Tax Benefits of Home Ownership

The tax deductions you can take for mortgage interest and property taxes greatly increase the financial benefits of home ownership. Here’s how it works.
 

Assume:
$9,877 = Mortgage interest paid (a loan of $150,000 for 30 years, at 7 percent, using year-five interest)
$2,700 = Property taxes (at 1.5 percent on $180,000 assessed value

$12,577 = Total deduction

$3,521.56 = Amount you have lowered your federal income tax (at 28 percent tax rate)
(12,577 X .28 = $3,521.56)

Note that mortgage interest may not be deductible on loans over $1.1 million. In addition, deductions are decreased when total income reaches a certain level.

10 Things to Take the Trauma Out of Home Buying!

1. Find a real estate agent that’s simpatico. Home Buying is not only a big financial commitment, but also an emotional one. It’s critical that the agent you chose is both skilled and a good fit with your personality.

2. Remember, there’s no “right” time to buy, any more than there’s a right time to sell. If you find a home now, don’t try to second-guess the interest rates or the housing market by waiting. Changes don’t usually occur fast enough to make that much difference in price, and a good home won’t stay on the market long.

3. Don’t ask for too many opinions. It’s natural to want reassurance for such a big decision, but too many ideas will make it much harder to make a decision.

4. Accept that no house is ever perfect. Focus in on the things that are most important to you and let the minor ones go.

5. Don’t try to be a killer negotiator. Negotiation is definitely a part of the real estate process, but trying to “win” by getting an extra-low price may lose you the home you love.

6. Remember your home doesn’t exist in a vacuum. Don’t get so caught up in the physical aspects of the house itself—room size, kitchen—that you forget such issues as amenities, noise level, etc., that have a big impact on what it’s like to live in your new home.

7. Don’t wait until you’ve found a home and made an offer to get approved for a mortgage, investigate insurance availability, and consider a schedule for moving. Presenting an offer contingent on a lot of unresolved issues will make your bid much less attractive to sellers.

8. Factor in maintenance and repair costs in your post-home buying budget. Even if you buy a new home, there will be some costs. Don’t leave yourself short and let your home deteriorate.

9. Accept that a little buyer’s remorse is inevitable and will probably pass. Buying a home, especially for the first time, is a big commitment, but it also yields big benefits.

10. Choose a home first because you love it; then think about appreciation. While U.S. homes have appreciated an average of 5.4 percent annually over from 1998 to 2002, a home’s most important role is as a comfortable, safe place to live.
 

15 Tips for Packing Like a Pro

1. Plan ahead by organizing and budgeting. Develop a master “to do” list so you won’t forget something critical. To estimate moving costs, use a moving calculator.

2. Sort and get rid of things you no longer want or need. Have a garage sale, donate to a charity, or recycle.

3. But don’t throw out everything. If your inclination is to just toss it, you're probably right. However, it's possible to go overboard in the heat of the moment. Ask yourself how frequently you use an item and how you’d feel if you no longer had it. That will eliminate regrets after the move.

4. Pack like items together. Put toys with toys, kitchen utensils with kitchen utensils. It will make your life easier when it's time to unpack.

5. Decide what, if anything, you plan to move yourself. Precious items such as family photos, valuable breakables, or must-haves during the move should probably stay with you. Don't forget to keep a "necessities" bag with tissues, snacks, and other items you'll need that day.

6. Use the right box for the item. Loose items are prone to breakage.

7. Put heavy items in small boxes so they’re easier to lift. Keep weight of each box under 50 pounds, if possible.

8. Don’t over-pack boxes. That will increase the chances that items inside the box will break.

9. Wrap every fragile item separately and pad bottom and sides of boxes.

10. Label every box on all sides. You never know how they’ll be stacked and you don’t want to have to move other boxes aside to find out what’s there.

11. Use color-coded labels to indicate which room each item should go in. Color-code a floor plan for your new house to help movers.

12. Keep your moving documents together in a file. Including important phone numbers, driver’s name, and moving van number. Also keep your address book handy.

13. Back up your computer files before moving your computer.

14. Inspect each box and all furniture for damage as soon as it arrives.

15. Remember, most movers won’t take plants. If you don't want to leave them behind, you should plan on moving them yourself.

Tips for Finding the Perfect Neighborhood

The neighborhood you chose can have a big impact on your lifestyle—safety, available amenities, and convenience all play their part.

Make a list of the activities—movies, health club, church—you engage in regularly and stores you visit frequently. See how far you would have to travel from each neighborhood you’re considering to engage in your most common activities.

Check out the school district. The Department of Education in your town can probably provide information on test scores, class size, percentage of students who attend college, and special enrichment programs. If you have school-age children, also considering paying a visit to schools in the neighborhoods you’re considering. Even if you don’t have children, a house in a good school district will be easier to sell in the future. Another source is www.SchoolMatch.com 

Find out if the neighborhood is safe. Ask the police department for neighborhood crime statistics. Consider not only the number of crimes but also the type—burglaries, armed robberies—and the trend of increasing or decreasing crime. Also, is crime centered in only one part of the neighborhood, such as near a retail area? Another source is www.homestore.com

Determine if the neighborhood is economically stable. Check with your local city economic development office to see if income and property values in the neighborhood are stable or rising. What is the percentage of homes to apartments? Apartments don’t necessarily diminish value, but do mean a more transient population. Do you see vacant businesses or homes that have been for sale for months?

