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Understanding the Hidden Fees and Costs of Selling Your Home

Your home is likely the largest and most lucrative investment you’ll ever make. But as the saying goes, it takes money to make money. Maximizing the value of your investment is going to require putting some sweat equity, as well as literal cash equity, into it before it hits the market.

On top of that, there’s an avalanche of transaction costs, surcharges, fees, and various taxes that can take home sellers by surprise. In fact, the average cost of selling a home is just over $15,000. Knowing what to expect before you actually start the home selling process can be the difference between a satisfying, stress-free selling experience, and what can feel like a frustrating, draining “death by a thousand cuts.”

Let’s go over some of the obvious and less obvious costs of selling your home.

Expected Costs of Selling a Home
Realtor Commission
The first thing that most people think of when they hear the phrase “costs of selling your home” is the real estate commission. Traditionally, a real estate commission comes to 6% of the final sale price. How much is that in practical terms? The median home value in the U.S, according to Zillow, is $229,000. If you sold a home at that price, the commission would come to $13,740, which is no small amount of money.

So where does it go, and what does the seller get for that 6% payout? Generally, the listing agent and the buyer’s agent split the commission, with each of them taking home 3%. The idea behind the commission is that, by pegging your agent’s compensation to the final sale price of the house, you’re incentivizing them to get the highest price possible. The more you make, they more they make.

Does it work? In general, yes. Agent-assisted sales consistently sell faster, and for more money, that non-agent-assisted sales. According to an analysis by NAR, the median value of agent-assisted home sales is $250,000, while the median value of FSBO (for sale by owner) listings is only $190,000. The real estate commission is one of the biggest costs of selling your home, but it also brings some of the highest value.

Closing Costs
Closing costs is a catchall term that includes many smaller costs, from the owner’s title insurance fee, to half of the escrow fee (the seller splits it with the buyer), to prorated utility costs, document preparation fees, transfer taxes, and prorated property taxes.

How much are they? It’s hard to say, since they can vary from state to state and even from city to city. But generally, sellers pay 1% to 2% of a home’s sale price in closing costs.

Moving Expenses
It can be tempting to think you’ll just pack all your stuff into boxes you’ll get for free from the grocery store, and drive it over to the new house in your car. But when you’re in the middle of actually selling your home, you’ll probably find that you simply don’t have the bandwidth to deal with moving yourself.

Your options when hiring movers range from a single truck, to a full-service interstate shipping company. Depending on what level of services you opt for, you can expect to pay between a few hundred dollars and several thousand.

Hidden Fees and Costs
Let’s be honest; few sellers are likely to be taken by surprise by a real estate commission or moving costs. But the expenses listed below are more obscure, which is all the more disturbing when you consider that some of them can potentially dwarf the expenses we’ve already covered.

Renovations and Repairs
You’ve probably spent years living in your home, and as with a favorite old t-shirt or a significant other of several years, you even see its flaws as endearing. This probably won’t be the case with strangers. The scuffed hardwood floors and quirkily painted walls in your house will end up being liabilities when your home hits the open market, and any experienced real estate professional will advise you to renovate before you have that first showing.

How much it costs will depend on whether you just need a fresh coat of paint, or a new roof and refinished floors. But nearly every house will benefit from a refresh, so you can expect to invest several hundred dollars, at least, in pre-sale renovations.

Landscaping
“Curb appeal” refers to the very first impression your home makes on a potential buyer, as they get out of their car or walk up your driveway. And the features that surround your house have as much impact on your home’s curb appeal as the home itself. Just as you wouldn’t show up to a job interview in a new suit, but with uncombed hair and dirty nails, your property should be thoroughly landscaped before it’s listed. That means trimming the lawn, hedges, pruning trees, and even planting flowers.

How much this costs is going to depend on the size of your lawn, and how much maintenance it needs. But make no mistake, a manicured lawn can help a home sale as much as a new kitchen.

Staging
Where landscaping is about the external presentation of your property, staging is all about making the inside of your home as appealing as possible. In this context, staging can include everything from decluttering your shelves to buying a new dining set.

Fundamentally, staging is about showing your home in the best possible light, sometimes literally. You’ll want to allow as much flattering natural light as possible to penetrate into your home, which means removing heavy drapes and window coverings. Visual clutter is distracting and can even cause low levels of anxiety, so you’ll want to take all your family photos and collectible plates, and put them in storage. Worn or shabby furniture can make the rest of your home seem equally threadbare, so you may need to get rid of old furniture, and possibly buy new furniture.

