Friday, December 21, 2007

Getting Ready For Next Tax Season

by M. Anthony Carr

If you've bought or sold a home in the past year, now is the time to go through your paperwork to find the forms, bills, and old checks you'll need in April -- and beyond.

Having sold three properties within a 13-month period, I learned quite a bit about what records the IRS requires to claim certain deductions, gains, losses, etc., versus what records I actually could find. The silver lining in all the cloudiness about taxes and your home is that the IRS has a great Web site, Digital Daily, filled with plenty of useful information. The site is easily navigable and searchable.

To get started, click over to the site and take a look at Publication 552, Recordkeeping For Individuals. Here you can find several important issues to consider.

Under Why Keep Records, the importance of the home as a strategic part of tax planning becomes evident when you notice the IRS advises that one of the reasons to keep records is to: "Keep track of the basis of property. You need to keep records that show the basis of your property. This includes the original cost or other basis of the property and any improvements you made."

With that said, every homeowner should start tracking the basis of his or her home from the day of settlement. Within Publication 523 there is, naturally enough, a section devoted to determining the basis of your home.

On the paper side, put together a folder that includes the records you'll need in the future to determine the basis of your home. (Reminder: The "basis" of your home is the cost of acquiring it, whether you pay cash, use mortgage financing, or a little bit of both. For real estate, the "basis" can include other items, such as recording fees and certain closing costs. For details, review the IRS publications and confer with your tax adviser.)

If you purchased a fixer upper, rehabilitation costs can be added to basis, with certain restrictions. Other additions to the property (such as that new deck) which added to its value may also be added to your basis.

To add these to the basis, however, you must keep good records on how much you spent for each improvement. If you're faced with a big bill for capital gains, these dollar amounts can be added to the basis, which can reduce your tax bill.
When selling property, a single homeowner can exempt $250,000 from the sale of a house from capital gains taxes ($500,000 for married couples) as long as the ownership requirements are met.

For example, a home buyer purchases a fixer-upper for $175,000 and puts $25,000 of rehabilitation into it. The basis is now $200,000. If in 20 years the homeowner owns the house outright and the property sells for $325,000 it would appear the homeowner would surpass the $250,000 exemption threshold. However, after reducing by the $200,000 basis, the gain is only $125,000 and no tax is due.

As you can see, hanging on to those settlement papers can save you big bucks later on when you decide to sell your house.

While you're at the IRS site, take the time to look up other publications and forms that may be important when looking at real estate and tax matters:
Publication 521: Moving Expenses
Publication 527: Residential Rental Property
Publication 530: Tax Information for First-Time Homeowners
Publication 544: Sales and Other Dispositions of Assets
Publication 547: Casualties, Disasters, and Thefts (Business and Nonbusiness)
Publication 551: Basis of Assets
Publication 587: Business Use of Your Home
Publication 936: Home Mortgage Interest Deduction

As with any tax issues, forms can be helpful but it's always in your best interest to consult with a tax professional.

For more information on real estate investing, resources and news, check out my Commonsense Real Estate Blog at

Tuesday, December 18, 2007

Are Landlords Always The Bad Guys?

by M. Anthony Carr

Is it better to rent or buy?

Just when I think I've answered this question for the last time and pointed renters to a good "How To Buy A Home" website, I received this letter from a disgruntled high-rise tenant in Arlington, VA, a suburb of Washington, D.C.

I have been a loyal renter for over five years at the same apartment building in the Crystal City area. I have seen annual rental increases go from 2 percent to 3 percent to 5 percent to 8 percent to now 11 percent. Isn't there some kind of limit to this ridiculousness? This just is not fair. Do rules vary from jurisdiction to jurisdiction?

In the world of low- and moderate-income rental property, there are rules. The government steps in with its calculations on what the property owner can charge. The formula includes such factors as the net operating income for the multi-family complex and the median household income of renters to determine fair market values. And in many areas, though not as many as in the past, there are local rent control regulations which often limit year rent increases.

