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Early Burnout Could be Good

Mario Gonzalez - Tuesday, January 5, 2016

Most of us understand the expression "burning the candle at both ends" to mean working so hard that you burn yourself out. Normally, that wouldn’t be a good idea unless it is intentional.

If the candle is your mortgage and the strategy is to get it paid off early, being “burned out” would be a good thing. One end of the candle would be your regular mortgage payments and the other end would represent additional principal contributions. Since the Great Recession, lenders have been reporting a higher than normal number of borrowers getting shorter term mortgages not only when they purchase the home originally but when they refinance them also. It seems like the mindset of America’s homeowner has shifted a little from the belief that they will always have a house payment.

The extra $100, $200 or $500 in your checking account isn’t earning interest. Additional principal contributions with your regular payments on a fixed rate mortgage will save interest, build equity and shorten the term of the mortgage.

Wealth management is about making financially wise choices. If having your home paid for by retirement age is one of your goals, making extra contributions regularly could get you there. Use this Equity Accelerator to see how it will affect your loan.

Emergency Ready Kit

Mario Gonzalez - Wednesday, December 30, 2015

The Federal Emergency Management Agency (FEMA) recommends that all Americans have some basic supplies on hand in order to survive for at least three days if an emergency occurs. It is recommended that the Ready Kit should be assembled well in advance of an emergency. The concept is to be able to survive for at least 72 hours until local officials and relief workers arrive on the scene. The disaster could be wide-spread and involve a lot of people that makes it difficult for relief workers to reach everyone immediately.

  • Water, one gallon per person per day for at least three daysFema ready logo2.jpg
  • Food, at least a three-day supply of non-perishable food
  • Battery powered or hand-crank radio and a NOAA weather radio with tone alert and extra batteries for both
  • Flashlight and extra batteries
  • First aid kit
  • Medications (prescription and basic)
  • Whistle to signal for help
  • Dust mask to help filter contaminated air and plastic sheeting and duct tape to shelter in place
  • Moist towelettes, garbage bags and plastic ties for personal sanitation
  • Wrench or pliers to turn off utilities
  • Manual can opener for food
  • Local maps
  • Cell phone with chargers, inverter or solar charger
  • Family and emergency contact information
  • Extra cash
  • Emergency blanket
  • Pet supplies if necessary

Click here for a print version of this list and additional items to consider adding to an emergency ready kit. The American Red Cross has a suggested list for first aid kits and has other items available for purchase at their online store.

Forced Savings

Mario Gonzalez - Wednesday, December 23, 2015

One of the big banks has a voluntary program available that transfers $100 each month from your checking account to your savings account. In five years, the account owner would have over $5,000 because of a type of forced savings. iStock_000059416596-250.jpg Similarly, when a person buys a home with a standard amortizing loan, each month, a part of the payment is used to reduce the principal loan amount. Amazingly, over $4,000 would be applied toward the principal in the first year of a $250,000 mortgage at 4% for 30 years. In five years, the loan amount would be reduced by almost $25,000 through normal payments. The other dynamic that is in play is that while the unpaid balance is being reduced, appreciation causes the value to increase. The difference between the two makes the equity grow even faster. Three percent appreciation on a $250,000 home would increase its value in five year by almost $40,000. A 30-year mortgage of $250,000 will be paid for in 30 years. At an average of 3% appreciation, the asset would be worth about $600,000. If you continue to rent, the asset belongs to your landlord instead. Many experts believe that the homeowner benefits from the forced savings of amortization and the leveraged growth that takes place in the investment. It has been observed in the tri-annual Consumer Finance Survey by the Federal Reserve Board that homeowner’s net worth is considerably higher than that of renters.

