A lot of people look for partners when investing in real estate. They look for a partner because they need money, they need expertise, or they want someone to share in the pros and cons. Investing in real estate can be an amazing venture, but it is not easy and it often takes a lot … Read more
Home sellers are chomping at the bit. As the economy reopens, vaccinations continue to roll out and stimulus checks reach bank accounts across America, home sellers are increasingly optimistic.
And despite fierce bidding wars, competition from institutional investors and sore wrists from writing dozens of heartfelt letters to home sellers, even buyers are growing in courage these days.
Fannie Mae’s Home Purchase Sentiment Index (HPSI), a composite index designed to track the housing market and consumer confidence to sell or buy a home, increased in March by 5.2 points to 81.7.
Four of the HPSIâs six components increased month over month, including the components related to homebuying and home selling conditions, household income, and home prices. The mortgage rate outlook component experienced the only decline in March’s HPSI, with the latest results indicating that only 6% of consumers believe that mortgage rates will decrease over the next 12 months.
Fannie Mae Senior Vice President and Chief Economist Doug Duncan said the March HPSI increase reflects consumer optimism toward the housing market and the economy in general.
Real estate agents and LOs: the great collaboration
Technology has given consumers the power of choice and expedited the entire real estate purchasing process. Successful agents, brokerages and loan officers of the future are going to rely significantly on technology to find, nurture and engage with buyers and home sellers while also playing an expanding role as personal advisors.
Presented by: Propertybase
âThere might even more intensity this year, since 2020âs spring homebuying season was limited by virus-related lockdowns,â Duncan said. âHome-selling sentiment experienced positive momentum across most consumer segments, nearly reaching pre-pandemic levels and generally indicative of a strong home sellerâs market.”
Duncan added that home sellers are citing high home prices and tight inventory as primary reasons why it’s a good time to sell.
“Alternatively, while the net âgood time to buyâ component increased month over month, it has not recovered to pre-pandemic levels, as the homebuying experience continues to prove difficult for many of the same reasons,” he said.
(The percentage of respondents who say it is a good time to buy a home increased from 48% to 53%, while the percentage who say it is a bad time to buy decreased from 43% to 40%.)
Mortgage applications decreased 2.2%, according to the March 31 report from the Mortgage Bankers Association. However, purchase activity during the last week of March was up 6% year-over-year, with the unadjusted purchase index 39% higher than the same week one year prior.
That’s largely reflected in the HPSI. The percentage of respondents who believe it is a good time to sell a home increased from 55% to 61%, while the percentage who say itâs a bad time to sell decreased from 35% to 28%.
The percentage of respondents who believe home prices will go up in the next 12 months increased from 47% to 50%, while the percentage who say home prices will go down decreased from 18% to 14%. The share who think home prices will stay the same remained unchanged at 29%.
Only a handful of people thought mortgage rates would tick down in the next year, at 6%, a decrease from 8% the prior month. Mortgage rates are officially out of the 2% range homebuyers were taking advantage of in 2020, with the most recent report showing rates at 3.27% for a vanilla 30-year fixed mortgage.
Higher rates aside, consumers seem to be feeling better about the economy, as the percentage of respondents who say their household income is significantly higher than it was 12 months ago increased from 17% to 25%, while the percentage who say their household income is significantly lower decreased from 19% to 15%. The percentage who say their household income is about the same decreased from 61% to 56%.
Likewise, the percentage of respondents who are not concerned about losing their job in the next 12 months remained unchanged at 82%, while the percentage who say they are concerned also remained unchanged at 17%.
The post Home sellers are feeling good about 2021 appeared first on HousingWire.
So, I kind of just bought the house next door to me.
This is already somewhat amazing, for a small-town boy who refuses to even buy himself a new car. But even stranger are the details that surround this deal:
Iâm not moving into it.
I donât really need or want a second house.
I have no long-term plans to be a landlord.
I made the decision on a whim, and the whole transaction only took about 45 minutes of actual work.
I paid âcashâ for the house, avoiding the hassle of getting a mortgage – while not having to accumulate an entire house price worth of cash.
