Tier One Real Estate

How much money do you give to charity?
How much of your hard earned cash do you give your church?
How much of your income do you give others?  Others, you feel, need it more than you.

Don't get me wrong. There is a need for donations. Donations build churches, schools, orphanages and other "things" critical to our society - our human growth.  But my question still stands. Do you tithe thyself?

I was recently asked if I would go on an African trip to help with charity work. A noble cause for sure. One, I shouldn't even need to think about. But I decided very quickly there are a few things I need to get straight before I could even consider such a wonderful, giving task.

I'm getting off track. My question is how much money do you save for yourself out of your earnings? I'm talking about savings. Let me guess. $0. Zilch, Nothing? I'm sure you give either to your church, or charity. I'm sure you even give the guy on the corner once in a while. But how much have you saved for yourself and your family?

Why do so many people give 10% of their income to their church but don't have one penny saved to cover an emergency medical procedure - possibly even to save their own lives? Will their church step in? Will the charity they've donated to suddenly appear at their door with a cure? Will the man on the corner volunteer a needed organ? Sadly, in most cases, the answer is no.

I sound harsh, and in some cases a church, the state, or an organization will step in to help. ARE YOU REALLY GOING TO TAKE THAT RISK?

So why don't you save? It seems to me like saving is out of style. Is it the negative connotation of being greedy, materialistic and selfish? But why?

Just imagine if you were to put away just 10% of everything you earned. Every tip, poker pot, gift, and paycheck. Imagine how much money and security you and your family would have right now.

Security? Now Andy. What does that have to do with being greedy, materialistic and selfish? I ask you: wouldn't you sleep better at night knowing that your children will be able to attend any college, or live, work, or play in any country in the world. They would be free to make their own decisions. Not have them made for them. Your family would have the best medical care available - in the world! You could and would create a great legacy for generations to come. And you would give more to charity than you could ever dream. You doubt me?

The power of money can be mind blowing. Take a look at this example: Would you take a job for a month (just 31 days) beginning with a wage of just a penny a day and doubling it if you just showed up the next day? It will be difficult work. You will get messy and stinky and you'll want to die after the second day. You have 3 seconds to decide... 3... 2... 1... buzzzzz. What did you decide? Let's play it out.

The second day you'd be earning 2 cents, on the third, 4 cents, on the fourth, 8 cents and so on. It takes almost half the month just to get to minimum wage, and by the following day you'd almost be earning a living.
By day twenty-one, you'd be earning over $10,000 per day, and would probably be growing quite enamored with the job. On day twenty-five, you would earn enough to buy a decent home, and with your previous twenty-four days' earnings, you could furnish it and buy sports cars to fill the double garage, as well as a modest summer home.
On day twenty-eight, you'd earn more than the average wage-earner would over his whole working life, and by day thirty, you'd be earning the equivalent of a state lottery's winnings. On the final day (day 31), you'd be earning almost eleven million dollars, and would have earned a grand total for the month of $21, 474, 836.47!!!

Not bad for a job that started at a penny a day. The job was tough, you got messy and stinky, but I don't think you would care at this point.
At first saving 10% a paycheck might be painful. But you would manage. You would adjust your spending habits, but soon enough you wouldn't even notice it missing. But missing it isn't. It's growing!

If you are to take just $100.00 every month, put it in the bank where it will earn an average of say 10%.  With the power of compounding interest the value would grow to $1320. Not very much you say. Stay with me.

The average median income in Utah was $53,693 in 2008. If you don't make that much the point is the same. If you were to save just 10% of your income every month the amount of savings after just one year would be over $5900.

After that one-year you take the $5900 and (while still saving 10%) start to pay down your highest interest rate credit cards. With the average Utahan owing over $8000 in credit card debt you could have that paid off in a year and a half - even faster if you were to take that 10% monthly tithe and start paying it down in the first month!

At 21% + interest charged monthly on credit cards the savings alone is enormous. Now after the first year you have already paid off your credit card debt and continued to save.  Even at the $100 a month, the savings will be substantial. What if you are lucky enough to not have any credit card debt? Then you take the next highest interest debt and start paying that down. Methodically paying down until quite possibly in just a few short years you'll find yourself to be debt free. The effect on your credit score will also be amazing. (This leads to a later discussion about how your credit score can really effect your life)

This is not rocket science. All it takes is just a little discipline. It will come natural - like brushing your teeth. And if you don't brush your teeth naturally - well you have bigger problems than I can help with.

Now, what do you do in year two? You do it all again. By paying down credit card debt you're actually keeping more of your money. I just gave you a raise. It's funny, you could read about all these money making secret formulas in long drawn out boring books, you could spend thousands of dollars going to seminars. I just gave you the secret for free. I am a realtor. I work for money. You owe me. Just kidding.

Let's keep going.