With private-sector housing, all that really matters is the NOI (net operating income). The NOI represents gross rent less uncollected rent, taxes, government fees, insurance, maintenance and repairs. As time passes, landlords face rising taxes, utility bills, repair costs and other expenses, increases which must be covered by pushing up the rent.

Coupled with the NOI is supply and demand. If you live in an area where the supply of rental properties (as well as homes for sale) is dwindling, than it's likely you'll see higher rents than in areas with a surplus of housing units.

A good web site to research your area's rent statutes is Rental Housing Online where you can find information for landlords, tenants, investors and more. The U.S. Department of Housing and Urban Development also has some good resources for renters.

Rental increases are one of the reasons I encourage renters to purchase instead of lease.
With a purchase, you can largely lock your monthly payment with fixed-rate financing for the next several years, considering most homeowners move about every seven years. In addition, if property values rise you can begin to build cash equity in the property that can be used later for other investments or expenses, such as college tuition, purchasing another home, paying off consumer debt, vacation, retirement, etc.

Another benefit to purchasing is that the mortgage interest you pay each month is generally deductible when you calculate income taxes. For instance, let's say you purchase a condo for $150,000 today with only 3 percent down -- that would give you a monthly loan payment of $1,017 -- of which $909 per month would be interest. The first-year tax deduction would come to$10,908. A homeowner in the 28 percent tax bracket, would save $250 per month in taxes -- $3,054 for the year.

Besides all of this with fixed rate financing you cost to borrow will not rise. Unless you refinance, the monthly payment for principal and interest stays at $1,017 year after year. In fairness, though, costs for property taxes and property insurance can rise, but such costs are usually far smaller than monthly financing expenses.

Now I tend to take exception to the writer's other complaint, that "This just is not fair."
Well, fair for who? For an investor, it's very fair that the property owner should be able to increase his cashflow from his or her investment if the market demands it -- just like investors in any other endeavor. I've never heard anyone say that it's not fair that the stock market keeps going up (on the downside, though, there's plenty of griping).

The investor has taken on all the risk of providing housing, the mortgage, interest payments, taxes, maintenance and management of the property -- all of which keep fluctuating, usually up. Trust me, this is not a cheap investment. For this, the owner charges a rent that will hopefully cover all expenses and then provide a profit at the end of the month.

For renters who are tired of rent increases, my advice is to do something about it. Begin paying yourself by saving money from each paycheck for a downpayment; reduce your debt load (which is the largest barrier to homeownership); and research the many, many private and public programs available to help people get into a home of their own.

Just a little research and budgeting can help stop the rental increases year after year and put you onto a home of your own.

For more information on real estate investing, resources and news, check out my Commonsense Real Estate Blog at

Monday, December 17, 2007

Landlords Have Rights When Tenant Breaks Lease


I am a real estate investor in the state of Colorado that purchases single family homes for rent. My question concerns my growing frustration over tenants that break their lease. Typically, we only make a lease for one year periods. The issue typically arises when the tenant finds a home and enters into a purchase contract, then sends a notice to me that they intend to break their lease sometimes within 3-4 months of signing the lease! My question actually has more then one part.

  • What can I do to discourage this from happening? (The obvious issues are wear and tear and the expense of finding another tenant).
  • What if I have negotiated terms with the tenant for a reduced rate in lieu of a multi-year lease and the same circumstances arise?
  • Are there legal clauses that can be inserted into the contract lease that we can rely on for compensation? (It seems that collecting money from a tenant who is moving would be difficult to impossible).
  • Are renters able to break a legal contract with impunity?
  • Who would I contact in my state for guidance?

There are probably others, but you get the idea. Any advice would be greatly appreciated.

K. Bryant
Colorado Springs, CO


You have issues, man! But, fortunately, you’re covered by the law. A good resource for landlords (investors) is, (in particular for use: Here you’ll be able to get a handle on your rights and responsibilities as a landlord and what tenants are responsible as well.

