Category Archives: General

The Great Rent vs. Own Debate

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Owning a home is not right for everyone. There are certain benefits to not owning the home you live in. If something goes wrong with the property, you simply ring up the landlord and they get to fix it. You pretty much know what your cost are going to be month to month (unless your landlord decides to sell the property, increase rent, convert the condo, etc.). On comments from last Friday’s post on interest rates, there is a discussion debating if one could consider having a mortgage as a forced savings plan. I know I’m going to seem biased since I am a Mortgage Planner…and I fully expect all of the number-crunching-junkies out there to have a heyday with what I’m about to post…but here goes!

[photopress:northgaterental.jpg,thumb,right]I found two similar homes, both in the north Seattle area. The rental property is available for $1850 per month. The home for sale, with close square footage, rooms, area, etc., is available (actually, an offer is pending) for $499,995.

With the comparison, I’m going to assume someone has 20% down to either invest in the stock market or to buy a home. The current rate for a 30 year fixed is 5.75% (APR 5.904%). Principle Principal and interest is $2,334 plus taxes and insurance equals a total payment of $2623. First year monthly tax benefits are $606 (mortgage interest benefit will decrease, property tax benefit will most likely increase).

The prospects are in the 28% tax bracket; they have a gross income of roughly $8000 per month and can have $700 in monthly debts with credit scores at 680 or better. The investor will receive 11% from the stock market and the homeowner will benefit from an appreciation of 7% on their real estate.

Rent

at 5 years

Homeownership

at 5 years

Total Payment $117,863 Total PITI $157,396
Principal Paid 0 Principal Paid $28,951
Tax Benefit 0 Tax Benefit $35,293
Net Cost

$117,863

Net Cost

$93,152

Real Estate Value 0 Real Estate Value $701,269
Loan Balance 0

Loan Balance

$371,045
Total Home Equity

0

Total Home Equity

$330,224

Rent

at 10 years

Homeownership

at 10 years

Total Payment $254,498 Total PITI $314,792
Principal Paid 0 Principal Paid $67,519
Tax Benefit 0 Tax Benefit $67,893
Net Cost:

$254,498

Net Cost:

$179,381

Real Estate Value 0 Real Estate Value $938,566
Loan Balance 0 Loan Balance $332,477
Total Home Equity

0

Total Home Equity

$651,089

Investment

Investment

Opening Balance $109,000 Opening Balance 0
5 Yr Return @ 11% $188,452 5 Yr Return @11% 0
10 Yr Return @11% $325,817 10 Yr Return@11% 0
5 Year Net Worth

$188,452

5 Year Net Worth

$330,224

10 Year Net Worth

$325,817

10 Year Net Worth

$651,089

The first five years with the mortgage provide an average monthly principle reduction of $482.47 per month. Taking out any appreciation factors, the principle principal paid each month is a forced savings plan. With that said, home equity does not earn interest. And I would probably encourage most clients to consider not using the entire 20% for the down payment to stay more liquid (depending on their entire financial picture).

For many Americans who do not have a savings plan (and the statistics show that many do not save), owning a home is as good as it gets for building savings…and it ain’t so bad.

Let the games begin!

Is the mobile web the next big thing?

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I was recently inspired by Joel Burslem’s, House Hunting On the Go blog posting. A lot of folks have voiced their desire for having MLS search tools designed for their mobile devices. Since I had some spare time last weekend, I went ahead and designed a mobile version of Real Property Associates’ web site. If you’re curious to see the final results, I encourage you to visit http://mobile.rpare.com and let me know what you think.

Ironically, as I was reading the post’s comments, I personally agreed most with Greg Tracy’s assertion (of Blue Roof fame), that his clients didn’t really care. The experience on a 3 GHz computer, with fast & reliable network connections and a 21″ LCD monitor is far more compelling, than the experience on a 200 Mhz Phone, with slow & intermittent network connections and 2″ LCD screen. I suspect a typical real estate consumer probably doesn’t care about mobile home search capabilities because they typically only look for homes for a few weeks every 5 or so years.

[photopress:mobile_zearch.jpg,full,alignright]Despite my reservations, I realize that real estate professionals are often very mobile and generally look for houses every week of the year. Since my customers are real estate professionals first and real estate consumers second, I suspect that my semi-pessimistic outlook is due to the fact that I’m not a mobile professional myself. That and the mobile web’s predecessor, WML, leaves a bad taste in my mouth like the New Coke did.

Mobile devices are a challenge to design for because the CPUs are slow, the browsers aren’t usually as powerful as their desktop equivalents (although Opera for Windows PocketPC currently smokes Internet Explorer Mobile), the screens are small, the network speeds can be glacial, and the user input mechanisms are slow and cumbersome. That said, having the whole MLS (w/ photos, static maps & Zillow Zestimates) and the office employee directory (w/ email addresses & photos) in your coat pocket is pretty dang slick, despite all the limitations.

