Archive for July, 2008
The value of the real estate you own, whether it is your personal residence or an investment property, is critical to your mortgage and financial success. If the balance on your mortgage is close to or higher than the value of your property, your real estate is not the financial machine it should be. Therefore, if you want to be successful in real estate ownership of any kind, you absolutely must know how to determine the value of your property.
Now, there may appear to be a simple solution to this problem, you say. Get an appraisal. Sure, this would work, but appraisals are not cheap. For residential property, they begin around $175 and range to $400. For investment real estate, they can be much higher. Imagine owning 25 houses and needing to know the value for each. You certainly wouldn’t want to pay for 25 appraisals. So, here is a simple formula for learning the value of your property.
1. Learn the average rate of appreciation in the neighborhood where the real estate is located. Almost any property will increase in value two to three percent each year, even in depressed areas. So, if your rate of appreciation is three percent and you paid $100,000 last year for your house, it is now worth at least $103,000, based solely on appreciation. You can learn this rate by calling a local realtor. Remember, in affluent neighborhoods, appreciation rates may range from four to eight percent.
2. Estimate the value of any improvements, using a ratio formula. That is, if you improve the structure of the property (new roof, deck, automatic garage doors, windows, etc.), all for about 30 to 40 percent of what you paid for the improvement. Now, this is a variable, depending on location, so don’t take this as an absolute. So, last year I put all new windows in my house. It cost $10,000. I assume I can add $3,000 to $4,000 in value to my house. Cut that ratio to 15 percent for cosmetic improvements like paint, carpeting and landscaping.
3. Know comparable sales within one mile and within the last year. For example, if a house one block away that is almost identical to yours in dimension and style sold last month for $150,000, this is a great starting ground for your value. Now, remember your home may have things the other house didn’t have, increasing your value even more.
4. Other home’s asking price plays a small role. Realtors know their business. If you see a comparable home in the neighborhood, being sold by a realtor, check the listing price. Although not nearly as important as the other parts of the formula, this certainly plays a role in determining the value of your property.
So, use this formula, learn the value of your real estate, and you will wield an amazing amount of financial power.
Mark Barnes is an investment real estate and real estate finance expert. Get his free mortgage finance course at http://www.winningthemortgagegame.com. Mark is also the author of the new novel, The League, a shocking, sports-related conspiracy. Learn more about his suspense thriller at http://www.sportsnovels.com.
The end of tax filing extensions is quickly approaching. What do you do if you can’t pay the amounts you owe? You should still file your return by the due date and pay as much as you can. There are, however, additional steps that might help.
Credit Cards
You can charge your taxes on your American Express, MasterCard, Visa or Discover cards. If you go in this direction, you can use either of the following two sources:
Official Payments Corporation
1-800-2PAY-TAX (1-800-272-9829)
www.officialpayments.com
Link2Gov Corporation
1-888-PAY-1040 (1-888-729-1040)
www.pay1040.com
If a credit card is out of the question, you may be able to pay any remaining balance over time in monthly installments through an installment agreement. If you are completely wiped out and the future looks grim, you may also want to consider getting the tax amount reduced through the Offer in Compromise program.
To apply for an installment payment plan, fill out and attach Form 9465 to the front of your tax return. The IRS has streamlined the approval process if your total taxes (not counting interest, penalties or other additions) do not exceed $25,000 and can be paid off in five years or less. Be sure to show the amount of your proposed monthly payment and the date you wish to make your payment each month. Make absolutely sure you can make the payments.
The IRS charges a $43 fee for setting up an installment agreement. You will also be charged interest plus a late payment penalty on the unpaid taxes. The late payment penalty is usually one-half of one percent per month or part of a month of your unpaid tax. The penalty rate is reduced to one-quarter of one percent for any month an Installment Agreement is in effect if you filed your return by the due date (including extensions). The maximum failure to pay penalty is 25 percent of the tax paid late.
If you do not file your return by the due date (including extensions), you may have to pay a penalty for filing late. The penalty for failing to file and pay timely is usually five percent of the unpaid tax for each month or part of a month that your return is late. The maximum penalty for failure to file and pay on time is 25 percent of your unpaid tax.
In Closing
The IRS wants you in the system, even if you’re broke. Whatever you do, file your tax return in a timely manner. Once filed, the IRS will work with you on payment issues. Don’t get stressed. Keep in mind that millions of Americans have the same problem.
Richard Chapo is CEO of Business Tax Recovery – Obtaining tax refunds for small businesses for overpaid taxes. Discovery tax strategies and deductions in our tax articles section.
First you need to find a list of For Sale By Owner Sites. You do this by going to one of the major search engines. Our two favorites are Yahoo and Google, but any one of them will do. Enter For Sale By Owner (FSBO) as your search words. After you search for FSBOs you will get a bunch of sites to go visit. Visit them, check them out, see how they work, and the ones you like put in a favorites folder entitled FSBOs.
Now that you have a list of FSBO sites you need to get telephone numbers of sellers who have homes you would like to lease purchase in your state. For those of you lucky enough to border another state you can enter a search for that state next.
Remember to set up your yellow legal pad with columns for telephone number, type of property (single family, condo, townhouse), price and notes section. Remember you also need to set up your database with the same information. However, you are going to want your database to have two additional fields for date your called, and action to take.