First of all, tenants (and landlords) need to understand that the lease isn’t just a fly-by-night document. It’s a contract, enforceable by the courts. Yes, you can take their deposit money (but check your state’s Landlord/Tenant Act for particulars.) But as a landlord, you have given up the right of possession of the unit to the renters and they have agreed to pay you for that assignment. says:

“The lease does not terminate just because the tenant moves out. The lease is a contract in which the tenant promises to pay the landlord for the right to possess the premises whether the tenant actually lives there or not.”

Now, what you want to do with the contract is up to you. If you consider that you’re talking thousands of dollars per year in rental dollars, then it would be worth a visit to the courthouse to force some of your home-buying tenants to pay up on the way out. In the D.C. market, we take that into account when renters want to become buyers and I’ve seen some sellers pay off the lease as part of the sales contract.

Make sure the tenants understand what they’re signing when you put the Deed of Lease under their noses. They may be willing to walk because you cave and say, “Okay…I guess you can go.” Rather than: “Sure, you can get out of it, as soon as you find a sublease or pay up for the remainder of your ‘legally-binding agreement’ called a lease.” There’s no need to get nasty. Simply point it to them when they sign it that it’s legally-binding and that you expect them to fulfill it.

Thursday, December 13, 2007

Does Uncle Sam Owe You Money?

If you ever held an FHA-insured mortgage -- a loan insured through the Federal Housing Administration -- there may be a refund check waiting for you.
Go to the
FHA Refund Site where you can search the database by name or by case number. When I last looked, a quick search under CARR revealed two refundees, who only need to call the Department of Housing and Urban Development to claim their checks.

One Mr. Carr in California had a check waiting for him in the amount of $301.54, while another Carr with no address, could pick up $735.07. Fred's refund has been sitting there since September 1983.

If your name is on the list, call 1-800-697-6967 to get your refund. For those who search the list and don't find their names but believe they are owed a refund, the site advises to call this same toll-free number to ask about the account status.

There are two types of refunds for FHA borrowers. You can find out if you qualify for a "premium" refund if you meet the following criteria:

  • You acquired your loan AFTER September 1, 1983;
  • You paid an upfront mortgage insurance premium (MIP) at closing; AND
  • You did not default on your mortgage payments.

Review your settlement papers or check with your mortgage company to determine if you paid the upfront premium.

Some borrowers may be eligible for a "distributive share" of any excess earnings from the Mutual Mortgage Insurance fund if you:

  • Originated your loan before September 1, 1983
  • Paid on your loan for more than seven years, AND
  • HUD processed your FHA insurance termination BEFORE November 5, 1990.

There are always exceptions to the rules, and these HUD refunds have their own set of exceptions:

  • Assumptions: When an FHA insured loan is assumed, the insurance remains in force (and the seller receives no refund). The owner(s) of the property at the time the insurance is terminated are entitled to any refund.
  • FHA to FHA Refinances: When an FHA loan is refinanced, the refund from the old premium may be applied toward the upfront premium required for the new loan.
  • Claims: When a mortgage company submits a claim to HUD for insurance benefits, no refund is due the homeowner.
  • Statute of Limitations: HUD is not liable for a distributive share that remains unclaimed 6 years from the date notification was first sent to the last known address of the mortgagor.

If you qualify for a refund, here's how the process works:
The mortgage company notifies HUD of the insurance termination.
If you are eligible for a refund, HUD will either request Treasury to issue you a check directly, or will send you an Application for Premium Refund or Distributive Share Payment (form HUD-27050-B) for more information.

Read the application carefully, sign it, have it notarized, and attach proof of ownership.
HUD either requests Treasury to issue a check or requests additional information from you.
Finally, if you figured you were owed a refund, but have not received a check or an application within 45 days after you have paid off your loan, check with your mortgage company to confirm it has sent HUD a request for termination. If the mortgage company confirms it sent the termination information, contact HUD. If after 60 days from the date you mailed your claim form you still have not received a refund or any other documentation from HUD, contact HUD immediately.