Disclaimer: I designed this site for devices that support HTML and have screens that are 240 pixels wide. Since newer smart phones (Samsung Blackjack, Motorola Q, etc) and PocketPC’s have “big” screens and high speed networking, I decided that was the smallest device I wanted to support and still have the features I wanted. If you use a device with a smaller screen, you may be scrolling around more than you’d like.

So, what features would you like to see in your mobile real estate apps? Do you prefer text messaging apps (like Zillow Mobile) over real mobile web apps? What kinds of mobile devices do you plan on using to access mobile web apps? Is the future bigger, PDA like phones (like Windows Mobile devices, Blackberry, and the upcoming Apple iPhone) or smaller, more limited devices like the ubiquitous Motorola RAZR V3? Do think this trend will take consumers by storm or be restricted to professional use only? Would you pay extra for this technology if your MLS or IDX vendor offered it? Have you bought your .mobi domain names yet?

did you know…

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That March is Washington Wine Month? Several venues are having celebrations of the vino that comes from our fine state – now 2nd in sales and distribution for the United States. The link above will take you to the WA Wine Commission site for a list of venues that are celebrating the occasion. I happen to be the President of the WAC Wine Club for this year and I know that the Washington Athletic Club is participating in the Taste WA Winemaker’s Dinner in April that is part of that event at the Bell Harbor Convention Center April 14/15 but since the dinner may be limited to WAC members I figured a few more public venues would be worth noting for the celebration of wine all month long.

In honor of this month’s celebration of vino, and the oenophiles who love them, I will put on this post a few public venues that are worth checking out.

[photopress:grapes_red.jpg,thumb,alignright]Purple Cafe now has 3 locations: Woodinville, Kirkland and now Seattle. On Sundays they offer 1/2 price bottles of wine valued at $50 or more with a minimum $25 entree purchase. They are also participating in the month’s promotions at their restaurants.

It also happens to be 25 for $25 month (March and October) where 25 local restaurants offer a 3-course meal for the set price of $25. One of the locations that participates is Market Street Grill in Ballard where me and my partner know the owners, John and Kendell Sillars. They always have interesting food and a well stocked, even if smaller than some, wine list. The food is great and I’ve never had a bad experience here.

Ponti in Fremont is also part of the wine promotion with discounts on bottles of wine for this month only and they are also part of 25/$25.

A case for the ages. Perry Mason, where are you?

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Here is a scenario bouncing around in my mind. Complicating this problem, imagine this scenario occuring two days prior to closing. What would an attorney think?[photopress:j0402451.jpg,thumb,alignright]

The facts:

A buyer who happens to be a real estate managing Broker-owner is purchasing new construction from a builder. The buyer (Broker) asks for a discounted escrow fee because buyer (Broker) has a history of referring business (sellers or buyers) to escrow company handling this closing. The escrow company refuses to discount buyer escrow fee. The seller (builder) receives an estimated HUD-1 Settlement Statement which shows an escrow fee based upon each party paying an equal 1/2 of the total escrow fee, in full compliance with the local Northwest Multiple Listing Service (NWMLS) Purchase and Sale Agreement (PSA). After reviewing the settlement statement, the builder-seller calls the escrow company and requires escrow company to reduce the escrow fee because it is “tradition” or the seller (builder) will refuse to close. Learning of this, the buyer wants the same fee as the seller. To comply with the law, the escrow company must comply with the terms of the purchase and sale agreement, in addition to complying with RESPA. Locally, the Northwest Multiple Listing Service Form 21 Section ‘H’, line 56, provides that:

Seller and buyer shall each pay one-half of the escrow fee unless the sale is FHA or VA financed, in which case it shall be paid according to FHA or VA regulations.

Escrow raises this issue and asks parties for clarification because the purchase and sale agreement in question has no other addenda indicating disclosure of builder-seller receiving a discounted escrow fee. Once again, the seller (builder) immediately requests escrow to discount escrow fee or they refuse to close and further escalates the issue by threatening to move the transaction.

This problem raises a few issues.

  1. Is the Broker/buyer in clear violation of RESPA regarding potential kickbacks?
  2. In this case,there is no builder addendum indicating or disclosing to buyer/Broker that the builder will be receiving a discount. Builders routinely receive significant discounts on escrow fees, particularly if closing through a title company. Many builder generated addendums address the discounted escrow fee.
  3. Under the terms of the purchase and sale agreement, is the builder potentially in breach of contract by refusing to close? For example, if the buyer, who happens to be a real estate broker, (never mind asking for a discount equal to the builders perceived “traditional” escrow rate) stood firm by indicating each party shall pay an equal escrow fee as provided in the PSA, would the builder be in breach of contract?
  4. Does the buyer and seller understand the purchase and sale agreement terms?
  5. How does HUD treat the situation where builders receive discounts in title or escrow fees?
  6. Do you think this scenario is plausible?