After you have quickly paid off all of your debt, now have a credit score in the upper 700's, and have made saving a natural part of your financial discipline, you start to learn. Learn about money. It's not scary. I just gave you a simple secret that eludes millions of people and relegates them into eternal poverty. Could you imagine what doors will open when you really learn how to use the power of money?

Say you were to find yourself debt free. Now you can use all the money you make to grow your fortune.  Let's see, you have $53000 a year with no debt. Sounds like a good problem to have.

I started out asking three questions about giving to churches, charities or others. After you have paid off all your debt and ensured your family's future, how much do you think you could then tithe? I'll bet the answer is more than you originally did. In fact, you could give more in charitable contributions in a single year than you would have in an entire lifetime. That is the power of Tithe Thyself.

Does saving still sound difficult? Is it really greedy, materialistic and selfish? Then do it. Start today.

I'll be going to Africa soon I hope. But for right now, I need to ensure my family's security.  I'm working toward that goal and hope you are as well.

In this blog I briefly covered quite a few principles. Over the next few weeks we'll expand on them and hopefully answer any questions. Feel free to send me an email with any comments.

Shopping for a new home is an exciting, yet stressful, process. Most potential homebuyers visit and consider several different homes before they find what they consider to be the best match for their lifestyle and price range. Not every buyer is looking for a brand-new home with all of the most modern amenities, so it is important to know how to spot potential. This means looking past superficial flaws and knowing which amenities represent the best savings in the future.

It is a buyer's market. Many homes available for sale and that buyers are more likely to find the right home at the right price. Buyers can also be more particular about homes' amenities and condition.

Almost every potential homebuyer dreams of moving into the ideal home with no need for improvements or updates. However, great deals can be had when you are willing and able to look past the blemishes and see the true value of a home.

Buyers are looking for the right floor plan. This is a personal choice, and no two buyers are looking for exactly the same thing. This is good news for buyers. But keep in mind that sometimes it is possible to simply rearrange a floor plan or plan for a future addition to a home that offers everything else you are looking for.

When you are shopping for a home, pay particular attention to the following items.

Walls - You can quickly and easily update the color and appearance of your home's walls. Often potential buyers are not attracted to a home simply based on the color of the entranceway. Remember that homeowners may not have had time to repaint walls or remove outdated wallpaper or paneling. This is often true for estate-owned homes.

Floors - Modifying floors can be more expensive and time-consuming than painting walls, but the changes are not difficult or time-consuming. If the floors are carpeted and you prefer hardwood, find out whether the floors underneath are hardwood. If so, then the refinishing process could be quick and inexpensive. If the floors are currently exposed and you prefer carpeting, this is another quick change.

Closets - Closet space is a must-have in today's world. Home shoppers are often disappointed with older homes that have minimal closet space. Fortunately, closets are inexpensive and easy to add in a home. Also, consider external options like wardrobes. If storage closets are unavailable, take a look at the basement area and see where you might be able to add some storage space to the home.

Kitchen - A home's value is often judged by the size and usability of the kitchen. People spend a lot of time in the kitchen, and therefore it is one of the things that home shoppers are particular about. Even if a home does not have the perfect kitchen, consider the possibilities. Can a wall be removed to widen the room, or can the existing room be rearranged to better suit your requirements?

Never rule out a home without first trying to look past the cosmetic and sometimes functional flaws in order to see the home's true potential. This is particularly true when you are shopping on a tight budget. Great bargains exist for potential buyers who can use their imagination and be flexible about their requirements.

Not every home that you look at will work for your situation. Otherwise, every home would be identical! However, when you have a good eye and are able to see past the things that you do not like about a home, you can determine whether a few small improvements could make the positives far outweigh the negatives.

If you have any questions or comments please feel free to send me an email. I'd love to hear from you.

Thanks to the power of the internet, today's savvy homebuyer has a considerable advantage over buyers in the past. Potential buyers can access important and valuable information to weigh the merits of locations, school districts and other factors that are important to them. Potential buyers also have the ability to look online at the homes listed for sale in the area where they want to live.

Knowing how to shop online for a home is important. Many brokers have websites that list homes that are available for viewing. Some sites let visitors view all homes currently listed for sale on the Multi-List. Other sites introduce potential buyers to for-sale-by-owner (FSBO) options, and there are even sites dedicated to foreclosed properties.

First determine which type of site will work best for you. If you have not limited your selection to foreclosures or FSBOs, then a site that lists all homes is the most convenient option. Such sites usually do not include FSBO homes. Only those foreclosed properties that are listed on the Multi-List appear on these sites. The web site www.TierOneRE.com can facilitate this for you.

When looking for a home, enter search criteria into an online form to indicate specifically what you are interested in. You can limit your search to a specific zip code, city, school district, price range or number of bedrooms. You can also manipulate the Google map to narrow your search as well.