HUD can be notified by:
Phone: 800/697-6967;
By mail: P.O. Box 23699, Washington DC 20026- 3699;
Or by


As in any program where money is involved, there are some scoundrels who will offer to help people get refunds for a fee. Known as "tracers," these folks will get information from this free list and contact the people, offering to help them get their money for a portion of the proceeds.
"You do not need to hire someone to collect your money. You can obtain your refund directly from HUD for free," says HUD.

Wednesday, December 12, 2007

How to Hold Off the Tax Man When Selling Investment Properties

"Marks, Michael D." <> wrote:
I'm not an investor, nor am In the business of selling or buying land. I am a mechanic. my problem is this, in 1994 I bought 80 acres of land for $24,000.00, I sold this land about 2 weeks ago for 160,000.00. other than putting the money in a saving account I don' have a clue. can you tell me what my next move should be? what are capital gains taxes, I've been reading on your web site any advice will be highly appreciated.

Well -- hopefully, you talked with an intermediary about this sale FIRST. If you touched the money, you will most likely owe capital gains taxes. If you haven't gone to settlement, then call the settlement company and request an 1031 intermediary company now. T
he way this works is that the intermediary charges a fee to the investor/seller to handle the transition of money. At settlement, the proceeds are directed to an account held by the intermediary who then forwards the money to your next purchase (which must be of equal or greater value than the house you're selling). Thus, your next purchase will need to be at least $160,000; however, it doesn't have to be one property. You could buy two rental properties now or a warehouse, etc. It just has to be real estate.
If you need money from the transaction, then one technique is to complete the transaction; purchase the next property; then refinance the property immediately with a cash-out refi.
On the other hand, if your intention was to take the money and run, then you WILL owe capital gains taxes.

For more information on real estate investing, resources and news, check out my Commonsense Real Estate Blog at


Monday, December 10, 2007

How Much is Too Much to Fix up Your House?

by M. Anthony Carr

As with any resale product, the person trying to sell said product will usually try to make the product look as new as possible to ensure the highest profit available. In reviewing many of the homes on the market today, however, some sellers don't get that notion.

Don't make the mistake of the seller who, knowing full well that buyers were coming by, not only failed to do a fresh clean up, but also left his underwear on the exercise bike, a pan of crusty macaroni and cheese on the stove and debris throughout the yard.
There are some task items any seller should consider when selling a house. Even if you decide to sell "as is," a little soap and water could put a few more bucks in your pocket. With that in mind, let's look at what sellers should look at doing with any house they want to put on the market; what to do when you want to get a little more money; and how to compete with the Joneses when looking to prepare your home for sale.

Any House

All homes going on the market should receive a deep cleaning. This is the cleaning that you do when … well, you would never do it unless you're selling your house (or you're just an absolute neatnik. This involves scrubbing every cranny of the house. Nothing goes unscrubbed. I would suggest bringing in a professional group to get this done and plan on spending a couple hundred bucks (maybe more) to get the house ready for your new buyer.

Next, declutter the house. Go ahead and rent a huge storage unit and fill it up. Plan this with a bunch of pre-made boxes that have lids you can tape shut and label. Take extra kid's toys to charity. Donate all clothes that are even a bit too tight or out of date. Remove excess furniture (or even cover with matching covers).

Repair and paint where needed. As with most homes that have been lived in, that would be all of them. Walk through a new construction home to see what you're up against and then go and make yours look as best you can on your budget.

Landscaping. Thankfully, mulch and flowering plants don't really cost a lot of money for those who are just sprucing up. Before going out and paying for a designer-created landscaping job, start with the local garden center and get some free advice on how to spruce up on a budget. Fresh, flowering plants (even in fall and winter) can make the house look oh-so much better.

Even if you're selling as-is, the above four tips are a must. Next is where we spend a little more money.

Renewed color. Giving your house a makeover doesn't have to cost you a second mortgage. The first item to consider for rehab is your color selection. While the traditional advice is "go vanilla," professionally selected colors (not too bold) can make a "nice" house into a "wow" house.

Flooring is one of the best moderately priced upgrades a seller can install to make a huge difference. While I like the concept of "choose-your-own-carpet" offers in home listings, think about what else it's saying: "We're too cheap to fix up the house now, so we'll let you walk through our tattered, stained carpeting and let you get it installed the weekend after we leave." Like I said, make your house a "wow" by making that first great impression with new carpet.