Your agent can advise you on staging, and there are even professional home staging experts who you can hire to prepare your home for open houses. Sellers can expect to spend a few hundred dollars on staging their home or, if they opt for a professional home stager, a fee in the low four figures. The median amount of money spent on staging in 2018 was $400.

Professional Photography
In 2019, the reality is that before a prospective buyer even sets foot in your home, they’ve already looked at photos of it online. That means that including high quality photos with your home listing is of the highest importance. And as anyone with an Instagram account knows, taking a good, flattering photo is much harder than it seems.

The data is unambiguous; listings with high-quality photos sell faster than listings with mediocre photos, and the more photos a listing has, the better. A professional photographer isn’t cheap, but it’s a great investment.

Capital Gains Taxes
If your home sells for more than you bought it for, you may owe capital gains taxes to the federal government. This can be an extremely significant amount of money; a 20% bite out of your profits from capital gains wouldn’t raise an eyebrow in a room full of tax professionals.

But luckily, many home sellers will be able to exclude up to a quarter million dollars of profit (or a half million, for married couples filing jointly) from tax liability. The only conditions on this are that the home has to be have been your primary residence for two out of the previous five years, and you can’t have used the capital gains exemption on another home sale in the previous two years.

Saving When Selling Your Home
Surveying this list, it’s clear that some of these expenses are reducible, while others aren’t, or shouldn’t be.

Anything involving taxes is going to be hard to bring down. Property taxes, title fees, and transfer taxes are generally non-negotiable. There’s an exemption for capital gains taxes, but there are restrictions on how often it can be used. Sellers looking at a large capital gains tax bill could consider delaying their home sale, so they can take advantage of their exemption.

Some expenses, though, can be cut down. Staging, landscaping, and renovations can be done cheaply, especially if you enlist family and friends to help paint, mow, buff, and polish. Even moving can be done cheaply, if you don’t count sweat and time as expenses.

That brings us to the real estate commission. There are certainly low commission agents out there, but sellers should keep in mind that they’re usually getting less services by paying less money. If you save $13,000 by not using an agent, but your home sells for $40,000 less than it would have in an agent-assisted sale, you haven’t actually saved a penny.

However, there are a growing number of companies offering a full service selling experience for a flat fee. (Full disclosure: we’re one of them.) These companies allow sellers to partner with top agents in their markets, and get all the benefits of their expertise at a fraction of the usual price. Why, you might ask, would a top agent sell one house for a flat fee, if they could be making 6% on another house? Well, the agent’s getting high-quality leads from the referral company, which means much less time and effort spent hustling on the front end. It’s a true win-win. Considering that the 6% commission is usually the largest single cost of selling a home, flat-fee real estate companies are probably the best way for home sellers to bring their costs down.

Position Realty
Office: 480-213-5251

The 9 Best Tips on How to Find a Property for Profitable Investing

Over the years real estate has proven to be one of the most profitable investing strategies. Unfortunately, this doesn’t mean that just any investment property will bring high return and success to its owner. The secret to making money in real estate is finding profitable rental properties. If you are a new real estate investor with no experience in the business, don’t worry because you’ve come to the right place. In this article we will provide you with the best tips on how to find a property for profitable investing.

Tip #1: Buy a Property in a Top Real Estate Market
Anyone in the real estate industry will tell you that location is the first and foremost factor for a profitable investment. Where your rental property is located will determine the price you have to pay for it, the rental demand, the best rental strategy, the type of tenants you can expect, the rental rate, the occupancy rate and vacancy rate, and ultimately the return on investment. Thus, the first thing which any investor preparing to buy a property should do is to read about and research the best places for real estate investing in the US housing market. Don’t make the mistake of many beginners who focus on large cities only. Sometimes small towns and even villages offer a much higher return than major cities. For example, according to data from Mashvisor, a real estate data analytics company, the census-designated area with a population of about 7,000 people, Joshua Tree, has been one of the top locations for Airbnb rentals in the past few years.

Tip #2: Don’t Spend More Than What You Can Afford
As a beginner investor, you should always start with a small, cheap, easy-to-manage property. After all, the best investment property is the one which you can afford and which you can manage. To find such a property, you should prepare a budget. On the one hand, factor in your savings, the income from your full-time job and other sources, and the money you expect to make from your rental property. On the other hand, make a list of all the one-time and recurrent costs associated with buying, owning, and managing an investment property such as the property price, appraisal cost, home inspection fee, closing fees, fixes and repairs, monthly mortgage payments, property tax, insurance, property management, maintenance, and others. In this way you will be able to figure out exactly how much you can afford to spend on a property without risking a foreclosure.

