Tag Archives: renting

Renting or Buying a Home: Which Is Best for You?

To find out whether you should rent or buy a home, crunch the numbers using this two-step process.

The most common question people have about their living situation is whether it’s better to rent or own a home. The answers they get are typically either too generalized mathematically, or cover lifestyle issues while leaving out economic factors. Here are two ways to answer the rent versus buy question.

Step 1: By the numbers

The first method is to understand the basic math of how to compare renting versus buying. There are four components to this step:

  1. Calculate the monthly cost of homeownership.
  2. Calculate the tax benefits of homeownership.
  3. Subtract the tax benefits from the cost of ownership to get the “after tax cost.”
  4. Compare the after tax cost to market rent for a comparable property.

Using this approach, let’s calculate the monthly cost of buying a home in Seattle, where the housing market is very hot and the median home price across the region is $478,500.

Suppose you’re buying a home of this price with 20 percent down and a top-tier credit score of 780, with a 30-year fixed mortgage rate of 3.625 percent (remember, rates change daily). A quick run through the mortgage calculator shows that this mortgage payment is $1,746, property taxes are $479, and homeowner’s insurance is $67, for a total monthly housing cost of $2,292.

The federal tax deductions homeowners get for mortgage interest and property taxes save $490 per month in taxes. (To calculate estimated tax savings, multiply loan amount by interest rate and multiply purchase price by property tax rate estimate of 1.2 percent. Add these two numbers, and multiply the result by an income tax rate estimate of 30 percent, then divide by 12 to get a monthly figure. Always consult your tax adviser on any tax-related matters for a precise calculation specific to your situation.)

Subtract the monthly tax savings from total monthly housing cost of $2,292 to get an after-tax housing cost of $1,802. If we compare this to the Seattle median rent of $1,791, we can see that renting is $11 per month cheaper than buying — very close, even in a hot market.

If you do these calculations in other areas such as the Dallas-Fort Worth metro, where home prices are lower and rents are higher (relative to ownership costs), the math will more clearly support buying over renting. In some markets, buying can be cheaper than renting even before incorporating homeowner tax benefits.

Doing these rent-versus-buy calculations for your own market only takes a few minutes. Just look up home prices and rents in your area to get started.

Step 2: Time will tell

The second method for deciding if it’s better to rent or own is to understand how long it takes for buying to become more financially advantageous than renting. The point at which this happens is called the breakeven horizon.

This is a calculation Zillow created to analyze rent-versus-buy decisions at the household level. It incorporates all possible buying costs and benefits such as down payment, closing costs, mortgage payment, property taxes, insurance, utilities, maintenance, and tax benefits, as well as all renting costs for the same home. Calculations also incorporate home value and rental price appreciation.

Breakeven horizon is the year when buying costs become less than or equal to renting costs when accounting for all of the factors noted above.

For our Seattle sample area, the average breakeven horizon is 1.9 years, which (only coincidentally) is the same as the national breakeven horizon right now — meaning buying becomes more financially advantageous than renting after 1.9 years. The latest full list of breakeven horizons for major cities shows how various areas perform on this rent-versus-buy method.

The sample Seattle market calculations above show it costs about the same ($11 difference) to buy or rent right now if you account for tax benefits, and it costs more to buy than rent if you don’t account for tax benefits. If you then consider that buying becomes more financially advantageous than renting 1.9 years after your purchase, these two methods combined make a good case for buying.

Once you’ve analyzed both of these rent-versus-buy methods for your target area, you’ll have a strong command of which option makes the most financial sense. Then the rest of your rent-versus-buy decision is about lifestyle choices like whether of not you want mobility, maintenance responsibility, or freedom to upgrade your living space.

Post courtesy of zillow.com

Advertisements

New to Budgeting? Try the 50/20/30 Rule

Wondering how to budget your money? This simple formula makes it easy.