All you Perry Mason’s, looking forward to your comments…..

Got renter's or condo unit insurance?

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I’m constantly amazed at how many people don’t get renter’s insurance when they are renting a house or apartment. Did you realize that if a major catastrophe happens to the property you’re renting that the landlord is not responsible for your belongings?  You should.

Renter’s insurance is relatively inexpensive for the peace of mind that it will give you. Not only are you covered if a major issue happens to the property and damages your belongings, you can also check to see if the policy will cover you in the event of a break-in. Most people don’t consider the fact that a water heater might blow out and cause flooding to the interior of a property. This event could damage clothing, furniture, or more. The landlord will likely be responsible for fixing or replacing the water heater but they won’t be responsible for your stuff.

A while back we were representing a buyer on the purchase of a 20-unit apartment complex. There were 2 buildings with 10 units each. For some bizarre reason the seller decided to replace the roofs mid-contract. Unfortunately for her it rained right at the time the new roofs went on and 4 units were ruined and more were damaged – along with the tenant’s belongings. Thus began a nasty fight between her and the tenants – several moved out, resulting in lost rents, and others started attempting to boycott the property and prevent others from moving in to replace those that chose to move.

The majority of these tenants did not have renter’s insurance. More landlords are getting savvy and are adding provisions to their lease agreements that spell out a requirement for renters to show proof of insurance within a short period of time of moving in. My own lease agreements have similar language and it states very clearly that I’m not responsible for their stuff if something happens. Nature can impact a property at any time – I had this happen when a neighbor’s tree smashed into my duplex roof a couple of years ago. Thankfully my tenant’s didn’t get impacted but they could have since the tree punctured holes in the roof. Thankfully we got the roof repaired pretty quickly so no major damage occurred but it could have been ugly.

New condominium buildings are also requiring owners and tenants to have contents insurance. For owners of these units the requirement is that the policy cover up to the deductible of the homeowner’s association policy. Frequently that amount is roughly $50,000.00.  These are good things to know. Many of the condo sales require proof of insurance at closing so be sure to contact an insurance company prior to the end of your transaction if you’re in the process of buying. One guy I know that can handle this for you is Gerald Grinter of Gerald Grinter Insurance.  He can handle policies for condo owners and renters.

Why Selecting a Lender by Rate Alone is Not in Your Best Interest

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When Ardell suggested that I post rates on Friday, I was a bit reluctant to do so.   Why?   Because it promotes rate shopping and I don’t believe that is the best way for consumers to select the professional who will be advising them on one of the largest financial transactions they will make in their lifetime.   But I must admit, the posts have created a lot of very interesting comments and kudos to Ardell for putting me on the spot to post rates.

Recently, one of RCG’s frequent readers added a comment on Mortgage Rates for Friday Morning that brings home why you should not shop mortgage professionals by rates and that you should select your mortgage professional by referrals instead: 

I got a GFE from a broker recommended to me by my boss. She was smart and knowledgeable, but not particularly personable. 

I also got one from a guy who worked with my Realtor who called himself a Home Mortgage Consultant (with BIG BANK Mortgage). Personable, but not that sharp. 

I also called a few other brokers off the net and paper – straight APR shopping. 

The first broker, the one recommended, had the best rate. Because I liked my Realtor, I gave the (Bank) guy a shot to match her rate, which he did. 

He made numerous mistakes, and I was forced to go over my docs repeatedly with a fine tooth comb to make sure they were correct. 

In retrospect I should have gone with the recommended broker, though perhaps not, given that she was angry with me and showed it. 

In the end, however, I am going to go with the reputable person who gives me the lowest rate in an apples-to-apples comparison. A quarter point could mean 10s of thousands of dollars over the life of a loan. That’s going to trump loyalty every time, and you are fooling yourself if you think otherwise. 

There are many issues with shopping lenders by rate:

  1. You must shop all of the lenders at the same time on the same day.   There can be several price changes throughout a day.  You cannot compare apples to apples if 5 minutes after you receive one quote, you call the next lender and rates have changed up or down.  Brian Brady did an excellent post:  You’ll Never Get the Lowest Rate.
  2. Unless you’re prepared to lock in the rate the moment you’re dialing for dollars, the rate that is being quoted to you may very well not be the rate you receive when you decide to lock.    If it’s not a confirmed locked in rate, you don’t have it.   It’s a quote, not a guarantee.
  3. The lender who is “quoting

The MLS of the future

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[photopress:futurama_bender.jpg,thumb,alignright]Recently, the Center for Realtor Technology and Jim Duncan’s Real Central VA had blog posts on the desire to have MLSs’ add another column to their schema that indicated the broadband access status of a property. I think this is an idea whose time has been a long time coming. When I moved from my old home in Carnation to my new home in Issaquah, the new owner of my old house wanted to know everything I could tell him about the home’s local ISP (I believe he was a network engineer). Similarly, one of the major reasons I moved into my current home, was that it had bandwidth to spare (my ISP’s top of the line plan is currently 8 M download / 2 M upload speeds). In the Emerald City or the Bay Area, this information is probably second in importance only to the list price of a home or its location. Simply put, a home’s high speed internet capabilities is an increasingly important factor in your purchasing decision.

