If your college student is getting ready to live off campus

If your college student is getting ready to live off campus, buying a rental property or condo may be an option worth considering.  Of course, with high rental costs and the opportunity to create a tax shelter for your hard earned money, this is a strategy many parents have found to be beneficial.

An investment property is an excellent opportunity to put your money to work for you, and may even help offset some of the income invested into your child’s education.  However, there are various factors you should consider before making any final decisions.

1.       Long term goals – Although appreciation rates may be favorable, it is important to discern how long you intend to keep the property.  Within a few years your son or daughter will be finished with their education, and you will still be left with a property to care for.

Some individuals would rather keep the home as an investment and continue to rent the property out to new students.  Additionally, this may be a place that you will plan to use for future visits or football games long after your child is done with school.

The problem with solely relying on strong appreciation rates is that you may not be able to command the price you desire a few years from now.  So unless you are prepared to hold onto the property for a longer time period to make the investment worthwhile, this may be something worth reconsidering.

2.       Maintenance & management – Next, purchasing a rental property is a big investment, so you want to ensure that your property is kept in good condition.  Although your son or daughter may be extremely reliable, you may need to consider other friends or roommates that will have to share in on the rent.

Are you comfortable with trusting in 2 or more college students to watch after your property?  Also, it may be required to pay a property manager (especially once your child graduates) to help manage the home if you live at a distance. 

Finally, it will be important that you can find reliable contractors to take care of any maintenance hassles and ensure that the property remains in tip top shape.

3.       Cash flow & taxes – After carefully reviewing the first 2 points, you may still feel that a rental property for your student is well worth the investment.  If this is the case, then there are a few things you must know about finances.

First of all, be sure that you are buying smart.  Work with a qualified agent who knows the area and can help direct you to the best deals.  They will be able to help you figure out projected rental income and appreciation rates as well.

After factoring in taxes, insurance, maintenance, associate fees, your mortgage, etc. you will want to make sure that you have some cash flow for extra profit and to cover unexpected problems that may arise down the road.

This will also make your investment pay off more in the long run and can free you up to invest in future properties as well.  For those who are married, you must be aware that there is a limit to how many itemized deductions you can write off if your gross income exceeds approximately $240K. 

Therefore, though it is possible that you can include the taxes and mortgage interest as deductions on your second property, this is something you will still need to review with a tax professional. 

Finally, be aware that the property can also be susceptible to capital gains tax once you are ready to sell.  Either way, you will still be eligible for some depreciation on your home and to write off a portion of your maintenance and utilities, so there are always good reasons to buy.

All in all, buying a rental property for your college student can be a wise investment for you and your family.  We strongly advise that you take time to sit down with your financial advisor and/or tax pro to discuss the options available to you.  For further guidance on locating a property, please contact us at 805-791-6123 

For a FREE no obligation consultation. 

New Loan Limit Info Expected This October 1st.

Hello everyone, here's some news on the new lending loan limits I thought might be worth sharing.

Unless Congress makes a last minute change here’s what to expect this October 1st.
Click Here for 2011 Counties At And Above Loan Limit Ceiling
Click Here for 2011 Counties Between Loan Limit Ceiling
FHA LOANS
Please refer to the attached charts to see the new limits by county.
CONVENTIONAL LOANS
The “standard-agency” loan limits are not changing:
• 1 Family: $417,000
• 2 Family: $533,850
• 3 Family: $645,300
• 4 Family: $801,950
The “high balance” loan limits are dropping from $729,750 (single family) to:
• 1 Family: $625,500
• 2 Family: $800,775
• 3 Family: $967,950
• 4 Family: $1,202,925
FNMA uses the FHA chart to determine what county is eligible for high–balance (see attached charts)
To determine if a property is eligible for conventional “high balance” you need to look at the FHA County list.
Hope this helps you understand the changes and as always please call or email us with any questions regarding a specific situation.
Thanks!

What To Be Aware Of When Shopping For A Mortgage!

Shopping for a mortgage is one of the most important steps involved in purchasing your next home.  Since the terms and conditions that you agree to will impact your financial future for years to come, it is vital that you take the necessary time to research and compare the best packages available to you.

Many buyers tend to primarily focus on obtaining the best interest rates; and though this is an extremely important piece, there are a host of other factors to consider.  Therefore, let’s discuss some of the other criteria that should be reviewed before signing on the dotted line.

