Wednesday, April 30, 2008

Duplex? Do what?

One of the biggest decisions most people will ever make with their finances and their lifestyle is to buy (or sell) a home. Getting the best bargain in the purchase, or making the most profit on the sale, give buyers and sellers so much to think about that many may never stop to consider keeping that old house - or buying another - as an income-generating property. But the rewards, in savings, profits and problem-solving, can be high.

One option for buyers who otherwise might consider home prices beyond their reach is the property that pays for itself: a house you live in part of and rent out the rest (the simplest form is a duplex). This offers not only an obvious balance of cost and income, but perhaps lesser-known benefits in taxes and mortgage.

The rental unit(s) can be depreciated over time; considered to offset the rental income, this can lower your taxes on that income. At the same time, the addition of the rent to your finances helps you qualify for a larger mortgage, and investors who occupy their rental properties can, under certain conditions, get interest rates lower than those who do not. Of course you'll want to decide if the demands of being a live-in landlord are for you.

One of my early clients as a Realtor® is a prime example of what you can accomplish with an income-generating property.

Rob was in his late 20s, had a great job in the area, and earned a nice income. He could qualify for a mortgage for a “trophy” home, if he chose. Instead, Rob followed a game plan which I would have loved to have followed at his age.

Rob bought his first duplex with me in my first year of business. It needed some minor work (sweat equity) on the owner-occupied side, while the rental unit was nicely updated. Rob fixed up his side in the two years he lived there. On the two-year anniversary of the purchase of his duplex, Rob called to ask about the available duplexes on the market. He bought his second duplex a month later. He moved into the new duplex, taking the “worst” side for himself, and renting out both sides of his first duplex.

Over the next two years, Rob fixed up the unit he lived in, building more sweat equity. As Rob and I were regularly in contact, I knew to send him the list of available duplexes at his purchase anniversary date. Rob bought his third duplex almost four years after his first duplex.

Why always two years between purchases? Tax purposes only. Not being a tax-law expert, I’m not qualified to explain exactly why Rob always waited two years between purchases, except to say that he always explained it as being for “tax purposes”. Ok.

To make a long story short, Rob now owns five duplexes. The first three are fully paid for. The income from those three are used to pay down the fourth duplex. By the time that Rob is in his mid-40’s, he will have all five duplexes fully paid for. He can retire, if he wishes, and live off the passive income for the rest of his life. But knowing Rob, he’ll keep building his empire.

Owning an income-generating property is not for everyone, but - from younger buyers offsetting their purchase costs, to seniors easing the expenses of their retirement years - it can be for all kinds of people.

Who know? You could be the next “Rob” that I’ll be writing about?

Monday, April 28, 2008

Junk Mail

With no fear of heights, I’m not worried about climbing up on a soapbox for a good rant. Here goes:

I’ve written previously about the struggles of my aging parents. If we’re fortunate to have our parents around for much of our adult lives, it’s something that we all have to go through. Think of it as an educational opportunity to prepare for our own aging – should that actually occur.

One of the tasks which my parents have asked that I assist with is to go through their mail, which I’ve been doing for a couple of months now. And what I have to rant about today stems from that mail-opening experience.

It is absolutely abominable what some so-called “marketers” will do to trick the gullible (in my parents’ case, elderly)! Using envelopes with borders similar to the IRS’ official mail. Using business names (in the return address area) which closely imitate an official government entity. Using stationery which closely approximates what you would expect from a government entity. These are all very common, and frequent, occurrences I’ve experienced in going through my parents’ mail. Much to the chagrin of the mail marketers (they didn’t expect that some educated 40-something would actually read their material), I just chuck it all in the trash, cursing their businesses all the while. So far, I haven’t resorted to a common mail-marketer revenge tactic – to mail all their junk back to them in their postage-paid envelopes – but that’s coming!

No, I didn’t take photos of examples of these offending mail pieces – I didn’t want to run afoul of the law. No doubt, though, that those b*****ds know full well who they are! And if you’re in the “appropriate” demographic for their marketing efforts, you’ve seen their proffering already. Again, I say, B*****DS!!!

No Realtor® worth their MLS would ever disdain the use of mail in their own marketing efforts. It’s one of the many effective marketing efforts that we use in our daily business. But stoop to the level of those mail marketers who prey on the elderly and gullible with their shameless approach? Never!

