Hit by a Disaster? You May Get Tax Relief Date:February 19, 2013|Category:Tips & Advice|Author:Mary Boone Wildfires in the West, flooding and landslides in Alaska and hard-hitting Superstorm Sandy were just a few of the major natural disasters that hit the United States last year. In all, 112 federal disaster declarations were issued in 2012. For those living in an area where a federal disaster has been proclaimed, tax relief may be available. Claiming losses If you have been affected by a federally declared disaster, you have the option of claiming disaster-related casualty losses on your federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get you an earlier refund, but waiting to claim the loss on this year’s return could result in greater tax savings, depending on other income factors. You may deduct disaster-related personal property losses that are not covered by insurance or other reimbursements; typically the IRS requires that the first $500 in losses be deducted from any claims. Disaster victims claiming their disaster loss on last year’s return are advised to write the Disaster Designation (i.e., “Superstorm Sandy” or “Noble Wildfire”) at the top of their tax forms so the IRS can expedite refund processing. Deadline extensions For some, the most welcome aspect of this tax relief will come in the form of extended tax filing and payment deadlines. The IRS has promised to abate any interest, late-payment or late-filing penalty that would otherwise apply. Affected taxpayers need not contact the IRS; this relief is automatically afforded to all taxpayers located in the disaster area. Beyond the relief provided to taxpayers in FEMA-designated counties, the IRS works on a case-by-case basis with taxpayers who reside outside disaster areas but whose books, records or tax professionals are located in the areas affected a disaster — specifically Superstorm Sandy. Affected taxpayers from outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request tax relief. The IRS is waiving the usual fees for copies of previously filed tax returns for disaster-affected taxpayers. Taxpayers should write the assigned Disaster Designation in red ink at the top of Form 4506 (Request for Copy of Tax Return) or Form 4506-T (Request for Transcript of Tax Return) before submitting it to the IRS. Additionally, workers assisting with relief and recovery activities in the covered disaster areas who are affiliated with a recognized government or philanthropic organization may be eligible for tax relief. For additional information regarding disaster-related tax relief, visit the IRS website or consult a qualified tax professional.
2 Million Homeowners Freed From Negative Equity in 2012; 1 Million More to Come in 2013 Date:February 20, 2013|Category:Market Trends|Author:Cory Hopkins Almost 2 million American homeowners were freed from negative equity in 2012, and the overall percentage of all homeowners with a mortgage in negative equity fell to 27.5 percent at the end of the fourth quarter, according to Zillow’s fourth quarter Negative Equity Report. The falling negative equity rate is good news for struggling homeowners and is largely attributable to a 5.9 percent bump in home values nationwide last year to a median Zillow Home Value Index of $157,400 (when home values rise, negative equity falls). At the end of 2011, 31.1 percent of homeowners with a mortgage were underwater, or more than 15.7 million people. In the fourth quarter, Zillow determined where American homeowners freed from negative equity in 2012 were located. Among the nation’s 30 largest metro areas, those with the highest number of homeowners freed from negative equity last year were Phoenix (135,099 homeowners freed in 2012); Los Angeles (72,936 homeowners freed in 2012); Miami-Fort Lauderdale (70,484 homeowners freed in 2012); Dallas-Fort Worth (59,461 homeowners freed in 2012); and Riverside, CA (58,417 homeowners freed in 2012). Still, despite more than 1.9 million homeowners nationwide finding their way back above water last year, 13.8 million American homeowners are still struggling with negative equity. Many remain so far underwater that even the very high rates of appreciation experienced in many markets still can only bring them so far. In the Phoenix metro, for example, despite more than 135,000 freed homeowners last year, more than 300,000 homeowners — or 