Replacing dated items. Sometimes replacing certain items in the house is really more like maintaining your home instead of upgrading it. Items like windows, doors, light fixtures, faucets, door hardware, etc., need upgrading and replacing periodically. A walk down the light aisle at your favorite hardware store reveals this could be done on a budget. Nevertheless, there's nothing more gross looking than a brass light fixture that's chipping and rusting.

Keeping up with the Joneses

At some point you have to look at what the neighbors are doing and keep up or you'll lose out. If everyone in the neighborhood is ripping out the old and installing the new (kitchen, bath, carpet, doors, etc.) then you may be forced to do the same thing long before you're thinking of putting your home on the market. My wife and I are facing that right now with the kitchen. It's starting to show its age, which means before we put the house on the market in a few years, if I want the best buyer (or any buyer for that matter) the kitchen cabinets need an upgrade.

Redo, Remodel, Relax

As you look around the house, making your list of things to change before putting the house on the market, remember to create some time to enjoy your new digs before selling the place. If a sale is on your horizon and you must redo the landscaping before putting the house on the market -- do it early so you can drive home to the professionally designed flowerbeds and floral creations a few months or years before selling it to someone else.

While you want to repair, paint, remodel and add on to your house because it adds value to your home, every homeowner should especially do it because they want to enjoy the changes as well.

Published: October 20, 2006

How to Tell Where Your Market's Headed

by M. Anthony Carr

I've had several friends come up to me in the last few weeks and ask: "Is this a good time to sell my house?" or "Is this a good time to buy a house?" Let me preface my 700-word answer with this: If nobody panics, we'll all get out of this alive.

Many readers have accused me of being too optimistic on the real estate market. What they see as optimistic is actually an attitude steeped in the belief that you can make money in real estate in any market, you just have to know how to operate when the market's moving up, leveling off, or cooling down.

When prices are up -- sell. When prices are leveling or dropping -- buy (or sell). When rents are moving up, don't play Mr. Charity, raise your rents. When you enter this field of real estate as a wealth-building business investment, that's exactly how you have to treat it -- like a business.

When the market shifts, that's okay if you're looking at the market as a way of making money and building wealth. So last week when I read some reports from federal agencies that appreciation had slowed, I didn't panic with many of the market prognosticators, I just shifted my business plan. Real estate investors and property owners can make money in any market, you just have to be wise on the market and be flexible on how much profit you want to make.

Consumers are definitely confused on whether they should buy a piece of property when many numbers are pointing at a housing market that is slipping in prices. Today's tip is to approach it from a non-emotional business perspective. Watch these segments of the economy in your local area to determine if you should buy in your market:

A - The local economy

What's happening? Are jobs growing? Are businesses opening? Are current businesses investing in themselves? What are the economists saying in your area? Research this data by a simple Google or Yahoo search of "economic report." Through that search, the astute investor will find out where economists are predicting growth in suburban business centers and where the jobs are coming and going.

Forget what you're hearing nationally and look for the growth on the local level -- where you want to buy a house. Just like politics, real estate is local, which moves us to B.

B - The local real estate market

What's happening? Are prices booming, leveling or slipping? This has to be researched on various levels. Start on the state level, drill it down to your county and then get a granular look at the zip code and community level.

These numbers can easily be found through your local Realtor association. For a list from across the country, start at and click the links to local real estate associations at the bottom of the page. Most local associations (definitely state groups) keep a public area on their web pages with local statistics on the number of homes sold, sales prices and year-to-year appreciation.

Look up government information as well on job growth, economic plans and forecasts. If the state and county governments are playing their role appropriately, they're creating jobs AND allowing development of housing to house the workers who come along for those jobs.

If they haven't come up with the latter, then you might have a good investment opportunity on your hands. More jobs and fewer houses spell lower supply and high demand, meaning equity growth and high rents.