Managing your money is imperative to help you find the best home within your budget. And no, back of the napkin math won’t cut it. Not only do you need to organize, but you also have to make difficult budgeting decisions about how to spend your cash. This can be overwhelming, but there’s one smart and simple strategy that makes budgeting a breeze. It’s called the 50/20/30 rule, and it can help you track how much you spend and where you can save more, by bucketing your finances into three categories: living essentials, savings, and personal spending. Here’s how it works.

What it is

The 50/20/30 rule helps you build a budget by narrowing your spending into three categories:

  • 50 percent of your income should go to living essentials. This includes your rent, utilities, and necessities like groceries and commuting to work. Keep in mind that this percentage is the maximum you should spend.
  • 20 percent of your income should go to financial goals, meaning your savings, investments, and debt-reduction payments. If you have loftier than average financial goals—like those who don’t have employer-supported retirement or those whose student debt consumes the whole 20 percent—might want to consider raising that figure.
  • 30 percent of your income should be used for personal spending. This is everything you buy that you want but don’t necessarily need: vacations, entertainment, and shopping. This lets you enjoy the money you earn, without going overboard—and you can certainly save if you spend less than 30 percent each month.

Why it works

  • Clarity and precision. Having just three simple categories lets you stay focused on your budget and goals as you move toward better financial stability.
  • Flexibility and freedom. It works across income levels by having three categories that are alterable depending on your individual circumstance. “The 50/20/30 budgeting guideline can work whether you are renting or paying down a mortgage,” says Kayse A. Kress, a certified financial planner in Hartford, Connecticut. “This type of budgeting approach allows for flexibility, which is key since everyone’s financial picture is different.”
  • Focus on the future. The savings category gives you a sure-fire way to pay down debt and save for major purchases, such as a down payment and retirement, says Doug Bellfy, a certified financial planner with Synergy Financial Planning in South Glastonbury, Connecticut. He recommends breaking the 20 percent category into 15 percent for retirement and 5 percent for a down payment on a future home.

How to get started

  1. Determine your monthly take-home pay. If you have a new job or salary, you can use a free online salary paycheck calculator. Use this starting point to split your money into the 50/20/30 guidelines. Remember that being self-employed may cause your income to fluctuate per month, so base your rental budgeting on your average monthly income.
  2. Examine your spending habits. Look at bank, debit card, and credit card statements and track all of your spending. Don’t leave out the mid-afternoon lattes, weekly happy hour with co-workers, or extra storage for your smartphone. If you live in a high-rent area, such as New York or San Francisco, you may find your living expenses surpass the 50 percent portion. If moving to a less-expensive area is not possible, the living expenses category should cut into the flexible personal spending category until your income rises to overcome the imbalance.
  3. Plan it out. If your spending doesn’t align with the 50/20/30 Rule, come up with a plan to shift some of your expenses into the correct categories buckets. You may need to cut back on splurges or look at a different set of rental listings than what you were planning. On the other hand, if you spend less on living essentials or personal expenses, allocate it to pay off debt or to save for the future.

Post courtesy of trulia.com

Flip, Rent, or Hold: What’s the Best Path to Real Estate Riches?

Maybe you’re addicted to those home-flipping shows on HGTV where glam couples buy grim shacks, spend 22 minutes smashing down walls and adding funky kitchen backsplashes, and then make tens of thousands selling the refurbished places on the open market. Or perhaps you’re jonesing for a steady stream of extra income and feel certain you’ve got what it takes to be a landlord.

Or just maybe you’re on the prowl for a hands-off way to make serious real estate money with financial investments that don’t require laying down new flooring or screening prospective tenants.

Whichever option floats your boat, you’ve got plenty of company. After the epic boom-and-bust of the speculative home-flipping market in the aughts, everyone again seems to be looking to make a quick buck by becoming a real estate investor. But these days, there are a dizzying variety of different takes on the once-simple idea of property investing—all requiring varying levels of blood, sweat, tears—and risks. Which one might be right for you?