First of all, please be wary of only searching for rates and quotes online.  Although there are very reputable companies that can be found using an internet based search, it is wise to also spend time working with local companies and banks that are familiar with the current market.  This is a very detailed process, so you should not base your decision on simply one or two sources.

As you have seen from the recent mortgage industry scare, it is typically best to invest in a fixed rate loan.  With adjustable rate mortgages, you could be stuck paying higher amounts of interest and maybe even eventually owe more on the loan than the house is worth.  Be sure to review this with your mortgage professional before making any final decisions.

Next, along with attractive interest rates may also come additional fees and terms.  Be careful that you fully understand what you are signing up for before choosing your mortgage.  Although the rates may look somewhat favorable, here is a list of some things to be aware of:

Processing Fees—Items such as processing and underwriting fees could be added to the cost of the loan as well.  Although you typically will have to pay a few hundred dollars for the application fee, there are other extras that may be attached as an added expense.

Private Mortgage Insurance (PMI)—In order for lenders to protect their own interests, buyers will be required to pay for PMI on a loan until they have built up 20% equity in the home.  These fees are calculated based on a person’s credit score.

Appraisals—It is becoming more common for lenders to charge this fee upfront before an appraisal is conducted.  Unfortunately, you will end up paying for this regardless of whether or not it gives you the evaluation necessary to obtain the loan.

Points—Each point equals 1% of the actual loan amount.  Many buyers can elect to choose a plan that charges points so that they can acquire a lower interest rate.  Lenders will typically charge anywhere from 1-3 points (or even more), and these will be charged as a fee at closing.  Whether or not you should choose a plan with points will be dependent on your available cash and how long you plan on staying in the home.

This is just a sampling of what may be included with your mortgage.  It is best to find out up front exactly what you will be responsible for with all additional fees included.  As long as you are working with a reputable company, you should get a good feel of what will be expected at closing.

Be sure to avoid working with any parties that seem to make unfulfilled promises, suddenly change the terms at closing, ask for more information than is necessary to process the loan, or overall make this an uncomfortable process for you.

There are more than enough resources available to you to obtain a loan that will suit your needs.  Additionally, I would be happy to provide any additional referrals and feedback so that you can get set out on the right foot.  Please contact me at 805.791.6123 right away for more information on how to get started!    

Getting pre- approved for a mortgage is a wise first step towards home ownership!

Before you even start shopping for a home, you'll want to be sure you have financing in place to make your next purchase.

Getting a "pre-approval" from a reputable lender is one of the first steps in your home shopping process.

I have several lenders that I have known to trust throughout the years and have taken excellent care of all my clients. Please feel free to call me at 805.791.6123 to start your pre-approval process.   

Watch this video for more details:

REO, preforeclosure properties selling at a larger discount

The share of bank-owned homes and homes in some stage of foreclosure dropped 5 percent from the first quarter to the second quarter, falling from 36 percent to 31 percent, but was up from 24 percent in second-quarter 2010, according to a report released today by foreclosure data provider RealtyTrac.
And distressed properties are selling at a larger discount these days, RealtyTrac reported:

• The average sales price of a bank-owned (also known as real estate owned or REO) home was $145,211 in the second quarter, which was about 40 percent below the average sales price of a nonforeclosure home. That compares with a 36 percent discount in first-quarter 2011 and a 34 percent discount in second-quarter 2010.
• The average sales price of a preforeclosure home (preforeclosures, which are homes in default or scheduled for sale at public auction, are often sold in a short-sale process) was $192,129 in the second quarter, which is 21 percent below the average sales price of a nonforeclosure home. That compares with a 17 percent discount in first-quarter 2011 and a 14 percent discount in second-quarter 2010.

There were 162,680 sales of bank-owned homes to third parties in the second quarter, RealtyTrac also reported, roughly flat compared with the 162,900 reported in the first quarter and down 10 percent from second-quarter 2010. REO sales accounted for 19 percent of home sales in the second quarter, compared with 23 percent in the first quarter and 15 percent in second-quarter 2010.
There were 102,407 sales of preforeclosure homes to third parties in the second quarter of this year, up 19 percent from the first quarter but down 12 percent compared to second-quarter 2010. These sales accounted for 12 percent of sales in the second quarter of this year, flat with the first quarter and up 10 percent compared to second-quarter 2010.

