Condos Minneapolis | Condominiums Minneapolis | Minneapolis Condo
September 2013

Home Equity Dynamics

September 25, 2013 by · Leave a Comment 

Equity is the difference in what your home is worth and what you owe. Ideally, as the value goes up and the unpaid balance goes down with each amortized payment made, the equity grows from two directions.

This dynamic leads to increasing a person’s net worth much faster than many other investments.

A homeowner has minimal control over value. It is necessary to maintain the property to avoid depreciation and make good decisions on capital improvements. After that, appreciation is generally controlled by supply and demand and the economy.

Mortgage management is something that the homeowner does have control. Making the decision to select a shorter term mortgage at a lower interest rate can have an impact on equity build-up. Lower interest rates amortize faster than higher interest rates which will also affect equity growth. Currently, it is possible to get a 1% lower rate on a 15 year mortgage than a 30 year mortgage.

Compare two alternatives of a 30-year and a 15-year mortgage. The payments will definitely be higher on the shorter term because it pays off quicker. However, if a person can afford the higher payments of $362.53 more per month in this example, the equity will be greater. Even after you take into consideration the higher payments, the increased equity is $17,236 at the end of the seven year holding period. Just something to think about as you make your home purchase and mortgage decision.



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Who is my agent?

September 17, 2013 by · Leave a Comment 

Just some information that you might or might not know or have thought of.

More often than you’d expect, homeowners refer to the person they bought their insurance from as their agent. It sounds reasonable but it’s definitely not accurate. That person is the agent of the insurance company and they legally represent the company, not the customer. Even an independent agent who can place a policy with different companies is still an agent of the company.

A mortgage officer, in most cases is an employee and represents the company. And the same is true for a title or escrow officer. It’s important to understand the actual relationship to know what you can expect from them.

Any business person who wants to stay in business must treat their customers fairly and with a high degree of service. As a customer, you should be able to reasonably expect honesty and accountability. The difference is that employees owe their loyalty to their employer and agents owe their loyalty to their principal.

An agent owes more than just honesty and accountability. The principal can expect complete disclosure, obedience, loyalty, reasonable skill and care and confidentiality from their agent.

This advocacy is very beneficial during the buying or selling process to coordinate all aspects of the transaction. The agent can bring valuable experience to your side of the transaction to provide confidence that your best interests are being represented from start to finish.

Most states have a recognized procedure for the real estate professional to create a formal relationship between themselves and a buyer or seller. This requires a fiduciary/statutory responsibility that places the principals’ interests above the agent’s own personal interests. As a real estate agent, we review the different forms of representation-buyer’s agent, seller’s agent, dual agent, and facilitator. As a mortgage broker, we can source your loan with many loan correspondents. As us to explain these relationships to you until you are clear.



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Mortgage Interest Deduction-Will it remain deductible?

September 15, 2013 by · Leave a Comment 

Originally, in 1913 with the Sixteenth Amendment, Income Tax allowed a deduction on any interest paid by a taxpayer. Prior to World War I, most interest was paid for business purposes and very little paid by individuals. Credit cards, revolving credit, student loans and home equity loans that would charge interest would not become popular for decades.

However, by the 1930’s, the Federal Housing Authority was created to help people to finance homes. Later, other quasi-governmental agencies like FNMA, FHLMC and GNMA were created to help facilitate mortgage lending.

Even though, Congress never intended to use this deduction to encourage homeownership, it has certainly benefitted millions of people who couldn’t pay cash for their home. This deduction has made owning a home more affordable for tens of millions of people.

The Tax Reform Act of 1986 eliminated the deduction of interest on most personal debt with the exception of qualified mortgage interest debt. Two new terms were introduced to specify what was qualified.

Acquisition Debt is the amount of debt incurred, up to a maximum of $1,000,000, to buy, build or improve a principal residence or second home. It must be a recorded lien and the amount cannot be increased by refinancing. In other words, the acquisition debt is a dynamic amount that decreases as the loan amortizes.

Home Equity Debt is any amount up to a total of $100,000 over Acquisition Debt. It must also be a recorded lien against either the first or second home. It can be used for any purpose and is no longer restricted to medical or educational purposes.

In the example below, a person borrowed money to buy a home and the entire first mortgage was acquisition debt. The unpaid balance was reduced by the payments made and the acquisition debt followed accordingly. At some point in the future, after the home had gone up in value considerably, the owner refinanced a much larger amount.