However, as long as the MLS DBA is mucking around with database schema and typing in ALTER TABLE Residential ADD Internet varchar(50) and other SQL DDL commands, why should we stop there? Here’s what I’d like to see when the MLS gets around to enhancing it’s database schema.

Use Links. Why not enhance school, local government, builder & utility information in the MLS to have both names and urls? When I move to a new home, usually the first thing I need to do is contact all the local utilities and let them know I’m in a new place. Having links to Puget Sound Energy, Issaquah School District, Specialized Homes, and King County Government in the MLS would save me time. Finding contact information and phone numbers is a much bigger pain than it should be at times.

Cell phone reception information. If you don’t have good cable or DSL internet access, knowing how strong Sprint’s or Clearwire’s signal is would be nice to know. I suspect real estate agents and other professionals that increasingly depend on wireless internet access would find this information very helpful.

More accurate and fewer errors. OK, I’ve complained about this before. Still, is it really too much to ask? If a property doesn’t geocode, somebody may not find it when they use a popular map based real estate search engine.

Embrace RETS. Enough said.

Richer media. OK, so the MLS allows you to upload 10 or 20 small photos (or whatever the number is). Why not allow larger photos, MP3 files, video files or PDF flyers? As broadband takes over the world, the stuff is a lot more practical. Although, the idea sounds nice in theory, I’m not sure agents are ready to hire professional audio engineers or videographers when many haven’t learned the value of high quality photography yet. I also think the MLS IT infrastructure isn’t ready for this kind of load (frankly if you can’t handle the bandwidth demands of digital photography, you should probably outsource to Amazon S3 or Flickr Pro before it’s too late), and it’s going to make life more a lot more interesting for us IDX vendors.

So, if you could change the MLS database, what would you like to add or change? What information do you wish was there, but isn’t? Is built green home information and information on low flow toilets something today’s home buyer wants to be able to search for? Do you think more information would pose an undue burden on agents or brokers (those MLS listing forms are one step removed from a tax return), or do you want more, more, more? What would you like IDX vendors to do differently, regardless if the MLS changes or not?

Planning for your beneficiaries

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Try Wednesday’s webinar  through Pensco Trust to learn how to protect your beneficiaries if you have taken advantage of one of the fabulous self directed IRA programs I’ve tried to introduce here.

With the stock market remaining unpredictable consider jinvesting some of your reitrements funds in real estate. I converted a SEP IRA, small Roth IRAs, and regular IRAs, rolled them all into a self directed Roth IRA, paid the tax due and began developing with the money. Now I’ve grown my net worth within a Roth IRA and all the growth is tax free. It’s well worth the rollover and paying back any Taxes you saved initially with the IRA if you know how to make your money grow.

If you want to know this great tax benefit, see the Pensco site, start taking the Pensco classes or give me a holler.  

 

"Putting Your Personality Online"

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Those of you who are Inman News Subscribers might be interested in tomorrow’s podcast.  First time I’ve agreed to do one of these.  Apparently they take questions from callers, but their promo piece below doesn’t seem to announce how someone hears it at the time it is “on” or how someone calls in. If anyone knows that, can you post it in the comments please?  Thanks. 

An Exclusive Inman News Subscriber Benefit!
Monday, March 5, 2007
11 a.m. Pacific / 2 p.m. Eastern
Blogging for Business: Putting Your Personality Online
Hosted & Moderated by Inman News Managing Editor, Jessica Swesey

The number of real estate blogs has exploded over the last year and some agents are finding success in acquiring new clients using this simple and inexpensive medium. Listen to some of the top real estate bloggers in the country as they share practical know-how on what brought them to blogging, what makes a good blog and how they’ve found time to integrate this habit into their overall business plans.

Featured Speakers:

Noah Rosenblatt

Noah Rosenblatt, Founder, UrbanDigs.com

Noah started UrbanDigs.com, a weblog that offers tips for both buyers and sellers to help maximize profit in the New York City housing market in late 2005. In 2006 Inman News recognized Noah’s blog as the “Most Innovative Real Estate Weblog.