Tip #3: Find the Best Financing Method
One of the great things about real estate investing is that you have many financing options to choose from. You can go for a conventional mortgage, a hard money loan, a private money loan, a syndication, or a partnership, to mention a few possible choices. You should study each option carefully and decide on the best one for your particular case, based on their pros and cons and your specific situation.

Most probably, as a first-time investor, you will end up taking a mortgage loan. In this case, it is advisable to make the down payment as big as possible, without overspending on it of course. The higher your down payment is, the faster you will be able to repay your loan and the less money you will end up spending on repayment. Figuring out the best financing method is crucially important for profitable real estate investing.

Tip #4: Use Different Sources for Your Property Search
To find a property for profitable investing, you should put efforts into searching for properties for sale far and wide. Now that you know where you want to buy an investment property and how much you can afford to spend on it, start checking out local newspapers and real estate websites with both MLS listings and off market properties, talk to your friends and acquaintances, network with other investors in the area who might be selling a property, and connect with a local real estate agent. Each one of these sources will have access to a different kind of properties, and you should check them all out before deciding on the best type of investment property for you and narrowing down your choice.

Tip #5: Consider Investing in a Foreclosure
The most lucrative investments in real estate are those properties which you can buy below market value. Thus, you should consider investing in a foreclosed property. Forget the popular myth that foreclosures are always houses in a dire situation which makes them bad real estate investments. To the contrary, it is feasible to find a foreclosed property in a good shape which will bring you high return on investment. The reason is that you will most likely pay only a fraction of the fair market value of the property as the bank or other financial institution is trying to get rid of it quickly, while you can still charge full market value rental rate.

To find foreclosed properties to invest in, talk to the banks in the area, search for specialized real estate websites with foreclosed property listings (including government agencies’ websites), and look for agents who work with foreclosures.

Tip #6: Hire a Real Estate Agent
Avoid the mistake of many first-time real estate investors who think they can manage the whole process of finding and buying a property on their own. It is recommended to look for an agent who works mostly with property investors and hire him/her to help you along. Your agent will be able to help you find lucrative properties for sale, connect you with lenders, prepare the offer, negotiate the best price, and close the deal quickly and smoothly. Moreover, you don’t have to worry about inflating your budget as agent fees are usually covered by the property seller and not the property buyer.

Tip #7: Conduct Thorough Property Analysis
An indispensable step in the process of making the most profitable real estate investments is performing an investment property analysis. Once you have narrowed down your choice to a few top properties, you should study them in detail to calculate exactly how much return on investment you can expect from them, based on your preferred rental strategy. Find out the cash flow, the cash on cash return, and the capitalization rate which you can expect. To beat the competition in the local real estate market and find the best property for profitable investing, make sure to use real estate investment tools such as a rental property calculator. This will save you a lot of time in analyzing properties and allow you to make an offer before the other investors in the area.

Tip #8: Choose the Best Rental Strategy
You can rent out your investment property on short-term basis as an Airbnb rental or long-term basis as a traditional rental. The optimal strategy in each case depends on the location, the demand, the rental rates, and other factors. So, in your investment property analysis you should see which rental strategy will bring you a higher return on investment. If you decide to go for a short-term rental, don’t forget to study the local regulations carefully as many places have adopted major restrictions on this type of rentals in recent years. Ideally, you should look for a location where both owner-occupied and non-owner occupied properties can be rented out on short-term basis in all residential neighborhoods. For example, the Dallas real estate market is one of the major cities with the least Airbnb legal issues in the US at the moment.

Tip #9: Select the Best Property Management Strategy
Profitable investing in real estate doesn’t end with finding and buying a property with a high potential for return. Afterwards, you have to manage your rental property in the best possible way. If you invest in your local housing market, have some free time, and exhibit the right personality (welcoming and kind but also assertive), you can become a landlord and deal with a rental property and tenants on your own. However, before you decide to manage your property by yourself, you should know that this can take a lot of time and efforts and can turn into a real headache.

If, on the other hand, you invest out of state, have a busy job and a family to take care of, and/or are simply not fit to be a landlord, you can hire a property management company to deal with your investment property. You should be prepared to pay them a monthly rate, but it will be worth it as they will be able to maximize your profit while you can enjoy the positive cash flow in your free time.

How to find a profitable investment property is the first thing you have to learn as a real estate investor in order to make money. The good news is that it is absolutely feasible and doable if you follow our 9 tips above.

Position Realty
Office: 480-213-5251

Can’t Afford to Buy a Home? Have You Looked Into Down Payment Assistance?

