Is the stock market keeping you up at night? Are you consuming more antacids than ever before? Are the ups and downs causing more stress than you want or need? There is a simple alternative in rental real estate.
Single family home for rental purposes offer an excellent rate of return in an investment that most people understand better than other investments. The concept is simple: stay with predominantly owner-occupied homes in a slightly below average price range. In most areas, tenants are easy to find and they’ll usually stay two to three years or more.
For the person who doesn’t want to be bothered with calls from tenants, professional management is available and commonly won’t dramatically affect the rate of return. Managers can achieve economies of scale that individuals can’t due to managing multiple properties and having good connections with the best workmen.
Unlike most commercial property, single family homes are much more liquid because of the higher demand for residential property. Single family homes offer the investor the opportunity to borrow high loan-to-value mortgages at fixed interest rates, for long periods of time on appreciating assets with tax advantages while providing the investor a higher than normal level of control.
Spend an hour investigating the benefits and you might sleep better at night, eat less antacids and find yourself more mellow than you’ve been in years.
There is a significant difference in how the money you spend on your home is treated for income tax purposes. Repairs to maintain your home’s condition are not deductible unlike rental property owners who can deduct repairs as an operating expense.
On the other hand, capital improvements to a home will increase the basis and affect the gain when you sell which may save taxes.
Additions to a home or other improvements that have a useful life of more than one year may be considered an increase to basis or cost of the home. Other increases to basis may include special assessments for local improvements like sidewalks or streets and amounts spent after a casualty loss to restore damage that was not covered by insurance.
Unlike repairs, improvements add to the value of a home, prolong its useful life or adapt it to new uses.
You can read more about improvements and see examples beginning on the bottom of page 8 of IRS Publication 523. For a form to keep track of money you spend, print this Improvement Register.
A ½% increase in interest rate may not sound like much but it is roughly equivalent to a 5% increase in price. It becomes obvious when you compare the payments.
If you financed 100% of the cost of a $250,000 home at 4.5% interest for 30 years, the payment would be $1,266.71 per month. If the mortgage rate went up to 5%, the payment would be $1,342.05. If the home increased 5% in value, the $262,250 loan at the lower 4.5% rate would have payments of $1,330.05.
The two payments are close enough to justify the statement that a ½% change in interest is approximately equal to 5% change in price.
Each time interest rates go up, fewer people can qualify to buy a seller’s home. The mortgage rules that went into effect this year require buyers to meet specific payment to income ratios. As demand picks up for the seasonal market, most experts expect rates to increase.
Buyers will be doubly challenged in the current market because prices are rising (NAR reports 11% last year) along with the anticipated mortgage rates. Buyers who wait will inevitably be paying more to live in the same home had they acted sooner.
Whether you continue to rent or decide to buy a home, according to recent Zillow 2014 housing projections, the cost is going up. Zillow projects home prices to increase nationally by 3%, mortgages to rise to %5 interest rate by the end of the year and rents to go up by 2.5% on average.
If it will cost a person more whether they rent or buy, the conclusion can be made that one way or the other, they will pay for the house they occupy. The question will be whether they buy it for themselves or their landlord? Will they benefit from the equity build-up and the appreciation?
The following analysis looks at a $200,000 home that can be purchased with a 30 year FHA mortgage at 4.3%. The assumption uses 3% appreciation and tenant currently paying $1,750 a month in rent.
The house payment, principal, interest, taxes and insurance would be about $1,609 a month. However, once you consider the benefits of the principal reduction each month, the appreciation and the tax savings and the increased cost of maintenance, the net cost of housing is closer to $630 per month.
Even if you ignored the tax savings, the net cost of housing would only be $919.06 per month. The tenant would pay considerably more to rent than to own the home. Over time, the decision to buy a home could result in a considerable financial asset that the tenant will not benefit from.
To estimate your cost of housing, use the Rent vs. Own.
Once you step inside this beautiful home, you'll immediatly want to call it home. What's not to love about it. It is gorgeous inside and out, and an amazing location as well. Take a look for yourself....
Welcome home to 589 Mustang Dr. located in beautiful Walton, Kentucky. This immaculate home features four spacious bedrooms, three full bathrooms, one half bath, a formal dining room, a gourmet chef's kitchen, a partially finished lower level, a large first floor laundry, and much, much more.
