Reasons Behind Investing Your Money in Real Estate

As entrepreneurs find success with their primary business ventures, many search for the proper investments for their profits.

Of course, we can and should all start traditional tax preferred vehicles like an IRA and 401k. These are the bedrock of good ‘benefit’ planning for ourselves and our employees. I’m also convinced more entrepreneurs should consider rental real estate as an important part of their portfolio.

I realize many business owners shrug off this concept after the recent downturn in real estate values, but let me list a few reasons that may change your mind:

1. Gain more leverage. Real estate is one of the few investment vehicles where using the bank’s money couldn’t be easier. The ability to make a down payment, leverage your capital, and thus increase your overall return on investment is incredible.

2. Grow, tax-free. Buying rental property based on speculation of its value is a dangerous tactic since cash flow is the key. However, appreciation over the long-run is certainly realistic and at the least you should be considering a tax-deferred strategy. In the future, you may even consider a 1031 exchange, charitable trust, or an installment sale to lesson your tax liability further.

 

3. Tax free cash flow. It’s no secret that because of depreciation and mortgage interest deductions (if you leverage your capital), your cash flow should be tax-free. That’s right! The far majority of the time an investor will never pay taxes on their cash flow and can wait for capital gains on the sale of the property in the future.

4. The tax write-offs against your other income.Depending on your classification as an Active Investor or Real Estate Professional and your income level, there is a good chance your rental property will not only give you tax-free cash flow, but an overage of tax deductions you can use against your other income. With that said, this is something you want to discuss with your tax professional before investing so your expectations are realistic.

5. Increased tax deduction strategies. Rental property affords investors with another incredible opportunity to convert personal expenses to potentially valid business deductions. Don’t forget that rental real estate is a business. This means that travel expenses to check on your properties and payments to family members who manage your properties (such as students away at college) can be deductible and increase the tax benefits when it comes to cash flow and the future sale of the property.

6. Rental real estate is a forced retirement plan. Americans are terrible savers. We lack the self-discipline to put a monthly deposit into our IRA, SEP or 401k as small-business owners. However, buying a rental property is a significant commitment that you are required to commit to and maintain. You will always be grateful in the long-run when you don’t give up on it and build future cash flow and wealth.

I meet with a lot of successful entrepreneurs, and almost every one of them has taken profits from their businesses over the years to invest in rental property. Based on this fact and the list above, I have consistently urged my clients to buy one rental property a year and already have clients with rental properties earning them money they never imagined they’d have.

The far majority of us will never get rich overnight. It takes long-term investing and a diverse portfolio to build true wealth. Don’t forget real estate as an important part of the equation.

San Jose Rated one of the Richest Cities in the US

  San Jose-Sunnyvale-Santa Clara, Calif.


> Median household income:
 $90,737
> Population: 1,894,388 (32nd highest)
> Unemployment rate: 8.6% (112th highest)
> Poverty rate: 10.8% (28th lowest)

Median income in the San Jose metro area, which constitutes part of Silicon Valley, jumped from $85,736 in 2011 to $90,737 last year. San Jose had among the largest concentrations of high-paying professional services and information jobs in the nation. But the area is not only the wealthiest in the nation, it has also become one of the most-desired housing markets. Just 3.6% of housing units were vacant in 2012, down from 4.9% in 2008, while median gross rent reached $1,560 last year, more than any other metro area in the U.S. Home values also were the highest in the nation, with a median of $624,200. More than 20% of homes in the area were valued at over $1 million.

Last Minute Shopping

With Christmas less than a week away, retailers and shoppers alike are scrambling to the finish line.

There are many reasons why consumers put off Christmas shopping until the last minute, in hope that prices will drop dramatically as the days before Christmas tick down. But this year has been different; the National Retail Federation on Monday said its “turning out to be a holiday season like no other”.

Certainly, Thanksgiving late shopping in the season is one plausible explanation. We all know that Christmas falls on December 25 each year, no matter what, but we somehow can’t all embrace the holiday and its trimmings until after we get through the one before it. We complain about Christmas decorations on sale before Halloween and Thanksgiving now getting hijacked by pre-Black Friday sales, but few of us are diligent enough to really take advantage of all of that.

When Thanksgiving in late November robs us of an extra weekend of shopping before Christmas we find ourselves pressed. Heck some of us do not even have all out holiday decorations up yet.

But another part of why this year is like no other is that no again, off again economy. The stock market is mostly of fire and people are starting to get hired again. But there’s a big chunk of the population that is unemployed, under employed, or leaving the workforce because they’re feeling just plain hopeless about finding a job.