What’s the No. 1 reason renters fear taking the leap to homeownership or don’t even think the leap is possible? That pesky down payment. Even with an FHA loan that requires a minimum of only 3.5% down, the idea of setting aside several thousand dollars is daunting at the least (and, in many cases, darn near impossible).

A survey from Apartment List shows that most millennial homebuyers can’t come up with the funds for a down payment. “Seventy-two percent of millennial renters who plan to purchase a home cite affordability as a reason that they are delaying homeownership, with 62 percent pinpointing a lack of down payment savings specifically,” they said. “Forty-eight percent of millennial renters have zero down payment savings, while just 11 percent have saved $10,000 or more.”

Down payment assistance programs can fill in the gap, but many buyers don’t even know they exist. “Down payment assistance can come from many different sources— including federal, state, county, city and nonprofit agencies—and aren’t always well-publicized,” said U.S News & World Report. Anyone who is interested in down payment assistance is encouraged to check with their real estate agent or lender, but doing your own research is key.

In Texas this week, Wells Fargo & Co., NeighborWorks America, and the Business & Community Lenders of Texas rolled out the NeighborhoodLIFT program, a new down payment assistance program promoting sustainable home ownership in the northern part of the state. This program is so new that some industry professionals might not even know it exists.

NeighborhoodLIFT offers up to $15,000 in down payment assistance plus homebuyer education to eligible families in Dallas as well as Tarrant County. Eligibility is based on income. In addition, “Military service members and veterans, teachers, law enforcement officers, firefighters and emergency medical technicians may reserve down payment assistance grants of $17,500 and earn up to 100% of the area median income,” said NBCDFW.

How to find down payment assistance:

1. Do a national search.
You’ll be surprised how many programs you can find. “Do you even know that down payment assistance (DPA) programs exist? You’re in good company if you don’t,” said The Mortgage Reports. “These programs help homebuyers with loans or grants that reduce the amount they need to save for a down payment. And there are more than 2,000 of them nationwide.”

2. Check out statewide programs.
From the HUD site, you can search by every state plus the District of Columbia, Puerto Rico, and the U.S. Virgin Islands to see which programs are available for you.

3. Now take it local.
Don’t forget to check for programs in your city. The City of Los Angeles Housing + Community Investment Department (HCIDLA) offers up to $90,000 in financial assistance for first-time, low income homebuyers. In Memphis, there is a zero-interest deferred loan that provides funding for first-time homebuyers’ down payment and closing costs for eligible homebuyers through its Division of Housing and Community Development (HCD). In Miami, you may be able to get a forgivable zero-interest deferred MDEAT Homeownership Assistance Program (HAP) loan; the program was designed “to increase the number of first-time home purchases for low-to-moderate income residents living in Miami-Dade County.”

4. Search by your profession.
If you’re a current or former member of the military, you likely already know about VA loans. Did you know they require no down payment?

The Neighbor Next Door Program is another good one. This program for law enforcement officers, firefighters, emergency medical technicians, and teachers requires only a $100 down payment for eligible homebuyers. Because the program is tied to the idea of revitalization, homes in these communities are offered to eligible buyers at a 50% discount. Buyers must commit to living in-home for at least three years.

Position Realty
Office: 480-213-5251

5 Best Insurance Coverages for Your Rental Property

You’re probably familiar with getting homeowners’ insurance for your primary residence, but how are you covering your rental properties? Just because you got a great deal and paid cash doesn’t mean you should ignore the potential losses that could occur should something happen. These are the five coverages you need to make sure you have now.

Liability Coverage. The house itself isn’t the only thing you should be covering. You need to cover your liability for any accidents that occur on the premises. If someone trips and falls on that crack in the sidewalk that popped up this winter, you aren’t going to want to pay for a broken arm out of pocket. That’s only the beginning of things you could have happen on the property that you could be held accountable for.

Dwelling Coverage. This one is obvious. If you buy a house, you want to make sure you can pay to rebuild or repair it to the same like kind and quality. The perils that are covered in the policy typically depends on how much you’re willing to pay. You can choose to cover only major catastrophes, like fires and tornados, for a smaller price or you can opt for a more comprehensive coverage that covers many more issues.

Loss of Rental Income. Owning a rental property is a business, and hopefully, you’re making some money from that business. Coverage for the loss of rental income may help you if the home is damaged by a covered peril. If the home had enough damage from a tornado or fire that the tenant had to move out and rent stopped coming in, you could be reimbursed for your loss of rental income. If you depend on your rental income to maintain your lifestyle, it’s a handy coverage to have. Depending on the extent of damage, it could take months to make the property habitable again after a loss.

