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Monthly Archives: December 2012

Banking on real estate to fuel your retirement

19 Wednesday Dec 2012

Posted by The Hanley Home Team in Uncategorized

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Be smart about where and how you invest

By Bernice Ross
Inman News®
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Editor’s note: This is the first of a two-part series.

If you are searching for a way to build a nest egg for your retirement or to put aside enough money to send your kids to college, one of your best possible strategies is to invest in real estate and to hold that property for an extended period of time.

I once remember reading that 90 percent of the fortunes made in this country were based upon owning real estate. Given the market downturn over the last few years, many people took serious losses in the value of their real estate holdings. Nevertheless, real estate investment is still one of the soundest financial moves that you can make, provided you are smart about where and how you invest.

This is especially true now due to the low prices and the low interest rates. Moreover, property values generally keep pace with inflation. This also means that you are paying off today’s purchase with tomorrow’s inflated dollar.

The people who build major fortunes in real estate tend to be contrarians. They buy when others are selling and sell when others are buying. They also avoid flipping, because, as one investor put it, “Flipping is nothing more than a Ponzi scheme.” Instead, they consistently build their real estate portfolio by buying and holding their investment properties.

While the value of your property may go up and down, very few properties ever go to zero value. This means that if you pay off your property in 15 years, you will have an asset that has cash value that also functions much like an annuity. Here’s a real-life scenario to illustrate this point:

A buyer who wanted to establish additional cash flow for retirement purchased a duplex for $245,000. The buyer put 20 percent down. The property required minor repairs and ran about $700 per month negative. (Under normal circumstances, this property would have been about $100 per month negative if the client could have taken the depreciation and other allowable deductions. He was unable to do so due to the alternative minimum tax requirements.) The client elected a 15-year loan to pay off the property as quickly as possible. That was 16 years ago. Here is where he is today:

1. Despite the real estate downturn, the property is currently worth $550,000 (i.e., it has more than doubled in value over the last 15 years). Even though the property was under rent control, the owner was able to increase the rents sufficiently to break even after five years.

2. Current operating expenses are about $12,000 per year (this includes reserves for repairs, taxes, vacancies and other operating expenses).

3. Gross income (the amount earned prior to expenses) is currently $36,000 per year with net income at $24,000 per year.

4. To sum up, the property is now free and clear. The buyer has recuperated all of his down payment and has an asset worth $550,000 that spins off $24,000 per year in net income.

Compared to other investments, a CD at 2 percent would require an investment of $1.2 million to generate an income of $24,000 per year. A stock investment that yielded a 6 percent return of $24,000 per year would have required a $400,000 investment. In this case, the buyer’s initial investment was only $49,000 plus closing costs.

The buyer is approaching retirement age and would like to maximize the cash he has tied up in his real estate investment. He could sell the property and pay the capital gains tax. A different alternative is to do a 1031 exchange for a single-family residence that he rents out for the first 12-24 months he owns the property. He can then move into the property and live in it as his primary residence. When he sells, he and his wife could take $500,000 of the money from the sale and pay capital gains only on the amount above $500,000.

What are the downsides? Tenants can be a nightmare, and a vacant or damaged property can quickly eat up cash reserves. Furthermore, like any other investment, real estate investments can go down in value. It is also unclear what the current tax consequences will be in terms of capital gains, dividends and alternative minimum tax requirements.

In spite of these issues, the 1031 exchange provisions are an important plus. Because owners can exchange up (i.e., buy a more expensive property), they can continue to grow their wealth more quickly because they are able to defer their taxes until they cash out. As a result, real estate may become an even more attractive vehicle for increasing wealth in the future as well as providing a powerful hedge against inflation.

The question is how can one find, buy and rent an investment property? See Part 2 of this series to learn more about the secrets of “Hold.”

Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of the National Association of REALTORS®’ No. 1 best-seller, “Real Estate Dough: Your Recipe for Real Estate Success.” Hear Bernice’s five-minute daily real estate show, just named “new and notable” by iTunes, at http://www.RealEstateCoachRadio.com. You can contact her at Bernice@RealEstateCoach.com or @BRoss on Twitter.

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Space Heater Safety

18 Tuesday Dec 2012

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downsize your home, energy efficient, space heater safety

The humble space heater gets a bad rap, but when used correctly it can actually represent a good option for taking the edge off the winter chill. Here are some tips about how to safely use a space heater and when it’s a good choice:

Are you heating a whole house when the family is concentrated in the living room? Turn down the central heat and use a modern space heater rather than heat the empty rooms.

1. A space heater can be a wise choice when you live in an uninsulated or poorly insulated home.

2. Avoid unvented combustion space heaters. Instead, look for electric space heaters, preferably with a fan to circulate the hot air.

3. Never plug a space heater into an extension cord.

4. Maintain three feet of clear space around the heater in all directions. Be aware of loose rugs, blankets, or other potentially flammable objects nearby.

