount of the first part of the loss.

A small fire in a $300,000 home that resulted in $5,000 of damage might not be covered because it is less than the 2% deductible which would be $6,000. If the homeowner can afford the cost of repairs in exchange for lower premiums, it might be worth it. On the other hand, if that loss would be difficult for the homeowner, a change in the deductible for higher premiums could be considered.

Raising deductibles can save money in the present when paying the premium but could cause problems later if a claim occurs. Homeowners should review deductibles with their property insurance agent to be familiar with the amounts and make any changes that would be appropriate.

The new tax law that was signed into effect at the end of 2017 will affect all taxpayers. Homeowners should familiarize themselves with the areas that could affect them which may require some planning to maximize the benefits.

Some of the things that will affect most homeowners are the following:

• Reduces the limit on deductible mortgage debt to $750,000 for loans made after 12/14/17. Existing loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap.

• The capital gains exclusion applying to principal residences remains unchanged. Single taxpayers are entitled to $250,000 and married taxpayers filing jointly up to $500,000 of capital gain for homes that they owned and occupied as principal residences for two out of the previous five years.Homeowners may refinance mortgage debts existing on 12/14/17 up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount of the existing mortgage being refinanced.
• Repeals the deduction for interest on home equity debt through 12/31/25 unless the proceeds are used to substantially improve the residence.
• The standard deduction is now $12,000 for single individuals and $24,000 for joint returns. It is estimated that over 90% of taxpayers will elect to take the standard deduction.
• Property taxes and other state and local taxes are limited to $10,000 as itemized deductions.
• Moving expenses are repealed except for members of the Armed Forces.
• Casualty losses are only allowed provided the loss is attributable to a presidentially-declared disaster.

Not addressed in the new tax law, the Mortgage Forgiveness Relief Act of 2007 expired on 12/31/16. This temporary law limited exclusion of income for discharged home mortgage debt for principal homeowners who went through foreclosure, short sale or other mortgage forgiveness. Debt forgiven is considered income and even though the taxpayer may not be obligated for the debt, they would have to recognize the forgiven debt as income.

These changes could affect a taxpayers’ position and should be discussed with their tax advisor.

Some police departments report as high as 98% of calls are false alarms. Not only is this an incredible waste of police resources that could be available for legitimate emergencies, it annoys neighbors, startles pets and results in expensive false alarm fees.

Secure windows and doors – be sure that all windows and doors are closed before activating your alarm. Disarm your system before opening a window or door.

Know your codes – entering an incorrect keypad code is a common mistake leading to false alarms. The solution is to create codes that are easy for all members of the family to remember without them being obvious to potential burglars like your street number. Let everyone know when you change your code.

House guests – tell visitors that you have an alarm system and when you normally arm it. Housekeepers, baby sitters, outside family and close friends also need to be aware of your procedures and possibly give them a code to disarm the system if it is accidentally activated.

Batteries – most systems have battery backup in case the power goes out. Know how often you need to replace the batteries; some last considerably longer than others.

Motion detectors – pets can trigger a motion detector and then, the alarm. There are sensors made for households with pets providing an alternative to turning them off. Other things that could activate motion detectors are helium balloons or curtains and plant leaves being blown in front of a sensor.

Home alarm systems are valuable to homeowners by increasing security, providing peace of mind and lowering insurance premiums. Some municipalities require a license fee for any home with an alarm. Use your alarm wisely.

Planning to go to the Masters next April 2-9th and don’t have a place to stay. Each year, there are homeowners who rent their home for a big premium during the Masters because hotels are in short supply and demand for private homes is up.

This situation can particularly benefit homeowners where there are large sporting events nearby like golf and tennis tournaments, championship games or other high attendance venues. The demand for a private residence can be more attractive than staying in a hotel which makes the price go up.Homeowners go on vacation and make tax-free income while temporary tenants rent their home. Homeowners can benefit from a little known provision in the tax code that does not require taxpayers to recognize the income derived from renting their home for less than 15 days per year. See Plan Ahead for Tax Time When Renting Out Residential or Vacation Property- special rules.

Obviously, there are challenges with personal belongings and damage but getting a premium rental rate and not having to recognize the income could be worth it. You’ll certainly want to discuss this with your tax professional prior to making this decision. You’d probably also want to get some help from an experienced real estate professional.

Seventy-three percent of home sales closed on time in October, but 25 percent of REALTORS® report a delay in getting to the settlement table, according to the latest REALTORS® Confidence Index, a survey based on responses from more than 3,500 real estate professionals. Only 2 percent say a contract was terminated completely.

What are the main problems encountered with delayed settlements? Real estate pros report the following:

1. Issues related to obtaining financing: 32%
2. Appraisal issues: 20%
3. Home inspection/environmental issues: 16%
4. Titling/deed issues: 11 percent
5. Contingencies stated in the contract: 6%

Seventy-four percent of all contracts in October contained contingencies, most often for home inspections, appraisals, or financing.

Source: “REALTORS® Confidence Index Survey,” National Association of REALTORS® (October 2017)

If you’re beginning to feel the pressure of running out of time to find the perfect gift, here are a few suggestions that may not be on their “list” but will certainly be appreciated.
The gift of affection with appropriate hugs, kisses and pats on the back can demonstrate your love for family and friends better than words. The gift of really listening without interrupting, daydreaming or planning your response can be exactly what people want when they have something important to say.

The gift of laughter by sharing articles, cartoons and funny stories will say “I love to laugh with you.”

The gift of a simple, written note shows sincerity and real heartfelt sentiment that may be remembered for a lifetime and could even change a life.

The gift of a sincere compliment supports a person’s need to be accepted and appreciated. “You look great in that color”, “That was outstanding” or “I really enjoyed that” can make someone’s day.

The gift of random kindness or good deeds like holding a door or allowing someone to move ahead of you in a checkout lane shows respect for others.

Your smile, however, may be your most rewarding gift. Invariably, the person receiving the smile will in turn, smile back. The gift you gave will now be given back to you. It will be the right size and you can always use one more smile.

You’ve got $500,000 in liquid assets for your retirement and you’re still 15 years away. All your bills are paid; you have a small mortgage on your home; cars are paid for and great credit. Don’t break your arm patting yourself on the back yet.

To retire with $125,000 income in today’s dollars with a life expectancy of 25 years after retirement, you’ll need to have a net worth of $1.5 million at retirement including what Social Security may provide. Your $500,000 will grow to $1,045,420 in 15 years which will leave you about a half million short. You’ll need to save $24,149 each year for the next 15 years to reach your goal.People think more about what they’re going to do when they retire than whether they’ll have the funds to do them. Ask anyone who has retired, it takes more money than you thought it did. Let’s look at a hypothetical situation.

Is this surprising? Did you imagine that this example would be that far from its goal? It might seem staggering to save $24,000 each year but there is another way…investing in rentals.

Real estate over the long term has proven to be a solid, predictable investment.  Cash flows, appreciation, equity buildup and tax advantages are the components that contribute to the rate of return. Increasing rents, available financing and solid appreciation make rentals particularly attractive in today’s environment.

Call me at (952) 358-9694 to find out more about how rental homes can help you reach your retirement goals.