Walk-in to stunning hardwood floors with a marble inlay. The rich hardwood floors continue on into the formal dining room where stunning tray ceilings, a lovely chandelier, columns, chair rail and crown molding are sure to impress those over for those wonderful home cooked dinner parties. Located just off the dining area sits the kitchen which is definitely sure to please the chef in your family. The kitchen boasts granite counter-tops, 42 inch Maple cabinets, a walk-in pantry, an extra deep sink, and center island with additional storage and electric. Appliances included with the kitchen are the gas oven, dishwasher, garbage disposal and the refrigerator. Entertain in style in the amazing living room complete with gas, stone fireplace - perfect for those chilly months out of the year. You'll also enjoy the all season sun-room with it's double walkout to the fantastic deck and backyard. The sun-room also features soaring cathedral ceilings and ceramic tile.
After a long day, you'll enjoy relaxing in the unbelievable master suite that is fit for royalty. This bedroom is located on the second floor and includes an adjoining full bathroom, spacious walk-in closet and plush wall to wall carpeting. You'll enjoy soaking the days worries away in the awesome jetted bathtub. A large walk-in separate shower, private restroom and double vanity sinks round out the master bath. Three additional guest bedrooms are also located on the second floor and share a full bathroom with shower/tub combination.
This home is located on a cul-de-sac street and sits on an amazing wooded lot loaded with professional landscaping and mature shade trees. You'll also enjoy the incredible Trex Deck that is stain resistant and has limited up-keep. For those extra sunny days, use your remote and bring out the Sunsetter Awning to keep cool. The deck is the prefect spot to relax as you enjoy your favorite drink and listen to the birds sing. Entertain family and friends underneath in the outdoor living area. This expansive area is super private and features a ceiling fan and superb views of the backyard.
Loaded with upgrades this home sits in the Boone County Public School system and is super convenient to shopping, places of worship, the expressway, the Boone County Public Library, area attractions, restaurants and much more. It includes a fenced backyard, ceiling fans, recessed lighting, a security system window treatments and much more. For your private tour of this simply stunning home, contact The Mike Parker Team/HUFF Realty today. 859-647-0700
Earlier this week, the Federal Housing Administration (FHA) implemented changes to the premium structures for an FHA-backed mortgage.
My membership in the Top 5 in Real Estate Network® requires that I remain committed to keeping my clients and consumers informed, so it's important that I let you know that these changes may make it more costly for home buyers to procure FHA loan products.
In the wake of the real estate decline and credit freeze of the past three years, FHA-insured loans soared as borrowers sought alternative avenues for securing affordable mortgages. The FHA loan is popular because its minimum down payment is 3.5%, whereas most conventional loans require a much higher down payment. Recently, however, housing experts have raised concerns about FHA's shrinking funds and its ability to handle increasing defaults, sparking the agency’s impending regulation changes.
According to CNNMoney.com, FHA reported that its reserve fund has dropped to 0.53% of its insurance guarantees, well below the 2% ratio mandated by Congress and the 3% ratio it had last fall. This fund covers losses on the mortgages the agency insures. FHA borrowers pay for the insurance that backs their loans in the form of an upfront premium and an annual premium.
The agency has seen a spike in delinquencies amid the mortgage meltdown. Some 14.36% of FHA loans were past due in the third quarter, according to the Mortgage Bankers Association. To compensate for its rapidly depleting reserve fund, the following changes will be implemented to FHA lending:
Upfront mortgage insurance premiums will decrease from 2.25% to 1.00%.
At the same time, the 0.55% annual premium will be increased to 0.85% for mortgages with loan-to-value ratios up to and including 95%, and to 0.90% for loan-to-value ratios above 95%.
Borrowers will be required to have a credit score of at least 580 to qualify.
These changes in FHA lending may be paving the way for conventional financing with private mortgage insurance (MI) to make a comeback in lending for low down payment buyers. According to loan experts, both MI and FHA have their place, but borrowers should consult with their real estate professional and lender to determine what loan options are best for their particular situation.
For more information on FHA lending, please e-mail me, and please forward this email to others who might be unaware of how they may be impacted by these important changes.