“Over the generations, real estate has proven itself to be a pretty good, time-tested investment,” says Eric Tyson, who co-authored “Real Estate Investing for Dummies.” “Like investing in the stock market, people who follow some basic principles and buy and hold over long periods of time should do fairly well.But, of course, there’s no guarantee.”

And that’s why the thrill-a-minute world of real estate investing isn’t for everyone—especially when life savings are involved.

OK, now that we’ve gotten that out of the way, let’s go shopping.

 

1. Home flipping: Not exactly like reality TV

First half of 2017 gross returns: 48.6%*
2014 gross returns: 45.8%
2012 gross returns: 44.8%

If the Property Brothers or Chip ’n’ Joanna can do it, why can’t you? Real estate reality TV has made the “fixer-upper” flipping market seem fun, very sexy—and mostly foolproof. But becoming a successful home flipper is a lot harder than it looks on television. And it isn’t always as wildly profitable as you might think.

The returns appear deceptively high, as they don’t account for hefty renovation costs, closing costs, property taxes and insurance. Flippers should figure that about 20% to 30% of their profits will go straight toward such expenses, say experts. The median returns above only reflect sale price gains—not net profits.

Newbie investors need to make sure they’re thoroughly familiar with a neighborhood before they consider buying a potential flip in it, says Charles Tassell, chief operating officer at the National Real Estate Investors Association, a Cincinnati-based investors group. This means looking at what kinds of homes are located nearby, what sort of shape they’re in, and how much they’ve sold for. Wannabe flippers should pay attention to the quality of local schools, transportation, and the job market—just as they would for their own home. Those are the things that can make or break a sale. And an investment.

A market where homes are still affordable but appreciating rapidly is ideal. Once they’ve settled on an area, flippers need to focus on the basic structure of prospective homes. Special attention should be paid to a home’s heating and cooling systems, foundation, and roof—the things that are most expensive to fix.

Then they need to create a realistic budget. Experts recommend setting aside 10% to 20% to cover any unknowns—like what’s inside the walls. Costly surprises are par for the course.

“The biggest hurdle of flipping is: The costs are never what they seem to be on HGTV,” says flipper and landlord April Crossley, co-owner of Crossley Properties in Reading, PA. She owns the business with her real estate agent husband, and they do 8 to 10 flips a year. “In fact, they’re always way more.”

Flippers are gambling that the housing market stays strong in their target area—at least long enough to resell their investment home.

“You’re constantly anticipating what the market will be doing 6 to 12 months in the future,” says Daren Blomquist, senior vice president at ATTOM. So if you miscalculate, and it drops, you could lose a lot of money.

2. Investment (rental) properties: You, too, could be a landlord

First half of 2017 returns: 13%*
Three-year returns: 9.9%
Five-year returns: 11.67%

Perhaps flipping homes, and all the varied costs and stressors associated with it, isn’t for you. But you’d still like to be a hands-on real estate investor. Why not consider buying investment (rental) properties?

One big advantage is the tax deduction folks get for their rental properties. They can write off their mortgage interest, property taxes, and operating expenses, as well as repairs.

Like home flippers, landlords-to-be should look at growing areas with new jobs moving in, says Steve Hovland, director of research at HomeUnion, an Irvine, CA–based company that helps smaller investors buy and manage properties.

“I’m very bullish on high-growth markets, like Texas, the Southeast, Arizona. You’re always going to have new renter demand,” he says. But coastal cities can be tough for aspiring property owners because they’re just too expensive.

First-time investors may want to target middle-class neighborhoods near top-rated schools, where stability rules and tenants are more likely to hold steady jobs. These homes often require less maintenance—a boon to landlords who don’t live nearby.

Landlords who aren’t local or don’t want to deal with 3 a.m. calls about an overflowing toilet will want to consider hiring a property manager who will find tenants and coordinate (but not perform) maintenance. But that eats into profits, costing about 7% to 12% of the monthly rent.