And most importantly to you, I used a financial trick that I only recently learned about, but upon further study is an incredibly useful thing to have at your disposal (as long as you use it responsibly).
The real story is this:
About two months ago, I learned through the grapevine that the house next door would soon be on the market. There was a cryptic âfor sale by ownerâ entry on Zillow with a $400k asking price, but no pictures and no information on how to contact the sellers. In response to the information vacuum, Zillow had just automatically sucked in a really ugly Google Street View picture of the house.
In my area, we are in the middle of an insane housing boom. Every new property that comes to market, no matter how modest, is treated like Justin Timberlake stepping onto the stage of a dazzling arena of adoring fans.
This has left several friends who arrived more recently searching fruitlessly and losing the inevitable bidding war for each uninspiring property, over and over again.
And my little street happens to tick a lot of boxes for our type of shoppers: a walkable and bikeable central location which also backs onto open space and features newer (1990s) houses with a layout that can easily be split into two units with separate entrances. All at lower prices than the older houses without views and without house-hacking potential, just up the hill.
So I knew this place was a good deal and a good investment, and sure enough several friends were interested. The only problem was, so was everybody else: a bidding war was already bubbling up and we only had a few days at most to lock it in.
And my most interested friend was self-employed, and in the middle of a year-end business boom – both factors that would delay her ability to get a mortgage. How could we secure this house, so she would get an amazing deal and I would get to live next to a really great group of friends (and continue my plan to gradually take over more of the street) rather than rolling the dice with a random set of new neighbors?
The solution: we made a deal where I would make an all-cash offer to buy the house, with very quick and friendly terms to the seller so we could beat the other offers. Then my friend would take her time to get a mortgage, and buy the place from me at a more leisurely pace – effectively just leasing it from me in the meantime.
The problem: I didnât have anywhere near $400,000 sitting in my checking account, and I did not want to sell a bunch of shares and trigger capital gains taxes (which in my case would be at least $60,000), just for this short term project. Iâm a good friend, but not that good.
The Ultimate Solution: Learning from a friend who has been doing this for years, I transferred some of my existing investments out of Etrade and into a new brokerage firm (Interactive Brokers), which has an unusually good Margin Loan capability.
This let me borrow money against my own shares, at an interest rate of about one percent (1%!), without selling any of them.
So end result for me is like a very flexible mortgage, but at less than half the interest rate, and with a virtually-overnight origination speed. And I am the CEO of the bank!
Introducing the Margin Loan
Let’s start with an example of what I did, although with fictional rounded numbers just to make it simple.
You may have already heard about the often-risky practice of âbuying stocks on marginâ, along with its notorious darkside, the possibility of a âmargin callâ. But there’s also a big potential advantage, which is why people do it. Let’s summarize both of them so we can see how to do it right.
In the best case, a margin account allows you to do things like this:
Put in $100,000 of your own money and buy, say, some shares of the VTI index fund.
Use that as collateral to borrow an additional $100,000 to buy more shares (VTI or otherwise).
You end up with $200,000 invested.
If the stock goes up by 10% per year ($10,000) and you are borrowing the money at only 2% (which costs you $2000), you get $8000 every year for âfreeâ.
The downside is that this can happen:
You invest your $100k, borrow that second $100k, and buy the same $200k of shares.
COVID hits and your shares suddenly go down 50% (total value is now $100k)
BUT, that $100,000 margin loan you took out hasn’t changed. In other words, you still owe the brokerage $100k, and your account value is now only $100,000. The total value of your account is now zero.
Even worse, the brokerage is not cool with this situation, because they require a 50% âmaintenance marginâ.
They automatically sell half of your shares in order to reduce the loan balance to $50k.
Youâve just lost 100% of your money (because you own 50k of shares and owe the brokerage 50k), and you were forced to sell the shares at the worst possible time, shutting you out of the possibility of a rapid rebound (like we saw just after the 2020 Coronacrash).
Note: if the stock drops fast enough, you can even lose more than all your money.