40.4 percent of homeowners with a mortgage — remain trapped in negative equity. This is largely attributable to the fact that although home values in Phoenix rose 22.5 percent last year, they remain more than 44 percent below their peak. So for those who bought at the peak, even with rapid appreciation, they still have a long way to go. The graph below shows the loan-to-value (LTV) distribution for homeowners with a mortgage nationwide in 2012 Q4 vs. 2011 Q4. You can see that even though many homeowners are still underwater and haven’t crossed the bold 100 percent LTV line into positive equity, they are moving in the right direction. The 2012 Q4 buckets on the 100 percent+ LTV side (the red bars) are getting smaller compared to 2011 Q4, and the black bars are getting larger. U.S. homeowners with a mortgage are slowly gaining equity back in their homes. We also wanted to know how many more homeowners would be freed in 2013 and where they would be located. New this quarter, the Zillow Negative Equity Forecast predicts the negative equity rate among all homeowners with a mortgage will fall to at least 25.5 percent by the fourth quarter of 2013, freeing more than 999,000 additional homeowners nationwide. Of the 30 largest metro areas, the majority of these newly freed homeowners are anticipated to come from Los Angeles (72,696 homeowners freed in 2013); Riverside (62,407 homeowners freed in 2013); Phoenix (43,044 homeowners freed in 2013); Sacramento (33,356 homeowners freed in 2013); and Dallas-Fort Worth (31,434 homeowners freed in 2013). Zillow forecasts negative equity by applying anticipated appreciation or depreciation rates to a home, according to the most current metro and national Zillow Home Value Forecasts, and by assuming all other factors remain constant. “As home values continue to rise and more homeowners are pulled out of negative equity in 2013, the positive effects on the housing market will be numerous. Freed from negative equity, homeowners will have more flexibility, and some will likely choose to list their home for sale, helping to ease inventory constraints and moderating sometimes dramatic, demand-driven price increases in some markets,” said Zillow Chief Economist Dr. Stan Humphries. “But negative equity is still very high, and millions of homeowners have a very long way to go to get back above water, even with current robust levels of home value appreciation in most areas. As a result, negative equity will remain a major factor in the market for the foreseeable future.” Also, new this quarter, users can zoom in on a portion of our Negative Equity visual and embed only that portion on their website. So, for example, if you were in Seattle and wanted to post the interactive tool to your site, we would be happy to show you how. Tags: Zillow Negative Equity Forecast, Zillow Negative Equity Report
With the clouds lifting over home sales, real estate stocks are up sharply. (Money Magazine) Housing stocks, which not so long ago looked as likely to pay off as a $2 Powerball ticket, have become a hot commodity. Anticipating the real estate recovery that surfaced in the fall — home prices in October were up 6.3% from a year earlier, and new-home construction reached a four-year high — housing-related stocks led the market in 2012. Homebuilders (returning 77% through early December), the lumber industry (74%), and home-improvement stores (55%) were the top-performing industries in 2012, according to Morningstar. And the Dow Jones U.S. Home Construction ETF traded in December at a lofty 27 times projected earnings — nearly double the figure for the S&P 500. These numbers may make a housing investment look expensive, but it’s not too late for you to profit from the revival. The 2012 surge in stock prices was merely a snap back from the worst real estate correction on record, says Michael Magiera, manager of real estate analysis for investment firm Manning & Napier. “Keep that performance in the context of the long cyclical recovery we’re going to have,” he says. Related: Million-dollar foreclosures Of course, various factors could delay progress: elimination of the mortgage interest tax deduction, for example, or an unexpected surge in foreclosures. Still, economists predict a continued upswing. Moody’s housing economist Celia Chen, for one, forecasts above-average growth in construction, prices, and home