 

The retail federation, for example, reports that a relatively high 42% of shoppers used their debit cards, the closest thing to cold, hard cash, to purchase gifts this year. Why does that matter? Because study shows that people spend more on credit cards than they do when they are pulling dollars out of their wallets. When the cash is gone, its gone. Credit seemingly never runs out. Most people without jobs or with stained budgets aren’t likely to be running up big credit-card bills.

And as sales results trickle in, its clean that people aren’t spending, at least not yet, to the degree that retailers had hoped. That means there’s unwanted inventory unmoved. Its why you  see stores like Toys R Us panning to keep the lights on for 87 unremitting hours beginning Saturday at stores nationwide.

Theses are a few examples of how the economy, retailers and consumers alike are facing off this Holiday season!

 

Are you Ready for the Holidays?

Are you ready for Christmas? People get asked this question several times a day during the holidays. Especially when they are weeks away.

We run around from store to store and go to Christmas parties and the bakers are busy in the kitchen preparing cookies, cakes and candy.

While you are working to make the season merry for your own family, take a minute to slow down and think about the moms and dads, grandmoms and granddads, who cant even think about buying Christmas gifts. There are bills to pay and groceries and gas to buy. They are working two or three jobs to afford the necessities. To them, it doesn’t matter what the calendar says, they will not be ready for Christmas.

I am going to write a list of places where you can donate this holiday season.

1.          Sacred Hearts

http://www.sacredheartcs.org/holidays/donations

2.          Second Harvest Food Bank

http://www.shfb.org/

3.          This is a list of the majority of places where you and me can donate this holiday found on KTVU

http://www.ktvu.com/news/news/charities/nFjqS/

 

…..And of course Intero is collecting canned foods and jackets this holiday season. If you would like to donate a jacket or food, you can drop it off right here in Willow Glen Intero at 1567 Meridian Way, San Jose 95125.

 

Happy and Safe Holidays this Season!

 

happy holidays

 

 

Benefits of Buying a Home During the Holidays

The year-end holiday season is a good time for gift exchanging, entertaining and general enjoyment. But what about buying a house? Should you try to do that in November or December, too?

If you’re not picky about the home you intend to buy, the answer might be yes.

Sellers tend to avoid the end of the year because of the short days, wintry weather and conventional wisdom that says buyers are otherwise occupied. Those who sell at year-end are often under pressure and highly motivated to cut a deal.

A seller who is looking to move a piece of real estate during the holidays is a seller who needs to sell, because nobody in their right mind would pick that as the most convenient time to list their property. This is why it might be a smart time to buy. Determined house hunters can take advantage of seller’s urgency.

The biggest downside is the limited supply of listings, which occurs mainly because sellers are so uninterested.

If you can’t find a home you like, you might be able to tap into homes that aren’t on the market.

Another approach is for the broker to send letters to homeowners in your preferred neighborhood, trawling for someone willing to sell a home that meets your criteria.

A third technique is to call agents who sell a lot of homes in your target area and ask about the home that aren’t yet listed, but are helping prepare the “coming soon”.

Less competition from other buyers might mean you’ll be able to negotiate a favorable price. Those properties oftentimes are priced to sell. It could be an opportunity to sacrifice a little bit of time during an otherwise very busy time of the year to get a better investment property.

Still, with fewer homes to choose from, you might have a lower expectation.

If a house comes up that works for you, it should be a pleasant surprise. I wouldn’t set a realistic expectation of finding your dream home during that period.

One pitfall in year-end housing shopping is that homes in cold-weather states might have defects hidden by snow, only to be discovered by thaw in spring. Not to worry Bay Area!

Photography of the home taken earlier in the year and a home inspection can help mitigate some of the risk.

Not only sellers and buyers, but also real estate professionals like to take time off from work in November and December. Realtors and mortgage brokers have friends and family too.

That said, many pros do work during these months, precisely because they know many buyers have vacation time to devote to year-end house hunting.

Either way, it is a good idea to ask you agent what his or her plans are so you won’t be caught off guard of left hanging if your calls or emails suddenly aren’t answered as quickly as you’d expected.

Individual mortgage brokers also might take some time off at the end of the year. But it would be unusual for a mortgage company or bank to be closed any normal business day other than Thanksgiving, the day after Thanksgiving, Christmas day and New Year’s Day.

I don’t know of any mortgage company or bank that closes for longer than the typical holidays.

If you are a serious buyer, you need not be shy about intruding into sellers homes at a time normally reserved for families and friends. If a home is for sale, presumably the owners want sincerely interested buyers to see it.

Is a seller is willing to put their house on the market during the holiday season; they really want buyers to some in.