So, margin is a powerful tool that can multiply your profits or your losses. However, since the stock market tends to rise over time, it can still be a valuable option, as long as you use it with great caution.
So why, and how, am I using a margin loan?
Although the basic idea (and risks) are the same, I am using my margin loan a bit differently, to withdraw cash instead of buying more shares. And I am keeping my borrowing well under that 50% threshold in the example above, in order to reduce the risk of trouble in the case of another market crash. Here is what I did:
I created a new account for myself at Interactive Brokers, selecting the “IBKR Pro” account type to get the lower margin rates, and set it up as a “margin” account versus the unnecessarily complex “portfolio margin” option.
I transferred a relatively large amount of shares of stable, diversified companies (mostly the VTI index fund and some Berkshire Hathaway) into this new account.
With a securities transfer, your actual shares move between from your old brokerage to the new one, rather than being sold on one side and re-bought on the other. This avoids triggering unnecessary capital gains taxes. I was able to make this part happen entirely online – no phone calls required.
Then, since my account was new, I had to sit and wait for 30 days, to clear the security lockup period. This is a good reason to plan in advance by setting up an account when you aren’t rushing to buy a house. But the deal still worked out, and I’m even more prepared for next time.
After that I was able to withdraw cash using the margin loan feature. The brokerage lets me go all the way up to 50%, but I kept mine to a lower percentage.
Now, when I go to make a withdrawal from my account, I see a screen like this one:
This money simply went immediately to my checking account. I used a wire transfer, which the brokerage did for free.
Within less than an hour of that money hitting my checking account, I was able to wire it right back out to the title company, and buy the house.
Technical note: In this case, I did already have a portion of the house price ($140k) available in cash. This allowed me to borrow a smaller amount ($260k) using the margin loan, which made it possible to stay within a conservative borrowing range without requiring millions of dollars in shares.
The Real Magic: Ludicrously Low Interest Rates
For a brokerage, a margin loan is an easy and automated way to safely make money off of their clients, because they are really just lending you a portion of your own money.
So as long as they set the rules conservatively, they have your shares as guaranteed collateral and can sell them instantly if needed. This means they can offer rates barely above the prime rate. And Interactive Brokers is particularly aggressive, offering the rates below at the time of writing.
For comparison, Robinhood offers margin loans at 2.5% and Etrade is something silly like 7.95% and up as I write this. Even the low-fee standard Vanguard is in the 7% range. So, Interactive Brokers is truly unique for now – which is why I created my account.
Rates will Fluctuate:
For US customers, that “Benchmark Rate” in the table above is based on a multiple of the Federal Funds rate. As I type this, that rate is around 0.25%, and one year ago it was 1.25%.
Since it is adjusted during quarterly committee meetings, it rarely moves more than 0.25-0.5% during any given three month period. As example of rapid increase, from 2004-2006 it went up from from 1.25 to 5.25%. More history here.
Cool Implications of This New Trick
1: Staying fully invested without fear
In recent years, I have found myself disobeying my own advice and holding more cash in checking accounts than I should have. By foregoing the returns I would have earned if I left this money in the stock market, I have cost myself many thousands of dollars.
But I was holding back due to a range of fearful excuses like, âWhat if thereâs a stock market crash and I want to get some shares on sale? What if my income tax bill is higher than expected? What if a house comes up on the market and I want to be able to spring on it quickly?â, and so on.
With the margin loan option now in place, all of these fears disappear. I can now safely remain fully invested, and in the unlikely event of one of those âemergenciesâ above, I can just pull out any amount of money I might desire. No delays, and no taxes.
2: Being able to buy houses on short notice (or even become a mortgage company for your friends)
In my situation, I was able to lock in a good deal on a house due to the power of the âcash offerâ, which benefits my friend who will eventually buy it from me to become the final owner. After buying several properties with actual money rather than a mortgage, I have found that the benefits are huge:
By offering cash (and providing proof of funds as needed), you show the seller that you are serious, and that you can actually afford the house. In a hot market, many buyers make offers on houses that they can’t truly afford. Several weeks later, they find that the financing falls apart, leaving the seller hanging and needing to re-start the sale process. A cash buyer is thus much more reliable
Mortgage companies can be very slow, taking a wise but extensive list of steps before they hand over the money. It can be 6-8 weeks between offer and closing. With your cash, it happens at your own pace (it could be as fast as one day, but 3-4 weeks is reasonable if you are doing inspections and other due diligence.