Landlord Personal Property Coverage. Did you agree to rent out your property furnished with some things from your grandma’s old house? Did you leave the refrigerator and washer/dryer combo since you’re renting to a friend? Even if the tenant has renter’s insurance, it’s not going to cover any personal property you may have left for their use inside of the home. You’ll want to make sure you have sufficient landlord personal property coverage for any items in the rental owned by you.

Vacancy Coverage. If you’re rental is going to be vacant for any period of time, it’s likely you’re going to need vacancy coverage. A vacant home presents many more unique risks than a home occupied by a tenant. Things to make sure you have coverage for when the property is vacant includes: vandalism, water damage, and burglary, in addition to the major perils like fire. If you already have a policy for your rental property, talk to your agent about limitations in your current policy and supplementing it with vacancy coverage until the home is occupied again.

Having a comprehensive landlord’s policy is key to protecting your investment. It can’t be replaced by a regular homeowner’s policy or the tenant’s insurance. (However, it’s still wise to require that your tenants provide proof of insurance for their personal contents and liability). Reading policy language can be difficult, but knowing the right coverages to look for and finding a great agent to service that policy can make all the difference.

Position Realty
Office: 480-213-5251

4 Real Estate Investor Tips For Buying Your First Property

By a virtual show of hands, how many of you are hunting and searching for your for investing deal this weekend? For those of you that raised your virtual hand as a “yes” to deal-hunting, do you feel anxiety about buying an investment property? Do you feel like you might not be able to keep up the payments, or afford the rehab necessary to get the property ready for resale, or afraid of any problems that might come up with inspection?

“Most people only buy a couple homes in their lifetime. This lack of experience leads many investor buyers to feel woefully unprepared. You’re not getting married. You don’t have to make a lifelong commitment to a property, and that you can always sell later. If you fall out of love with your long term investment, as long as you buy right.

There are a set of rules that to rely upon when buying an investment property, and that these same rules can be used by anyone buying a house. Here are some great tips:

Tip #1. Get the Facts:

The number one rule is “do not overpay for a property”, and says that he never buys on future value (and refers to that as an illusion that got many of us in trouble). Being realistic if estimating the cost of repairs the property will need. Conversely, we cautions you not to let a home inspection “scare you away from a good deal”, and here’s an example of someone who had the opportunity to purchase a $650,000 home at a short sale for just $520,000, but walked away after the inspector “found a laundry list of items that needed repairs”. Albeit a “scary” looking list, as he called it, it was about $20,000 of work, leaving the remainder as over $100,000 in equity. Remember: “Get the Facts!”

Tip #2. Don’t Fall Completely in Love:

“When remodeling a home for a resale flip and being faced with a decision to either improve the home’s insulation or make the home more beautiful, I’m almost always forced to beautify.” People who lack experience will rely on their emotions. Real Estate agents are well aware of this, and this is why they try to “decorate and stage a home so that people fall in love and forget the facts”. If you fall prey to your emotions, you can get into “bidding wars and overlook discrepancies that need more attention”. The final point to be made on this tip is that “It’s much easier to replace kitchen cabinets some time down the road than it is to reinsulate a home. But people aren’t concerned or willing to pay for what’s behind the walls. They should be.

Tip #3. Get Professional Help

Real Estate Agents, Home Inspectors, Appraisers, Lawyers, Surveyors and Contractors are all valuable resources but they’re no good if you disregard their advice., and the key here is “to trust but verify. In terms of a Real Estate Agent, speak with many different agents and ask for references, until you find one that you are comfortable with. Once you are working with an agent, ask your agent to go over comparable sales with you, and “not just spit out a value”, since this will “help you feel confident about your offer and reduce the risk of complications from a low appraisal.”

Tip #4. Don’t Be Afraid to Pull the Trigger or Walk Away:

OK, so you have all of the facts about an investing deal or property that you are incredibly fond of, and if the price is fair and affordable then don’t be afraid to seal the deal. On the flip side, if the price is above the market value or the price does not take into account the amount of work it needs, you remind yourself that there are plenty of other houses to choose from.

Certainly some great tips here, but sometimes, when in the heat of battle and bidding for a home; it’s easy to lose perspective. What your mindset should be during the process; Remember a house is just sticks and stones and there are plenty of them out there.

Position Realty
Office: 480-213-5251

5 Very Important Checklist Items Before Selling Your Home

Before selling your home, you’ll want to make sure it is ready to be seen by potential buyers. Follow the next five steps to ensure that your house sells for the maximum value.