See if you’ll make money. Ask a local REALTOR® or call the local REALTOR® Association to get information about price appreciation trends in the neighborhood. Although past performance is no guarantee of future results, this information may give you a sense of how good an investment your home will be. A REALTOR® or the government planning agency may also be able to tell you about planned developments or other changes in the neighborhood—like a new school or highway—that might affect value.

See for yourself. Once you’ve narrowed your focus to two or three neighborhoods, go there and walk around. Are homes tidy and well maintained? Are streets quiet? Pick a warm day if you can and chat with people working or playing outside.

10 Things Investors Should Look for in Fixer-Uppers

"How can I make some big money in real estate?" That was the question an old friend asked me recently. He purchased two rental houses a few years ago and has enjoyed watching them appreciate in market value. But in today's current "buyer's market," he said, his houses have stopped going up in value and are "stagnating," as he put it.

Then I politely suggested that if he wants to acquire profitable houses in today's market the best opportunities are in "fixer-upper houses," which few other home buyers want to purchase.

Purchase Bob Bruss reports online.

TEN ATTRIBUTES OF PROFITABLE FIX-UP HOUSES. Like my friend, if you are serious about earning profits from fixer-upper houses, here are the 10 key attributes to seek:

1. Basically sound condition without major structural defects. In most communities, this means looking for three- or four-bedroom houses with good foundations and without a major need for renovation other than cosmetic fix-up. Avoid two-bedroom houses unless your town has a strong renter or buyer demand for these smaller homes.

2. Good location with a low crime rate. No matter how enticing a run-down, profit-potential house might be, if it has a poor location there's little or nothing you can do to cure that.

For example, houses next to a noisy freeway or on a very busy street won't appeal to most other buyers except at bargain prices so there is little you can do to raise values in an undesirable location. If most of the nearby houses are run-down and poorly maintained, they will drag down the value of your house. However, if you buy a run-down house in a good neighborhood of well-maintained homes, they will drag the market value of your home up after it is renovated.

3. Good-quality school district. Even when a house is in sound condition in a good location, if the public schools are of poor quality, that greatly hurts the resale value for fixer-upper houses. Always look for houses with school test scores at or above the median for the area where families with children are attracted.

4. Need for profitable cosmetic fix-up work, but not major unprofitable repairs. Examples of profitable cosmetic improvements include fresh paint inside and outside (the most profitable improvement you can make), new light fixtures, new carpets and flooring, and fresh landscaping.

But stay way from fixer-upper houses that need unprofitable work such as new wiring, new plumbing, foundation repairs, major kitchen and bathroom renovation, room additions, and a new roof. These expensive, unprofitable improvements rarely add more than their cost to the market value of the home.

5. Purchase price at least 30 percent below the market value of nearby comparable homes in good condition. "Buy the worst house in the best neighborhood" is a sound motto to follow. Another good motto is: "Your first profit is earned when buying at the right price."

If the seller won't heavily discount the sales price to compensate for a home's run-down condition, keep looking until you find a house with profit potential meeting the criteria explained here.

6. Purchase from a motivated seller who is anxious to sell. Motivating reasons for selling a home include job transfer, pending foreclosure, divorce, health reasons, family birth or death, and unemployment.

If the home has been listed for sale at least 60 to 90 days with no offers, even if the asking price is too high, that is another indication of possible sales motivation so it may be time to make a "lowball" purchase offer.

7. Affordable low-down-payment financing. Taking over an existing mortgage (called buying "subject to"); a lease with option to buy; seller carryback financing; or a combination of these methods indicates probably easy financing.

If the house is in bad shape, avoid obtaining a new mortgage unless it is approved by the lender on an after-fix-up, market-value appraisal. After your fix-up work is completed, that's the time to get a new mortgage, based on the home's increased market value.

8. Seller or tenant will vacate immediately upon transfer of title. The best way to profit from a fixer-upper house is to work on a vacant structure. Attempting to make improvements while the seller or a tenant lives in the property makes the upgrading work doubly difficult.

9. Within a 60-minute drive from your current residence. During renovation of a fix-up house, it pays to visit the property nearly every day to be certain the work is getting done correctly.

When the owner doesn't inspect frequently, the workers often don't show up or they slack off. Incidentally, never pay contractors by the hour (except for minor work) and always pay by the job after it is finished to your satisfaction.

10. Good demand from renters and/or buyers. Unless you plan to live in the fixed-up house, it pays to consider the current demand for houses from renters and buyers. If local employment and economic conditions are good, chances are home values are stable.

However, if more people are moving out than are moving into the community, maybe it's not the right time to invest in a fixer-upper house there unless it can be bought for a 40-50 percent discount off the market value of nearby homes in excellent condition.

CREATE A TAX-FREE, HOME-FIX-UP BUSINESS. If you are serious about earning profits from fixer-upper houses meeting the 10 criteria listed above, buying a "fixer" can become the basis for a very profitable tax-free business.

Thanks to Internal Revenue Code 121, if you own and live in a principal residence at least 24 of the 60 months before its sale, you can claim up to $250,000 tax-free capital gains. When a married couple both meet the occupancy test, up to $500,000 of profits can be tax-free.

This tax-break can be used over and over without limit. However, IRC 121 cannot be used more frequently than once every 24 months. More details are available in my special report, "How to Buy Fixer-Upper Houses With Little or No Cash for Fun and Fortune," available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 94010, or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com.