With a cash offer, you can make your own decisions about how to handle the inspection, or even perform your own (if you happen to be qualified as I am). You also don’t need to pay an appraiser $600 to take a random dartboard guess at the value of the house you are choosing to pay. As an advanced buyer, you presumably know the value better than anyone else.
Finally, with cash you eliminate any loan origination fees and you can choose your own insurance coverage and deductible, since you are the only one at risk.
Although this arrangement is unconventional, it doesn’t feel too risky for me, because the house is solely in my name. If my friend changed her mind or otherwise could not complete the deal, I still own the house, which could be sold at a small profit or rented out. From a legal and accounting perspective, all Iâve done is bought a house as an investment.
For those with sufficient savings (and who are not prone to worry), this “Cash Buyer Vigilante” idea could become a valuable service for other friends, or even a sort of business: you help your clients to make cash offers to buy houses, which gets you a better deal in a competitive market, and you collect a fee for the service. You may also earn a small spread on the difference between the mortgage rate and your broker’s margin interest rate.
3: Avoiding unnecessary taxes
If you never have to sell your shares, you can keep those gains on paper instead of out in the real world – perhaps even for your entire lifetime.
As long as youâre comfortable with the margin loan interest rate (which will not always be as low as it is today but should in general remain cheaper than a mortgage), you can borrow against your growing pool of investments for everyday living expenses, house purchases, and even charitable contributions.
And if you borrow to make additional taxable investments (which is exactly what I have done for the house next door) , the interest itself may be tax deductible as well. For example, consider the following hack, just one of many:
You have millions of dollars of appreciated Apple and Tesla stock, and want to tax-efficiently fund a nice lifestyle forever. You could
Use a margin loan against these shares to buy a solid multi-unit apartment building (preferably with a high yield and a hands-off management company to manage it for you)
Collect the considerable rent, while taking any allowable depreciation deductions
With a good property, the surplus after all of these expenses will more than pay for your margin loan interest and your own pleasant lifestyle. Groceries, household expenses, kids, travel, whatever you like. And you still own your original investments and haven’t paid capital gains taxes on anything.
You do have to be careful, of course. My rule of thumb is to be more than prepared for the worst stock market decline that has ever happened, and even then have a backup plan beyond that. So, my primary house will never be at risk, and only a small portion of my total investments will be subject to margin borrowing.
But if you do it right, I believe this trick allows you to trade a very small amount of risk for a rather large increase in life options and satisfaction – in other words, fun.
So I look forward to sharing more stories of how this neighborly arrangement works out, and the intriguing adventures I have with this new margin account after that.
In the comments: if you have more experience and/or questions about margin loans, please share them, and I will update this article so we can make it more comprehensive.
A note on Interactive Brokers: I chose this firm based on advice from some friends who are established investors, followed by some online research. I am happy with the results so far, and I received great customer service when setting up the account and going through the learning process of the margin loan (which is really easy). But, like everything in life, I still view it as an experiment. I have lots left to learn.
The company has a nice “online-university” style explanations of all sorts of things, with nicely formatted pages and video lessons – including more advanced forms of trading that I don’t plan to get into. But in the case of the margin loan, I found this guide to be useful.
IB also offers a referral program. If you establish an account and like the results enough to recommend it, you can share it with your friends. As the program currently stands, you will get $200 for each new customer, and your friend will get up to $1000 (1% of the value of the assets they use to fund it) – payable in the form of IBKR shares, which is kind of a novel way to pay a bonus.
If you are thinking of signing up and need a referral link to get your own 1%, you are welcome to use mine here – which will of course benefit the MMM blog so thanks if you do!