And the payoff you get, as compared with flipping a home, isn’t in one lump sum, and isn’t always steady. For example, landlord and flipper Crossley rents out multiple single-family homes, duplexes, and apartments in the Reading, PA, area, and once had a couple stop paying their rent for six months after they went through a divorce. She had to eat those losses, as well as attorney fees, while she went through eviction court to get them out.

Landlords also need to have insurance on their properties and set up their rental companies to protect their personal assets, in case they get sued.

And like other investors, owners also run the risk that home prices—along with the rents they were counting on—could plunge. “You have to be prepared for the worst. When something goes wrong in a tenant’s life, you’re the last person to get paid,” Crossley says.

3. U.S. REITs: Buying shares in real estate instead of companies

Year-to-date returns: 2.75%*
Three-year returns: 8.39%
Five-year returns: 9.79%

Those who’d like to own apartment and office buildings like a legit mogul but don’t have the bank balance to do so may want to turn to Real Estate Investment Trusts. Don’t worry if you’ve never heard of REITs. You don’t need a fancy finance degree to understand how they work.

Most REITs are publicly traded corporations that investors buy and sell shares in—just like stocks. Only instead of buying shares in Apple, you’re buying shares in real estate. Shares can range in price from just a few dollars to hundreds of bucks. Investors can buy into them on certain exchanges.

As with stocks, investors can make money by buying shares at a low price and selling them at a higher one, and by collecting quarterly dividends (payouts are made every three months).

There are two main kinds of publicly traded REITS. Equity REITs own rental properties ranging from homes to business space, and make money collecting income on them. Residential and commercial mortgage REITs allow investors to buy mortgage debt where investors profit from the interest.

4. Crowdfunded real estate: Like Kickstarter for property

Year-to-date annualized returns: 8.72%*
Two-year returns: 8.89%

Crowdfunded real estate is like the younger, cooler cousin of REITs. Simply put, it allows ordinary folks to pool their money to invest in things like apartment complexes, office buildings, and shopping centers. It’s like a Kickstarter for buying real estate—instead of funding your college roommate’s feature-length documentary about Furries.

Previously available only to uber-wealthy accredited investors, crowdfunding only became open to the general public in March 2015. That’s when the government enacted new rules opening up the investments to folks without ginormous bank balances. So there isn’t much data available yet on how these investments perform over the long term.

While REITs can hold tens of thousands of properties and be worth billions of dollars, crowdfunding companies are often significantly smaller, holding just one or a handful of properties. And they often require a long-term commitment from investors.

As with REITs, the two main options in crowdfunded real estate investing are equity or debt. Equity, the riskier of the two, involves investing in a fund connected to commercial or residential development. It makes money from the income the property generates and the increase in the value over time. The investment is usually tied up for about five to seven years. Debt is the loan used to get the project off the ground and continue to finance it through the life of the project.

“These are long-term investments, so if you pull your money out early, there’s usually a financial penalty,” Ippolito says. That’s a big difference from REITs, which can be sold at any time. “Retirees who need the money soon probably should look elsewhere.” Debt is a bit safer, but the payouts may not be as high.

5. Home appreciation: The investment you can live in

One-year appreciation: 10%*
Three-year appreciation: 26.7%
Five-year appreciation: 44.8%

Folks don’t need to flip homes or pour money into crowdfunded projects to make money as a real estate investor. Instead, they can search hard for the perfect home, get their finances in order, negotiate smartly, and close the deal for the best possible price.

And then live in it.

Real estate typically appreciates over time. That means that buyers who buy a home in a decent area and keep it in good shape should make money when they decide to sell. Depending on the market and the home, sometimes a lot of money. But they should plan on being in that home for at least five or so years, so they can build up enough equity in the home to net a profit once real estate agent fees and closing costs are accounted for.

“In general, buying a home is a good investment and a way to build wealth and equity over a lifetime,” says Joseph Kirchner, senior economist at realtor.com®. “[But] even if you’re buying it to live in the house for the next 30 years, it is always better to buy when prices are low.”

