Moving up to a larger home

If you are ready to move up to a larger home, here are some things you might want to think about.

The ideal scenario is you sell your current home and move right into your new one. I have helped countless sellers do just this, but it does not always happen that way. Real estate closings are not perfect.

They involve people, and sometimes things happen. I have seen both buyers and sellers wait until the last minute to mention an important detail to their agent or lender. When you are on a time crunch, a small issue can become a larger one. Remember in the real estate world, things are often a process.

Although it is rare, be prepared just in case you have to find a temporary for a few days. If you need to close before your new home before you are able to close a bridge loan maybe an option. This allows you hold two mortgages for a short period of time. I generally am not a fan because of the additional cost, but if you are in jeopardy of losing dream home it might be worth it.

Most of the time instances such as these can be prevented, but every once in a while things happen that are out of our control. I tell clients to hope for the best but prepared for the worst. I am not trying to scare you but prepare you just in case. The idea is that you will be less stressed because you have already considered what to do in a worst case scenario.

There are also a few things preventative measure you can as well. You should get prequalified perhaps even before you put your home for sale. You want to know what you can afford, and you want to make sure there are no surprises on your credit report. If you check your credit early, you may have time to take care of any issues that are present.

This is something you want to know and not assume. Even if you have done nothing to adversely impact your scores, you still need to check them. Errors, identity theft, and memory lapses are things that happen to real people. One uncorrected item on your credit report could potentially cost you thousands over the life of a mortgage.

Once you put in an offer, you should stay in touch with your lender. If they ask you for something, provide them with exactly what they ask for and/or contact them for clarification. Please do not put it off because you do not understand why they need it. You can be upset or complain, but lenders typically require all the documentation they ask for.

If you are purchasing a more expensive home, you also want to maximize the proceeds from your current home. This includes any necessary improvements or upgrades. You should consider paint, outdated hardware, mulch, and shrubs. You also should organize your home as clutter is a deterrent to most buyers, especially those who might pay top dollar.

Managing an IRA owned property

Probably the easiest thing to do is to have your IRA admin hire a management company for you. Now obviously it can be the one you select on the terms you have agreed to but not signed beforehand. The management company will collect any rents, pay expenses, and of course deduct their fee. The rest will go into your IRA.

The other thing you can do is have any rents sent directly to your admin, and they can pay all of your expenses including utilities. Of course they will be a fee for this, but it shouldn’t be too bad considering most of them will be probably be put on a direct withdraw or bill pay system. This is a fee you should discuss when you shopping for an admin before you purchase the property.

You can then either have the checks mailed to you admin, or if you want be collect them you can. But you still have to have them made out to your IRA.

Buy a home with your IRA

If you are tired of all the madness in the stock market or just think you can do better with real estate, you may want to consider buying an investment property with your self directed IRA.

First you need to open an IRA with a qualified third party administrator that will do this. Then you will need you have your funds rolled over from wherever you have them now. Next you can start shopping for the property that you want.

Once you have found the perfect property, complete a purchase contract showing that your IRA will have title. You can provide your agent with an escrow deposit, but be sure to they know the check will be replace by one from your IRA company.

Then the admin will provide you will a  buy instruction letter for real estate which you will need to complete. This will provide more of the details of the transaction. Last and best of all the admin will actually complete the closing for you with the title company of your choice. Now obviously you will want to review and approve, but they will then take care of everything including the transfer of funds.

Now that you are an empty nester

You kids have grown up and moved out. Now it is just the two of you in this big ole house. It is the home where all of your kids were raised and there are so many memories, but you both know it is just too much house for you these days.

You now looking at retirement and trying to get a hold of your expenses, but at the same time not trying to sell yourself short. You want to be comfortable but not have so little that you are constantly missing the space of your old home. So how do you do it smart?

The main thing is to sit down and think about what you need and want. I mean it. Think about ever scenario. Do you really want to keep do holidays at your home or is it maybe time to pass on the torch. Yes, it is going to be different, and it will probably take some time to get use to.

The key is to take some time to plan. Then maybe take a little more. Also you should consult with a local agent so you are not over or underestimating what get or find.

In love with the home’s decor

Perhaps one of the most know and yet still the most devastating traps is falling in love with a potential home’s decor. It’s a trick home builders have been using for years. They dress up a cheaper home with trending paint schemes and home accompaniments of the days.

And guess what? Even though they know paint is cheap and the all the furnishing don’t go with the home,  some poor sap falls for it.  I guess they can’t see past all of that, or maybe they just don’t understand construction cost well enough to know they are being had.

Now granted there are many upgrades in homes that are costly and do add value. Some obvious ones would be cabinets, counter tops, trim, appliances, and flooring. Through in some of these, and it makes it even more complicated. Some buyers can quickly tally up these cost versus adding them later, but how much value does it really add?

Would you pay more for the upgrades you choose or the ones someone else did? Now factor that in with getting to pay for it in a low monthly mortgage. What do you think other buyers in your price point would choose, and how do you plan on finding out?

Now put all that aside, and let’s consider most important and value determining factor of the home – the design. How much cost and value is in a one level home versus two or three? What about a crawl space versus a slab or a walkout basement? What about the different type of roof gables? Have you priced vaulted or tray ceilings? What about a pool? And what about…?

Does any of this even matter to you or should it? I am guessing some but probably not all of it, right? The problem is whenever you decide to sell this home what made it attractive for you and made it seem like a value might not be what does it for another buyer. They might be considering other features and adding and just as importantly subtracting value for other items.

I am not saying don’t fall in love with your next home because I hope you do. But just don’t overpay for it because you don’t know whether the next guy will when it comes time for you to sell.