The current coronavirus pandemic has caused a large upheaval across many different areas. In addition to the changes COVID-19 has made in the areas of health and safety (masks, social distancing and quarantines), it has also caused major changes to the economy across all walks to life. The United States has experienced record levels of unemployment, and even many of those who are still employed have experienced disruptions to their unemployment.Â
If you are recently unemployed or are looking for new work due to changes in your work situation (being furloughed, having hours reduced or changes in the type or location of your work), there are several different ways that you can look for a new job. In this article, weâll look through some of the best ways to look for a new job.
Networking with friends, family and former colleagues
Thereâs a reason the saying âitâs not what you know, itâs who you knowâ is so popular – itâs quite true. As it has in most industries, the Internet has disrupted the way that recruiters and HR departments source their open job positions. Since most job applications are available at no cost and with the click of a button, the volume of resumes received for each open position is staggering. You truly have to make sure that your resume stands out.
One way to do this is to have a referral from a friend, family member or former colleague. Talk to your circle of influence and see what jobs are available where they work. A referral from someone who already works where youâre looking to hire on is a great first step. In many cases, a referral from an existing employee can help to short-circuit the HR department and get you directly in front of the hiring manager.
Make sure that your Linkedin profile is up-to-date
Going along with the power of networking and referrals is making sure that your Linkedin profile is accurate and current. Linkedin can be more useful in certain professions and in certain areas, so youâll have to take a look to see how it might work for you. Generally, youâll find more people and companies active on Linkedin in more white-collar trades.Â
Linkedin also has a setting where you can state that you are actively looking for jobs. That setting will bring your Linkedin profile to the attention of recruiters who are looking to hire in your industry. This can be both positive and negative. Most recruiters also cast a wide net, so you may find it to be distracting having to answer calls and emails from recruiters who are hiring for jobs that may be not quite what youâre looking for.
Donât forget about a solid resume
A traditional (paper) resume is less important than it was 10-20 years ago but still is useful to keep current. Depending on where youâre looking and in what industry, you might find a resume more or less important. The big reason resumes are not nearly as important anymore is that most job applications online are done electronically. So you may fill out an online form rather than uploading a Word document or PDF. Even if you do upload your resume online, itâs likely that it is getting parsed and converted into a different format, so all the time you spent carefully formatting your resume doesnât tend to matter.
Another great resume tip is to make sure and target your resume and cover letter to the individual company and position youâre applying for. Each job is different, and showing that you took the time to emphasize skills and experience that was directly solicited in the job posting will only help.
Scour the big job boards
All of the traditional job âboardsâ have also moved online, with big job sites like Indeed, Monster, CareerBuilder and Linkedin posting millions of jobs per month. With so many jobs posted, it can be challenging to wade through all of them and find ones that make sense for what youâre looking for. Some good advice is to make sure to narrow down your search as much as possible.Â
You may be tempted to cast a wide net in the hopes of finding something, but unless you have a ton of time, you may find it more beneficial to focus more narrowly. Most job sites will also let you set up ongoing searches that will immediately alert you if a new job is posted that matches your criteria.
Explore the gig economy
Depending on your householdâs financial situation, you may also be looking to pick up some extra income while youâre looking for a new job. Joining the gig economy may make sense as a short-term option while youâre looking for a more stable job. Companies like Uber, Lyft, Doordash or Instacart are generally always hiring people to work through their platforms and offer flexibility that could make it an easier fit on your schedule.Â
Most of these companies also offer signup bonuses from $200-$500 to incentivize new people to join with them. Taking advantage of these gigs might be a good way to stabilize your budget while looking for that perfect job.
What to do if they say no
Even in high-demand professions, youâre likely to encounter a pretty significant level of rejection. If youâre not getting rejected a lot, youâre probably not applying to enough places! Unfortunately, many companies or HR departments do not typically let you know if you are rejected. If you donât get the job, one strategy can be to ask when would a good time to follow up. Their answer to the question can help give you an idea for possible next steps with that company.Â
Again, this is where the power of having a friend or former colleague on the inside – most HR departments are historically tight-lipped because theyâre afraid of getting sued. But if you have a connection on the inside, you may be able to get more and better information to help guide your path going forward.