First Step: Paint
First, make sure that the paint is up to date. You may need to skim coat your walls. Skim coat, also called mud, is a thin layer of seam compound that can be used to repair or smooth damaged walls. You may need a skim jacket if you want to repair cracks, fill in joints, or flatten the area with an existing flat surface. Use a spatula or drywall knife to lay a layer of skim coat on rough walls or ceilings to form a flat surface for painting or wallpaper. Usually, two to four layers need to be applied before the surface is smooth. Examine the walls and ceiling for damage. If there is a lot of damage (notches, cracks, large holes), you have to fix them first. You may only need to complete the connection between the new plasters, maybe you have to complete the broken plaster or plaster-gypsum board joints, or you have many years of settlement or vibration Plan to repair plaster that will begin to break down.

Skim coating is a texturing technique used to smooth walls. Drywallers use this technique to hide imperfect taping work and give the wall only a plaster-like appearance and the smoothest surface. Non-oiling coatings are the only way to achieve class 5 drywall completion and many industry groups, including painting contractors, recommend them.

Second Step: Repairs
Some of these tips are quite simple, while others may need more elbow grease. But once the buyers have begun to show up at your location, you will benefit. When you are ready to sell, check your home for damaged parts, broken equipment, and spaces that need cleaning or exhilaration. Our home maintenance checklist will guide you through common home repairs that may affect your family’s value, especially when you are examining each area. Taking an assessment can also help you decide what needs to be corrected. The total cost of repair depends on the condition of your home. Once you have listed the repairs you need, decide for yourself what you can do and where you need expert help. Compare quotes from multiple contractors so that you can consider the price range. Look at the whole house and consider if you need to make some improvements.

Third Step: Check the Foundation
Concrete is essentially a very porous material. It absorbs moisture naturally. Cracks in the concrete floor are completely expected and not a structural problem, but be sure to check the foundation with a specialist.

Fourth Step: Landscaping
Be sure that your yard looks good. Hire a professional to keep everything neatly trimmed. This includes mowing the lawn and keeping shrubs and trees manageable. Also, be sure to clean off your patio.

Fifth Step: Cleaning
Finish by sweeping, mopping, and dusting the whole house clean. This includes making sure that there are no signs of dirt or stains. Countertops, sinks, showers and toilets are the main places to keep clean. Roll up your sleeves and go to work. Save some money by using homemade cleaning products.

Next, plant the “for sale’ sign in your front yard and discuss with your realtor. Then, you’ll be all set to start showing your property.

Position Realty
Office: 480-213-5251

Why the Fall May be the Best Time to Buy a Home!

If you still think that the best time to buy a home is either spring or summer, you might miss out on what makes buying a home in fall such a great idea. While it is true that the buying frenzy is usually during spring and summer, taking advantage of the many holidays during fall can finally land you your dream home.

Best Time to Buy a Home
Are you aware that October is the best month for snagging home buying deals? This is backed by RealtyTrac’s data over a period of 15 years and 32 million home sales during that time period. More so, their data showed that those who purchased homes in October ended up paying 2.6% less than the estimated market value for the homes they purchased. That’s thousands upon thousands of savings!

Think about it, a home worth $500,000’s 2.6% is $13,000. You can use that $13,000 for purchasing really good appliances or have a vacation. Think this ‘discount’ is out there? Just wait until the 8th of October because homes purchased on that date averaged 10.8% less than their market value estimates. That’s beyond a good deal! That’s a steal!

Take Advantage of Less Competition
For those with kids, the start of fall is usually a very busy time as people get back to their daily lives after all the fun of summer. Those who were home hunting in spring and summer have either grown weary or already bought homes. Though it is true that sellers also typically drop out of the market during fall and usually resurface after the New Year, keeping an eye out for new listings can give you a beautiful new home before the holidays.

Make the Holidays Work for You
The holidays are just around the corner come fall and people are either hurrying to sell so they can move to another home or that they’ve taken a time out from buying as they get busy for the holidays. This factor can come in handy when you spot a new listing knowing that the owner would want to vacate their old home as soon as a deal is finalized.

Your Real Estate Broker Will Have More Time for You
Because there are generally less listings and less buyers in fall, your real estate broker will have more time to show you homes that fit what you are looking for plus answer all questions you may have. They’d also be more motivated to make lots of sales as the end of year nears and holidays approach.

Bargain Home Improvement Season
Fall is generally the time of the year when appliances are at their most affordable and new models are being launched. This is also the best time to purchase cookware, patio furniture, TVs, and sometimes, pay for home improvement services.

All of the above that point to why fall is the best time to buy a home are great, but year-end tax credits might be one of the best incentives for you. It is possible that you’ll be able to score quite a significant tax deduction come tax season.