The jump in preforeclosure sales volume, coupled with bigger discounts on preforeclosures and a shorter average time to sell preforeclosures, all point to a housing market that is starting to focus on more efficiently clearing distressed inventory through more streamlined short sales -- at least in some areas," said James Saccacio, RealtyTrac CEO, in a statement.
"This gives distressed homeowners who do not qualify for loan modification or refinancing -- or who are not interested in those options and want to sell -- a better chance of completing a short sale to avoid foreclosure." Expedited short sales, he added, "also give lenders the opportunity to more pre-emptively purge nonperforming loans from their portfolios," and avoid a lengthy foreclosure and REO process.
Among those metro areas with at least 100 foreclosure-related sales in the second quarter, Louisville, Ky., had the largest average foreclosure discount -- 54 percent below the average sales price of nonforeclosure homes. Florida's Sebastian-Vero Beach metro area was second on the list with an average foreclosure discount of 53 percent, followed by Milwaukee (51 percent), Pittsburgh (51 percent), and Kalamazoo, Mich. (50 percent), RealtyTrac reported.

Top 10 States with Largest Volume of Foreclosure Sales in Q2 2011

California	69,897
Florida	34,558
Arizona	25,756
Nevada	15,685
Michigan	11,668
Texas	11,517
Georgia	10,485
Illinois	9,355
Colorado	8,044
Ohio	6,868

Top 10 States with Largest Share of Foreclosure Sales in Q2 2011 (as a percentage of total sales)

Nevada	65.43%
Arizona	56.64%
California	51.31%
Michigan	40.61%
Georgia	38.42%
Colorado	35.90%
Florida	35.06%
Illinois	34.01%
Oregon	33.41%
Idaho	29.59%
Utah	26.85%

Top 10 States with Highest Average REO Discount

New Jersey	53.53%
New York	52.99%
Kentucky	51.58%
Illinois	49.89%
California	49.64%
Ohio	49.04%
Maryland	48.48%
Wisconsin	46.69%
Michigan	45.95%
Virginia	45.38%

Top 10 States with Highest Average Preforeclosure Discount

Missouri	43.19%
Tennessee	39.24%
Mississippi	39.22%
Indiana	36.93%
Maryland	36.11%
California	35.95%
Texas	35.03%
Delaware	33.84%
Georgia	33.03%
Kentucky	32.76%

9 States with Rise in Share of Foreclosure Sales (Q2 2010-Q2 2011)

Wyoming	96.63%
Nevada	30.71%
Montana	25.59%
Delaware	24.93%
Washington	22.61%
Iowa	21.13%
Arizona	16.07%
Colorado	5.23%
Hawaii	4.21%

Top 10 States with Largest Decline in Share of Foreclosure Sales (Q2 2010-Q2 2011)

New Hampshire	-50.38%
Indiana	-48.76%
Maine	-47.40%
New Jersey	-46.42%
New York	-42.65%
Nebraska	-42.33%
Mississippi	-41.76%
Utah	-34.79%
North Carolina	-32.11%
Kentucky	-30.82%

What is the Divorce Shield Plan and what are the common tax problems associated with divorce?

Sale of Residence                                                                

Tax law defines a principal residence as the home where
you’ve lived for any two of the last five years. If you sell
your principal residence, you are allowed to exclude up to
$250,000 of the gain from taxable income if you’re single,
$500,000 for a married couple. The one risk that’s still
real for many taxpayers from capital gains on the sale of
a home is the risk that you might wait too long after you
move out of the house before your interest in it gets sold.
This problem can be resolved by selling the home within
three years of the date of separation. Alternatively, the
spouse who has moved out of the home can transfer their
interest in the home to the other spouse as a part of the
divorce proceedings.

Estimated Tax Payments/Withholding
If you are self-employed, you probably make quarterly
estimated payments to cover your tax liability. Once you
have determined that you and your spouse will be filing
separate returns, both should insure that any estimated
payments made are applied only to the intended spouse.
Tax withholding from paychecks should also be adjusted
at this time as a divorce typically changes the tax liability
of both spouses.

