Tag: home ownership

Solving Real Estate Problems Part I: Down Payment

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solving problems

The number one reason to hire a realtor is to solve a problem.  As I share the story I’m about to tell you keep that in the back of your mind as I share my client’s recent experience with a competitor realtor:   It’s year end 2018 and my clients were at a Christmas Holiday party.  My clients were enjoying the festivities when they met a competitor neighborhood realtor.  They shared with this realtor that they were still renters living in a duplex and were actively looking at single family homes for sale.  The competitor realtor asked them about their plans to buy real estate in 2019 so they replied that they were ” . . . actively looking for a seller that will accept a smaller down payment or that will accept the down payment assistance we qualify for.”  The competitor realtor was a bit surprised and said “well if you don’t have the down payment it will be hard to buy a house in this market.  Inventories are very tight.  You might want to just wait till you can save enough for the down payment and continue working on your credit.”  At first glance that sounds like great advice – right?  I would challenge that and tell you hands down – WRONG!  Whose problem did this realtor solve?  In fact, when my client asked my opinion of this advice I responded “well, do you feel the realtor solved your problem?”  They obviously said no, to which I then reminded them that like many services professionals, it’s not about the badge one wears but the person behind the badge.  I continued, “your going to meet realtors who have never found creative solutions to solving real estate problems.  They are so intently focussed on how they closed their last deals that they simply cannot think beyond that because of their fear that they won’t get paid.  And THAT, is really the problem that they are focussed on solving.  Not yours.”  On a bigger scale let’s take the situation with the Los Angeles (Anaheim) Angels.  The Angels don’t own Angel Stadium, the city of Anaheim does.  But that hasn’t been a problem for the Angels who, as a professional baseball organization are essentially renters.  Through all the options on leases and lease contracts that the Angels management must negotiate, agree upon and ultimately enter into, the Angels still find a way of showing up on game day to a packed crowd.  A lot of creative juggling, but they make it work.  On a smaller scale, my clients have done the planning that it takes to buy a home.  They know exactly what down payment they want to make and the down payment assistance they are going to use when they find a home they are excited about.  But they aren’t just focussed on the house, they want the deal that they want.  Not just price, but terms!  The competitor realtor’s advice lacked the focus to solve a problem and instead would have sent my away clients off confused and frustrated.  The real estate market is going to do whatever it’s going to do.  It’s not a controllable factor by any one person.  Therefore strategizing how a home will be bought or sold and if the timing is right is what buyers and sellers depend on when they work with a realtor.  Planning is essential in order to getting what the buyer (or seller) wants.  There are times traditional methods will work just fine and times when creative methods work fine.  Either way doesn’t really matter, so long as I’m solving my clients problem and they are getting what they want IS what matters.

If you know someone with a real estate problem or questions feel free to email Paul at his email address at buyorrentmyhomes@hotmail.com.

Paul Krause is a full time real estate professional with Keller Williams in Los Angeles California, DRE #01835890 and CSLB #1029575.

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The Biggest Home Buying Mistake – Timing versus Planning

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SoCal median home prices

The headline read “U.S. stocks plunged to their lowest levels in nearly three years Monday, and the Dow Jones industrial average suffered its worst point-loss in history…”  That day in history was September 17th, 2001 (http://money.cnn.com/2001/09/17/markets/markets_newyork/).  Imagine trying to market time a stock investment the week before?  Whether your investing in stocks or real estate, planning is the process that prepares consumers for the possibility that timing works against them.  If you look at the chart above you can see how home prices in southern California topped out in July of 2007.  County wide, prices lost as much as HALF their values by April 2009 with the median home price finally recovering by 2017.  Good planning is how you get through the tough times so that your not forced to sell if the market sells off.  For example, imagine if you had purchased a house in June 2007 and then one of the following happened to you:

  1. Loss of a job/income
  2. Health emergency not covered by insurance
  3. Auto accident not covered by insurance
  4. Home repair not planned that drains savings
  5. Tax levy from the IRS or State taxing board
  6. Legal settlement not covered by insurance or savings
  7. Family emergency not covered by savings or insurance

I could go on with this list but each of these items can severely impact a homeowners ability to pay the mortgage.  And consider this, NONE of these factors are market related!   They are all issues that happen in LIFE.  It goes to say “Plan for the worst, hope for the best.”  Homeowners who carefully plan out the monthly payment including taxes and insurance are less likely to struggle during the tough times because they have “plans” in place to take care of such emergencies.   For example, private disability insurance can protect a homeowner from the possibility of becoming unemployed from a disability.  Drafting a will and living trust can make the process of losing a loved one a little more manageable to deal with a families daily affairs.  An umbrella insurance policy can cover owner liability and certain potential lawsuits claims.  Hiring a qualified CPA who is also designated as an enrolled agent(EA) can protect a homeowner from the potential conflict of filing a frivolous tax return.  Home warranty programs can cover home repairs that are costly and unforeseen.  The same goes with product warranties that are sold as “extended warranties” from resellers.  Boosting an auto policy coverage can ensure that an unforeseen accident doesn’t leave a homeowner in massive debt from health care bills.  This is just a short list of plans are designed to address unforeseen emergencies, not market pricing.  Yes it’s still possible to buy a home at the top of the market.  But, by working with a professional you can structure a plan to ensure that if the market turns, you still have a roof over your head, enough money to pay your mortgage and avoid being forced to sell your home.  Need a plan?  Contact me and I can help you get started!

