One of the things we are reminded when the real estate market surprises us with a serious slowdown is that it is very good to have a reasonable amount of equity in a home, especially if we’re never certain when we may want or need to sell it.

Say, for example, you own a modest $500,000 vacation home that you rent out frequently. You bought it originally for $400,000, and you’ve been sprucing it up during the times it’s stood empty—upgrading the appliances, adding new wall and window coverings, and finding ways to make it more and more beautiful. And you’ve financed these upgrades largely through a second loan you took out against the home.

The problem here is that your decorating and upgrading could put you in a position where you have as much money in the home as it is worth. Should the market take a dive—and the value of the property decline—you may not be able to get all of your money out of the home in a sale. Indeed, you may have to pay out of your pocket to cover the full amount of indebtedness secured by the home.

It is wise, therefore, to maintain a healthy cushion of equity—wiser than it is to decorate the property to the nines—just in case the market turns and your options suddenly narrow as a result. The same is true with your own home, in fact, and with many capital assets you may own. For assistance with real estate call Beth at 425-450-5208.

Though this column often suggests that (1) you take matters into your own hands when buying a home, using your real estate professional as an invaluable coach, not as the person making your decisions for you and (2) that you will thank yourself for the rest of your life if you buy the home that is right for you when you find it, not when television economists say it’s the right time to buy—we must suggest that you truly give yourself all the time and advice you can get when it comes to refinancing your home mortgage.

Consider the case of the homeowner with a mortgage that is performing very poorly for her. Perhaps it’s an adjustable rate mortgage and its terms allowed the rate and monthly payment to climb sky high at the first adjustment. She will want to find a mortgage professional whom she can relate to and trust, someone who will walk through all her options with her and suggest all possible ways of improving her situation—someone, too, who will keep her in mind as market rates and available mortgage programs go through their changes, calling her when a genuinely appropriate opportunity arises.

Now consider the case of the homeowner who knows far too little about the workings of mortgages and is continuously refinancing in an effort to get the lowest possible rate. This person needs a deeper understanding of when it will—and when it will not—serve him to refinance. Sometimes, you see, the loan with which you refinance may provide a lower monthly payment….but the piper will eventually have to be paid, as interest rates force his overall obligation higher over the life of the loan.

Your real estate and mortgage professionals should, above all, help you make informed decisions that benefit you throughout your life. They are not order-takers; they are advisors. Find advisors you can relate to and trust and tell them what you need. You’ll be glad you did! For more information call Beth at 425-450-5208.

Increasingly, we’ve realized that there is something magical about looking at a house that you may want to buy and make your own. When a home looks right, when it strikes you from the first moment you enter the door, your mind almost inevitably begins to imagine how your belongings, your furniture—indeed, your life—would look in this house.
There are several things that can pop the imaginative bubble in which potential buyers tour a home. If a home looks neat and clean to the point of sterility, for example, it is difficult to imagine living in it. No one wants to live in a hospital ward. A home should look inviting, like comfortable clothing. On the other hand, it shouldn’t look messy, dark or full of other people’s paraphernalia or memories.
Thus, the best preparation of a home for a showing involves making it bright, spacious, livable, and—for lack of a better word—free of history. Free of the presence of its actual owners. This can be very subtle. Too many photos of family members, for example, simply remind a potential buyer that this is not their home. And the bubble bursts.
And if photos can pop the bubble, the physical presence of those who live in the house can demolish all the potential buyers’ imaginings of what it would be like to live there. After the first viewing, perhaps, it can work to make the seller available to answer questions and make suggestions about the house. But before that—do all you can to allow the potential buyers’ imaginations to soar…and their buying decisions to firm. For help with your real estate call Beth at 425-450-5208.

“A capital gain is an increase in the value of any capital asset that you own,” says a USAA article on the subject. A good example? Real estate. Stocks, bonds, personal property and collectibles are also capital assets, and when you sell any of them for a higher price than you originally purchased them, you have realized a capital gain, and you will likely have to pay a tax on that gain.

But let’s return to real estate. If you bought your personal residence several years ago for, say, $450,000 and you sell it for $650,000, there’s an obvious $200,000 gain, much of which you can simply put in your pocket as profit from the sale. And capital gains from the sale of personal residences, as you probably know, get very special treatment.

If you file jointly as a married couple, you can exempt up to $500,000 in capital gains from taxation in the sale of a personal residence in most cases. That means your $200,000 profit (less the costs of selling) simply won’t be taxed. Thus, if you would normally be taxed in the 25% bracket on capital gains, you’ll save roughly $50,000.

This is one of the stunning ways in which a personal residence can serve you financially, and one of the mains reasons that people look to their homes as one of the foundations of their financial lives and bedrocks of their savings programs. For more information call Beth at 425-450-5208.

Financial advisors in our newspapers and magazines love to write about this subject, suggesting that we buy when sellers are willing to negotiate, when interest rates are low, when others are buying, etc., etc.

The reality is that there is no ideal time—in the abstract—to buy your home. The best time to buy is when you can afford to buy, and need to buy a home that suits the needs of your household, and have found the right home to fulfill your needs and wishes.
It’s true that we’ve seen home prices skyrocket in certain years, and that people who bought when home prices reached their peak weren’t always pleased with the results. But the problem didn’t reside in the home, nor did problems show up in the real estate deals, nor even position of the stars in the heavens. The problem showed up when people bought more than they could afford to buy, particularly when they used a mortgage loan they didn’t understand and found, months after the deal closed, that the monthly payment started to rise insidiously.

There may be no better time to buy than that magical moment when very few people think they should, and interest rates are low, and the market is coming into recovery. But that is a moving target, very hard to hit. A good home at a fair price with financing that fits the buyers’ profile—that is surely the definition of a good deal for a buyer. For assistance call Beth at 425-450-5208 or email her at beth@bethbillington.com.