Position Realty
Office: 480-213-5251

How Lenders Evaluate the Self-Employed Borrower

One of the primary factors when issuing a loan approval is to make sure the borrowers can afford the new mortgage payment along with other monthly credit obligations. This is accomplished by comparing monthly payments with monthly income.

For someone who receives a pay check on the 1st and 15th it’s relatively easy to figure out how much money someone makes. But for those who are self-employed and make money when their clients pay their bills, it’s not so easy. Lenders do have a method to properly calculate qualifying monthly income for the self-employed, they just take a few extra steps.

These borrowers must show proof they’ve been self-employed for at least two years. For those who receive a regular pay check from their employers, they too must demonstrate they’ve been in the workforce and receiving a regular pay check for at least two years. This is one of the reasons lenders ask for the last two years of W2 forms.

But self-employed folk don’t have W2s, they have 1099s sent to them by their clients. Self-employed borrowers can demonstrate they’ve been at it for at least two years with copies of their federal income tax returns. Borrowers will submit these returns and also sign a form called the IRS 4506-T. The 4506-T is an authorization form that allows the lender to independently receive copies of tax transcripts for the last two years. Upon receipt, the lender compares the returns provided by the borrowers with the information provided directly by the IRS.

Borrowers will also be asked to provide a year-to-date profit and loss statement. To calculate qualifying income, the lender will average the two years of self-employed income plus the year-to-date amount. The result is the qualifying income lenders use when evaluating a loan application for someone who is self-employed.

When reviewing the year-over-year income, the lender also wants to see some stability. If year one the income shown on the tax returns is $60,000 and in year two the income is $70,000, the lenders will average these two amounts along with year-to-date totals. On the other hand, if the income is $70,000 in year one and $60,000 in year two, that can be a red flag. In this example the income dropped by more than 10% in one year.

Is the business doing okay? Does the P&L also show declining income? In this instance, the lender will want an explanation for the declining income. If there is too much of a decline, the lender can make the determination the income is not likely to continue into the future. The continuation guideline is typically for at least three years.

Note, it’s a judgment call by the lender because no one can see that far into the future but if the person has been self-employed for the minimum amount of time and the business has demonstrated not just stability but growth, the lender can reasonably determine the business and the income that goes along with it will continue.

Lenders understand that self-employed income will be received at different times during the month. That’s why an average is used. And, more importantly, it’s not how much the business is bringing in this month or last or even this year. If you’re self-employed, keep this in mind. And if you’re not sure about your qualifying income, it’s time for a phone call to your loan officer.

Position Realty
Office: 480-213-5251

3 Ways to Reduce Your Closing Costs

Most loans today require some amount of a down payment. But they all require closing costs. There are lender fees, common ones are loan processing and underwriting fees, and there are non-lender fees. Non-lender fees include items such as an attorney fee or title insurance premiums. It’s the non-lender fees that can really add up as mortgage loans require services and documentation from multiple players in the real estate world.

Saving up for a down payment is probably the biggest challenge, especially for first time home buyers, but closing costs also need to be addressed. Here are three ways buyers can reduce or eliminate these costs.

The first way is to have your lender quote you an interest rate that provides a lender credit toward your closing costs. When your lender quotes rates and fees to you, you’ll get a range of rates from lower to higher. Lower rates will require upfront interest in the form of a discount point. One discount point equals one percent of the amount borrowed. On a $300,000 loan, one point is then $3,000.

For example, if your lender offers 4.25% with no points on a 30 year loan you might also be able to get a 4.00% by paying one point upfront. The lender really doesn’t care if you pay points or not, it’s completely your call. You have the option of paying interest upfront in the form of a point or you can pay the interest over the term of the loan without paying a point.

If you take that 4.25% rate one step further, say to 4.50%, the lender may offer a one point credit. Your monthly payment goes up by a little, but you also saved on closing costs. On that same $300,000 30 year loan, the 4.50% rate gave you a $3,000 credit at the settlement table. There is some math involved to determine which rate is best in your situation and your loan officer will walk you through the process.

Another way to reduce your closing costs is to have the sellers pay them for you. This involves you and your real estate agent making an offer that asks the sellers to pay for all or some of your fees. Your offer might include verbiage that asks the sellers to pay a certain percentage of the sales price, say 1% or 2% of the sales price or you might ask for a specific amount, such as $3,000.

Different loan programs place certain limits on how much the sellers can pay so you’ll need to check with your loan officer before making the offer. Most such limits are rarely reached however. The maximum seller contribution for a VA loan for example is 4.0% of the sales price. Taking a $300,000 sales price would then provide up to $12,000. Closing costs are nowhere near that.