sales through 2014. “After that,” she says, “growth will still be healthy.” That’s good news for the slice of your portfolio invested in real estate. Over the past 20 years, home-related stocks have roughly tracked new construction, itself perhaps the best indicator of the housing market’s health. Plus, growth over a cycle can justify the high price/earnings ratios that housing stocks might have initially; future earnings and price appreciation can make those formerly costly-looking stocks seem cheap in hindsight. Related: Housing to drive economic growth To maximize your profit, though, you have to look beyond what real estate fund managers judge to be the most expensive parts of the industry: homebuilders and real estate investment trusts that own apartment buildings. So here are three creative strategies for investing in the boom, along with stock and fund picks for each. STRATEGY NO.1: Buy the suppliers, not the homebuilders The numbers support more growth in the housing market. October’s annualized figure of 894,000 housing starts — up 42% from a year earlier — was still well below the industry’s 50-year average of 1.5 million. Existing-home prices will rise 3.3% a year through 2017, forecasts Fiserv Case-Shiller. “All signs are flashing green,” says Jeff Kolitch, manager of the Baron Real Estate Fund. Problem is, the most obvious beneficiaries of this trend — homebuilders — are the costliest stocks in this arena, say Kolitch and other fund managers. “The risk-reward proposition,” he says, “is more interesting elsewhere.” One such area: companies selling to homebuilders. The suppliers may have similarly high P/Es, but their prospects for earnings growth are better, partly because their profits come as a delayed reaction to homebuilder activity. The picks: The division of Weyerhaeuser Co. (WY, Fortune 500) supplying lumber and plywood board to builders — a money loser in the bust — has begun to drive earnings, thanks to the minimal investment needed to boost production. The company’s profits, up 48% in 2012, are forecast by analysts to jump 88% in 2013. (Weyerhaeuser converted to a real estate investment trust in 2010, giving it favorable tax treatment in return for paying out most of its earnings as a dividend, now 2.5%.) While the company’s 30 P/E is high, a return to 2004 earnings levels — not a stretch — would translate into a P/E of only 12, says Ryan Dobratz, co-manager of Third Avenue Real Estate Value, where Weyerhaeuser is a top 10 holding. Related: $214,000 real estate bet a big risk for couple A broader way to play the growing demand for timber is via a low-cost exchange-traded fund: iShares S&P Global Timber & Forestry Index (WOOD), which has Weyerhaeuser, Rayonier, and Plum Creek Timber as its top holdings. The average-size home uses about $25,000 worth of lumber, according to the National Association of Home Builders, and construction activity powers the ETF’s performance. In December, the fund was up 19% for the year. STRATEGY NO. 2: Get in on the renovation resurgence Each percentage point of appreciation in housing prices translates to an additional $190 billion in home equity — or about $2,500 per household — says the National Association of Realtors. That uptick makes owners feel more confident about spending money to fix up their houses. U.S. remodeling spending, which by July 2010 had fallen 37% from its 2007 peak, is on the rise again, up 12% year over year in September. The NAHB predicts a 2013 rise of 3.4%. Companies tied to renovation didn’t go unnoticed in 2012; like the high-performing home-improvement retailers, furniture companies racked up big returns — 29% through early December. Still, many renovation stocks are expected to grow earnings at double the rate of the average large stock. The picks: Lowe’s (LOW, Fortune 500), operator of 1,745 home-improvement stores around the country, is one of the biggest beneficiaries of this upsurge in activity, says Dobratz; recently reported sales to professional contractors were particularly strong. The company does more business than larger rival Home Depot (HD, Fortune 500) in big-ticket items like cabinets and appliances, which are snapping back in the recovery. While its P/E ratio of 20.2, based on expected earnings, was higher than the Standard & Poor’s 500’s 14 in December, earnings at Lowe’s are expected to grow faster — 20% this