And as folks build equity in their home, through appreciation and paying down their mortgage debt, they can take out home equity loans or home equity lines of credit against their property.

But of course, just as with the other investments on this list, there are risks. The country could enter into a new recession, or there could be a local housing market crash if a big employer leaves the area. Or homes in your area could simply be overvalued.

However, when home prices fall, they do generally rebound—eventually.

“Good markets aren’t going to last forever,” says real estate investment author Tyson. “Even the best real estate markets go through slow periods.”

Post courtesy of realtor.com

6 Apartment Upgrades That Landlords Hate (Bye-Bye, Security Deposit)

When you move into a place, it’s normal to want to make it your own, by hanging pictures or even painting an accent wall cherry red. But when you’re renting, you’d best remember: Any changes you make may be reversed by your landlord once you move out and with your money. That’s why renters have to walk a fine line between making themselves feel at home and making changes that will cost them their security deposit.

“If you decide to paint the walls while you are there, you must return them to their original color or the landlord is within their rights to use the deposit to pay for it themselves,” says Trent Zachmann of Renters Warehouse. He explains that many landlords treat modifications or improvements and accidental damages the same when it comes to taking money from your security deposit. “An owner can withhold all or part of the deposit to correct either type of issue,” he says.

But all is not lost: Sometimes modifications can be made with the owner’s approval. Just make sure you’re 100% clear about the stipulations of your lease before you pick up a paintbrush or hammer. Straight from the mouths of landlords, here’s a list of upgrades tenants have attempted that they hate—and will use your security deposit to fix.

1. Painting

This is the No. 1 alteration that landlords complain about.

Annmarie Bhola, a landlord in New York City, understands that for first-time renters especially, there’s an excitement with moving into a new home. And, to many, that means breaking out the paint.

“To feel at home, a fresh coat of personality-defining color is the icing on the cake,” she says. “That’s all cool, but know that if you paint the walls hot pink, it will be coming out of the security deposit! That was one of the most memorable colors I’ve had to repaint.”

Atlanta landlord Bruce Ailion describes creative painting projects as his biggest headache.

“You would think a tenant would pick a neutral color and have a professional paint,” he laments. “Instead they paint purple or black, get paint on the ceiling, on the trim, on the door knobs and outlets. Some will paint around the bed and pictures. It’s a mess.”

2. Hanging pictures

After repainting, filling in holes in drywall is one of the most common issues landlords have to deal with after a tenant moves out.

“Everyone likes to put up pictures, and fortunately new technologies have brought about alternative, less destructive hanging methods, which is great,” says Bhola. So then why don’t more people think to use Command strips instead of nails? “Nine out of 10 times, I always have to fill in the holes and bust out the spare bucket of paint.”

3. Installing window treatments

We know: Those white plastic vertical blinds are so ugly. Your impulse to put up a curtain rod or Roman shades is completely normal. But the holes you have to drill into the wall to mount the window treatments, like those for your pictures, will require patching once you move out. Landlords fume every time they see big screw marks around the window frame.

“Repairing the holes ends up being expensive and time-consuming,” says Zachmann. If you must hang curtains, use large Command hooks that adhere to the wall and don’t leave any stickiness behind.

4. Mounting a TV

What’s worse than hammering nails into the drywall to hang pictures or curtains? Drilling holes in the wall to mount your flat-screen TV.

“The screws have to go directly into the center of studs,” says Brian Davis, director of education at real estate service company SparkRental. “At best, the renter will have screwed 10 to 20 holes into the wall. At worst, the TV will crash to the floor [because it wasn’t mounted correctly], possibly injure someone, shatter the TV, and take a chunk of the wall down with it.” He recommends that renters use a TV stand.

5. Gardening

You would think that planting a few tulips would delight a landlord. But that’s not necessarily the case.

“As a landlord, I want the most maintenance-free rental as possible,” says Atlanta-area property owner and real estate writer Laura Agadoni. “In some cases, I pay for a landscaping service, but I would not want to keep up a garden.”

