Category: Seniors Over 50

Consider the goal of funding a child’s college education in the future. If “other people’s money” in the form of a scholarship is not a possibility, there still may be another way to use some “other people’s money.”

A $25,000 investment into a mutual fund paying 5% would earn $1,250 in the first year. Alternatively, the $25,000 as a 20% down payment to purchase a $125,000 rental home appreciating 3% a year would have gone up by $3,750 or three times that of the mutual fund in the first year.

The mutual fund’s growth depends on the value of the money invested. Rental real estate benefits because a 20% down payment controls a much larger asset because you’re using “other people’s money.” Leverage allows the investor to profit not only from the amount of cash invested but from the value of the investment.

With a 20% down payment and current interest rates, a typical rental would have a positive cash flow. In ten years, the equity could be $75,000. On the other hand, the $25,000 initial investment in a mutual fund earning 5% annually would only grow to about $40,000 in the same 10 years. It would require an additional $2,700 each year to reach the same $75,000 value.

Leverage is just one of the many benefits that make rental real estate the IDEAL investment. Whether you are saving for higher education, retirement or wealth accumulation, consider rental real estate. Using single-family homes as investments are attractive because homeowners have a better understanding than many other investments and self-management is a possibility.

In the late 80’s, both FHA and VA began requiring buyers to qualify to assume their mortgages. The main reason there haven’t been many assumptions in the past 25 years is that interest rates have been steadily going down and if a person has to qualify, they might as well do it on a new loan and get a lower interest rate.

Based on projections by Fannie Mae, Freddie Mac, the MBA and NAR, rates for the second half of 2017 and 2018 are expected to be higher. When interest rates on new mortgages are higher than the rates of assumable FHA and VA mortgages in the recent past, it becomes more advantageous to assume the existing mortgages.

FHA and VA loans originated with lower than current interest rates have great advantages for buyers and sellers.

1. Interest rate won’t change for the qualified buyer
2. Lower interest rate means lower payments
3. Lower closing costs than originating a new mortgage
4. Easier to qualify for an assumption than a new loan
5. Lower interest rate loans amortize faster than higher ones
6. Equity grows faster because loan is further along the amortization schedule
7. Assumable mortgage could make the home more marketable

An Assumption Comparison can help determine the savings and financial benefits of an assumable mortgage with a lower rate.

Anytime a lender and borrower can agree on rates and terms, it can be a good match but IRS has specific rules that govern the transaction especially when the parties are family or friends.

The loan must be done in a business-like manner with a written note specifying the loan amount, interest rate, term and collateral. IRS requires that the mortgage be a recorded lien to allow the interest deduction.

Sometimes, a friends and family situation might have a less than normal interest rate on the mortgage. However, the rate charged in the note is regulated by the minimum applicable federal rate which is published monthly by IRS based on current Treasury securities. For July 2017, the rate is 2.57% for terms over nine years.

The seller must report the interest paid to them along with the name, address and Social Security number on schedule B when the buyer uses the property as their principal residence.  A mortgage between family and friends can be good for both parties. It may allow the borrower a slightly lower rate without the expenses of a traditional lender while giving the note holder a higher rate than they can earn in available investments.

Your tax professional can guide the transaction whether you’re a buyer or a seller and your real estate professional can help arrange to have the documents drawn and filed.

There is increasing difficulty for first-time home buyers to save for their down payment as indicated in the graph.  Several factors that contribute to this trend include rising rents, rising home prices, student loan debt and flat wages.

Some would-be buyers feel they cannot buy a home today but a large part of those decisions may be based on inaccurate assumptions.

Nine out of ten non-owners believe they need ten percent or more for a down payment. The typical down payment for first-time buyers is six percent. VA has 100% loan programs as well as USDA for certain qualifying areas and buyers. FHA is known for 3.5% down payments. And FNMA and Freddie Mac have down payments as low as 3% and 5%.

There are gift provisions available for buyers who have an “angel” who would like to help them with their down payment.

There are ways to borrow against a person’s qualified retirement program for a down payment. It isn’t necessarily limited to the buyer but could include a relative. Interestingly, a son or daughter can borrow against their retirement to benefit their parents.

In some respects, having good credit and sufficient income is more important than the down payment. Don’t rely on “common knowledge.” Get expert advice and counsel to see if there is a way to advance your dream of owning a home.

If you haven’t heard of a CLUE report, it has nothing to do with the table game searching for a murderer. It is a report showing the insurance claims on your home and car for the past five to seven years

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This database is used by insurance companies to evaluate risks and determine rates. C.L.U.E. stands for Comprehensive Loss Underwriting Exchange. Rates can be increased not only due to legitimate claims but data entry errors also. Sometimes, simply asking a question without filing a claim can be logged as a claim.

For that reason, similar to verifying the accuracy of your credit report, it is important to check out the CLUE report on your home and car. The reports are free and there is a process for correcting mistakes.

An interesting and sometimes costly surprise occurs during the home buying process. The claim experience of the prior seller could impact the price of the premium of the new buyer. For that reason, you can ask for a copy of the CLUE report on the home you’re interested in buying prior to writing a contract.