 

FSBO Warning

A client once told me they seriously considered selling their home on their own after a friend was bragging to them how they sold their home in a day by themselves. They told me that they had never really thought about it because they we scared of making a mistake or getting sued, and they figured it would be a major pain and time consuming. But they figured it would be worth checking into because who isn’t into saving money, right?

So naturally, I asked what made them choose to list their home. Long story short they said it didn’t make sense for them, and without telling you too much these  sellers were the very analytical type – think engineer. They said at face value they might save money if a potential buyer actually offered them what a buyer would on a listed home. But because most buyers shop with the help of a realtor, they would be limiting their exposure and/or end up paying 1/2 commission to their agent anyway, or the ones that don’t might expect them to give that saving to them.

But either way once they figured in marketing dollars and the time involved to research, show, and coordinate everything against the cost of their time, it didn’t make sense.  The funny thing is they asked me to look up what their friend sold their house for. I reluctantly did. Truth be told, my curiosity killed me. I had to.

Assuming they gave zero seller concessions, they maybe and I mean maybe saved a percent from what I could have sold it for. That’s a whole lot of risk and time for maybe a percent. I don’t know maybe you could do better, and if you’re up for it give it a shot. I just thought it was a story worth sharing.

1031 Exchange

The 1031 exchange of the 1986 Internal Revenue Code provides investors a great opportunity to build wealth and save on taxes. The exchange allows investors to sell their investment property and use the proceeds on a replacement property to defer paying a capital gains tax. Capital gains tax is currently 15-20% depending on your income.

So instead of using proceeds to pay taxes, you can purchase a new and potentially different type of property. You can sell a residential property and use it to purchase land, a rental, or even commercial real estate. It also works the other way around. Now eventually, if you sell the new property and decide not to reinvest the profits you will have to pay the deferred taxes.

However, many investors just keep rolling it into another like kind property. Another thing to consider is this is a time sensitive exchange. Currently, the exchange is only good for properties reinvested with in six months. If you are interested in a doing a 1031, please consult with a qualified CPA or tax accountant.

Home Buyer Cost

Perhaps one of the biggest sources of stress when making a move is unexpected cost.

  • Unless you are paying cash, your lending institution will require an appraisal. Sometimes if there has been a recent appraisal on the home you intend to purchase you maybe can use it, but I wouldn’t count on it. $400+
  • You will probably be required to pay for updated survey. Exceptions might be made on a new home or if you negotiated the seller pays this item. $750+
  • You will be required to have and probably pay for a homeowners insurance policy for one year in advance if you plan on having a mortgage. This may be credited back to you if lender allows you to roll in this cost. Exceptions might be made for land purchase. Cost depends on the value of the home.
  • Consider utilities and other hookup charges.
  • Lenders with also require title search and insurance to protect you and them against any future claims on your property. Depends on the purchase price.
  • If you are not putting at least 20% down you will probably have to pay mortgage insurance either upfront, monthly, or often both. Included in mortgage but important to consider.
  • Some mortgage brokers charge an origination fee, admin fees, or points. These fees are disclosed on the good faith estimate as required by law, but even still they can be easy to miss or misunderstand if not properly explained.
  • Consider storage and moving cost.
  • HOA monthly fees and sometimes initial contributions.
  • Local government may charge improvement taxes on to you.
  • Transfer Taxes which vary by county.
  • Luckily many of these costs are outlined specifically in the good faith estimate which is required by law to be provided to you by your lender. Also there are now specific tolerances for many of these items to which the lender cannot exceed once quoted.

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Top real estate sites

The most trafficked real estates websites are respectively Zillow.com, Realtor.com, and Trulia.com. Whether most agents agree or like it, these are the sites most buyers use and trust. It wasn’t always this way. Buyers used to get more of a local web experience from the top agents in their area.

But algorithm changes namely by Google now usually places these three sites above the locals. They say this is for the best user experience, but lets face it is more likely because of advertising dollars. Like with anything, there are pros and cons to this shift. These are my humble thoughts on these sites.

First lets talk about how they get their information. Zillow and Trulia scrape their information from other websites. Some of the time they have cooperation from the local real estate boards, but I wouldn’t count on that. Most realtors (unless they are buying leads from these) don’t particularly care for sites. One because they are taking traffic away from their website and two because they are always having to fight their misinformation.

The misconception about Realtor is it is brought to you by the National Association of Realtors. Unfortunately this is not true. It is owned by Move a subsidiary of a News company. It is however supposed licensed by NAR which should provide more accurate information.

So what does this mean for you the buyer? It means anytime you enter your information, it is being sold to which ever agent wants to buy it. Not the listing agent and there is little to no guarantee they are any good or honest. A more recent addition on Zillow shows which agents sell the most and have the best reviews.

Unfortunately the agents input how many they sell, and I can tell you from my past experience in my area there is a high probability that some of these agents are being less than truthful. As a former agent for a builder, we used do purchase matrix of actual figures for the top agents so we could market to them. The information was directly downloaded from the local board of realtors.

Unless these agents are selling a lot more than they used to, they are pulling your leg. In fact, I’ve seen agents posting they sell more than 100 homes per year when they work in a suburb that only sells 200 a year. The truth is you are only seeing the agents are paying for it, and most experienced agents don’t buy their leads because they usually are a pure waste of money or worse fake. Good agents don’t like wasting their time.

That said their is some upside to these sites. They are familiar and provide a very similar experience between them. The provide a good user experience for a specific city and a generalized search. However once you start drilling down to what you want or want to search several suburbs at one time these fall short.

If I am looking for general idea of a different market than I work in they work great, but once I get serious I switch to a local company’s site or the local board depending. For example, I use Trulia’s market trends and Zillow’s Zestimate quite a bit. They are good for getting a good idea, but they often use inaccurate or out of date information.