The existing acquisition debt was transferred into the new mortgage. Any borrowed funds that were used for capital improvements could be added to the existing acquisition basis. The interest on those funds would be deductible.

The owner/borrower could also deduct the interest on up to a maximum of $100,000 of home equity debt. If there was still debt above the acquisition and home equity debt, it would be classified as personal debt and the interest on it would not be deductible. Whether or not this deduction will remain viable in the future is the question of the day.



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RE/MAX Commerical Real Estate in MN

September 11, 2013 by · Leave a Comment 

Did you know that RE/MAX is a leader in commercial real estate as well as residential? We use a separate MLS system (MNCAR) and other resources besides the regular NorthStar MLS, of which I am a member. Let me know how I can help you-residential, commercial or investment properties.



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Twin Cities Real Estate Investing

September 7, 2013 by · Leave a Comment 

The profit potential in single family homes for investment has been a consistently good long-term investment. They offer investors the opportunity of high loan-to-value mortgages at fixed interest rates for 30 years on appreciating assets, tax advantages and reasonable control that other investments don’t offer.

Last year, Warren Buffett said that if he had a way of buying a couple hundred thousand single-family homes, he would load up on them. Blackstone group L.P. (BX) has now purchased over 30,000 homes and American Homes 4 Rent (AMH) has more than 19,000 for rental purposes.

Individual investors actually have an advantage over the institutional investor but if they are not familiar with rental real estate, some basic rules could be very helpful.

1. Invest now to get more in the future.

Whether it is time, effort or money, the prudent investor is willing to forego immediate gratification for something more at a later date.

2. Real estate is an IDEAL investment.

IDEAL is an acronym that stands for income, depreciation, equity build-up, appreciation and leverage.

3. Invest in single family homes in predominantly owner-occupied neighborhoods at or below average price range.

This strategy should involve homes that will increase in value, rent well and appeal to an owner-occupant in the future who will pay a higher price than an investor.

4. Location, location, location.

The same homes in different areas will not behave the same. You can improve the condition, modify the terms or adjust the price but the location can’t be changed.

5. Understand your strategy – buy and sell, buy and hold or buy, rent and hold.

These three distinct strategies involve big differences in acquisition, management and taxation.

6. Know where your profit is coming from before you invest.

The four contributors to profit are cash flow, appreciation, amortization and tax savings. They don’t contribute equally or the same in all investments.

7. Profit starts with purchase.

Buying the property below market value builds profit into the investment initially.

8. Risk is directly proportionate to the reward involved.

An investment that has a high degree of upside also will have considerable downside possible.

9. Avoid functional obsolescence unless you have a plan before you buy.

The lack of usefulness or desirability of a home that exists when you buy it will still be there when you sell it. Unless it can be cured, it will affect future profit.

10. Good property + good tenant + good management = great investment.

These are three solid components for a successful investment.

11. Problems left unresolved have a tendency to get worse.

It is generally cheaper in time or money to fix a problem earlier rather than later.

If you’d like more information about the opportunities in our market, contact me.



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Watch this awesome Kid Rock Song

September 6, 2013 by · Leave a Comment 



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Find the “Right” Agent Before the “Right” Home

September 5, 2013 by · Leave a Comment 

It’s a common practice for buyers to make a list of what they want in a home during the search process and to explain it to their agent. However, maybe the first list they should make would have the skills they want their agent to have.

The Profile of Home Buyers and Sellers identifies what buyers want most from their agents and as you’d expect, help with finding the right home was ranked highest most often. While it is important, it may not be the most unique of the desired area of expertise.

Equally essential to the success of the transaction are the combination of help with price and terms negotiations and assistance with the paperwork, comparable sales, qualifying and financing.

To summarize the responses in the survey, Buyers want help from their agents with two things: to find the right home and to get it at the right price and terms. Some agents are actually better equipped with tools and acquired knowledge to assist buyers with financial advice and negotiations.

Since an owner’s cost of housing is dependent on the price paid for the home and financing, a real estate professional skilled in these specialized areas can be invaluable in finding the “right” home. An agent’s experience and connections to allied professionals and service providers is irreplaceable.

Ask the agent you are considering representing you to specifically list the tools and talent they have to address these area. I have been selling homes-over 1000-since 1986. I have the knowledge and experience necessary for you to successfully complete your home buying/selling process. Ask me to show you my unsolicited letters of testimonials from past clients. I have been named a “Super Agent” in the Twin Cities because I care about YOU.



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