Let this be a lesson to all Realtors®. Use the mails, but use them with respect for yourcustomer, your profession, and yourself.

OK, I’ll step off the soapbox now.

Friday, April 25, 2008

What do you want - Part I

When it’s time for you to begin looking at Saline real estate, the first question I’ll ask you is “What do you want?”

Let me paint a word picture: Why does a 60-watt bulb light a room, but give little warmth, while a laser beam will burn a hole through the wall? The answer: Focus.

The more focused you can become about what you really want in your Saline real estate, the more powerful a force you become in the marketplace.

But, how do you really know what you want?

Your first inclination may be to go out and look at lots of houses. You want to experience first-hand what your “wants” both look and feel like.

Many people start off with a list of requirements that look like:
“Must Have”: What you absolutely know you want
“Should Have”: What you think you want
“Could Have”: What you’re not sure you want
“Won't Have: What you absolutely know you don't want

For any number of reasons, what people say they want doesn't always line up with what they really want in their minds and hearts. A lot of times that's because of the difference between theory and application: being able to actually drive the commute or experience how many flights of stairs there are gives people a clearer picture of "Could" vs. "Won't". The tricky part is separating the borderline "Must Have"s from the "Should Have"s.

Have you ever heard the advice, "You should always buy a home where there are good schools?" There are advantages to this because these are neighborhoods which are (in general) the last ones to decline and the first ones to appreciate, but remember that if the neighborhood has a reputation for good schools, that reputation is already priced into the house.

If you have school-age children, you may save money by buying in a less expensive neighborhood and sending your kids to private schools. You will get more house for your money if you don't have to pay for the school district's reputation. And you may get more upside from an ascending school district which is building a great reputation than one that's maintaining its high scores. When the best kept secret in the area comes out, people will be looking for that good value.

Most of us consider commuting a necessary evil based on where we live and work. Time is money, right? Well, almost, because no matter where you were born, what your parents have, or what your opportunities are, everyone starts off with 24 hours in a day.

You can measure the value of your time in two ways. Economists measure the value of time in terms of opportunity cost, the amount of money you can make with your time at its highest and best use. Most people measure it in exactly the same way except with things they can be doing - activities like spending time with the family, or reading a book.

Now consider the cost of your commute. Let's say you've live in your home for five years and take the same commute each day. You earn a conveniently round number $100,000 and work 50 weeks out of the year for 5 days a week. Here's what your commute costs:

At only half-an-hour each way, the commute costs $62,500 over that period and $125,000 if your commute is an hour (two hours a day) each way!

There's no value judgment behind these numbers. Some people want to save money to keep their families fed, happy and well-educated so they will trade more commute time for cash savings. Others prioritize spending more quality time doing other things and choose to allocate more resources to the problem. My thanks to Steve Leung for this analysis and the ideas built around it.

The beauty is that the choice is up to you and experiencing a house search with an expert is an effective way of truly understanding what you want and what you're willing to trade-off in your search for your Saline real estate.

Wednesday, April 23, 2008

PMI, or Private Mortgage Insurance

As a home buyer in Saline, you want to know everything about the process before talking with anyone about your plans. That’s completely understandable.

Toward that end, I’d like to address the topic of Private Mortgage Insurance, or PMI. You’ll be paying PMI, in one way or another, whenever you put less than 20% downpayment on your Saline home purchase. If you’re a first-time homebuyer in Saline, coming up with that 20% downpayment may be a real struggle, so it’s especially important to understand PMI.

From Wikipedia, the free encyclopedia: Lenders mortgage insurance (LMI), also known as Private mortgage insurance (PMI) in the US, is insurance payable to a lender or trustee for a pool of securities that may be required when taking out a mortgage loan. It is insurance to offset losses in the case where a mortgagor is not able to repay the loan and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property.

Another way to put it is that PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home's value.

PMI plays an important role in the mortgage industry by protecting a lender against loss if you default on a loan, and by enabling borrowers with less cash (like a first-time buyer) to have greater access to homeownership. With PMI, it is possible for you to buy a home with as little as a 3 percent to 5 percent down payment. This means that you can buy a home sooner without waiting years to accumulate a large down payment.