Retirement Plans
Divorce can have significant impact on retirement plans.
Be aware that as a part of the divorce proceedings, one
spouse may be forced to distribute some of their retirement
savings to the other spouse. This is referred to a QDRO
(Qualified Domestic Relations Order) distribution. These
distributions can be taxable or non-taxable, depending on
how they are structured and who receives the distribution.
Unfortunately, attorney costs related to a divorce are
typically not deductible. However, it may be possible to
structure some of the attorney fees in a way to make them
deductible. Deductible costs may include:
1. Fees for tax planning.
2. Fees for obtaining taxable income.
3. Fees for securing interest in qualified retirement plans.
Consult with your attorney regarding ways to have them
structure their bills to maximize the charges for the above
services.
Couples who have a business or rental properties may be
able to deduct legal fees related to splitting these assets in
a divorce, or they may be able to allocate these fees to the
cost of certain assets so they can be expensed or used to
reduce gains at a later date.
Please consult a tax professional during the divorce
process. Not only will it make the divorce process less
stressful, the price of their advice will likely translate into
saving you money and time later. Nobody ever plans
on being divorced in their lifetime. But the reality is that
divorce does happen. If you’re involved in or considering
divorce proceedings, one of the first and most important
steps you can take for your own financial well being is to
work with a tax professional throughout the process.
These Tax considerations for divorce are not meant to be a
complete list. If these considerations, together with all of
the other considerations mentioned in this article, seem a
bit overwhelming, the good news is that you do not have
to handle these changes alone. There are Divorce Shield
Advocates, such as Tax Professionals in your local area,
who are trained to help guide you through this crucial
process. Tax Professionals, part of the Divorce Shield
Advocate Network, are happy to assist you with expert
insight on all of your tax questions and preparation needs.
These elite individuals are dedicated to serving you during
this difficult time of divorce. With Divorce Shield, your
access to professionals is unlike anything else available
in the United States. With help from your network of
advocates, the advice you receive can be invaluable. To
give you peace of mind, they can help you with all of
your Tax needs, and help you meet your goals no matter
what the future holds. By working with Divorce Shield’s
network of advocates and completing your FREE Divorce
Shield Plan, you can have the Clarity, Control, and
Confidence to make wise decisions that will benefit you
for years to come.

7 Tax Benefits Of Owning Real Estate

There are so many advantages to purchasing your own home.  For instance, it offers the pride of ownership, provides an overall sense of accomplishment, and is a place where you and your family will build many lasting memories.  Among others, real estate opens the door to many tax benefits as well.  Let’s discover some of the following ways that owning a home/s can help to create a tax shelter.

Mortgage Interest & Points: If mortgage debt is $1,000,000 or less, married couples filing jointly can deduct the full amount of their interest.  Otherwise, those filing separately can write off up to $500,000 worth.  This also includes second homes or adjacent land to your main residence.  Points on either a home purchase or refinance can also be deducted, but these must be amortized for the latter. 

Property Tax Deductions: All state and local taxes regardless of how many properties you own can be deducted, up to the alternative minimum tax required by law.  Funds that are held in escrow accounts can only be written off once the taxes are paid.

Private Mortgage Insurance (PMI): A portion of PMI can also be deducted if household income is less than $109,000 per year or $54,500 for those filing separately.

Interest On Home Equity Loans: As long as you have the necessary equity in your home to secure the required debt, you can write off the interest on a loan of up to $100,000 for those who are married filing jointly, or $50,000 when submitted separately.

Working From Home: That’s right!  Even those who use a portion of their home for work purposes are able to deduct a percentage of the home’s depreciation, utility/maintenance costs and insurance.  This is one you definitely want to review with your tax professional to make sure you are getting the maximum available to you.

Home Maintenance Interest: This is a tricky one, as you can write off the interest on any capital improvements made to your home, which will increase value and/or prolong the life of your home.  This includes certain types of restorations or additions made to the home with no cap on the investment.  However, you will not be able to deduct minor patching or cosmetics made to the home.

Capital Gains/Selling Costs: As long as you have lived in your primary residence for at least 2 of the last 5 years, you are permitted to sell your property for up to $500,000 of profit for married couples filing jointly, or $250,000 for singles with absolutely no tax penalties.  However, if you end up selling for an amount above either threshold, you can subtract the amount of closing/selling costs that you incurred from your total gain.  Those who fall outside of the 2 out of 5 year limitation may be granted an exception given certain unique circumstances such as health problems, relocating for work or other such occurrences.

Therefore, it pays to consider the benefits of home ownership and to discuss with your tax professional what you may qualify for.  Especially for those who are entertaining the thought of buying instead of renting, it is very important to consider the long-term impact that owning real estate can have on your overall financial future.  There are advantages whether you are buying for yourself or investing in properties for additional income.  Contact us today 805.791.6123 to start exploring what options may be available for you!