Sandy's Journal

Bringing the Dream of Homeownership Within Reach

As part of its plan to stimulate the U.S. housing market and address the economic challenges facing our nation, Congress has passed new legislation that:

· Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30, 2010.

· Expands the credit to grant up to $6,500 credit to current home owners purchasing a new or existing home between November 7, 2009 and April 30, 2010.

Who Qualifies for the Extended Credit?

· First-time home buyers who purchase homes between November 7, 2009 and April 30, 2010.

· Current home owners purchasing a home between November 7, 2009 and April 30, 2010, who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight.

To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

If you purchased a home between January 1, 2009 and November 6, 2009, please consult your accountant for applicable 2009 First-Time Home Buyer Tax Credit qualifications.

Which Properties Are Eligible?

The Extended Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.

How Much Is Available?

The maximum allowable credit for first-time home buyers is $8,000.

The maximum allowable credit for current homeowners is $6,500.

How is a Buyer's Credit Amount Determined?

Each home buyer’s tax credit is determined by tow additional factors:

1. The price of the home.

2. The buyer's income.

Price

Under the Extended Home Buyer Tax Credit, credit may only be awarded on homes purchased for $800,000 or less.

Buyer Income

Under the Extended Home Buyer Tax Credit, which is effective on November 7, 2009, single buyers with incomes up to $125,000 and married couples with incomes up to $225,000—may receive the maximum tax credit.

These income limits have changed from the 2009 First-Time Home Buyer Tax Credit limits. If you or your client purchased a home between January 1, 2009 and November 6, 2009, please see 2009 First-Time Home Buyer Tax Credit.

If the Buyer(s)’ Income Exceeds These Limits, Can He/She Still Get a Credit?

Yes, some buyers may still be eligible for the credit.

The credit decreases for buyers who earn between $125,000 and $145,000 for single buyers and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income—over $145,000 for singles and over $245,000 for couples are not eligible for the credit.

Can a Buyer Still Qualify If He/She Closes After April 30, 2010?

Under the Extended Home Buyer Tax Credit, as long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close.

Will the Tax Credit Need to Be Repaid?

No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount credit will be recouped on the sale.

Foreclosure filings have decreased slightly for the past three months in a row, according to RealtyTrac. While that’s certainly welcome news from a short-term perspective, the larger picture concerning distressed properties remains grim. October 2009 marked the 45th straight month of year-over-year increases in foreclosure activity. In the third quarter of this year alone, there were still more foreclosures than in all of 2006.

At the RISMedia Power Broker Perspective Panel on Distressed Properties, it was noted that the year will end with about 3.3 million households having gone into foreclosure. And because of rising “shadow inventory” another 4 million properties are expected to hit foreclosure status in 2010.

The Administration’s recent push to accelerate the pace of loan modifications to keep struggling borrowers in their homes also has a down side; some 49-62% of those whose loans are modified are expected to re default eventually nonetheless.

This massive inventory of distressed properties continues to put significant downward pressure on home prices nationally, and makes it tempting for real estate practitioners to slip into a state of powerlessness and discouragement. That’s a huge mistake.

As the RISMedia panel noted, they were positive in their remarks to real estate pros about coping with a changed market:

• Don’t label your market. Take “good” and “bad” out of your vocabulary. What’s happening now is an event, and it’s your challenge to be informed, work through the problems and find answers.
• You need to live in the truth. Don’t confuse the facts with what you’d like the facts to be.
• Question your limiting beliefs. Ask yourself tough questions and acknowledge that sometimes you will be wrong.
• Be part of the solutions and the opportunities. There will be more opportunities from this debacle than there were before. A lot of good will come out of this–eventually.

          Contributor:  Wendy Cole

Don't invest without reading and investigating. Later on, you'll be glad you did.

Read a few books

Read a few books about investing. You'll find a wide assortment of them in your local library or bookstore. These books will give you important information about how the world of investing works. They also will help you feel more comfortable with and confident about investing.