Mickey Mantle said, “If I knew I was going to live this long, I’d have taken better care of myself.”

Similarly, if people planning their summer travel knew they were going to have an emergency, they would have the right things available. Only 5% of drivers carry all recommended emergency supplies in their cars.

The Federal Emergency Management Agency (FEMA) recommends that all American have some basic supplies on hand in order to survive for at least three days if an emergency occurs. Some of these things would be more important if you lived or traveled in remote areas.

• Reflective hazard triangle or road flares
• Spare tire
• Jumper cables
• First-aid kit
• Flashlight and extra batteries
• Cell phone and charger
• Crucial medications
• Emergency radio with batteries
• Bottled water for each person and pet in your car
• Non-perishable, high-calorie food
• Distress signal flag
• Matches or lighter

During cold weather, additional items are recommended:

• Windshield scraper and brush
• Blankets and extra warm clothing
• Road salt or cat litter to help with tire traction
• Tarp for working outside in weather

It is recommended that emergency supplies should be checked at least twice a year to see that all of the items are in working order and in good condition. It is important that items are replaced if any of them are used during the year.

The American Red Cross is among many sources where emergency preparedness kits and supplies can be purchased.

Hands-only CPR can save lives.  The American Heart Association states that “Almost 90% of people who suffer out-of-hospital cardiac arrests die.  CPR, especially if performed in the first few minutes of cardiac arrest, can double or triple a person’s chance of survival.”  Most people who survive a cardiac emergency are helped by a bystander.

1. Check for responsiveness – shake the person and shout “Are you OK?”
2. Call 9-1-1 – either tell someone to call or make the call yourself
3. Compress – Push hard and fast in the center of the chest at a rate of 100 per minute.

The victim should be flat on their back preferably on the floor. Place the heel of one hand on the center of the victim’s chest and place the heel on top of the other hand lacing your fingers together. Lock your elbows and compress the chest forcefully; make sure you lift enough to let the chest recoil.

Chest compressions should be continued until the person shows obvious life-like breathing, the scene becomes unsafe, an AED (automatic external defibrillator) becomes available, or a trained responder takes over the emergency treatment.

Alternating mouth-to-mouth breaths is not necessary using this method. Compressions are adequate except in drowning or drug overdose situations where 30 chest compressions are followed by two mouth-to-mouth breaths.

Watch this two-minute video and consider taking instructions from the Red Cross or other qualified provider. Every household should have at least one person trained in life-saving skills.

Single-family homes offer an investor the ability to borrow large loan-to-value amounts at fixed interest rates for long terms on appreciating assets, tax advantages, and reasonable control. Some of these characteristics are not available through other investments.

75-80% loan-to-value mortgages are available on most residential properties up to four units. Comparatively, the stock market allows you to borrow up to 50% on a stock but if the price goes down, they will require additional cash to keep the ratio at or below 50%. If it isn’t available, your stock can be sold to satisfy the loan.

Real estate investors call getting a long-term mortgage putting an investment to bed. The fixed-rate and the 20-30 year terms are exceptions to loans for most other investments, if they’re available at all.

Real estate tends to go up in value over time. There can be a lot of variables that affect the price like supply and demand, condition and available mortgage money, in addition to the general economy.

Rental real estate has several different tax advantages. The profits are taxed at lower, long-term capital gains rates for investors who have owned the property for more than 12 months. While the property is being rented, investors are given a non-cash deduction based on cost recovery of the improvements. Tax deferred exchanges can also be available if specific conditions are met which allow an investor to postpone paying the tax on the gain.

It isn’t necessary to have a partner with most rental homes if the investor can qualify for the mortgage. This allows investor control to make all the decisions that an owner is entitled such as setting the rent, making improvements and determining when to sell.

Rental real estate can earn a much higher rate of return than other available investments while providing income during the holding period. It certainly is worth investigating the possibility with a real estate professional who understands and works with rental properties.

Occasionally, when dealing with close relatives who might also become heirs, signing a note and handling the paperwork properly may seem like a needless effort but it could mean the difference in being able to take a legitimate interest deduction.

Home mortgage interest is deductible only if the loan is a secured debt which involves the buyer signing an instrument like a mortgage or deed of trust that makes the ownership of the home security for the debt. That instrument must then be recorded or otherwise perfected according to state or local law and the home, in case of default, must be able to satisfy the debt.

In a family situation, a parent, grandparent or other relative may decide to loan a buyer the money to purchase a home because they have it available and it isn’t earning much in certificates of deposit. They offer to loan it for a rate equal to what a conventional lender is charging but without the fees.

While it may appear to be a win-win situation, there could be problems if things are not done correctly. Even if the borrower makes the payments, they are not entitled to an interest deduction unless three criteria are met: 1) sign a debt instrument specifying the terms 2) securing and record the debt properly and 3) the home is sufficient collateral for the loan.

It would be prudent to consult with an attorney before you sign the final settlement papers to be comfortable that both buyer and the lender-relative are complying with IRS regulations. For more information, see IRS Publication 936 – Home Mortgage Interest.