year, compared with 11% for the S&P. MONEY recommended Home Depot in October, but Dobratz and other managers say Lowe’s, which had surprisingly good third-quarter results, is the better choice. Or you can buy a basket of home-improvement stocks via S&P Homebuilders ETF (XHB). Don’t be fooled by the name: The ETF has 45% of its assets in home furnishings and other remodeling-related companies (and only 25% in homebuilders). Lowe’s is its top holding; Whirlpool, Home Depot, and Pier 1 Imports are among its top 10. STRATEGY NO. 3: Profit from people on the move again Underwater mortgages and low-ball prices of distressed properties froze home sales after the housing bubble burst; sales of existing homes in mid-2010 bottomed out at the annualized rate of 3.4 million a year. That’s changing: Sales as of October were up to 4.8 million a year, reports the National Association of Realtors, which forecasts 5.1 million sales in 2013. Driving the sales, along with low mortgage rates, are rising prices. Related: 10 great foreclosure deals Longtime owners who were reluctant to match fire-sale foreclosure deals have been lured off the sidelines. And fewer shorter-term owners are stuck where they live, owing more on their mortgages than their homes are worth. Data firm CoreLogic says 1.3 million homeowners exited underwater territory as of June, and another 5% price increase would lift 2 million more borrowers above the waterline. The picks: Roughly half of all self-storage transactions are tied to relocations, according to the National Self-Storage Association. CubeSmart (CUBE) is one of the best values in the sector, says Magiera of Manning & Napier. It trades at a lower P/E than larger rivals and has better prospects as it swaps out facilities in low-growth areas for regions with more potential. A recent dividend hike boosted the REIT’s yield to 3.2%. A fresh coat of paint is a top item on the to-do list both for sellers preparing to list their homes and for recent buyers. Year-over-year growth in paint sales at Sherwin-Williams (SHW, Fortune 500) in the first half of 2012 was the highest since 2005, and the company’s cost of raw materials is falling. The stock, a top holding of veteran real estate manager Ken Heebner of CGM Funds, trades at a 30% discount to the S&P 500 when weighing its P/E against its projected earnings growth. As home sales pick up, another demographic trend comes into play: the aging of America. Fourteen percent of buyers over 50 bought senior housing in 2012, says the NAR, up from 10% in 2010. And the pool of potential buyers — purchasers’ median age is currently 64 — is expanding: The 65-and-older population will rise from 40 million in 2010 to 72 million in 2030. Two standout senior housing companies, says the Baron Fund’s Kolitch, are Brookdale Senior Living (BKD), which owns 565 properties in 35 states, and Emeritus (ESC), which focuses on assisted living and Alzheimer’s services. The firms, which are top holdings in his fund, trade for what Kolitch estimates to be 30% less than their private-market value — a wide discount compared to the REITs they resemble. Or you could simply buy Baron Real Estate (BREFX) itself, which is 18% invested in senior housing and 30% overall in housing-related stocks (much of the rest of its holdings are in hotels and gaming stocks). Manager Kolitch joined Baron Funds as a real estate analyst in 2005; the fund has topped its category in two of the three years since its January 2010 launch. The picks You can ride the housing cycle with these stocks, mutual funds, and ETFs. Stock (Ticker) P/E Earnings growth (%) Weyerhaeuser (WY) 30.1 N.A. Lowe’s (LOW) 20.2 17.3 CubeSmart (CUBE) 19.6 9.4 Sherwin-Williams (SHW) 19.0 13.0 Brookdale Senior Living (BKD) 10.3 11.5 Emeritus (ESC) 10.8 14.5 Fund (Ticker) Total return (1 year %) Total return (3 years %) S&P Global Timber & Forestry ETF (WOOD) 20.7 6.5 S&P Homebuilders ETF (XHB) 50.7 22.8 Baron Real Estate (BREFX) 39.6 N.A. NOTES: P/E ratios for stocks are based on projected 2013 profit. For CubeSmart, Brookdale, and Emeritus, P/E is price/projected funds from operations, used to measure real estate firms. Earnings growth is annualized three-to five-year projected rate; estimate is not available for Weyerhaeuser. Three-year-return figures are annualized. SOURCES: Bloomberg, Morningstar First Published: February 14, 2013: 5:53 AM ET