And don't forget the rental market. Is it growing? Are there a lot of vacancies? How much are the rents going up? Down? If rents are up, then you may be able to cover your monthly expenses. If they're dropping, it could be because the location is down economically or because housing is so affordable (but appreciating) that renters are getting out of the rent track and buying a house instead.

C - The financial market

This market is actually the only real estate component that is usually measured on a national basis. It's all about the cost of money and most interest rates are within a basis point or two from each other nationwide. Currently, they are still historically low (under 7 percent) which can be had for 1 or less points.

If you find that A is chugging along, B is still affordable and C is also affordable -- then buy, buy, buy. A strong economy with a growing real estate market and strong rates, means you can buy a house for relatively little money down as an investor, put a renter in the house and obtain it with cheap money that the rent will pay for.

If you find you're in a positive A situation, but B is unaffordable and C is still affordable, then you may need to wait or jump in the flow before B gets even more unaffordable.
If A is great, B is leveling and C is still affordable, and A looks like it's going to keep growing -- then buy while you can, because B is going to move up right after the break.

Finally, get a team together to help you analyze the data you've just researched. Are the prices trending upward? (And is that really a good thing right now?) Or are the prices dipping, meaning I should get in while I can because the jobs are coming? Work with your agent, lender and accountant to figure how the market can help you with your wealth-building goals.

Published: October 13, 2006

Sellers Sitting on Large Sums of Equity Dollars

by M. Anthony Carr

Many sellers in today's market are bemoaning the fact that prices have stabilized or are falling in their communities. While year-over-year numbers regionally and nationwide have demonstrated strong appreciation, the latest month-to-month declines in some markets have made headlines and struck fear in the hearts of homeowners everywhere.

Despite very robust long-term housing appreciation, many observers of the market and prognosticators write scary reports about how appreciation has slowed, prices have dipped, etc.

Stories from the field go something like this: The seller won't accept a $150,000 lower offer on his $1.2 million listing because he's already dropped it $200,000 from his original asking price. When asked how much he bought the house for 15 years earlier, he answers, "That has no bearing on my situation now."

The real answer is that the seller actually bought the house for around $400,000 15 years ago and believes the roughly $600,000 gain on the property is not enough -- since last year the same type home sold for $1.4 million.

My dear sellers, sell in the market you're in, not the one you wish it could be. This particular seller's story (and stubborn attitude) could be blocking a great opportunity for him to take advantage of the current market instead of the market taking advantage of him.

The mindset goes something like this: "I've already lost $200,000, why would I give up another $150,000 to sell my house?" If we're going to talk about how much has been lost (on paper) and how much as been gained (once you sell the house), then let's look at the real cash gain on the above property. In just a moment you'll see how many homeowners are sitting on more than 1,000 percent gain in their homes -- they just haven't realized it yet (nor will they) until the house is sold.

Let's use the above example. The homeowner bought the house for $400,000 and is standing in front of a $1,050,000 offer that could net him more than $600,000 if he signs the bottom line. So what's his gain?

At an initial glance, it looks like his house has grown in value by 162 percent, thus he's gained a 162 percent return on investment, right? Actually, while the asset has grown by 162 percent, his return on the investment of his actual dollars is much higher.
Here are the assumptions:

Purchase price: $400,000
Down payment: $40,000
Mortgage amount: $360,000
Sales price: $1,050,000
Cost of sale: 8 percent (commission, closing costs, seller subsidy, etc.)
Net gain: $606,000

With the above numbers, his $40,000 investment several years ago has resulted in a net gain of 1,515 percent. That's right -- one thousand-five hundred-fifteen percent.

My question to the seller is: "How much is enough?"

According to the Office of Federal Enterprise Housing Oversight reports that the average quarter over quarter appreciation (for 2Q 2006) for housing was more than 10 percent over the same period a year ago. Of course, the report itself and the media jumped on the statement of, "The quarterly rate reflects a sharp decline of more than one percentage point from the previous quarter and is the lowest rate of appreciation since the fourth quarter of 1999."

