Author: adminrealtor

A Virginia Realtor specializing in the Western Fairfax County Region of Northern Virginia.

Getting Paid On Time

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As a landlord, you are bound to face the reality that your tenant may not always pay on time. If you are depending on that rental payment to cover the mortgage payment on that property and you receive the rental payment late, then your mortgage payment may be late as well.

But don’t fret, here are a few things you can add to your lease agreement to encourage on-time payments and discourage late payments:

  • Include an early-bird discount. For example, if your lessee pays 5 days before the payment due date, knock off $50.00 as a discount.
  • Include a late fee amount. No one wants to pay extra for being late. How much should the late fee amount be? You could make it similar to the amount the late fee would be for the mortgage payment.
  • Include a 5-Day Pay Or Quit clause. This is actually the start of an eviction process, but making sure that the tenants see the clause in agreement may discourage them from paying late.

Your tenants should also know that on-time or early payments will be noted by you, should they ever need a future reference.

Categories: Property Management

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Choices That Affect a Mortgage Payment Amount

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  • Mortgage term. Mortgages are generally available at 15-, 20-, or 30-year terms. The longer the term, the lower the monthly payment if the same amount is borrowed. However, you pay more interest overall if you borrow for a longer term.
  • Fixed or adjustable interest rate. A fixed rate allows you to lock in a low rate for as long as you hold the mortgage and is usually a good choice if interest rates are low. An adjustable-rate mortgage (ARM) is designed so that interest rates will rise as interest rates increase; however they usually offer a lower rate in the first years of the mortgage. ARMs also usually have a limit as to how much the interest rate can be increased and how frequently they can be raised. ARMs are a good choice when interest rates are high or when you expect your income to grow significantly in the coming years.
  • Balloon mortgages. Balloon mortgages offer very low interest rates for a short period of time—often three to seven years. Payments usually cover only the interest, so the principal owed is not reduced. However, this type of loan may be a good choice if you think you will sell your home in a few years.
  • Government-backed loans. Government-backed loans, sponsored by agencies such as the Federal Housing Administration (www.fha.gov) or the U.S. Department of Veterans Affairs (www.va.gov), offer special terms, including lower down payments or reduced interest rates—to qualified buyers.

Categories: Buying

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Creative Ways to Afford a Home

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  1. Investigate local, state, and national downpayment assistance programs. These programs give loans or grants to cover all or part of your required downpayment. National programs include the Nehemiah program (http://www.getdownpayment.com) and the American Dream Downpayment Fund from the U.S. Department of Housing and Urban Development (http://www.hud.gov).
  2. Get the seller to provide financing. In some cases, sellers may be willing to finance all or part of the purchase price of the home and let you repay them gradually, just as you do a mortgage.
  3. Consider a shared-appreciation, or shared equity, arrangement. Under this arrangement, your family, friends, or even a third-party may buy a portion of the home and thus share in any appreciation when the home is sold. The owner/occupant usually pays the mortgage, property taxes, and all maintenance costs, but all investors’ names are usually on the mortgage. There are companies that can help you find such an investor if your family can’t participate.
  4. Get help from your family. Perhaps a family member will loan you money for the downpayment and/or act as a cosigner for the mortgage. Lenders often like to have a cosigner if you have little credit history.
  5. Lease with the option to buy. Renting the home for a year or more will give you the chance to save more toward your down payment. And in many cases, owners will apply some of the rental amount toward the purchase price. You usually have to pay a small, nonrefundable option fee to the owner.
  6. See if you can qualify for a short-term second mortgage to give you the money to make a higher downpayment. This may be possible if you have a good income and little other debt.

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Categories: Buying Investing

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Landlord Virgin

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So, Mr. Roper, you think you found the perfect rental property, huh? And this is your first one too? Congratulations! You’ve realized that real estate is a great investment, especially long term, and if you played your cards right, you may be able to generate positive cash flow each month. Let’s take a moment review a checklist of items you need to consider for your newly acquired rental, and before you know it, you’ll be on your way to the joys of property management:

  • Draw up a lease that protects you and your property.
  • Get to know the people in the neighborhood. Exchange phone numbers if possible.
  • Do a credit and background check on all your applicants.
  • Determine where you want to receive the rental payments.
  • Make sure you know the condition and state of all major appliances. Be prepared for repairs.
  • Make sure you know the condition and state of interior and exterior structures. Are the pipes old? How old is the roof? Set funds aside if needed.
  • Set a schedule for annual maintenance and don’t forget about it! Neglecting general maintenance can have expensive repercussions.
  • Get a market analysis report from a local real estate agent to help set your rental price.
  • Do a pre-move-in walk-through with your renters and include photographs.
  • Know the eviction process in the property’s jurisdiction.

A lease is a legal contract and your best bet is to consult with a real estate attorney for advice about terms you can include in your rental agreement.

These are just a few items to consider, but you’re smart, you’ll do well! Good luck and happy landlording!

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Categories: Investing Property Management

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Short Sale vs. Foreclosure

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Some homeowners at their wits end are ready to throw in the towel and give up on their house. They can’t afford the payments, they are stressed out and no longer want to deal with a mortgage. If you’re in a similar situation, take a deep breath and listen up. I know it’s a lot easier to walk away from your problems, but this is what I tell homeowners facing foreclosure: “Short sell it”.

The consequences of going through a foreclosure process is a lot more damaging than short selling your home. The biggest and foremost reason to try and avoid foreclosure proceedings against you is to minimize damage to your credit history. When you short sale your home, the lender is willing to accept a payoff amount that is less than what you actually owe. Yes, this information is reported to the credit bureaus, but it shows that you made an effort to rectify your financial situation by selling your home at the current market value. Short sale information typically stays on your credit history for about a year.

