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Second Homes And Two Perspectives On What They Can Do For You

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Second Home / Investment Home BasicsDo You Mean A Vacation Home Or An Investment?

If you are purchasing a second home there is plenty of ambiguity in the terms used to describe different types of real estate for ambiguity and misunderstanding. That is why there are two perspectives that need to be explored to get a valid definition. Read on to get the breakdown.

The dividing question is whether you intend to use the second property entirely for your personal enjoyment and you have the resources to fund it. Or you need to finance the project to a greater degree and recoup the costs with rental income. In the latter case you might wish to maximize rental income and treat it as a pure investment or you could seek a balance between repayments and enjoyment.

Funding Is The Question And The Answer

The difference in status matters if you are borrowing to fund the purchase of your second home. Loans for vacation homes are usually less expensive than loans for investment properties. Also investment properties will usually have a requirement for a larger minimum down payment. Loans for vacation homes will have restrictions on where they are located, either near some resort location or a minimum distance from your main home.

So the one extreme is the pure vacation home, on the other is the pure investment property, and in between there are the grey areas that lie within the investment property category. You might consider purchasing an investment property primarily, leasing it out as a vacation rental but reserving a particular time of year for personal use.

The additional cost of funding in interest and deposit can be offset by the rental income you receive. For those who have the resources to either self-fund or partially fund, this strategy will yield a minimal cost or possibly even a profit throughout the year.

So investment properties and second homes are really two things in the eyes of the law. However, as a resourceful owner you can make an investment property act as a second home and still get the benefits of both. However, if the idea of a second home that has no investment function appeals to you and it is affordable then why not pursue that option?

Opportunity Outlook In Second Homes

For vacation homes and investment properties the long-term outlook is good. For those of us with the ability to invest and to be patient the value of the property will prove to be a strong asset over time. Ultimately you may wish to cash out and use the proceeds to fund your retirement. Or you can exchange for a larger like-kind property, deferring capital gains for some serious tax advantages under a 1031 exchange.

In every case you should be aware of what you are getting into before you make any commitments. Speak with your financial advisor and your local real estate expert, either can point out the possibilities. You may be surprised at the potential that you can unleash by purchasing the type of vacation or investment home that is right for you.

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Your Second Home and The 1031 Exchange

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1031-exchange-basicsPronounced Ten Thirty One

Let’s say that you have had a second home, a vacation home for a while now, it is a proven good investment, one that has appreciated considerably and you’d like to dispose of it by sale. Technically there could be some problems with the increase in value that has accrued, if you’ve had it for a while. Which means that any cash that you take out of a sale is going to be taxed as a capital gain. Fortunately, there’s a plan for that, as long as you want to keep the value in further real estate investments.

The 1031 exchange refers to the section of the Federal tax code that covers re-investing your profits from the sale of a second home into another of higher value. Because it is defined in the tax code there is a whole host of rules that go along with it. This is a perk for investment properties only; you can’t use it to move up to a nicer home.

The Name Of The 1031 Exchange Game Is Flexibility

You get to exchange like properties for like, the term “like” is very broad in this context. You could exchange commercial space for residential or even undeveloped land. You can even delay the process so that you get the right property to replace your old one.

The great advantage in using a 1031 exchange is that you don’t have to deal with the capital gains tax that arises from the sale of an investment that has grown substantially in value. It prevents a big tax bill when you file your tax returns for that year. If you end up taking out cash in the exchange then that cash will be taxed as a capital gain, charmingly referred to as “the boot”. This is a key point because the tax deferment comes from not taking out the value that you have gained by investing wisely.

Put The Boot Away Until You Are Done

There is one limitation you must keep in mind when you take advantage of a 1031 exchange. It is a deferment, so that when you do finally break the chain, stop reinvesting in real estate and cash out there will be some sort of tax bill to be paid. But that is a good thing because although the tax bill might seem quite large compared to your original investment it is reduced by the compounding gained on the value not given to the government previously, each time you sell and buy new assets.

If you have a vacation home that earns income or you have cash in a bank account that you want to put into a second home or other investment properties the 1031 exchange is a real sweetener. Deferring the capital gain, even as you trade your way into a real estate empire, is a feature that makes investing in real estate so attractive. In fact, it is a great tool for small investors who wish to be big investors one day.

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What To Look For In A Neighborhood

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real-estate-basicsA Few Outstanding Features

The importance of a neighborhood for homebuyers is that, when you are house hunting, you need to keep the big picture in mind. You are looking not just for today but for the value of the home should you wish to sell it at some point in the future.

When you look at a neighborhood for your future home you are thinking about the context and the relationship that you are going to have with the community as a whole. So, there are a few factors that will be important to think about and also do a little research on before you commit to a home and the community in which it sits.