Finally, if the sellers decide to decline your request, you can adjust the sales price upward. If the sales price is $300,000 and closing costs are $3,000, you can offer $303,000 while then asking the sellers to pay $3,000 of your costs. The sellers net the same amount at the closing table and you don’t have to come up with an additional $3,000 for closing costs. One potential issue with this method is making sure the property will appraise at the higher amount, but a one percent increase usually won’t cause any problems. And yes, when making a higher offer that also means your loan amount will also go up the difference in monthly payment is barely noticeable.

Closing costs will need to be addressed just as a down payment needs to be. Your loan officer will provide you with an initial cost estimate that will generally match up with your final settlement, so you’ll know what to expect. You can adjust your rate upward, have the sellers pay for them as part of your offer, or increase your offer slightly to include an amount reflecting your expected settlement fees.

3 Things to Consider Before Investing in a Rental Property

Having a rental property can be a great investment. Not only can it appreciate, but many times the rent you receive from tenants will also cover most (or all) of the mortgage.

Of course, it’s not exactly passive income. You’ll probably be managing renters, hiring yard care and cleaning, and taking care of repairs. Even if you hire a management company, you still need to ensure that these responsibilities are covered.

It’s also important to make sure the investment property you choose sets you up for success. There are a lot of mistakes to avoid. With that in mind, here are three things to consider before investing in a rental property.

Understand the Numbers

Before you invest in any rental property, it’s vital to understand both your financial situation prior to the purchase, as well as, the financial results after the purchase. Let’s look at each one.

Your Starting Financial Status

Before you even think about property investment, make sure you have everything you need—personally and professionally. Are you paying your bills easily? Are you in trouble with debt? Do you have enough cash flow for emergencies, insurance, and retirement for your personal life?

If not, now is not the time to invest in a rental property. You can’t buy a home and expect renters to arrive and bail you out of a difficult situation. You want to invest from a position of strength, not an area of desperation.

Once your personal life is in order, take a look at your savings. Do you have money for a down payment? Can you afford homeowner’s insurance, taxes, fees, and repairs? Remember, the more you borrow, the less your property will return to you.

The Rental Property Itself

Once you’re in the right position to invest in a property, you want to understand the numbers behind each purchase option you evaluate. You need to choose one where the return on investment is strong, to ensure that you will actually have an investment and not a burden on your hands.

Consider the location and size of the property to determine how much rent it will command. Think about whether quality tenants want to live in that area. Don’t overlook the repairs you’ll need to make if it’s not a turnkey property.

Compare your return against your expected expenses to make sure you’re receiving positive cash flow from the property over time. Think about taxes, fees, periodic repairs, and anything you’re paying to a management company. Don’t forget to factor in the mortgage payments as well!

Look for a Desirable Location

High-quality renters are attracted to top-of-the-line spaces. It may seem like a great deal to invest in a run-down property or an undesirable part of town because you can get it for a low price. However, even if the expected (lower) rent is a good return, the truth is that you won’t get quality renters.

You need to find an area that people want to live in long-term. Otherwise, your property will be a revolving door, and you’ll always be looking for new tenants. Each month of vacancy is money out of your pocket and dramatically reduces your return on investment.

Think about the good schools and transit routes in your area and look for desirable properties near those amenities. If you can find something near great restaurants, parks, and entertainment, that’s even better.

Of course, these better properties will cost more. However, knowing that you have a desirable location with long-term tenants will make the financial outcome worthwhile. You will also have the added benefit of appreciation. In more desirable areas, the value of your investment will appreciate much faster than in undesirable areas.

Consider Your Risks

Any investment has a risk of loss. That’s why there’s the possibility of a return! When you’re considering an investment property, you need to think carefully about the risks of renting and be prepared to handle them.

Vacancy is probably the most significant risk. Having months of no tenants means having months of no income, but your expenses will remain the same. It’s important to limit this risk as much as possible by choosing a high-quality property in a desirable area. You should also budget to have some additional cash available in case you face lean times.

You also want to be prepared for major repairs. Sometimes these can be planned, and sometimes they pop up out of nowhere. Having proper insurance and a reserve fund is vital.

Finally, you need to be ready in case you have difficult tenants. Some may pay late, promise to pay but never do so, or even need to be evicted. Handling these issues is time-consuming, so be sure to have a plan in place ahead of time.

Be Prepared Before You Invest

Having a rental property can be highly profitable if you do it well. Once you’ve taken these considerations into account, you’ll be able to tell if you have the right opportunity in front of you.

When you go in with a clear vision, you’ll set yourself up for success.

Position Realty
Office: 480-213-5251

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