Once these criteria are entered, you receive a list of homes that meet the minimum criteria that you entered. The list probably will likely include many homes with one or more photos and a description of the home, including the number of bedrooms and bathrooms and the total square footage. You can click on a specific home in the list to get more detailed information, including additional pictures and, in many cases, the address and a map.

Most people generate a list of homes that pique their interest so that they can pass the information on to their realtor. Some people are beginning to purchase their homes online, often without even visiting the home.

Rising interest rates are causing bidding wars. Some buyers sit and wait for new listings to appear so that they can make their offer in first. This is not very common, but it is happening in areas where the real-estate market is booming.

Why would anyone purchase a home sight-unseen? For the same reason that people shop online for anything. It is convenient. People are working more hours than ever before and potential buyers are often too busy to view offerings in person. Some people think that the home-shopping process is fun, but others dread it and would prefer to handle any inconvenience rather than pound the pavement in search of the perfect home.

Viewing homes before visiting them remains more popular. However, the trend of bidding online or even completing the purchase online is growing in popularity, albeit only among small groups of people in certain geographic locations.

The savvy potential buyer will spend hours online looking at the various offerings. Most opt to visit the homes that they like well before making a face-to-face offer, much less an online bid.

For further information send me an email.

Buy a home and you get a tax break!

As part of the Housing and Economic Recovery Act of 2008 and the American Recovery and Reinvestment Act of 2009, a First-time Homebuyer Tax Credit is now available.

But this special tax break ends in 2009.

A homebuyer tax credit has been available for first-time homebuyers in Washington, D.C. for many years, and now first-time homebuyers nationwide can take advantage of a similar benefit. In this blog I'll discuss some of the provisions of the credit, changes based on the new legislation, and explain how to use it.

Am I Eligible?

First-time homebuyers who purchase a principle residence on April 9, 2008 and before December 1, 2009 are eligible. If you (and your spouse, if married) have not owned your principle residence for a 3-year period before your purchase, and you have never taken advantage of the DC firsttime homebuyer credit, you qualify as a first-time homebuyer.

How does it work?

Like all tax credits, it will directly reduce the total amount of taxes you owe. When you file your taxes, for the year you purchased your home (2008 or 2009), you will be able to subtract the amount of the credit from your Federal income tax liability, increasing the size of your refund or reducing the amount you owe. For example, you file your normal tax return and find that you owe $2,000 in taxes. With this credit, your tax liability could be lowered by $8,000, which means, you instead get a $6,000 tax REFUND check from IRS.

How big is the tax credit?

The tax credit is equal to 10% of the purchase price of your home up to $8,000. The credit passed in 2008 was limited to $7,500 and that limit still applies to homes purchased in 2008. The full credit is available for single individuals whose adjusted gross income is less than $75,000. If your adjusted gross income is greater than $75,000 and your home purchase qualifies you for the full credit, the credit phases out according to the dollar amount (or percentage if less than $8,000).

What about Repayment?

The American Recovery and Reinvestment Act of 2009 made a big change to the credit by removing the repayment provision for credits on homes purchased in 2009. Previously, the tax credit had a payback provision that made it similar to an interest free loan that would have been paid back in full over 15 years (repayment) or at the time of resale (recapture) unless the home was sold at a loss. While the repayment provision is completely gone from the updated credit, a more mild recapture provision remains. If you sell your home within 3 years of purchase, the entire amount of the credit is recaptured, that is, the government takes it back.

Are there other conditions I should know about?
■■ Purchases by non-resident aliens are not eligible.
■■ 2009 purchases financed by proceeds from a qualified mortgage issue are now eligible.
■■ Any single family residence located in the United States that will be used as a principal residence is eligible. Generally, this is the place where an individual spends most of his/her time. This includes single-family detached housing, condos or coops, townhouses or any similar type of new or existing dwelling.
■■ The credit will not result in an individual owing additional federal taxes under the Alternative Minimum Tax.
■■ Home purchases between relatives and other gifts of residences are not eligible for the credit.
■■ Other tax benefits of homeownership are still in place. The mortgage interest deduction, capital gains tax exclusion, and property tax deduction are some well known examples.

For more specific questions about the tax implications of the credit, please consult a tax professional or send me an email.

Most real estate investors are aware of the terrific positive cash flow opportunities with cash-on-cash returns in double digits on single family homes. Yet many have chosen not to invest out of fear that the value of their investment property will fall. How founded is that fear? Consider what the numbers tell us.

Take the example a $60,000 1100 square foot, 3 bedroom 1 bath house in Salt Lake City, Utah, already renovated with a tenant paying $700 per month. With a 20% down payment, and allowing for mortgage payments (PITI), property management, maintenance and vacancy, the property will still return well over 10% per year (over 15% if the tenant stays in place and takes good care of the property.) That is clearly a great return on investment. But how much downside is there? Will the $60,000 house materially drop in value?

