It is highly advisable to discuss vesting options with an Estate Attorney (please reach out if you would like a referral) to protect your property while you are alive and to avoid probate for your heirs. If you have a trust and your property is not vested in it, it is necessary that you transfer it into the trust. It is relatively easy to do (see below link). Please reach out if you need more information.
- Understanding Common Way of Holding Title
- How Living Trusts Avoid Probate
- How to transfer your property into a trust
Below are a few summer focused links:
My top tips for managing your credit.
- If possible, always pay off 100% of your credit card balances on the scheduled payment. The credit card companies will charge interest on the total balance If you make a partial payment. For example, if you have a $1,000 balance and you payoff $999, the interest is calculated on the $1,000 balance.
- Put your credit cards on auto payment. Even if is just the minimum payment. This will save you from a missed payment and getting a ding on your credit report.
- Check your credit report for free, three times a year. Each credit bureau is required to provide a free credit report at annualcreditreport.com. Since there are 3 credit bureaus, you can spread out when to pull the free credit reports (for example, April August & December).
- Tired of getting unsolicited credit offers in the mail or by phone? You may be able to reduce their frequency by opting out of the pre-screened service that the credit vendors make available to credit vendors. Here is the link to optout: https://www.optoutprescreen.com/
Our kids are adults now and below are the top benefits that I presented to them for building a rental real estate portfolio.
- Gaining equity by having a renter pay down the mortgage.
- Gain equity if the property appreciates.
- Improve cash flow if rents increase.
Below is the strategy they are utilizing to build their real estate portfolio.
- Purchase the first few properties as owner occupied with the intent of renting them out after a couple of years. This allows for a minimum down payment (3.5% – 5%).
- This strategy entails:
- Buying below your means so that you can save for the next property.
- Buy properties with low to no need for improvements to minimize the required cash (this makes it easier to save for the next purchase).
- Carefully compare projected future rents with the mortgage payment and potential expenses. A minimum negative cash flow may be ok if you can still afford the next purchase.
- FYI, sales price is less important than the above items since the goal is to hold the property for the long term.
- This strategy entails:
My two oldest kids have 5 properties combined (at the ages of 31 & 28). It may seem an unobtainable goal but it is actually manageable with some discipline and patience.
Please reach out if you would like to get more information or to obtain a detailed spreadsheet of net worth and cash flow gain that I put together.
Tidbits (news, scenarios, etc.)…
Over the last couple of years, we have seen equity in our homes increase between 30% – 50%! This is extraordinary appreciation and some of our clients are leveraging the equity to grow their net worth.
Here are a few examples:
- Pull cash-out to consolidate debts. This is especially effective if the term of the mortgage is reduced. A reduced term can also help get a lower interest rate and may not increase the monthly total payments since the credit cards, car loans, etc. are being paid off. Utilizing a second mortgage or HELOC can be a good option when the existing interest rate is better than the current market.
- Convert the current property into a rental (short term renting is worth considering if you have the time and location since it can create significant rental income) and purchase a new primary residence. This strategy allows for lower down payment and better interest rates vs purchasing an investment property. Cash-out from the current residence can be used for the down payment.
- Pull cash-out to complete home improvements. This can increase the value of the home in addition to meet the current needs of the homeowners (work from home, solar, pool, etc.).
Please reach out if you would like a free detailed home valuation or any other questions.
Do you know somebody that has a hard time qualifying for a mortgage? If so, here are a few potential solutions:
- Qualified Asset Income – is calculated based on a 36-month average of the qualified assets on deposit (requires client to be 59.5+ yrs. of age). For example, IRA balance is $200k, “distribution income” is $5,555 ($200k / 36). Plus, any other income sources: SS, wages, etc. One distribution is required prior to closing.
- Non-Qualified Asset Income – is calculated based on a 240-month average of the non-qualified assets on deposit. For example, asset balance is $2mm, income is $8,333 ($2mm / 240). Plus, any other income sources: SS, wages, etc.
- Bank Deposit Income – is calculated based on a percentage of the deposits into the client’s personal (100%) or business (50%) bank account. This program is only for the self-employed.
- Reverse Mortgage – reverse mortgages can be used for both purchases or refinance (payoff existing loan and/or access equity). They are easier to qualify for since the principal and interest are not utilized when calculating the debt-to-income ratios.
Anatomy of a First-Time Buyer
Per the National Association of Realtors (https://www.nar.realtor/first-time-homebuyers) the “Anatomy of a First-Time Buyer” is:
- 32 years old
- $75k in household income
- $190k median purchase price (this is a national view)
- 41% carry student debt
This buyer will have a hard time qualifying with to 20% increase in the payment compared to last year (due to higher interest rates). Add on top of this the higher home prices, and I join the crowd that predicts a slower real estate market the second half of 2022.
Alternative Qualifying Options
- Qualified Asset Income – is calculated based on a 36-month average of the qualified assets on deposit (requires client to be 59.5+ yrs. of age). For example, IRA balance is $200k, “distribution income” is $5,555 ($200k / 36). Plus, any other income sources: SS, wages, etc. One distribution is required prior to closing.
- Non-Qualified Asset Income – is calculated based on a 240-month average of the non-qualified assets on deposit. For example, asset balance is $2mm, income is $8,333 ($2mm / 240). Plus, any other income sources: SS, wages, etc.
- Bank Deposit Income – is calculated based on the deposits into the client’s personal or business bank account. This program is only for the self-employed.
- Reverse Mortgage – reverse mortgages can be used for both purchases or refinance (payoff existing loan or/and access equity). They are easier to qualify for since the principal and interest are not utilized when calculating the debt-to-income ratios.