More Equity...More Options

Mario Gonzalez - Wednesday, December 16, 2015

The more equity in your home, the more options you have. Since equity is determined by the difference between value and what is owed on a property, when homes lost value during the Great Recession, homeowners’ equity decreased. Equity-250.jpg Negative equity occurs when the value is less than the mortgage owed. According to CoreLogic, 91% of all mortgaged properties have equity and only 4.4 million properties remain in negative equity at the end of the second quarter in 2015. A homeowner, who qualifies, can release part of their equity by refinancing the existing loan and taking out additional cash or by getting a home equity loan. The benefits include:

  • To get a lower rate on your current mortgage
  • To finance capital improvements on your home
  • To payoff higher interest rate debt such as credit cards or student loans
  • To purchase items that would not have deductible interest like personal cars, boats, etc.

It could be as simple as waiting for positive home equity so owners can move to another home without having to pay out-of-pocket expenses to sell their home.

Two things everyone needs to know about plumbing

Mario Gonzalez - Wednesday, December 9, 2015

The first thing every homeowner needs to know about plumbing is how to turn the water off in case of an emergency. It’s like having a fire extinguisher; you hope you never need it but you want it just in case you do.Plumbing-250.jpg Generally, the cutoff is in the front of the home. There may be a separate cutoff box on the owner’s side of the meter. If not, the owner needs to be able to open the water meter and turn it off there. This will require a water meter key which can be found at a local home improvement store and a wrench. Once you have the key, practice opening the meter door and check out how the shutoff valve works. Then, put the key in a quick and easy place to find when you need it. The second thing a homeowner needs is a recommendation of two good plumbers. Having a backup name is always good in case your first choice can’t make it when you need them. Some homeowners prefer to go the do-it-yourself route. There are plenty of DIY videos on the Internet but having the name of a good plumber if the job gets out of hand can be the tool that saves the day. Our business puts us in touch with some of the most reliable and reputable service providers and we’re willing to share their names with you. Regardless of whether you “do it or delegate it”, being familiar with the basics can be very helpful.

Look at a Rental This Way

Mario Gonzalez - Wednesday, December 2, 2015

Appreciation, tax advantages, cash flow, leverage and equity build-up contribute to the rate of return on rental real estate. If that sounds confusing and it’s keeping you from investing in rentals, try looking at it a different way.Paperwork-250.jpg Consider this, look at only cash flow and equity build-up to determine whether to buy the property. They are easy to calculate and their outcomes are both reliable and predictable. Most homeowners, based on their familiarity with their own home, should feel more comfortable with a rental than alternative investments. A conservative strategy is to purchase slightly below average price range homes in a predominantly owner-occupied neighborhood. Collect the rent, pay the bills and make necessary repairs. A cash on cash rate of return is determined by dividing the cash flow before taxes by the cash invested in the property. It considers all of the “real world” income and expenses related to the property. cash flow and equity buildup.png The equity build-up occurs from the normal process of amortization with an increasingly larger portion of each payment applied to reduce the principal loan amount. In this hypothetical example, the combination of the Cash on Cash and the Equity Build-up is almost 12% which is considerably higher than certificates of deposit and bonds and nowhere near as volatile as stocks or mutual funds. In most of today’s markets, rents are expected to continue to rise and due to a low inventory of homes for sale coupled with growing demand, prices will continue to rise. Even though there is value in appreciation, tax advantages and leverage, they could be considered an unexpected bonus to this basic rate of return.

One-button Pricing?

Mario Gonzalez - Wednesday, November 25, 2015

An Automated Valuation Model, AVM, is a computer approach that looks at public records to make a determination based on square footage, comparable sales and other elements. It is as easy as putting your address in a blank but unfortunately, AVM results may only be accurate about 20% of the time.Value BUTTON3.png A popular AVM, Zestimate®, states “It is considered a starting point at determining a home’s value.” While an AVM contains some of the same information as a comparable market analysis, it lacks a critical human factor. Having a pair of experienced eyes consider aspects that are not easily quantified can make a big difference. A skilled professional can tell which properties are truly comparable. A knowledgeable expert can recognize features, floorplans and other things that can affect value but are difficult to quantify. Even if a person isn’t ready to sell their investment, they like to know its value. It is easy to find the price of stocks or mutual funds on any given day but the value of a home is more difficult. Regardless of whether you’re just curious as to how much your home is worth or are ready to monetize your equity, I’m available to give you that information without obligation. If you’re not ready now, just keep this letter for when you are.