Borrowers who are still smarting from the mortgage crisis are passing up some real deals and missing out on real cash. By Becky Quick FORTUNE — American homeowners are in the midst of a hot and heavy love affair with low interest rates. But not every courtship has a happy ending. As the final days of 2012 slipped away, Lisa Price made her client an offer she thought he couldn’t refuse. Her client — we’ll call him John Doe — was paying a rate of 6.616% on his $435,000 mortgage, with 25 years left to go. Price, a mortgage banker for Quicken Loans, offered to refinance his loan at 4.125%, keeping the 25-year payout time. The deal would have knocked his monthly payments down to $3,383, a savings of $630 a month. Closing costs were minimal and would have been recouped through the savings within four months of signing. And with the streamlined process she proposed, it would have required very little paperwork and wasn’t contingent on any appraisal valuation. It seemed like a no-brainer. But John Doe said no thanks. “It didn’t make any sense,” says a stunned Price, reflecting on the rejection. “Usually when I call someone with a deal like that they’re really excited.” MORE: A sign the housing recovery just might stick It’s typically pretty easy for mortgage brokers to give away money, and indeed, refinancing activity has skyrocketed as interest rates plummeted in recent years. The one group of homeowners who didn’t participate in the refi boom — those whose home prices tanked, leaving them without enough equity in their home to qualify for refinancing — are now eligible to restructure their loans thanks to a new government program. But as Quicken Loans and other mortgage originators have learned, it can be surprisingly difficult to persuade some of these people to take sweet deals like the one above, even when the government is greasing the skids. The first government assistance programs after the housing bubble burst offered to help homeowners only after they stopped paying their mortgages. But a later program — the Home Affordable Refinance Program (HARP) — was designed specifically to help out those underwater homeowners still paying their mortgages on time by giving them access to the low rates so many others are enjoying. HARP has been refined several times since its inception in 2010, and every version of the plan has made it easier for homeowners to qualify. But getting the word out hasn’t been easy. Quicken and other mortgage originators have aggressively tried to let homeowners who qualify know about the program. “We get their home number, the business number, their e-mail, we express-mail packages to their house so it looks serious,” says Dan Gilbert, founder and chairman of Quicken. “We leave messages; we tell them, ‘Go look up HARP on Google and you’ll see it’s real.’ We don’t quit.” And yet almost half of these homeowners don’t respond. “If you would have told me all the facts about how this works before, I would have predicted we’d get 80% to 85%,” Gilbert marvels. MORE: We still have renters to thank for healthier housing market Ultimately, Quicken says, only about 25% of the homeowners who qualify for HARP actually end up refinancing. And that’s the shame of it all. HARP is a smart program. It rewards good behavior — those who have continued to pay their mortgages — while lending a helping hand to those who could really use it. And it attempts to even the playing field by giving more Americans fair access to the low interest rates enjoyed by big businesses and the wealthy. This program is also good for the economy, as consumers spend much of the money they save on their mortgage payments. So how do the government and mortgage originators convince the public to take advantage of a program that can truly help many who need it? It’s the classic lesson of once bitten, twice shy. Wounds from all those no-money-down loans and balloon payments have yet to heal for the homeowners bitten when the housing bubble burst. Others still feel the sting of paying hundreds for appraisals in an attempt to refinance, only to be spurned when their homes were valued at less than they owed on the mortgage. It may be hard for those consumers to trust again anytime soon. But for those with the courage to give it another go, love might actually be better the second time around. This story is from the February 25, 2013 issue of Fortune.
