Let's Get the Hell Out of Here OR Selling This Old House

One of our members is planning on selling the house he owns and moving out of the area. He would like to rent for a time, while he figures out the exact area and house he'd like to purchase. This brings up the problem of leaving in between leases. It was suggested that you look at the terms of a lease and the terms of breaking the lease early. Depending on the landlord, you may be able to work something out where you forego a security deposit,  or something less painful than being on the hook for the rest of the lease until the landlord finds a new renter, rest of the lease, etc. You may even be able to sub lease from someone else who is basically in your position. It's a whole thing.

Another issue is figuring out what to ask for his current house. Sites like Zillow and Trulia give some estimates, but the county property appraiser site gives information about actual sales in the area. From that, you can look at the price per square feet of these houses and figure out what you can maybe perhaps expect to get. As with anything, it's a guessing game and contingent on a lot of factors (condition, features, etc.).  He's probably going to go with a realtor as well, so he can expect to pay out a 3% commission on the sale, which seems worth it for the hassles.

The good news is there is not a specific time table for the move, since it's essentially an in-the-area move and everyone's jobs will be the same. This means wise decision can be mulled over and made. But that also is a bit a curse, too, since it could lead to a little bit of decision paralysis.

Looks like it's time to start getting rid of that garbage in the shed and painting the bathrooms a neutral color.

Of course it is also time for another buy, but that'll have to wait for another meeting.

Profit.

Home Shopping Network

House-hunting is the best!

One of our members is currently house shopping. He is using a realtor, however one of the houses he is looking at was way overpriced in his estimation. He suggested using publicly available county property appraiser information as well as realty sites likes Zillo.com and Homes.com to get a good ballpark. Granted, you can't put too much stock in these sites, because they don't always use fair metrics to calculate a price. However, these are the sorts of tools that the public will use to estimate a price, which kind of cements "value" as a buyer and as a seller. Interestingly, realtors will often use valuation software to generate an adjusted price per square foot. All of these things get stirred in the pot with what your neighbors may have bought or sold their house for, and you have all the fun of house hunting.

It is probably a good idea to meet with a realtor as soon as you are interested in getting the process started. You can let him or her know what you are looking for and then you can start to get relevant suggestions. As long as you're upfront with them, you shouldn't feel bad about wasting someone's time. Even a year out of seriously being ready to buy a home, schedule a meeting with a realtor, and check in in six months. Buying a house involves many spinning plates, and sometimes you need to put your self in a position to take advantage of an opportunity.

Profit!

Buy all the things

We are interested in buying some healthcare and consumer discretionary sector ETFs, however SPY has been on the rise for a long time. Is now the right time to buy funds from those sectors? Those two are part of SPY. We have to figure out if we are comfortable with the idea that SPY, which has been meteoric lately, will continue to go up, up , up.

We will probably go with the Vanguard products for each.

One of our members is currently house-hunting, and he found that the house he was considering was way-overpriced. Even if he wanted to purchase the home, it would be difficult getting approved for a loan, because that would effect the loan to value ratio (LTV). Generally you want your LTV to be 80% or less, so you can avoid paying PMI (more information here). This is another reason why you want a solid down payment of around 20%. This is, of course, not necessary, and you can still make a purchase with as little as 3.5% down, which we talked a little bit about last week.

Profit!

The Home Shopping Network

Have we got a deal for you...

One of our members is in the process of looking for a new home and another is wondering what is entailed in case he chooses to buy in the future. We went over some of the basics this week. We tried to cover everything to do before making an offer on a home. You’ll want to figure out your budget and get everything in order before making any offers. As with any major financial things, it would be a good idea to check your credit report first.

When you find the right home, you’ll need to make an offer. Your realtor will handle most of this, but you need a pre-approval letter from a lender. This is a letter that says they would give you a loan of a certain amount for a certain term (usually 15, 20, or 30 years) at a certain interest rate on a home for a certain value, given what you have disclosed. This is not a guarantee. You’ll still need to submit all of the official financial documents to get the final loan, but at least this gives sellers some confidence that you are capable of securing a loan when you make an offer/bid on a property. Remember that anytime someone pulls your credit report, they are required to provide you with a copy upon your request. You’ve combed over your report before embarking on this adventure (hopefully), but it’s always good to see what a lender sees, and they’ll have some credit scores for you as well.

Budget: One of the things you’ll want to figure out before getting the pre-approval is how much you can afford and how much you’re willing to spend. The old rule of thumb was that a bank would not give you a loan where your monthly payments exceeded 1/3 of your monthly income. Those payments should include taxes and insurance. A few things go into figuring out this payment.

Down payment: This will also come into play for mortgage insurance. You need to know how much money you’ll be plopping down to make this purchase. If you can muster up 20% of the sale price, then you’re doing pretty well. Certain types of loans (FHA) will let you get by with as little as 3.5%. There will also be closing costs that you need to consider unless you’re a great negotiator and the seller agrees to pay those for you.