In the past, most lenders honored consumers' requests to drop PMI coverage if their loan balance was paid down to 80 percent of the property value and they had a good payment history. However, consumers were responsible for requesting cancellation and many consumers were not aware of this possibility. Consumers had to keep track of their loan balance to know if they had enough equity and they had to request that the lender discontinue requiring PMI coverage. (As a side note, I track your home’s value for you, and call my clients when it appears that they may be able to drop PMI). In many cases, people failed to make this request even after they became eligible, and they paid unnecessary premiums ranging from $250 to $1,200 per year for several years. With the new law, both consumers and lenders share responsibility for how long PMI coverage is required.

You have the right to request cancellation of PMI when you pay down your mortgage to the point that it equals 80 percent of the original purchase price or appraised value of your home at the time the loan was obtained, whichever is less. You also need a good payment history, meaning that you have not been 30 days late with your mortgage payment within a year of your request, or 60 days late within two years. Your lender may require evidence that the value of the property has not declined below its original value and that the property does not have a second mortgage, such as a home equity loan.

Mortgage lenders or servicers must automatically cancel PMI coverage on most loans, once you pay down your mortgage to 78 percent of the value if you are current on your loan. If the loan is delinquent on the date of automatic termination, the lender must terminate the coverage as soon thereafter as the loan becomes current. Lenders must terminate the coverage within 30 days of cancellation or the automatic termination date, and are not permitted to require PMI premiums after this date. Any unearned premiums must be returned to you within 45 days of the cancellation or termination date.

For high risk loans, mortgage lenders or servicers are required to automatically cancel PMI coverage once the mortgage is paid down to 77 percent of the original value of the property, provided you are current on your loan.

If PMI has not been canceled or otherwise terminated, coverage must be removed when the loan reaches the midpoint of the amortization period. On a 30-year loan with 360 monthly payments, for example, the chronological midpoint would occur after 180 payments. This provision also requires that the borrower must be current on the payments required by the terms of the mortgage. Final termination must occur within 30 days of this date.

It’s always best to speak with a lender before beginning your home-shopping experience. Your lender will explain to you all of your options regarding PMI. If you’d like the names of some outstanding local lenders, give me a call or send an e-mail.

Monday, April 21, 2008

1469 Middlewood, Saline

Open House - Sunday, June 8, 2-4 pm

Welcome to this brief tour of my new listing at 1469 Middlewood in Saline. Priced at $249,900, it is available immediately.

This super-sharp colonial in Maplewood Farms is in a great location – central to the subdivision, on the northern edge of Saline, within walking distance to the elementary and middle schools, the public library, and near a main road into Ann Arbor.

This traditional, yet highly-versatile home is in beautiful, move-in condition with lots of natural light. You will be impressed.

A bright white kitchen.

Generously large bedrooms.

A partially-finished basement.

And if you act in time, you can enjoy summer evenings in the huge screened porch or out on the deck.

* City of Saline
* Taxes: Approximately $5576 (2007)
* Schools: Saline

This is a fabulous home!

Friday, April 18, 2008

Are you Pre-Qualified or Pre-Approved?

Before you begin to shop for Saline real estate, it is best that you set up a time to meet with a mortgage lender, so you can figure out how much you can afford. This will put you in a better position as a buyer.

It is important to understand the distinction between being pre-qualified for a loan and pre-approved for a loan. The difference between the two terms will be crucial when you decide to make an offer on a house.

To get pre-qualified for a loan, a lender will collect information about your debt, income, and assets. The lender will also look at your credit profile and your assets for a down payment, so that you can get an idea of all the different loan programs that would work for you. The lender will then issue to you a pre-qualification letter indicating the amount you are pre-qualified to borrow.

It is important to understand that a pre-qualification letter is just an estimate of what you are eligible to borrow. It is not a commitment to lend.

Getting pre-approved for a loan gives you competitive advantage when the time comes to bid on a home, because you have been approved for a loan for a specified amount.
To get pre-approved, you will complete a mortgage application. With the application, you will provide the lender with various information - your employment, assets and financial status. The lender will also review your mortgage options and submit your application to the investor that best meets your needs. Once the application process is complete, you will receive a pre-approval letter indicating the amount your lender is willing to lend you for your home.

A pre-approval letter is not binding on the lender; it is subject to an appraisal of the home you wish to purchase and certain other conditions. If your financial situation changes (e.g. you lose your job), interest rates rise or a specified expiration date passes, your lender must review your situation and recalculate your mortgage amount accordingly.