Conversely, foreclosures are judgments against you and therefore, can stay on your credit history report for 5 to 7 years. Furthermore, the next time you apply for a mortgage, you’re going to have to check that little box that asks whether you have ever been involved in a foreclosure. Even if it’s been more than 7 years, it still doesn’t look good.

Bottom line: hang in there, and seek the advice of a real estate professional in your area who can work through a short sale process for you.

Categories: Selling Short Sales and Foreclosures

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Capital Gains Tax in Real Estate

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When you sell a stock, you owe taxes on your gain—the difference between what you paid for the stock and what you sold it for. The same is true with selling a home (or a second home), but there are some special considerations.

How to Calculate Gain

In real estate, capital gains are based not on what you paid for the home, but on its adjusted cost basis. To calculate this:

  1. Take the purchase price of the home: This is the sale price, not the amount of money you actually contributed at closing.
  2. Add adjustments:
    • Cost of the purchase—including transfer fees, attorney fees, inspections, but not points you paid on your mortgage.
    • Cost of sale—including inspections, attorney’s fee, real estate commission, and money you spent to fix up your home just prior to sale.
    • Cost of improvements—including room additions, deck, etc. Note here that improvements do not include repairing or replacing something already there, such as putting on a new roof or buying a new furnace.
  3. The total of this is the adjusted cost basis of your home.
  4. Subtract this adjusted cost basis from the amount you sell your home for. This is your capital gain.

A Special Real Estate Exemption for Capital Gains

Since 1997, up to $250,000 in capital gains ($500,000 for a married couple) on the sale of a home is exempt from taxation if you meet the following criteria:

  • You have lived in the home as your principal residence for two out of the last five years.
  • You have not sold or exchanged another home during the two years preceding the sale.

Also note that as of 2003, you also may qualify for this exemption if you meet what the IRS calls “unforeseen circumstances,” such as job loss, divorce, or family medical emergency. Consult your tax professional for detailed information.

Categories: Investing Selling

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8 Ways to Improve Your Credit

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Credit scores, along with your overall income and debt, are a big factor in determining if you’ll qualify for a loan and what loan terms you’ll be able to qualify for.

  1. Check for and correct errors in your credit report. Mistakes happen, and you could be paying for someone else’s poor financial management.
  2. Pay down credit card bills. If possible, pay off the entire balance every month. However, transferring credit card debt from one card to another could lower your score.
  3. Don’t charge your credit cards to the maximum limit.
  4. Wait 12 months after credit difficulties to apply for a mortgage. You’re penalized less for problems after a year.
  5. Don’t purchase big-ticket items for your new home on credit cards until after the loan is approved. The amounts will add to your debt.
  6. Don’t open new credit card accounts before applying for a mortgage. Having too much available credit can lower your score.
  7. Shop for mortgage rates all at once. Too many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquiry if submitted over a short period of time.
  8. Avoid finance companies. Even if you pay the loan on time, the interest is high and it will probably be considered a sign of poor credit management.

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This information is copyrighted by the Fannie Mae Foundation and is used with permission of the Fannie Mae Foundation.

Categories: Buying

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How can a home have multiple appriasal values?

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I had a client once who didn’t understand why his house had multiple appraised values. He had hired an appraiser to come out and tell him what his house was worth before deciding to place it on the market. When he called me in to list his house, I did my research and provided him with a comparable market analysis which averaged an amount much different than his appraised value, and when we got a ratified contract, the buyers appraisal showed yet another value. So he wanted to know what the deal was with the different amounts.

Here’s the thing: appraisals are really opinions… educated and objective opinions, but opinions none the less. Appraisals are used for different purposes and because of that, can sometimes vary. When a home is bought or sold, appraisals are normally based on the market selling price. For tax purposes, the value is based on a lot of factors specific to to the jurisdiction the house is in. Insurance values are based on how much it costs to replace the home, factoring in the cost of materials.

So it is possible to have multiple appraisal values, but if you’re thinking about selling your home, save yourself a few hundred dollars and ask a real estate agent to provide you a current and detailed report of the market value in your neighborhood.

Categories: Buying Selling

Is now the time to invest in tax liens?

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It’s a buyers market these days: market values are down, appraisal values are down, short sales and foreclosures are on the rise. If you happen to have ready cash available for a down payment (long gone are the days of 100% investment loans), now is the time to invest. But say you don’t have $20k – $60k liquid cash to plop down right now? Well say hello (again) to tax liens!

With the mortgage situation going the way it is, numerous homeowners are falling behind on their mortgage payments. Chances are those same homeowners have an escrow account set up with their lender for home insurance payments and tax payments. If a mortgage falls behind, that could mean that the taxes on the property have not been paid, and so, the state can issue a tax lien against the home. These tax liens go up for auction to any willing bidder in an effort for the state to receive the funds that they would have normally received from the homeowner. Those tax liens can start out as little as a few hundred dollars, upwards to a few thousand, but definitely less than the price of home– even in a down market. And almost like winning the lottery, the winning bidder gets to own a piece of property for an incredible discount! But not so fast, Tonto! Some states offer a recovery period for delinquent homeowners, in which case, they pay their taxes, any late fees, PLUS interest back to the winning bidder and get to keep their home.

Tax liens? Yes! Yet another way to diversify that portfolio!

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Categories: Investing

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Selling Price vs. Timing

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Most people planning to sell their home are anxious to know how soon their house will be sold. Aside from obtaining a comparative market analysis report from your real estate agent, a good general statistic to keep in mind is that most activity occurs when the house is first listed and tends to slow down the longer the home remains listed:

Activity based on weeks on market

Timing is extremely important in the real estate market. Remember that the greatest opportunity you have to get your home sold is during the first few weeks it is listed.

Categories: Selling