Interest rate: There’s not much to say here. Find the best rate you can. APR is the starting point for a loan, but APY is what you’ll really pay after fees and such. APY is going to mean a lot more to most people. You can get a good idea of the going rates at a site like bankrate.com.

Property taxes: These can be estimated based on the millage rate for the area, or you can just look up the property at the local county property appraiser website and it should tell you exactly what the property taxes are. If you see a homestead exemption, then the taxes may not be accurate, since the property might not have a recent assessment. Homestead exemption is the tax break for a property being your primary residence and it also puts a cap on the maximum yearly increase on property taxes. If this is a problem, find a comparable home that sold recently and check the taxes there.

Homeowner’s insurance: We’re estimating insurance at less than 1% of the home value per year. I.e., a $100k home would have a yearly insurance payment of $1k. There are a few other factors to consider here as well depending on where you are. In Florida, you’ll probably need windstorm and hurricane insurance. You might also want sinkhole coverage if it still existed. You might be able to get catastrophic ground collapse coverage. If you’re in an area prone to flooding (depending on the flood zone), you may also be required to get flood insurance. Other areas probably have other insurance requirements, such as earthquake insurance in California, tornado insurance in Oklahoma, lobbyist insurance in DC, or kaiju insurance in Japan. Everyone will want robot insurance.

Mortgage insurance: If you’re paying less than 20% of the home value as a down payment, you’re probably going to have to factor mortgage insurance into your monthly payments. This is insurance that is required if you don’t have enough cash upfront. We’re not sure how to describe it other than as a fine for being poor and wanting to buy property, although it does allow you to make the purchase without forking over your life savings upfront, so it’s not all bad. We’ll assume that this will cost about $50/month for every $100k of the loan. The good news is that once you own less than 80% of what the home is worth (80% LTV, loan to value), then you can be rid of this extra payment. Some lenders will require an appraisal or even a refinance to remove mortgage insurance.

Now we have some numbers to work with: property value, loan amount, interest rate, taxes, homeowner’s insurance, and mortgage insurance (if applicable). Find your favorite mortgage calculator. We don’t have a favorite, so we picked this one out of a Google search. Plug in your numbers and see where you end up!

There are a few other things to take into consideration with the upfront costs such as any points you are paying to get a better rate and the closing costs. Your lender can give you these details in the Truth in Lending statement that you’ll get before the closing, but they should be able to provide you with an estimate long before that.

Now go forth and make them an offer that they can’t refuse.

Profit!

Foreclosures and Seven Days of Bidding... Ago

One of our members is looking to buy a foreclosure.  Housing prices in his neighborhood have not recovered from the bottom, so it looks like a steal.  Foreclosures often have no appliances.  Sometimes they have been trashed by previous tenants.  If someone could not afford their mortgage, they probably couldn't keep up with home maintenance (roof, utilities, etc.)  Houses like these require a bit of work.  Inspections of the house may not be possible. 

Cash offers may be the only things accepted.  So, if you'd like to throw around tens of thousands of dollars, or more, then this might be for you!

The house that is being looked at is being sold through hubzu.  This site sells houses on seven day auctions.  The company was formerly known as GoHoming and they partnered up with Ocwen, a (shady) loan servicing company.  They don't have the best reputation and little to no customer service.  You will basically be on your own if you use this service.  Most people buy through this service sight unseen. If you would like to see a property, you need to enlist a Realtor if you want to go inside the property.  These houses have key pads and folks with their licenses will be the only people to get the code.

The member sat down and went through some calculations.  At best, he's looking to make 8-11% before increases in housing values.  There has been no real increase in property values, so there isn't much room to go down.  There are some tax incentives that come into play.  The size of the house is also an upgrade.  For a future meeting, we may go through these calculations.

For next week, back to buys.

Profit!

Renting vs. Buying.

One of our members is a renter in a metropolitan area, and he is not sure whether he should consider home ownership. He's been doing a little research into a cost/benefit analysis of renting vs. buying. One of the things he came across was this rent or buy calculator. The problem with these sorts of calculators is they don't take into account the whole picture.

We would like to find that break-even point where ownership makes financial sense. This led us to try and assemble something quickly in Excel. Perhaps if we parse the numerical side, that would allow us to weigh against the emotional aspects of the decision, such as location, size, amenities, etc.

After talking it out, our member ended up concluding that renting really makes more sense where he's at, given what he could expect to get for about the same cost as he is paying in rent. This is pretty common for city living.

The rough calculation you get is that one should expect spent about 1% the total value of the house per month. So $1000 a month gets you a $100,000 house over the course of 30 years. It might be worth spending the extra money if you feel like you can get some extra return when you sell the house, sort of house as investment. Next week we are going to try to decide if it is better to throw extra money into an investment or make the house as the investment. We will try to weigh in the size and quality of the place, too. Good luck to us.

Profit.