30-Year Fixed Mortgage Rates Rise Slightly Date:February 19, 2013|Category:Finance|Author:Camille Salama Mortgage rates for 30-year fixed mortgages rose this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 3.46 percent, up from 3.43 percent at this same time last week. The 30-year fixed mortgage rate hovered between 3.44 and 3.5 percent for the majority of the week, dropping to the current rate this morning. “Rates remained fairly flat this week with little news to suggest a change in slow-but-steady growth trends both in the United States and abroad,” said Erin Lantz, director of Zillow Mortgage Marketplace. “Due to the short week, we expect to see very little movement in mortgage rates this week.” Additionally, the 15-year fixed mortgage rate this morning was 2.65 percent, and for 5/1 ARMs, the rate was 2.32 percent. Contact Santa Realty a Real Estate Company in Granby, CT
Tax Benefits of Rental Property Tax Deductions for Owner-Occupied Rental Property How to Calculate Rental Property Appreciation for Income Tax Purposes Tax Deductions for Condo Fees on Rental Property Tax Implications of Owning a Residential Rental Property The Definition of Gross Receipts for a Rental Property 65 and Over Property Tax Benefits in North Carolina Owning rental property brings you a number of benefits. Many properties offer an attractive mix of equity growth and cash flow, but the tax shelter is probably the most appealing benefit. Since rental properties straddle the line between investments and businesses, you typically get liberal write-offs and tax advantages, including tax deferrals for exchanging rental properties. Tax-Sheltered Growth Most real estate investors hope their properties will gain value every year. Some of the growth comes from monthly payments on your mortgage, which increases your equity ownership in the property. Additional growth comes from your property increasing in value due to a healthy market or, in the case of rental properties, due to growing net operating income. Since the Internal Revenue Service does not recognize capital gain until you sell the property, your money continues to grow as long as it stays in the property. Sponsored Link 12% Yield Stocks to Buy These stocks yield 12%, yet most US investors don’t know they exist. www.GlobalDividends.com Tax-Sheltered Cash Flow The IRS only requires you to pay tax on the profit that you earn from your rental properties. To calculate your profit, add up all your rental and other income and subtract all your expenses. Your rental property expenses include obvious things like mortgage interest, repairs, property taxes and management fees. It can include expenses related to travel. For instance, if you own a beach house in Hawaii and spend a week there to work on it, the entire trip would be tax deductible. Depreciation of your property allows you to write off a portion of the property’s purchase price every year as a way of acknowledging that it gradually wears out. You don’t spend anything to get the depreciation deduction; it just helps to cancel out other income, reducing your tax liability. Passive Activity Loss Deductions With all the expenses you can claim on your investment property, it’s not that hard to end up with a taxable loss. In most cases, you can’t use losses from passive activities, like investing, to offset active income that you earn from your job. However, the IRS will allow you to claim up to $25,000 in passive activity losses from rental real estate against your regular income. To qualify for the tax benefit, your modified adjusted gross income must be below $100,000 — or below $50,000 if you are married and file separately. For income over the modified adjusted gross income threshold, your ability to claim a passive activity loss falls $1 for every $2 of income. Tax-Free Exchanges If you sell your rental property and use the proceeds to buy more investment property, even if it is of a different type or located in a different state, you can structure the sale as a tax-deferred exchange. By following the IRS’ rules, you can carry your cost basis from your old property forward into your new property. Since the IRS doesn’t look at this type of transaction as a sale, you won’t have to pay any capital gains taxes or depreciation recapture taxes on the exchange. Contact Santa Realty a Real Estate Company in Granby, CT
When Is a Real Estate Agent a REALTOR®? A real estate agent is a REALTOR® when he or she becomes a member of the NATIONAL ASSOCIATION OF REALTORS®, The Voice for Real Estate®, the world’s largest professional association. The term “REALTOR®” is a registered collective membership mark that identifies a real estate professional who is a member of the NATIONAL ASSOCIATION OF REALTORS® and abides by its strict Code of Ethics. Founded in 1908, NAR has grown from its original nucleus of 120 members to more than 1 million today. NAR is composed of REALTORS® who are involved in residential and commercial real estate as brokers, salespeople, property managers, appraisers, counselors, and others who are engaged in all aspects of the real estate industry. Members belong to one or more of 1,700 local associations/boards and 54 state and territory associations of REALTORS® and can join one of our many institutes, societies, and councils. Additionally, NAR offers members the opportunity to be active in our appraisal and international real estate specialty sections. REALTORS® are pledged to a strict Code of Ethics and Standards of Practice. Working for America’s property owners, the NATIONAL ASSOCIATION OF REALTORS® provides a facility for professional development, research, and exchange of information among its members. Check out the Public Awareness Campaign television and radio spotsthat encourage consumers to rely on the expertise and integrity of REALTORS®. The NAR advertising campaign runs February through November on network and cable television and network and satellite radio, helping consumers understand the real value of working with REALTORS®. From their voluntary adherence to a Code of Ethics to their incomparable knowledge of real estate processes, REALTORS® are the experts of residential and commercial property transactions. Santa Realty are REALTORS located in the Farmington Valley, proudly serving all of Hartford County, and surrounding areas. Contact the #1 Real Estate Company in CT today for all of your real estate needs!