Resource Central

Mario Gonzalez - Wednesday, November 18, 2015

Homeowners should recognize that the same trusted professional who helped them buy or sell their home can be a valuable resource while they own their home too.resource central.png Think of your REALTOR® as an indispensable homeowner’s resource who can make recommendations about a variety of services that homeowners will use throughout the tenure in their home. This experience far exceeds personal experience because of the day-to-day activities working in the industry.

  • To recommend reputable and reasonable service providers.
  • To offer information about your community, nearby businesses and local agencies.
  • To solicit general homeowner knowledge such as protesting your property tax assessment, determining fair market value, determining the best improvements and other things.
  • To assist with advice and suggestions about maintenance, protecting value and saving money.

Our goal is to have a long-term relationship with you. We want to help you be a better homeowner not only when you need to buy or sell but all of the year’s in-between. We want to earn a recommendation to your friends. We want you to consider us your REALTOR® for life.

Real Cost of Housing

Mario Gonzalez - Wednesday, October 28, 2015

A variety of factors have led to a shortage of rental units, especially single family homes, and as a result, rents have been steadily increasing nationwide. In most markets, it is considerably less to own than to rent.House composite.png In some cases, the total house payment is less than the rent for a similar size and condition home which supports a purchase. However, when you factor in some of the financial benefits like principal reduction, appreciation and tax savings, the difference becomes even more dramatic. Let’s look at an example of a $250,000 home with 3.5% down payment and a 4.50% mortgage for 30 years. We’ll assume a 3% annual appreciation, 25% federal tax bracket, $1,200 annual maintenance and current rent of $2,100 a month. The total house payment with property taxes, insurance and mortgage insurance premium would be $1,834 a month. Once the principal reduction, appreciation, tax savings and maintenance have been considered, the net cost of housing is about $673 a month. It costs a tenant over $1,400 more a month to rent than to own which would amount to $17,000 in the first year alone. That’s almost twice as much as the down payment to get into the home. 2015-10-26_7-28-06.png In this example, the down payment of $8,750 grows to almost $94,000 in seven years due to appreciation and amortization of the loan. Owning a home is one of the few investments available that allow these personal and financial benefits. One of the obstacles in the past five to seven years has been a borrower’s inability to qualify for a mortgage but new programs and relaxed requirements have allowed more people to be eligible for mortgages. The important step is to talk to a trusted mortgage professional very early in the home search process. Your REALTOR® can make recommendations based on experience from actual closed transactions. Use the Rent vs. Own calculator to see what the benefits might be in your price range.

6 Reasons for Rentals

Mario Gonzalez - Wednesday, October 21, 2015

Rental homes have several distinct advantages compared to alternative investments. These advantages coupled with the opportunity for a higher yield make it a clear choice for some investors.Income Property.png

  1. Most investments must be paid for in cash. Stocks can be purchased with 50% cash but if the value goes down, more cash has to be used to keep the margin at 50%. Rentals can readily be financed with only 20-25% down payment.
  2. Most loans made for business or investment purposes are at a floating interest rate compared to the prevalent fixed-rate mortgage on non-owner occupied real estate.
  3. Terms for investment loans if possible are generally six months to a year with a possible renewal but real estate commonly has long term loans up to 30 years.
  4. Real estate has a long-term history of appreciation.
  5. Real estate enjoys tax advantages like long-term capital gains treatment, cost recovery and tax deferred exchanges that are not available to many other types of investments.
  6. Single family homes and similar properties give the investor a reasonable amount of control to make improvements and manage the property which are limited to simply determining when to buy and sell for other investments.

The ins and outs of stocks, bonds, mutual funds, commodities and other investments are unfamiliar with most people. It is obviously possible for anyone to invest in them but the lack of knowledge about how they work could make it more difficult to have a successful outcome. On the other hand, homeowners can use their experiences to select, manage and sell with much more confidence using a single family home for rental purposes. To find out more about investing in rental properties, contact your real estate professional.


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