If there is a for sale sign, there is a welcome sign!

imagesHappy Holidays 

The Meaning of Thanksgiving

“In 1621, the Plymouth colonists and Wampanoag Indians shared an autumn harvest feast that is acknowledged today as one of the first Thanksgiving celebrations in the colonies. For more than two centuries, days of thanksgiving were celebrated by individual colonies and states. It wasn’t until 1863, in the midst of the Civil War, that President Abraham Lincoln proclaimed a national Thanksgiving Day to be held each November.”

Thanksgiving is more than just a big meal. It is a time to reflect on the blessings you received over the past year. We know that the whole year might not have been the best or most successful, but I’m sure there were some blessings along the way? This is the time where family and friends, can share a big meal at the dinner table and show each other love. Whether it’s been a year since you’ve talked to your family, this is the one time to get together, watch football, eat and talk about what we are all thankful for. I am going to share with you a poem written by Ralph Clark about the “Meaning of Thanksgiving’.

Thanksgiving Day is the day we offer thanks

To those who build the foundation of our land

And to those who dies keeping our country free

A day we thank God for his guiding hand.

 

A day we sit down at our table with those we love

Feeling good knowing no danger lurks at our door

Thanksgiving Day is celebrated each and every year

By all Americans whether we are rich or poor.

 

A day we give thanks we can choose our way of life

In a sinful world where much freedom is gone

Thanksgiving Day is a special day in our country

We are not perfect, but together we stand strong

 

This is the meaning of Thanksgiving

 

 

So take a break, eat good food, watch the game, and most importantly, be thankful for the loved one in your life and the life that you have been blessed with!

800px-Thanksgiving-Brownscombe

 The First Thanksgiving at Plymouth (oil on canvas 1914)

Building Trends in the Bay Area

If you are building a home in the Bay Area, you want to keep an eye on emerging trends. But you also want to steer your own course. There are four exciting residential construction trends that should stand the test of time.

1.       Improve energy efficiency

 

There are a million and one strategies to improve energy efficiency, such as: Constructing low water toilets; improving your HVAC maintenance; installing solar panels on your roof; upgrading your doors and windows; installing programmable thermostats.

2.       Welcoming the Sun

 

Outdoor kitchen and living areas, such as glass and conservatories, are all the rage these days, perhaps in part because Californians are recognizing how important it is to get regular amounts of safe sunlight. In addition to creating outdoor spaces, many homeowners are installing sheer blinds, skylight, sky tubes, and more windows.

3.       Toxin-free homes

 

The Bay Area is one of the epicenters of the green “all natural” movement- and has been for over 50 years. Builders notice they are using more environmentally-friendly materials, such as carpets that emit fewer volatile organic compounds; low degassing paints; toxin-free flooring and other materials.

4.       Automatic Controls

 

Homeowners can now control heating, air conditioning, security systems, TV and video, lights, and other systems using simple devices, like iPads. If you build with home automation in mind, you can find neat design solutions and pre-wire your house for best practices.

Reverse Mortgage

I would like to share with you information I learned while attending a conference last week.

Do you know what a Reverse Mortgage is? A reverse mortgage is a financial instrument that allows seniors to access the equity in their home without income or credit qualification. Seniors must be 62, live in their own home and have equity in it. This can also be used as a tool to pay off an existing mortgage or to purchase a home without making monthly P&I payments.

Requirements:

  • Must be 62 and older (everyone on title or loan)
  • Primary residents only
  • Down payment and closing costs, including gifted funds, must be documented
  • No income or credit score requirements
  • All liens and or judgments must be paid
  • Must be able to pay taxes, insurance and normal maintenance

Acceptable Property Types:

  • Single family homes
  • 2-4 unit dwelling
  • Condos that meet FHA guidelines
  • Manufactured homes that meet FHA requirements
  • Planned Unit Developments

How does the Reverse Mortgage Purchase work?

  • The loan amount available is based on age, home value, FHA loan limits, and current interest rated and any mandatory payoffs
  • The down payment requirement is the sales price minus the loan amount above
  • No payments are required as long as the homeowner lives in the home, pays their property taxes/insurance, and maintains proper upkeep of the property.

Example Purchase

Age:                                                                                       65 Years Old

Purchase Price:                                                               $300,000

Calculated Loan Amount:                                            $150,000

Down Payment Required:                                          $150,000

Monthly Mortgage Payment:                                    $0

 

Possible Uses/Benefits

  • Downsizing/Upsizing
  • Relocating near family members
  • Divorce
  • Purchase 2nd home or rental properties
  • Gifted funds for family purchase
  • Payoff existing mortgage to stay in home
  • Foreclosure Prevention
  • Financial planning tool

*It may be advisable to season the loan 12 months to access the maximum funds, so planning may be a priority.