5 Secrets Your Contractor Doesn’t Want You to Know You’ve asked friends to recommend great contractors, picked your favorite, checked references — and maybe even conducted an online background check on his business. So you know you’ve found a top-notch guy for your home improvement project. But remember that his bottom line is getting you to sign a contract, and he’s not going to mention anything that might get in the way. Before you make a commitment, here’s what you need to know in order to protect your own bottom line. 1. He’s desperate for your business As tough as the economy has been overall, the construction industry has been in far worse shape. While the national unemployment rate has hovered around 8%, for construction workers it’s been a whopping 17% and higher. What you should do: It doesn’t mean you should play hardball with your contractor on his price (because he might cut corners on the job if you do), but if you ask for an itemized bid, and explain that you’re getting them from a few contractors, he’s going to sharpen his pencil and give you his most competitive price. 2. He’s going to farm out the work General contractors often don’t do the physical work themselves. They might have been carpenters or plumbers, but now that they run their own businesses, they’ve retired their tool belts. Instead, their role is to sign clients, manage budgets, and schedule a cast of subcontractors. When he’s trying to win your business, a contractor can be pretty vague about how involved he’s going to be — and who will be running the job day-to-day. What you should do: Inquire who will be in charge of the jobsite. Ask to meet the job foreman, preferably while he’s at work on a current jobsite. “Maybe he’s a chain smoker or doesn’t speak English or who knows what?” says Stockbridge, Mass., contractor Jay Rhind. “You want to make sure you feel comfortable with him.” 3. A big deposit is unnecessary — and possibly illegal When you sign a contract, you’re usually expected to pay a deposit. But that’s not for covering the contractor’s initial materials or set-up costs. If his business is financially sound and he’s in good standing with his suppliers, he shouldn’t need to pay for anything up front. In fact, many states limit a contractor’s advance. California maxes out deposits at 10% of the job cost, or $1,000 — whichever is smaller. What you should do: If your contractor is asking for, say, 25%-30% of a job that’s not even due to start for a while, offer to give a more nominal amount (5%-10%) with the contract and the rest on the day the work commences. 4. He’s not only marking up labor, but materials too No contractor wants to talk about it, but he’s going to mark up everything he pays out to make your job happen. That’s fair; it’s how he pays his own overhead and salary. Keep it in mind that the 10% to 20% mark-up applies not just to materials but labor costs, too. What you should do: If you can handle buying items such as plumbing fixtures, cabinets, countertops, and flooring, ask your contractor to take them out of his bid price. Be sure to agree on specific numbers and amounts of what you’ll be buying, and that you’ll have the items to the jobsite when they’re needed. You could save 10%-20% or more from what your contractor might charge. 5. He’s not the design whiz he claims to be Sure, there are contractors who have strong design abilities. Chances are, however, they’re spending a lot more time running their businesses than honing their design chops. What you should do: Don’t count on a contractor to design your space and add clever details, unless he clearly demonstrates his abilities and has a portfolio of his own designs. Ask his references specifically about his design skills. Otherwise, you’re better off hiring an architect for overall planning, and a kitchen and bath designer for the details. The cost of those design professionals usually is compensated by efficient planning and problem-free design work.
