Turn on the television or scroll through Facebook, and chances are you’ll see at least one advertisement that promises to teach you how to “get rich quick” through real estate investing. The truth is, much of what they’re selling are high-risk tactics that aren’t a good fit for the average investor. However, there is a way to make steady, predictable, low-risk income through real estate investing. In this blog post, I’ll examine the tried-and-true tactics you can use to increase your income, pay off debt, even fund your retirement!Continue reading Why Real Estate Investing Makes (Dollars and) Sense
Planning for retirement is obviously important and many times, an activity plagued by procrastination. Some people plan to have their home paid for by that magical date so they won’t have payments after they retire. It makes sense to eliminate a large recurring expense before they quit working.
One strategy would be to be make regular principal contributions in addition to the payments so that it will eliminate the debt by the target retirement date.
Let’s say that a homeowner refinanced their $200,000 mortgage at 4% last year with the first payment due on May 1, 2012. Under normal amortization, the home would be paid for at the end of the term; 30 years in this example.
By making additional principal contributions with each payment, it would accelerate the payoff on the home. An extra $257.13 a month would pay off the mortgage in 20 years. $524.55 extra with each payment would pay off the loan in 15 years; and $796.23 would pay off the loan in 12 years.
Having a home paid for at retirement has the obvious benefit of no house payment. It is also a substantial asset that could be borrowed against or sold if unanticipated events should occur.
Another strategy might involve purchasing a smaller home now to use as a rental that you intend to live when you retire; see Retirement Home Now.
To make some projections to pay off your own mortgage, use this Equity Accelerator.
Following his heart surgery in August, after an issue was discovered during his annual physical, President George W. Bush encouraged everyone to get regular check-ups.
Another important checkup that should be done on a regular basis and can be just as beneficial for your finances is an annual homeowner advisory. Why would you treat your investment in your home with less care than you treat your car or even your HVAC system?
Consider investigating the following:
- Know the value of your home by obtaining a list of comparable sales in your immediate area as well as what is currently on the market for sale.
- Have you compared your assessed value for tax purposes to the fair market value in order to possibly reduce your property taxes?
- Even if you’ve refinanced in the last two years, can you save money and recapture the cost of refinancing in the time you plan to remain in your home?
- Have you considered reducing your mortgage debt with low-earning cash reserves that will not be needed in the near future?
- Have you considered investing in rental homes in good neighborhoods to increase your yields and avoid the volatility of the stock market?
- Do you need recommendations of repairmen and other service providers from a trusted source who deals with them more frequently than you do?
My goal is to create a lifelong relationship to help you be better homeowners. I want to be your “go to” person whenever you have a real estate question. I want to help you not only when you buy and sell but all of the years in between.
I want to provide good, consumer-based information about homeownership on a regular basis. If it benefits you by helping you be a better homeowner, hopefully, you’ll consider me your real estate professional for life.
Anytime you or your friends need help, please call. Knowing where to get the answer is just as important as knowing the answer. If you’d like information on any of the items I suggested, please let me know.
Some homeowners, who were not able to sell during the recession, chose to rent their homes instead. In some cases, they didn’t need to sell their home at the depressed prices and opted to rent it until the market recovered.
It’s a valid strategy but there are time restrictions that could have serious tax implications for some homeowners.
The section 121 exclusion for gain in a principal residence requires that the home is owned and used as a main home for at least two years during the five year period ending on the date of the sale. This allows a homeowner to rent their home for up to three years and still have some part of the exclusion available.
The sale of a home with a $200,000 gain that qualifies as a principal residence would result in no tax being paid by the owner. Comparably, a rental property with the same gain could have a $30,000 or higher tax liability depending on the length of ownership and tax brackets of the investor.
The housing market has dramatically improved in the last year. If you have a gain in a home that has been your principal residence and it has been rented less than three years, you might want to consider selling it while you qualify for the exclusion.
If you are considering a sale on your principal residence that has been rented, consult with your tax professional for advice on your specific situation. For additional information, see IRS Publication 523.