Now, that sells newspapers and gets the "email this article" link a hefty workout. What wasn't reported everywhere is that the average appreciation nationally has been 298.85 percent since 1980. In the last five years, the nationwide average has been 56.49 percent in appreciation. Where it really comes down to a level of importance is what has happened in your state or community. For instance, in my home state of Virginia, the 26-year appreciation has been 360.29 percent; the 5-year appreciation has been 83.38 percent.

Now let's look at the latest appreciation/depreciation in my marketplace -- down about 1 percent compared to the same month a year ago. Ouch. That smarts. (I will point out though, that also in my market area, sellers have been overpricing to the tune of 13 percent higher than their counterparts from last year, while they are selling at 5 percent less than asking price. It's not so much a loss in "value" as it has been an overpricing of the inventory.)

Regardless of price, the basic investment strategies still apply here -- buy low, sell high. It's just all relative. If the seller thinks he's "losing" tens of thousands of dollars because 1) that's what the houses were selling for last year; and/or 2) that's how much he's had to reduce the asking price, then he has a long emotional row to hoe.
On the other hand, the seller could look at the numbers calculated above and start dancing all the way to the bank with his ROI of 1,515 percent. So, again I ask, "How much is enough?"

The biggest challenge a seller has to face in today's market isn't the market, it's actually the person he's looking at in the mirror.

Published: October 6, 2006

Sunday, December 09, 2007

Prices, Interest Rates Make Up 20/20 Real Estate Vision

by M. Anthony Carr

Many real estate prognosticators have been worrying about the slowing of the appreciation rates across real estate markets nationwide, scaring many buyers out of the market. The Office of Federal Housing Enterprise Oversite released its 2nd quarter figures on average housing prices this month and many market watchers jumped on the "dropping prices" bandwagon.

The astute buyer, however, watches the prices and the interest rates adjustments together and then makes an offer at the optimal time to get the best house for the best price and terms.

Headlined "House Price Appreciation Slows," the OFHEO report showed that prices nationally are not dropping, rather the rate of growth has slowed. On average, the houses in the 2nd quarter were 10 percent more valuable over the same period last year. So consumers and economists have on their worry hats about the future. Understandably, none of us like to see an investment stop growing; however, for the buyers, this slow in appreciation is good news.

I've always held on to the belief that there's not a lot you can do about the future, so you have to live and make decisions based on the facts you have today. The reality about real estate, is that sometimes you have to buy when your life situation dictates it, not when the "price is right." However, for buyers who have been on the sidelines, the time may be right to hit the iron of making an offer, so to speak.

Have you been watching the interest rates lately? has its average 30-year fixed rate at 6.4 percent -- a drop of 3 basis points in one week and the lowest level all year. In addition, for those willing to pay more points, you could get a rate under the 6 percent threshold. Meanwhile, if the prices in your area are about to flatten before beginning their next cycle upward, and you MUST buy now, your waiting may have paid off -- if you jump over the fence of indecision and get a contract written now.

Earlier this year, rates were standing at 6.8 percent. The drop of 4 basis points since then could save a shopper hundreds or thousands of dollars per year on a home mortgage, depending on the loan amount.
At 6.4 percent, the principal/interest payment on each $100,000 borrowed is $625.51 -- that's about $25 less per month than when the interest rate was at 6.8 percent a couple months ago.

Thus on a $400,000 loan amount, your payment would now be $100 less per month -- that's a savings of $1,200 per year (more than $6,000 over the next five years) if, and this is the big IF, you get off the fence, lock in your loan and make an offer on that house you've been waiting on.

Watching the interest rates as well as housing prices in your market is the 20/20 Vision of the real estate market. Look to the future. Buy when prices are stable with a low interest rate and then hold on for the ride. According to some forecasters, this month may be the month buyers should get off the dime.

The Financial Forecast Center, a market research group in Houston that monitors and forecasts indexes, interest rates and various other market data, predicts the average national interest rate will climb beyond the highest rate this year to 6.97 percent by January 2007.