So, don’t make any changes to the landscaping without the landlord’s written permission. And if you do, don’t be surprised if your security deposit is used to return the yard to its previous state.

6. Updating appliances

If you’re not a fan of that noisy old refrigerator in your rental, it’s perfectly fine to swap it out with a new one of your own so long as you talk it over with your landlord first, and then reconnect the old one after you move out.

“What’s never acceptable is swapping out an appliance, throwing the old one away, and then taking the new one with you when you move out, leaving a gaping hole where there was once an appliance,” says Davis.

So if there’s something you’d like to update, just ask your landlord about it first. You never know.

“What some landlords will allow may be different than what other landlords allow,” says New York City broker Eric D. Rosen. “In some cases, it might even be possible that a landlord will share the cost.”

Article originally found on realtor.com

6 Apartment Upgrades That Landlords Hate

When you move into a place, it’s normal to want to make it your own, by hanging pictures or even painting an accent wall cherry red. But when you’re renting, you’d best remember: Any changes you make may be reversed by your landlord once you move out and with your money. That’s why renters have to walk a fine line between making themselves feel at home and making changes that will cost them their security deposit.

“If you decide to paint the walls while you are there, you must return them to their original color or the landlord is within their rights to use the deposit to pay for it themselves,” says Trent Zachmann of Renters Warehouse. He explains that many landlords treat modifications or improvements and accidental damages the same when it comes to taking money from your security deposit. “An owner can withhold all or part of the deposit to correct either type of issue,” he says.

But all is not lost: Sometimes modifications can be made with the owner’s approval. Just make sure you’re 100% clear about the stipulations of your lease before you pick up a paintbrush or hammer. Straight from the mouths of landlords, here’s a list of upgrades tenants have attempted that they hate—and will use your security deposit to fix.

1. Painting

This is the No. 1 alteration that landlords complain about.

Annmarie Bhola, a landlord in New York City, understands that, for first-time renters especially, there’s an excitement with moving into a new home. And, to many, that means breaking out the paint.

“To feel at home, a fresh coat of personality-defining color is the icing on the cake,” she says. “That’s all cool, but know that if you paint the walls hot pink, it will be coming out of the security deposit! That was one of the most memorable colors I’ve had to repaint.”

Atlanta landlord Bruce Ailion describes creative painting projects as his biggest headache.

“You would think a tenant would pick a neutral color and have a professional paint,” he laments. “Instead they paint purple or black, get paint on the ceiling, on the trim, on the door knobs and outlets. Some will paint around the bed and pictures. It’s a mess.”

2. Hanging pictures

After repainting, filling in holes in drywall is one of the most common issues landlords have to deal with after a tenant moves out.

“Everyone likes to put up pictures, and fortunately new technologies have brought about alternative, less destructive hanging methods, which is great,” says Bhola. So then why don’t more people think to use Command strips instead of nails? “Nine out of 10 times, I always have to fill in the holes and bust out the spare bucket of paint.”

3. Installing window treatments

We know: Those white plastic vertical blinds are so ugly. Your impulse to put up a curtain rod or Roman shades is completely normal. But the holes you have to drill into the wall to mount the window treatments, like those for your pictures, will require patching once you move out. Landlords fume every time they see big screw marks around the window frame.

“Repairing the holes ends up being expensive and time-consuming,” says Zachmann. If you must hang curtains, use large Command hooks that adhere to the wall and don’t leave any stickiness behind.

4. Mounting a TV

What’s worse than hammering nails into the drywall to hang pictures or curtains? Drilling holes in the wall to mount your flat-screen TV.

“The screws have to go directly into the center of studs,” says Brian Davis, director of education at real estate service company SparkRental. “At best, the renter will have screwed 10 to 20 holes into the wall. At worst, the TV will crash to the floor [because it wasn’t mounted correctly], possibly injure someone, shatter the TV, and take a chunk of the wall down with it.” He recommends that renters use a TV stand.