What This Single Mom Did To Keep Her House

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House

You arrive home tired and exhausted from a long day at work only to find the house is empty and very quiet.  An envelope addressed to you is left in the usual place where you usually place your things when you arrive home.  Opening the letter you find a one page note:

I’M SORRY BUT I JUST CAN’T HERE ANY LONGER.  I’M MOVING BACK HOME TO SORT THINGS OUT.  TELL THE KIDS I LOVE THEM.

Can you imagine coming home from a long day at work to this letter?!?!  Neither can I!

But for Norah this is exactly what happened.  This was a serious problem.  The spouse, father and income-contributor of the family had just deserted a family that very much depended on him.  Norah had to make some hard choices over the next few weeks.  Because she had made the purchased the home she was living in prior to getting married, her primary residence was in her name only.  After sorting out her situation Norah had approached my colleague with the idea of selling the house for $375,000.  She would then downsize into a less expensive apartment that she and her 2 young children could start over.  Norah felt she had enough equity to cover two years of rent but still had sizable monthly bills.  One of the largest bills was her automobile loan, a stiff $400/month.  Norah still owed $9000.00 on the auto loan so the debt wasn’t going away anytime soon.  After learning about Norah’s circumstance my colleague could see she was in a tough position. Not just because of her bills, but because of her life circumstance.  Loosing the financial and emotional support of her spouse, uprooting her 2 young children, selling the house, moving into new surroundings and into a new apartment.  This would be a lot.  My colleague sat down with Norah and looked at her monthly budget.  There was no question that she earned a good living, but the auto loan was expensive.  Looking deeper into the details my colleague found that Norah had the money to cover the mortgage.  She just didn’t have much left over after paying all her bills.  To provide a solution she suggested that she would be willing to buy the house from Norah with a 5 year option.  As part of her down payment, which would be non-refundable she paid off the car note to the bank.  She then originated a promissory note with Norah in which Norah would pay her $137/month for the next 5 years.  My colleague agreed to reduced the auto loan by $1000 and then deduct it against the Option purchase price she offered.  This would keep the monthly auto payment down.  Even better, she told Norah that if during or at the end of the 5 years she wanted to buy out the option from my colleague, she could purchase the house back at a price they would agree to, or a 10% increase whichever was less.  They agreed to the deal.  Norah had to agree to not miss any payments on auto loan and maintain the property(repairs), taxes and insurance.  So what did this accomplish for both parties?

-Norah was able to continue to live in her house and keep the children in the same school district.

-Norah was able to sell her house at $375,000 without hassle by accepting the option.

-For the next 5 years Norah can sort out her financial goals without the pressure of moving and starting all over again.

-Norah will still be paying down her mortgage debt so if she sells the house in 5 years she will still have received 5 years of mortgage interest deductions on her taxes.

-For the next 5 years if Norah’s financial situation improves she may buy out the option and repurchase the house – thus never moving.

-Norah reduced her monthly expenses by refinancing the auto-loan with the Option buyer at a more affordable payment which will leave her with more money in her pocket at the end of the month.

– The buyer’s option guaranteed a minimum of a 10% increase on the purchase price if Norah were to buy out the option.  A 32% return on investment after paying $9000 to pay off the original auto loan.

-Even if Norah doesn’t buy out the option she agreed to continue to maintain the property (repairs), pay the mortgage, taxes and insurance so the buyer has zero property management issues to deal with.

Although Norah could have sold her home, this solution gave Norah favorable options in which to stabilize her life circumstances to give her the confidence to face her financial challenges from a position of strength.

Don’t overlook WIN-WIN scenarios.  The obvious isn’t always the best solution.

Contact me if your looking for solutions to your housing needs!

buyorrentmyhomes@hotmail.com

 

Mortgage Giant Expands 3% Down Loans

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mtg-giant

Wow big news from Fannie Mae.  This could be a political move as we go into the election if mortgage applications have been drying up as of late.  Fannie Mae announced this week that it would expand its HomeReady program, which includes 3 percent down payment loans. It is extending the 3 percent down mortgage to eligible refinancers who have loans already owned by Fannie Mae.  Fannie Mae’s previous maximum allowable loan-to-value ratio for refinancers was 95 percent. Now, it will be up to 97 percent, under the new guidelines.  Read more here—>

http://realtormag.realtor.org/daily-news/2016/10/27/mortgage-giant-expands-3-down-loans#sf40116106

Generation Z Embraces Home Ownership!

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A new study by Better Homes and Gardens Real Estate reveals that Generation Z, teens ages 13-17, hold traditional views on homeownership, and are willing to give up modern luxuries for the mainstream definition of the American Dream.

Nearly all of the teens surveyed (97 percent) believe they will own a home, and four out of five (82 percent) indicate that homeownership is the most important factor in achieving the American Dream.

Highlights from the study include:

  • These potential home buyers aim to own their first home by age 28 – three years earlier than the median age of first-time homeowners, according to NAR.
  • More than half (51 percent) of Gen Z believe they know more about saving money compared to their parents at the same age.
  • While city living tends to appeal to young generations looking for a variety of career, entertainment, and social opportunities, nearly half (47 percent) of respondents said their future home will most likely be located in a suburban neighborhood, followed by a city (23 percent), country or rural areas (20 percent), and destination locations (10 percent).
  • On average, this generation plans to own just two homes in their lifetime. When it comes to prioritizing square footage versus amenities, it’s nearly a 50/50 split.