So, when it’s time for you to shop for Real Estate in Saline, ask me for the names of some outstanding mortgage lenders.

Wednesday, April 16, 2008

Ann Arbor Market Statistics - April 2008

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As you all know, I review our market statistics around the middle of each month.What I'd like to focus on this month is the Ann Arbor real estate market.

The first chart I’d like to review is shown above. I’ve tracked real estate activity for the Ann Arbor market since 1996. There is a definite seasonality to the market – strength in the summer, weakness in the winter. A reading above 25% is a “seller’s” market, while a reading below 20% is a “buyer’s” market.

It’s no surprise to learn that we have been in a “buyer’s” market in Ann Arbor since the end of 2004 – more than three years, now.

What’s intriguing about this first chart is the strengthening of the Ann Arbor market since January. What could be the cause of this?

This second chart (left) shows 2 lines. The top line shows the number of homes available for sale (listings) in the Ann Arbor area. The lower line shows the number of homes sold each month.

In answer to my question posed above (What could be the cause of this?), the strengthening of the Ann Arbor market since October is a direct result of fewer homes listed for sale. How could this make the market stronger? Well, with fewer homes competing for the available buyers, it’s more likely that any of the homes listed for sale will actually sell during the month. That’s what we mean by a strengthening of the market!

Another interesting observation from the chart is that the number of sales in the Ann Arbor area has been rather consistent since 2005! In a previous post, we learned about the three "P's" that you control when you sell. The homes that are selling now, have been selling since 2005, are those that have consistency between the three "P's". Go back and check that post for a reminder.
The final piece of the analysis of the strength of the Ann Arbor real estate market is the months of supply of homes presently on the market.

This table (left) shows the “raw data” that makes up the charts shown above. On the far right hand side of this table shows the “Months Supply” in each price range. Rather than focus on any particular price range, it’s more helpful to understand the overall level of inventory of homes for sale.

As of mid-March, at the present pace of sales of homes in Ann Arbor, there are enough homes on the market to supply nearly 12 months of demand. This is down significantly since February, when there was nearly a 20 months’ supply of homes for sale. In the past few years, it’s been typical to have about 6 months’ supply of homes for sale, so our market is improving toward our average.

If you're looking to sell your Ann Arbor real estate in this market, take heart! Call me!

Monday, April 14, 2008

Mill Pond Park in Saline

Every city and town has one park that tends to define the best features of the community. In Saline, that would be the Mill Pond Park. When you’re looking for Real Estate in Saline, Michigan, having a great park in town is an important consideration.

To those families with young children, most of us know the park more simply as the ROMP, which is an acronym for Re-create Our Mill Pond park. A number of years ago, civic leaders in Saline organized an effort to build a “super structure” playground for young children at Mill Pond. The ROMP structure has been a hit with my kids over the years! Here’s what it looks like from the sledding hill:

And speaking of a sledding hills, one of the better ones in Saline is located at the northeast corner of the park. From the bottom, here’s what the sledding hill looks like in the spring:

Many of us have our family pets, and the Mill Pond Park accommodates the dog owners in Saline with a “leash free” zone. Here’s what that looks like:

It’s a really large area, and borders the Saline river, so your dog can go for a swim if it’s really warm out. Just watch out for the swans and geese – they bite!

The entire length of Mill Pond park borders the “Mill Pond” area. Back in the 1800s, when Saline was being built, the Saline River was dammed up to create the mill pond. The pond water was used to drive a water wheel at the lumber mill, where area trees were converted to lumber for home building.

One of the other enjoyable activities at ROMP (as I call it) is to take the kids fishing. There are mostly panfish in the pond these days, but occasionally you’ll hook a large carp – and then, hang on!

While you’re at the play structure area, you can shade yourself under the pavilion, which is available for lease for large groups through the city of Saline.

Or, you can simply enjoy a walk around the park, which extends upstream from the mill pond into the Saline river, where you can enjoy the babbling brook.

Each summer, Saline is host to the Celtic festival. Much of the Celtic festival takes place at the Mill Pond park.

The park is also used by the Saline High School Cross Country teams. When you walk around the park and see some of the hills the XC runners have to go up (!!!), it takes your breath away. Thank goodness they’re young when they do those runs!

Friday, April 11, 2008

Shop, or Buy?