5. Gardening

You would think that planting a few tulips would delight a landlord. But that’s not necessarily the case.

“As a landlord, I want the most maintenance-free rental as possible,” says Atlanta-area property owner and real estate writer Laura Agadoni. “In some cases, I pay for a landscaping service, but I would not want to keep up a garden.”

So, don’t make any changes to the landscaping without the landlord’s written permission. And if you do, don’t be surprised if your security deposit is used to  return the yard to its previous state.

6. Updating appliances

If you’re not a fan of that noisy old refrigerator in your rental, it’s perfectly fine to swap it out with a new one of your own so long as you talk it over with your landlord first, and then reconnect the old one after you move out.

“What’s never acceptable is swapping out an appliance, throwing the old one away, and then taking the new one with you when you move out, leaving a gaping hole where there was once an appliance,” says Davis.

So if there’s something you’d like to update, just ask your landlord about it first. You never know.

“What some landlords will allow may be different than what other landlords allow,” says New York City broker Eric D. Rosen. “In some cases, it might even be possible that a landlord will share the cost.”

Renters: Are You Ready to Buy a Home?

Photo credit: Milles Studio / shutterstock.com

While you save up your down payment, take these 5 steps to get you closer to closing.

For renters planning to buy a home, preliminary steps like creating a budget and saving for a down payment are obvious. Here are five more advanced steps toward moving out of your rental and into a dream home of your own.

Understand the full cost of homeownership

As a renter, a single rental fee covers your monthly housing payment. But as a homeowner, four main factors go into your monthly housing payment: principal, interest, taxes and insurance (P.I.T.I.). Understanding these costs will help you determine how much house you can afford.

Together, principal and interest comprise your monthly mortgage payment, with the principal paying down your loan balance each month, and the interest paying your fee for borrowing the money. Use a mortgage calculator to determine how much of your payment goes toward principal versus interest each month.

Taxes refer to property taxes, which are assessed by the county you live in. They average 1.2 percent of your home’s value each year.

Insurance — paid to a homeowner’s insurance company of your choice — is required when you have a mortgage. Lenders require that your insurance cover the cost of rebuilding the home if it is ruined by fire or other disaster. This “replacement cost” is determined by your insurer, and must be agreed to by your lender. Insurance will typically cost $700 to $1,200 per year for a single family home.

For condo owners, there’s a fifth monthly cost category: homeowners association (HOA) dues. These fees cover common area amenities, landscaping, ongoing upkeep and reserves for future maintenance like roof replacement or exterior painting. These monthly dues range from $100 for cheaper condos to $1,000 or more for luxury condos.

Single family home buyers can take a useful cue from HOA budgets, which generally require that at least 10 percent of dues go toward reserves. Even if you’re not buying a condo, it’s a good idea to set up a similar savings plan for future maintenance like replacing a roof or major appliances.

Know your homeowner tax benefits

Mortgage interest and property taxes are deductible when you file your annual tax returns, and reduce taxable income.

These deductions significantly lower your cost of homeownership. For example, for a $300,000 home with 20 percent down and a 30-year fixed mortgage at 4 percent, monthly P.I.T.I. is about $1,545. Tax deductions reduce this total housing cost to about $1,215.

Study rent-vs.-buy math

Often, people judge the cost of renting vs. buying by comparing P.I.T.I. to a rental payment. But to get an apples-to-apples comparison, you actually have to look at after-tax-benefit homeownership costs and rent costs.

Using the example above of a $300,000 home that costs $1,215 per month after taxes, you could compare this residence to a home that rents for about $1,200. If the $300,000 home was more spacious or in a more desirable area, the math would seem to favor buying — but don’t forget this example requires a $60,000 down payment.

Identify mortgages that fit your budget and timeline

If you don’t have 20 percent to put down, you can still get a mortgage with as little as 3 percent down. However, if your down payment is less than 20 percent, you’ll have to pay mortgage insurance, which is about .85 percent of your loan amount, and isn’t tax deductible.