5. Unplug your space heater when no one is around to keep an eye on it.

6. Do not use a space heater in a damp room (i.e. bathroom!) unless it is specifically designed for outdoor or bathroom use.

7. Don’t hide the space heater electrical cord where it might get torn or degraded under foot. Run it where it is visible, but does not create a tripping hazard.

8. If you’re shopping for a space heater, consider this handy Consumer Reports buying guide: http://www.consumerreports.org/cro/space-heaters/buying-guide.htm

By the way: Heating and cooling a large home after the kids have moved out can be a waste of your retirement dollars. If you’re thinking it might be time to downsize (or rightsize!) your home, get in touch today: Kevin and Jennifer Hanley, REALTORS 904-422-7626 http://www.HanleyHomeTeam.com

3 BIG Myths of Home Buying

11 Tuesday Dec 2012

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banks need to unload foreclosures, big myths about home buying, foreclosed homes are bargains, high days on market

We’re here to save you pain, buyers. There are myths about the home shopping experience that must be addressed. We like to make the home buying experience as stress-free as possible, so please hear us out on these three big myths about home buying:

Myth #1: “That house has been on the market so long I bet we can work the seller down easily.”

Not necessarily. Exceptionally high days on market could mean almost anything. The seller could be bullheaded about their price. The seller may not be particularly motivated to sell for emotional or other personal reasons. Don’t forget: A sales-weary seller isn’t likely to respond to your host of rational reasons why their house should be a bargain.

Myth #2: “I want to look at foreclosed homes because they’re a real bargain and the banks need to unload them.”

Banks, like entrenched sellers, don’t always make decisions which seem rational based on obvious information. You can have a hard time divining the reason a bank chooses to reject an offer for a foreclosed or distressed property, and their decision may be based on financials which seem counter-intuitive. The truth is, many distressed sales can be longer and more fraught than regular sales.

Myth #3: “I liked this house a lot, but with this market, I bet it will still be there if I decide to buy it.”

It’s very, very painful to see a client love a home but fail to make a move to purchase that home. If you fell in love with it, why wouldn’t someone else? Just because a property has been on the market a little while doesn’t mean it will stay on the market. The bonus myth in this one? Your “perfect” home is probably going to be a home with some small compromises. If you don’t make an offer on a home, you’re effectively saying, “I’m comfortable losing this home.”

Our job as agents is to represent your interests and do our best to protect you along the way. If you’re pursuing a home purchase in the near future, please get in touch. There are many other ways we can lower your stress and help you find a great home:
Kevin and Jennifer Hanley, REALTORS 904-422-7626 http://www.HanleyHomeTeam.com or http://www.HanleyShortSales.com

Top 10 Pre-listing Home Improvements

04 Tuesday Dec 2012

Posted by The Hanley Home Team in Uncategorized

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DIY, home improvements, pre-listing home improvements, sell your home faster, Simple home improvements

The devil is really in the details when buyers look at a home. Lots of everyday wear and tear that you don’t even notice can ding your home in the eyes of potential buyers. Here’s our list of ten simple improvements you can do to help your home sell faster:

1. Spruce up your baseboards: Pets, kids, and stumbling husbands in the dark can make a mess of your baseboards. Repainting baseboards after repairing scratches with putty can make the border of any room look new.

2. Fill in nail holes: Part of interior repainting should be careful attention to those errant nail holes from pictures, shelves, and other wall-mounted baubles. Putty, smooth, sand and paint!

3. Sniff for smokers: Filter replacement is a must if someone’s been puffing in your home. Also wash down those walls, prime them to seal in any cooked-in nicotine, and repaint. Be sure to check entryways and lawns for cigarette butts, too!

4. Review the roof: Do you have missing singles? Broken tiles? Is mold and moss sprouting up there? Do some cleaning and spot replacing.

5. Reinforce your gutters: Clean them out, dry them out, then caulk them to prevent leaks. This will keep water off the siding, reducing staining and damage.

6. Replace bad vinyl floors: Not only are they tacky when they’re cracked or cut, but they can suggest water damage to buyers.

7. Repair dripping faucets: Buyers will turn faucets on and off. What will they find? If your sinks and baths dribble, fix them before buyers imagine their future headache.

8. Tune up screens: Did you have a dog that liked to lean against the front door? Look for the sagging, hanging, bent, and bubbling screens, especially around doors. New screens look clean. Old screens suggest neglect.

9. Patch cabinet scratches: Tibet Almond Stick, Old English Scratch Cover, or even some artful re-staining can make cabinets seem new. Remember to polish them up when you’re done!

10. Reseal wobbly toilets: If the bowl moves when you sit on it, the bolts are rusted, or the bathroom floor is damp and discolored around the commode, replace the toilet or at the very least reseal it.

By the way, you can also use these password tools to login and search for properties on our website! http://www.HanleyHomeTeam.com or give us a call at 904-422-7626 Kevin and Jennifer Hanley, REALTORS

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