The post 5 Ways to Look for a New Job appeared first on MintLife Blog.
Buying a second home is a major expense. You might have several reasons for wanting to buy a second house. Perhaps, you’re buying a second home for vacations or weekend getaways. Or, it might be that you want to use it as a rental property for rental income. However, there are things to consider before buying a second home.
The benefits of buying a second home
If you’re buying a second home for rental income, you’ll benefit from many perks, especially tax advantages.
For example, you will be able to deduct interest, property taxes, homeowners insurance and other expenses against the property’s income.
Even if the value of the property declines, you will still be able to deduct depreciation from your taxes.
While these benefits are great, the mortgage requirements for a second home are much stricter than for a mortgage on your primary residence. So, make sure you can afford it.
8 Things To Consider WhenBuying A Second Home
1. Financing options: When you bought your first home, you had available to you what’s called an FHA loan – a government loan program.
FHA loans are an appealing and favorite choice among first time home buyers due to their relatively low down payment requirement.
FHA loans require a 3.5% down payment and a relatively low credit score of 580. However, FHA loans are not available to second home buyers.
That is because FHA requires the home to be the borrower’s primary residence. So, if you’re thinking of buying a second home, you will need to either use a conventional loan or financing it with your own cash.
2. A larger down payment: If you’re using a conventional loan for your second home, you will need to come up with a larger down payment.
Lenders for a conventional loan usually requires a 20% down payment of the home purchase price.
But for a second home which will be used as a rental property or vacation home, expect lenders to ask for 30% or even 35%.
3. A higher credit score. For an FHA loan, you only need a credit score of 580 to qualify. But for a conventional loan on a second home, you will need much higher credit score — usually 750 or higher.
4. Expect a Higher Interest Rate: Lenders will likely charge you a higher interest rate on your second home than your primary residence.
The reason is because they see a second home — be it a vacation home or a rental property — as riskier. They feel that you are more likely to default on a mortgage on your second home than on your primary residence.
5. Do your research: Just as you did your homework when you bought your place to live in, buying a second home is no different.
In fact, you’ll need to spend more time researching rental property. That means researching the neighborhood you will want to invest in, knowing the zoning laws for a particular area, the sales price for the homes in the area.
You will need to know if the area has adequate public transportation, schools, grocery shopping, etc,– things that potential tenants will need.
6. Be prepared to be a landlord: if you’re buying a second home to rent, be prepared to be a landlord.
And be prepared to deal with all of the headaches that come with being a landlord. Do you have sufficient time? Can you deal with problems?
Owning a rental property and being a landlord is time consuming. It is also hard hard work and you have to do your due diligence.
You can hire a property manager to run the property for you. But if that is not feasible, you’ll have to do it yourself.
That means, screening new tenants, collecting rent, dealing with delinquent tenants, fixing problems in the property, such as a broken pipe.
So before buying a second home, make sure you have sufficient time and make sure you can deal with the day-to-day headaches that come with being a landlord.
7. Do you have a stable income? Dealing with a second mortgage on your second home is doable.
While you may be able to afford upfront costs, if you don’t have a stable income, you may have to think twice about whether it is a good idea.
Plus, you still have to consider the additional expenses of owning a second home such as insurance, property taxes, maintenance, repairs, property management fees, etc.
8. Are you out of credit card debt? If you have paid off outstanding and high interest credit card debts, then purchasing a second home may make sense.
But if you’re still struggling to pay your debt, you may need to put buying a second home on hold.Â
The bottom line
If you’re thinking about buying a second home, whether it is for investment or vacation, be prepared to save some money, budget for expenses, and come up with a bigger down payment.
More importantly, spend as much time, if not more, researching for the home just as you did when your purchased your primary home.
Speak with the Right Financial Advisor
If you have questions about your finances, you can talk to aÂ financial advisorÂ who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc).
Find one who meets your needs withÂ SmartAssetâs free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals,Â get started now.
The post Buying A Second Home? 8 Things To Consider appeared first on GrowthRapidly.