Just another quick note to let you know about recent happenings in the Saline real estate market, and with a question: Do you Shop, or do you Buy?

What’s the difference?

Shopping means that you check out all of your available options and research until you conclude which choice is best for your needs. Then, you go out and buy.

These days, over 80% of home buyers do their shopping via the Internet. In years past, most home shoppers would dread having to drive around and look at many homes before making a decision. These days, buyers use the Internet to narrow down their home search choices to a few homes, which they then go out and see in person.

So, when it comes time to sell your home, you want to be absolutely certain that your home is marketed effectively and extensively via the Internet.

And you can be certain that will happen with me.

What are you waiting for?

Wednesday, April 9, 2008

Curb Appeal - Part 2

A couple of weeks ago, I wrote about one of my favorite subjects regarding the selling of a home – Curb Appeal. It’s one of the easiest ways to improve your likelihood for selling your Saline, Michigan home this spring.

Curb appeal is the aspect of your home which a prospective home buyer can see from the curb or the street. It’s the first impression your home gives to anyone who approaches your home.
There are many aspects of curb appeal to consider, including the condition of your home (roof, trim, paint, clean windows, etc) and landscape (lawn, gardens, sidewalk(s), driveway, patio(s)). Today I’ll focus on another aspect of the “Curb Appeal” of your home – the overall landscape of the front and back of your home

If you’ve ever read the book by Steven Covey, The Seven Habits of Highly Successful People, you may recall his story about a home chore which he assigned to his son. Covey’s simple point – Clean and Green – has always stuck with me, because of its simplicity and practicality for selling your home.

Despite the “green” efforts we see sprouting up all over, and those who would tell you that you should save the environment by leaving your lawn go dormant over the summer, there is no denying that a reasonably green lawn in the summer gives a better first impression than a brown, crunchy lawn.

That doesn’t mean that you have to go out and purchase an expensive in-ground sprinkling system. Instead, at Lowe’s or Home Depot, you can buy an inexpensive, battery-powered timer which turns on and off your outside water faucet. Then just lay out your hoses and sprinklers to cover your front lawn (at the very least) so that your lawn stays reasonably green. If you want to get ambitious, lay down some general lawn fertilizer to give your lawn an extra “green” boost.

When you drive down many neighborhood streets and see the various landscape efforts on the front of many homes, you can draw some general conclusions. Many people spend a lot of money on an expensive landscape design and installation, and then just leave the landscape to become horribly overgrown. There is no better way to telegraph to buyers, when they pull up in front of your home, that you have not maintained your home well than by leaving your overgrown landscape in place when you list your home for sale.

In the competitive selling environment that exists today, you want every advantage to get your home sold. It’s well worth spending a few hundred dollars with an experienced lawn and garden landscape firm to properly prepare your gardens and shrubs for their best presentation. That few hundred dollars could mean several thousand dollars more in selling price, or bring about a sale many months sooner than would otherwise occur.

When it comes time for you to sell, be sure to ask your Realtor® to help you maximize the first impression of your home’s curb appeal. It can earn you a higher sale price and a likely faster sale.

Monday, April 7, 2008

Been Away for So Long

There sure is nothing like an unplanned absence from the office to bring new perspective to the work we do as Realtors®!

In a blurred history of the past two weeks, here’s the “Cliff Notes” version.

I’ve written about my mother in the recent past, and her recent medical challenges. When she called me one morning about two weeks ago, complaining of general soreness and slurring her words, I jumped into action. Too many of my friends have had parents suffer strokes for me not to have recognized the symptoms immediately. I left everything at my office and raced over to take my mom to emergency medicine. In less than an hour of her phone call to me, she was hooked up to every medical contraption I’ve seen in an ER. Then the waiting began. Meanwhile, I had to arrange for home-health assistance for my dad, who’s nearly chair-bound. And so went about a week of my life, in a blur of hospital rooms, doctor consultations, home-health-care aides, and so on.

The new perspective I have for the work we do as Realtors is that you can still serve your clients in an awesome way, even in the midst of turmoil! I’m so grateful for the unselfish assistance of so many of my office peers, who stepped in to handle various deals in process. They have earned my undying gratitude.

So now begins the task of picking up my business – pulling the various fragments back together, and getting a general sense of the pulse of the market.

Never have I appreciated the joy of the work we do as Realtors® more so than today.

It’s good to be back!