Choose a few investments

Continue your research by choosing a few investments that you want to learn more about. Then, you must work hard to learn more about these investments.

Conduct a Search

You can research your possible investments in a variety of ways:

• You can find good coverage of stocks, bonds, and mutual funds in finance magazines and newspapers. Use your library's computer to search for recent articles about your investment.
• Several independent organizations rate stocks, bonds, and mutual funds. These organizations can give you a good feel for your investment's risk level, average annual return, and long-term strength. For more information, see the reference section below.
• Compare the performance of your stocks to similar stocks by checking with a popular index, like the Dow Jones Industrial Average. An index is a representative sampling of companies in a certain part of the stock market. There are indexes for large and small company stocks, as well as corporate and municipal bonds. Indexes allow you to compare how your stock is performing relative to similar products. Choose the index that is most similar to your stock. You'll want your stock to do as well as, or better than, the index. Check out the AARP chart of " Common Indexes ."

Make Some Calls

You may want to call a full-service brokerage house and a financial adviser to see how they rate the investment you are considering.

If you're researching a mutual fund, call the fund and request a prospectus, an annual report, a "Statement of Additional Information," and an application. Read this information before you decide whether and where to invest.

Recognize the Drawbacks of Research

No matter how much research you do, there's always a chance that the investment you choose won't be the right one. That's because no one - not economists, advisers, brokers, accountants, or rating agencies - really knows what will happen tomorrow, next week, or next year on Wall Street. For example, ratings report a mutual fund or a company's past performance. That's all. Ratings give you absolutely no information about future performance.

Because of this uncertainty, it is important that you work hard to own a diversified mix of stocks, bonds, and mutual funds. Diversifying means that you put your money into a variety of investment products. It also means that you invest in a variety of companies and in a variety of industries. If your portfolio is diversified, losses in one area of your portfolio should be offset by gains in other areas of the portfolio. Your diversified portfolio should gradually increase in value, and shouldn't be subject to wild losses or gains.

Rating Agencies

If you're thinking of investing in a particular company - or buying a particular bond - check first to see what grade the company earned from the leading ratings agencies. Remember, though, that ratings only report on a company's past performance, and don't predict future success.

The number one equation to take into account on this project is the margin. What is your cost to get into the house and the average sales price of a house in the selected neighborhood on a remodeled home? Obviously, you want this margin to be as high as possible. The challenge in today's market, when looking at it nationally, is that many of the diamonds in the rough are located in areas where prices are still declining, so the investor must be sure to purchase the house, gut out the old, insert the new, and get out of the house before the declining price catches up with him and his profit.

Successful flipping is all about your margin. I would love to give you a set equation with fixed expenses, but every house is different. One house may need a kitchen, another, the kitchen and two baths. Here's a pretty cool calculator online that can help determine your cost at www.RemodelingMySpace.com. With the flipping I've seen done in our market, it seems to be pretty accurate on its estimation of replacement costs.

Understanding that all homes are different, the sample below works for our hypothetical house only. Not for every potential flipper on the market. So here's your calculation.

Let's say the asking price is $199,000 for the house in its current condition. You see that it needs a new kitchen, 2 new baths, a new furnace, carpeting, painting inside and out and finally, some landscaping.

After your bids from your work crew come in, your fix up expenses come up to $47,000. Add the $47,000 to the $199,000 for your net expense: $246,000. Now you have the Realtor of choice calculate the price homes are selling for in the community that are remodeled or in excellent condition (because by the time you get done, yours should be in excellent condition). Let's say it's $285,000. Wow, it looks like you just picked up a cool $39,000. Well, not exactly.

First, you have to determine how long it will take to sell the house and calculate your carrying costs (monthly payment, construction loans, etc.) If you're in the same situation as most foreclosure markets, you need to figure about 4 – 6 months carrying costs of preparation and marketing time. If your costs is about $1200 per month (for the mortgage plus utilities), you're now out $4800 (and your take has dropped to $34,200).