There are great benefits to a reverse mortgage. If you are thinking of this option or know anyone who might be, please give me a call to discuss all of your options!

 

Earnest Money Deposit…

What defines an ‘Earnest Money’ deposit is the deposit made to the seller showing the buyer’s good faith in a transaction. Earnest money allows the buyer additional time when seeking financing. It is held jointly by the seller and buyer in a trust or escrow account. The reason for this is the show the seller that a buyer is serious about purchasing a property. When the transaction is finalized, the funds are put toward the buyer’s down payment. If the deal falls through, the buyer may not be able to reclaim the deposit. But this is not always true. Typically, if the seller terminates the deal, the EMD will be returned to the buyer. When the buyer is responsible for retracting the offer, the seller will usually be awarded the money but, not always.

If the deal falls through, a cancellation fee will usually be taken out of the deposit, but the remainder will remain in escrow. Whoever is holding the money will determine whether the buyer should get the money back under the terms of the purchase agreement.  Without EMD’s, you could simply make offers on many homes, essentially taking them off the market until you decide which one you like best. In addition, if you find problems with the property, you usually get your money back.

In some markets demand is so great that the seller will look for a higher deposit before accepting your offer over someone else’s. You can sometimes win a bid if you give the seller a larger deposit. In fact, the seller may be willing to come down in price a little if you make a bigger deposit. This strategy may save you money in the long run.

All in all, an EMD is an important part of a real estate transaction and knowing what and how it works is always valuable time spent finding out.

 

Top Benefits of Staging a Home

One of the biggest trends in real estate over the past few years has been Home Staging. Real estate professional’s ad home sellers nationally and even internationally, have implemented this strategy with outstanding and very profitable results. With the market shifting frequently, it is more important than ever that staging be put to use in the marketing of a property. Unfortunately, in recessions, many real estate professionals and homeowners struggle to sell their properties quickly and many think the best way to survive is to cut their staging budgets. The opposite is true, if you want to sell a property quickly.

Many realtors and homeowners who have taken a hasty approach to putting a house on the market and choosing to not stage has experienced the penalties of that decision as their houses languish on the market, month after month price reduction after price reductions, with no sale.

The benefits drastically outweigh vetoing staging. Three benefits of staging include financial, emotional and visual.

Bottom line is that staging homes tend to sell faster and for more money. Listings that are staged and priced competitively sell at minimum, 50% faster than non-staging properties, according to trulia.com. A 2007 survey found that 94% of staged homes sold on average in one month or less. Homes that were staged spent 80% less time on the market then those who were not staged.  Lastly, the cost associated with staging is a drop in the bucket compared to a price reduction. When you consider that price reductions usually start at $10,000 before anyone notices a price change, most home sellers invest only a small fraction of that in preparing their homes for sale.

The second most rewarding benefit is the emotion it creates to buyers. 95% of buyers buy on emotion so you’ve got to make it emotional for them. Home buyers begin their shopping process with a list of criteria, but what pulls them towards one house over another is the emotional experience they have upon entering a specific house.  When they start to see where their furniture can be placed, whose room is whose, and how they can create a home in that property, you have got a sale. Staging a home, bring these emotions on. Placing nice furniture and bedroom sets into a home will make a buyer feel like they have arrived home.

That is why it is so important to create the most desirable environment possible so that you attract and pull at your prospective buyers heartstrings. In fact, if you are able to do that with several prospects at the same time, you will benefit from multiple offers which usually results in a higher selling price. The ultimate goal is to appeal to the greatest number of prospective buyers within a certain target market.

The third most value benefit of staging a house is the visual aspects. According to the National Association of Realtors, 84% of buyers use the internet as the information source used in their home search. As buyers are searching the internet for properties, if your photos do not capture their attention, or worse, you don’t have any photos at all, then you are losing a significant amount of prospective buyers. Hands down, photos of stages properties are more appealing than photos of a non-staged home.

If buyers are searching for properties online, they want to get as much information as they can to narrow down their choices. A major part of that decision is what the property looks like, not just an exterior photo of the house, but what the interior has to offer. If what they see meets or exceeds their expectations, they will take the next step and visit the property in person. If you are not capturing their attention online, then you most likely lost them for good because they will not consider your property an option.

Remember, you only have one chance to make a first impression. Whether that first impression is online or in person, you have only a few seconds to make them stop and notice your property. This is the number one reason why staging is so important.