Home Buyers With Foreclosures On Their Credit Get Back In The Game Real Estate News There’s an interesting phenomenon happening in the real estate buying cycle. Now that most of the country is five to seven years out from its real estate peak, and most major cities are actually into the upswing of home prices, distressed homeowners of yesteryear are becoming the home buyers of today. Rules for qualifying for a mortgage vary widely between lenders and loan programs, but one of the most-often used loans today is the FHA mortgage. Today’s FHA mortgage requirements for foreclosures and bankruptcies (see your lender for exact details): A foreclosure that was discharged three years ago A bankruptcy discharged two years ago The initial reaction by many to this situation is: Again? We’ve certainly all seen enough shoddy lending and lax credit practices during the last boom-bust cycle and, on the face of it, this seems like an invitation to more. However, the details of how these home buyers must qualify diverges widely from the way sub-prime home buyers were qualifying for loans in the past. The new practices, while still generous to the buyer, create far greater protections for the lender and the American public who, in the long run, foot the bill for defaults. Home buyers with foreclosures and bankruptcies on their records need to show a consistent history of pristine credit since the time of their foreclosure. Additional FHA requirements (there are more, refer to a lender): On-time bill payment on all credit accounts since the foreclosure/bankruptcy A 640 credit score (responsible credit use is absolutely essential to gain this score 3 years out of foreclosure) A verified down payment (3.5% or higher, depending on the borrower) Upfront and ongoing mortgage insurance (which protects the lender from debts in case the buyer defaults) Significantly lower debt-to-income ratios (ensures the buyer has ample discretionary income to make payments long-term) Underwriters scrutinize these borrowers’ loan applications far more than an average home buyer. In contrast, during the real estate boom, a buyer could be approved for a mortgage with very little credit history to support it. Sub-prime mortgage approvals at the height of the real estate boom: 580 credit score 100% Financing or 80/20 1st/2nd mortgages (no money down) Foreclosure 2 years out Bankruptcy 2 years out No income verification Total debt ratios up to 60% While the changes in lending to borrowers who have past foreclosures and bankruptcies may not satisfy all critics, there are also mitigating factors that underwriters take into consideration. Remember that even though a home buyer’s past foreclosure may have been closed as of three years ago, the banks sometimes take up to a couple of years to push a foreclosure through. That person may have essentially handed the home back to the bank five years ago and been repairing their credit ever since. Underwriters can take this into account. Moreover, there are many different situations that lead to foreclosure. Certainly some buyers overspent, got in over their heads, and walked away from a bad investment. Those are going to be viewed less favorably by a lender. Others have lost their homes due to job loss, divorce, deaths in the family, and a host of other reasons. When an underwriter can see that home buyers have been responsible with credit in every instance of their lives except for under one unforeseen loss of income or spouse, there is great reason to believe that these people, under the newer, more restrictive lending guidelines, are a good credit risk. The lender and the public are protected by these buyers paying for mortgage insurance, and their re-introduction to the housing market in a new economy will allow them to re-establish a long-term credit track record and keep the housing market moving. Contact Santa Realty, the top real estate broker in Connecticut for all of your real estate needs!
Owning a Rental Property Is ‘Sweet Spot’ in Market Daily Real Estate News | Thursday, February 07, 2013 Ultra-low mortgage rates mixed with housing affordability has made investing in a rental property pay off for investors. Many investors have eyed foreclosures, snagging them at rock-bottom prices, and turning them into rentals. Some home owners have also used the downturn in housing to purchase second homes and then rent out their first property, the Associated Press reports.Demand for rental housing remains strong. “In this market, at this point, it’s a sweet spot,” says Chris Princis, a senior executive at financial advisory firm Brook-Hollow Financial and owner of two rental properties in Chicago. “You’re getting the market where it’s just starting to rebound, but still at the bottom, with what’s looking to be a great recovery.” In earning a profit on a rental investment, Princis uses a formula: He charges 15 percent above monthly mortgage and maintenance costs. But it’s also important to know what comparable apartments are going for, and to be flexible in case you’re unable to find a tenant for months, experts note. The best investments for rentals typically prove to be in areas with a strong history of rental demand, such as neighborhoods near universities or homes in residential areas that are near schools to attract families. Source: “Got Cash, Good Credit? Experts Say Owning Rental Housing Can Pay Off Even as Market Recovers,” The Associated Press (Feb. 6, 2013) Santa Realty are rental experts in the Farmington Valley. We have rental properties of our own and have investors who also peruse the market for opportunities. Contact us today if you are seeking a rental property or looking for a rental! We are the top real estate company in the rental market in the Farmington Valley.