Prices will not fall if there is adequate demand for housing. Consider that if the foregoing tenant were to purchase that same house with 5% down with an FHA loan at a 5.5% interest rate, his total monthly payment (PITI) would be about $436, about 38% less than the $700 he pays in rent. Plus, his savings would be even greater because his interest payments and property taxes are tax-deductible. So it is compelling for the tenant to buy instead of rent. When we hear of pent-up demand for purchasing homes, this is one of the main reasons why.

So why doesn't he buy? He sure wants to. It boils down to making the down payment and qualifying for the loan. Generally, the greater challenge is the latter. With the mortgage default rate so high, lenders have greatly tightened their standards, so it is harder for prospective homeowners to qualify for loans. However, the Obama administration has unveiled a number of initiatives to address this problem and enable people to once again purchase homes, such as a 10% tax credit (up to $8,000) for first-time home buyers in 2009. As these initiatives take root and more people can qualify for loans, housing sales will increase significantly, as there is huge pent-up demand. This, in turn, will stabilize prices, and will likely cause prices to begin rising.

Properties today have such strong positive cash flow that they effectively mitigate the downside risk in further slippage in home price. Also, while prices have fallen throughout the United States, in some areas of the country prices have fallen only slightly, such as in Mississippi, as these areas never had a speculative housing bubble like the East and West coasts did. So there is less downside risk in these markets, generally in the center part of the nation. With the pent-up demand for housing soon to be unleashed and compelling cash flow returns, there has never been a better time to invest in real estate.

For further information send me an email.

Rent-To-Own Programs, How Do They Work?

There are many and varied programs available for rent-to-own (RTO) properties. In each RTO program there is a negotiation between the Buyer and the Seller where each party negotiates concessions from the other party to complete the transaction. The intent of this blog post is to briefly explain only two major methods to structure the overall RTO transaction.

Basic Option or Lease to Own Option

In order to understand a RTO or Lease-to-Own transaction one must first understand what an option is in a real estate transaction. An Option is where the buyer offers money (consideration) to the Seller to make a future purchase of the property within a specified time frame and for a specified amount. The Buyer secures the right to purchase the property for the specified amount within a certain time frame or lose the option money to the Seller. The Seller agrees to withdraw the property from the market and wait for the buyer to exercise the option or the Buyer forfeits the option money. Here are some examples of how to use a real estate option.

Option Money Paid in Advance of Occupancy

The first step in any option negotiation is an agreement between the Buyer and the Seller on the purchase price. This price is determined at the signing of the option paperwork as well as a time frame for the option to be exercised.

The next step is for the Buyer and Seller to agree on an option amount. Although there is no exact formula to calculate an option amount, the Seller needs to feel comfortable that the amount is sufficient to cover the costs of taking the property off the market in case the option is not exercised by the Buyer. The Buyer must understand that the option money is non-refundable so that if the Buyer determines not to purchase the property the Buyer will lose the option money.

As the end of the option period approaches, the Buyer notifies the Seller of intent to purchase or withdraw the option. In the purchase option, the Buyer finances the purchase and the Seller is paid the agreed to amount with the option amount paid towards the total purchase price.

Option Money Paid Monthly During Occupancy

This option is used when the Buyer doesn't have sufficient money upfront to make a substantial option payment. In the case, the Buyer and Seller agree on the value of the property at the start of the option period and also the value of the property at the end of the option period. Most option period are for a minimum of one year but can be extended on a year by year basis. Many investors prefer not extending the option period past three years.

Once the current value of the home is agreed to, the option amount is agreed to and paid monthly over the option period. The amount of the option normally equates to the estimated value of the property at the end of the option period. In periods of normal appreciation this amount is 5% to 7.5%. In periods of less than normal appreciation the minimum amount many investors will accept is 4% to 5.5% to make the investment worth their time.

For example, a property worth $200,000 at the beginning of the 12 month option period would be worth $210,000 at the end of one year if the option rate was 5%. This amount becomes the agreed to purchase price between the Buyer and the Seller when the option is exercised in one year.

The rental price is calculated so that the $10,000 option price is paid as part of the monthly rental rate and accumulates over the option period. The Buyer gets a monthly credit towards the purchase of the home or a credit towards closing cost for making payments on time when they exercise the option. If the option is not exercised, the monthly credit remains with the Seller. In this case too, the option money is non-refundable if the Buyer fails to exercise the option.

In either option case, RTO offers and additional sale option to the Seller and it offers the Buyer a chance to own a home and build savings or credit to purchase a home of their choice. Both can be benefited from a rent-to-option to purchase a property.

For further information on RTO forms, rent calculation spreadsheets, and ROI numbers for seller please send me an email.