Go through the FSBOs sites you have collected and take down the appropriate information. Get your telephone script handy and start calling. After you are through with your telephone calls, enter the information in your database. We use Access, but any database will do. In the action to take field I make a note of whether I need to send a letter, email, newsletter, and/or to tickle to call again.
Next, however, you want to have a mail merge program. For example, we use Group Mail (MAKE THIS A LINK) for all on-line correspondence. Group Mail allows me to take my Access files and import them into Group Mail. It also affords me the ability to make my emails very personable by using the individuals name in my letter, the date I called on the property, and depending on the email when I will follow up. In addition the program also allows me to put specific groups (prospects, consults, tenant buyers) into separate groups. I can have a very large Access database that Group Mail (it will import most major databases)
There are mobile homes for sale, for much less than stick-built houses, in most areas of the country. Despite persistent predjudice against them, and sometimes the people living in them, mobile homes are the cheap housing choice of millions. The advantages are not always obvious, but they are real.
First of all, let’s acknowledge the big “truth” about mobile homes and appreciation or depreciation. It’s true in most areas that mobile homes in parks go down in value over time. That’s why I don’t recommend buying in a park, unless you absolutely can’t buy real estate, and you have done the math to see if you are better off than renting a nice apartment.
To “do the math” consider lot rent, payment, and the remaining value of the mobile when you put it up for sale, minus what you will still owe, when you are likely to move. These are guesses, but still better than nothing if you are as objective as you can be.
Mobile Homes For Sale With Real Estate
When looking at mobile homes for sale on land, however, you are looking at an entirely different investment. My mobile home in Michigan doubled in value in the twelve years I lived in it. That’s because even as the home deteriorated a little over time (don’t all houses?), the value of the land continued to rise. You also can do what you like with the home when you own the land. For example, I took in more money from my home than it originally cost, by renting out a room or two over the years.
As mentioned, mobile homes usually sell for less than other houses, and this means lower payments. Also, because of the shortened amortization and lower loan amount, you will often build equity faster in a mobile home than in a more expensive house. A quick example follows, for the skeptical among you.
Equity Building With Mobile Homes
If you buy a house with a $100,000 mortgage loan amortised over 30 years at 6% interest, you’ll have a payment of $599.60. Of the first payment, $500 will go towards interest, $99.60 towards principal. In other words, you only built equity of $99.60 (I’m ignoring appreciation, but only for the moment).
Second scenario: Find a nice mobile home for sale, and borrow only $30,000, at 8% interest, amortised over 10 years. Note that higher interest is always the case with “factory built home mortgages.” The shorter term is normal too, but least you’ll own your home free-and-clear in 10 years instead of 30. Despite higher interest and a shorter term, the payment will be only $363.99, and the first month only $200 will go towards interest. That means the other $163.99 goes towards principal. You bought more house (built more equity) in this scenario.
It’s true that a mobile home on land might appreciate more slowly than a “regular” house, but the faster loan pay-down probably more than covers this factor. If you also chose to bank the difference in payments ($235.61 per month), you’d definitely be better off financially with the mobile home versus the more expensive home.
Pay less per month and build more equity! Don’t expect your real estate agent to tell you this. Don’t expect him to even agree with me after you explain it. I sold real estate years ago, and math skills were not a big part of the licensing requirements.
Mobile Homes For Sale; Other Advantages
Mobile homes are cheaper to maintain. Years ago I had a mobile home as a rental, and the furnace in it died. This is the most expensive repair you’ll have in a mobile. I had to replace it for $1,200, but that was still less than a furnace for a larger home. Consider that for $200 you can tar the roof of your home, or $30 if you do it yourself, instead of $5,000 to re-shingle a traditional roof. The windows, plumbing, doors – all cheaper.
Property taxes will cost less, because they’re based on the value of the property, and mobile homes for sale on land have lower value than stick-built houses. Insurance may cost less too, again because you are insuring less value. The only precaution to remember here is to be sure you can get insurance. Very old mobiles may be uninsurable in some areas.
Should You Buy A Mobile Home?
Don’t buy a mobile home if prices for houses in the area are just as low. Believe it or not, this is the case in some areas. We bought a house near Butte, Montana for $17,500 – less than mobile homes for sale there (See a photo on our site www.HousesUnderFiftyThousand.com).
Houses do generally hold up better. Then there are the issues of whether your own needs and predjudices will let you be comfortable in a mobile home. They are sometimes for sale in areas you don’t want to live in (Certainly true of houses as well). These are personal things you have to consider.
The advantages are clear for many young people starting out. It may be their only option, but it may be your better option. Besides a lower initial price, you get simpler, cheaper maintainance, lower monthly payments, less property tax, less for insurance, and faster equity build-up. So don’t automatically pass on those mobile homes for sale when you’re out home-hunting.
Steve Gillman and his wife Ana have converted their mobile home in Michigan to a rental and moved to Tucson, Arizona. He and his wife also lived for a while in Montana, where they bought a beautiful house (not a mobile) for $17,500. That experience lead to the creation of their website, http://www.HousesUnderFiftyThousand.com