If that's the case, that money mentioned above will then cost a buyer $663.29 per month for every $100,000 borrowed. For a $400,000 mortgage, that would then be over $1,800 per year more in monthly payments for the same amount of money (assuming your favorite house is still available and that the price hasn't gone up again).

If you're waiting for prices to hit bottom, it could happen while you wait or you could create your own "bottom" price by making an offer now before interest rates start their upward climb once again. Get the house you want for the price you want at today's interest rate.

Published: September 29, 2006

Lifestyle Choices Affect Bottom Line

Realty Times: Lifestyle Choices Affect Bottom Line

September 22, 2006

by M. Anthony Carr

When it comes to eventually moving into that dream home you've always wanted, keep in mind that many of the choices we make on a house are really driven by lifestyle desires, rather than lifestyle needs.

More bedrooms means more time to clean, more expensive to repaint and carpet/floor in the future. The bigger the house and the larger the lot, the more you're going to pay for it both in time and financial resources. The main three decision factors are larger lot, more space and more stuff. Each of these come with a price tag.

Larger Lot:
Depending on the acreage, this is going to cost the owner in regards to acquisition, monthly payment, and upkeep. First is the acquisition. Larger lot means larger price, thus larger down payment and monthly payment. In metropolitan areas, the closer in to the epicenter of town, the more the extra space is going to cost you. If you decide to get it cheaper by moving out of town, then you'll be paying more for gas and be losing the ever elusive minutes of your life.

A friend of mine is dying for a couple of acres. He's moving into the area from a community where houses with 2 acres are common and they are within minutes of the job centers. No problem. In this market, however, it means possibly driving 30 miles or more for what he's looking for. It also means a longer commute -- upwards to 90 minutes -- in morning and evening rush hour. If that's 30 minutes longer per day than what he does now, that's 2.5 hours per week longer on the road -- folks that's 125 hours per year just on the road to work and back per year than living closer in. (That's three weeks worth of working hours.)

The larger lot also means more upkeep. If you have teenagers, maybe it's not your problem, you think with a wry grin. Nevertheless, the larger lot that is cleared off and landscaped will take longer to mow, require more gas and possibly even more equipment. In addition, there's the landscaping (mulch, et. al.) that you may not have needed to fret about before.

(In my household, come mulch time, forget bags -- we order it by the truckload now. We didn't even get a larger lot; just decided to "add" a few flower beds -- now each spring costs more for mulch.)

Even in a wooded lot, you'll now have to start watching the trees that border your house. A neighbor told me before he was moving that he was spending about $500 per year taking down trees that were threatening his house. Once he did move, the new owners had a tree fall on their home within a few weeks, causing damage to the roof and patio.

More space:
For most move up buyers, this is the No. 1 reason they are shopping for a home. The 3-bedroom townhouse isn't cutting it for the growing family and it's time for a yard. Let's get the 4th bedroom, or 4th bedroom with a "bonus" room in the basement.

More space creates more expenses for paint, accessories, flooring, etc., every time the room is repainted, remodeled, etc. It's no rocket science calculation to see that the 1,800 square foot home is going to be cheaper to care for than the 2,800 square foot home. Remember, percentage wise, we're talking 55 percent more home – which will interpret into 55 percent more flooring cost, 55 percent more paint, 55 percent more utilities, etc. When purchasing, don't forget to ask the owner for a rundown of monthly or annual expenses for upkeep of the property. (Most likely, it will be an estimate, but a good indicator of your true costs of the property.)

More stuff:
Don't forget that once you get a larger place, it usually is compounded with a decision to replace older furnishings or purchase new furnishings to put into your new areas.'s latest home moving survey revealed that:
57 percent of owners and 37 percent of renters bought furniture within the 12 weeks surrounding their move; owners spent an average of $3,500 and renters spent $1,220.

55 percent of moving homeowners purchase at least one appliance when they move, and 57 percent of homeowners buy furniture.

35 percent of owners and 40 percent of renters bought bedding; of these individuals, 72 percent did so within three after their move. Owners spent an average of $420 and renters $240.

As you're contemplating your next move, be sure to add in to all your calculations the new costs of living in your new castle.