Your monthly P.I.T.I. (which includes mortgage insurance) is about $1,995 on a $300,000 home with 3 percent down and a 30-year fixed mortgage at 4 percent. After tax deductions, this total housing cost drops to about $1,614. And you’d only need $9,000 for the down payment.

You can also lower your rate and P.I.T.I. with a shorter-term loan like a 5-year ARM, but rates on these loans will adjust in 5 years, so you risk having a much higher payment if you plan to stay in the home longer than that.

Start preparing your credit score now

Credit scores are critical for getting the best mortgages with the lowest rates. Lenders want reliable on-time payment history as well as credit depth.

More credit accounts are better, so renters with only one credit card should consider obtaining more credit. Just note that your credit score can drop 5 to 15 points when you first open a new account, then will come back up when you’ve established a good payment history.

Post courtesy of zillow.com.

How To Be a Good Tenant

Photo credit: PHOTOCREO Michal Bednarek / shutterstock.com

Come on, let’s face it. We all think it, we all know it: We’re perfect. We put ourselves on a pedestal because our brains are wired to do so, so it’s not always easy to see when we’re in the wrong.

And when it comes to being a tenant you are, of course, the definition of perfection. That’s why it is so annoying that your landlord is constantly bugging you. Why is he giving you notice after notice when you’re already the ideal tenant? You signed his lease, pay your rent on time and take care of the property. What more does he want?
Hey, I’m up here with you, too. So let me level with you. What we think is “right” isn’t always reality. Down there — down where everyone else lives in the real world — they have these things called rules. And in order to live in harmony with the rest of humanity, we must learn their rules and play their game. That is how you should think of your landlord-tenant relationship: It’s like a game. Learn the rules, play the game fair and everyone wins! 

Lucky for us, it’s not that difficult:
  • Read your lease. Really. Really. Read it. Paragraph by paragraph, word by word. Your lease is a binding legal contract. It creates a symbiotic relationship between you and your landlord. What are you agreeing to? Read what it says, “get” it and don’t forget it.
  • Don’t arbitrarily change the rules. You want to paint? You want a little furry friend? You want to wallpaper your hallway? You’ve got good taste, so clearly you’re making an improvement to the place. Get the landlord’s written permission first. If the lease says “DON’T,” you must get the exception in writing (not a verbal, not a handshake — in writing) to make it a “DO.” Save the signed letter and keep it in a file. You’ll need it later when you move out and your landlord has forgotten.
  • Submit all maintenance requests in writing. If you have a non-emergency request such as a leaky faucet, submit the maintenance request to the landlord in writing. You can also follow up with a phone call. You can write a note to the landlord and submit it with your rent check. Or, you can fax or email the request as well. While landlords appreciate being notified of maintenance issues right away, keep in mind there are some small issues you need to take care of yourself. For example, if a light bulb goes out or the smoke detector needs a replacement battery — grab a step stool and swap it out on your own. No need to bother the landlord.
  • Do unto others as you would have done to you. Be a respectful and courteous neighbor and tenant. Landlords often find themselves mediating arguments between tenants. Many of these issues can be resolved without involving the landlord. If you have problems with a neighbor, don’t be passive-aggressive. Address the problem directly with the offending neighbor. The goal is not to argue or prove your point, but to create an environment where both parties can live peacefully.
  • Respect your home. Keep your house in clean and sanitary condition. If you have pets, pick up after them.
  • Pay your rent on time. Many tenants believe they have a “grace” period. Most leases will not charge a late fee until three to five days after the due date. Though this appears to create a grace period, it does not. If you pay rent three days late every month, you may never incur a late fee. However, when you move out and you need your landlord’s reference, he can state you were late every month on rent. Make sure to get your rent in on time.
If you can follow these rules, then you really can say, “I am the perfect tenant!”
Post courtesy of HGTV.com