And don't forget your 7 percent selling costs for commission and closing expenses, which is roughly $19,950. So now your margin of profit is about $14,000 give or take a $1,000.

As you can see, this is how a lot of people get into trouble thinking that if they pick up a house for $85,000 under market price they'll be rolling in the dough quickly. Most experienced investors are looking for a margin of 50 percent of the value or $100,000 on a higher priced home.

The challenge of a profit margin of $14,000 is that it can be quickly removed in a declining market or the negotiation process in a buyers market.

A focus on color in our lives doesn’t affect just home-decor decisions. In a season when so much of what we read and think about involves making more “green” in order to jump out of the red into the black, our thoughts about finances, investing, and income are as much a topic of color as are the palettes we choose for the living room throw pillows or the dining room draperies.

But when so much worry and fear pervades the financial pages these days, it’s hard to determine which way is up, especially when no two families share exactly the same situation.

“It seems many of the people we talk to are taking a different approach to life these days,” shares Peter Fisher, cofounder of Human Investing, an investment firm located in Lake Oswego, Oregon. Fisher and his business partner, Dirk Anderson, have a unique approach to working with clients that forms the basis for their firm: Focusing on the things that matter in life, such as relationships, shared experiences, and serving the needs of the community, the team at Human Investing works with their clients to grow their resources in order to fund the things that really matter in their lives.

“Over the last ten years or so,” Fisher says, “it seems everyone had a little more margin to operate on; a decent job, a relatively stable economy, and enough to pay the bills. Today, the job stability is gone, and….with all that has gone on in the economy, the client goals have definitely changed, but our investment advice is still the same: manage risk, be wise about using debt, save, and invest.”

So as personal goals and aspirations change in families throughout North America, what does it take to make sure you are on the right path with your investments and financial goals? “Most people who are in a difficult spot financially know the pain and toll it can have on a family and relationships,” Fisher says. “Taking the time today to get it all onto a piece of paper is a first positive step to getting back on track….There is a great deal of peace that comes from taking the time to plan and put together a game plan for financial success, whatever you deem that to be.” The following general principles will help you establish a firm footing and develop a sense of peace about your finances in an economy that is on its way to balancing out.

1. Live within your means.

This first step includes building a budget that includes all expenses with line items for saving and debt reduction as well. Fisher also recommends a cash budget, which he and his wife employ in their own household. “My wife takes three withdrawals a month from the ATM and pays with cash for everything but fuel,” he says.

We found that even debit cards were too easy to spend, and we didn’t feel the pain in the same way as we did when we counted through a wad of twenties and paid for something we really didn’t need.”

2. Pay off debt.

“There are a lot of persuasive sales people who would encourage you to take on debt, even if it’s not the best thing for you,” Fisher says, “[but] it’s really hard to get into a financial pickle if you have little or no debt.”

3. Take advantage of retirement plans offered through your employer or IRAs.

“Contributions are deductible,” Fisher advises, “and whether or not there is a match, if someone has a 25% tax bracket, every cent they put into that plan earns 25% the second they put it in, because the alternative is not contributing and paying the taxes. I’ve heard people are stopping contributions to the retirement accounts because they are too risky. That may be true relative to how their stockbroker has them invested, but there is most often a safe or risk-free option.” Fisher advises that if you are scared of the market, you should still contribute to a tax-deductible investment and place the funds into a safe or guaranteed account.

4. Beware of fees.

“For every dollar you pay to invest,” Fisher says, “it’s a dollar less you have in your account.”

5. Be wise about what you are investing in.

“Invest in things that have the opportunity to grow over time, such as children, retirement accounts, homes,” Fisher says. “Don’t invest in things that go down most of the time, such as cars, boats, and jet skis.”

6. Make your bank pay you something for what you deposit with them.

“They don’t loan you money for free,” Fisher says, “so you shouldn’t loan them money for free.”