Everyone has different needs in the amenities of a neighborhood and each location will have a selection of features that will appeal to some and not to others and that will have an impact on the value of properties. So, for example, while you might not have young children yourself you want to consider proximity to local elementary schools.

Taxes: Mello Roos Fees

Some counties across the country have higher bond obligations and depend on proper taxes more than others. This can lead to wide variations in your assessment if there is some sort of millage or tax to recoup the cost of a local bond issue. The notorious California Mello Roos taxes are an example of the burden you might end up carrying. So make certain that you find out what sorts of taxes you will have piled on top of the basic local tax load.

Schools Need The Right Distance

You may have a need for the use of public or private schools in the near future or you may not. Regardless, you should take the local schools into careful consideration when you are looking at neighborhoods for your prospective next home.

Other amenities such as shopping and public transportation might be important to you individually. The convenience of accessibility is always a factor in choosing your home. The flip-side to that is if a major freeway runs near by the convenience might be outweighed by the noise volume of the cars and trucks speeding past at all hours of the day.

Crime Statistics

Look at the crime statistics for the neighborhood. These are a matter of public record and so they should be easy enough to access, either through the county records office or through one of the large national real estate websites.

Sources Of Noise And Disruption

Some of the most scenic and pleasant locations can have surprising noise sources such as airports and railway tracks nearby. If the local air force base starts up and moves out a fleet of cargo plans at “oh dark thirty” in the morning on regular occasions you really want to know about it.

Likewise if there is a railroad line track near the property you don’t want to awake a three AM as they sound the horn for the local road crossing. Even if that is the only fault in a location it can be absolutely a deal breaker if you intend to be asleep as it happens.

Invest In Your Neighborhood Choice

Schools, crime levels accessibility must be balanced against nuisance features such as noise. It is the key feature of real estate that every property location is different so take your time to compare each potential new home location measures up for  better or worse.

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The Mature First Time Buyer – It’s Never Too Late To Dream

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Before You Purchase Your HomeThere Is No Time Limit

Home ownership is much more predominant in the older part of the population. That doesn’t mean that that there are no people out there who made it to the senior section without buying a home but who may still wish to do so.

The dynamics are a little different that for younger buyers but that’s not to say that you wouldn’t gain a benefit from owning your own home. Fortunately, even though you might not stick a round long enough to pay off a thirty-year mortgage (but you never know!) there are some affordable options that can make it possible to achieve that further stage of the American dream.

Federal housing laws do not allow lenders and sellers to discriminate based on several sets of protected statuses when offering a home for sale or home financing. One of those is a legal restriction against age discrimination. So, that is one less obstacle to surmount when you decide to buy your first home late in the day.

The principles are the same if you are 65 when you decide to buy your first home or you are 27. You will need to gather your resources, find out if you have any potential blots on your credit history, generate income and some modest funds to pout as a down payment and for costs at closing.

What Becomes Of Your Estate?

If you do end up short on years and long on bank balance then the executors of your estate will be required to sell the home to clear your loan balance before the remainder of your equity can be released to your heirs.

Can you get in trouble with property taxes? In theory yes you could but these days your lender will withhold taxes due to protect their interests. You just have to make the monthly payment and the bank sends the tax money to your county out of those impounds when it falls due.

It All Just Seems So Overwhelming

It doesn’t matter what stage of life you are at when you decide to buy your first home, you will at one point or another feel extremely overwhelmed. That is where your realtor or broker comes in. Any experienced agent knows that this is coming and will make it his or her business to get you through the moments of fear and doubt. That is the real way that they earn their monies.

Statistics do not show homeowners as being happier better adjusted people than those who do not. But still there is a definite satisfaction to be had in owning your first home. The laws against discrimination protect you from missing out, if you can afford it, why should you withhold this simple pleasure of the American Dream from yourself?

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Finding Your Core Credit Information

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credit-report-basicsEach Credit Agency Has A Little List

Credit is recorded by agencies that act as clearinghouses of information about consumer credit, specifically, how consumers use credit over time. There are three agencies that have come to dominate and they are the ones that lenders will turn to when they want to assess the creditworthiness of an applicant. They compile a record of credit applications that consumers make and the record of their behavior when they make payments.

The value of these credit reports is in the amount of information that you contain and they give a detailed picture of how you are likely to behave and if you are going to be responsible based on your credit history and public records. The agencies have deeply involved relationships with lenders and as part of the contract to gain access to consumer records companies report your behavior to the agencies.

Reducing Your Creditworthiness To Points

There is another aspect to your credit record that is derived from the information that is reported about your behavior. The Fair Isaac Credit score or FICO score reduces your credit worthiness to a number. This has become the shorthand for assessment in the financial services industry.

You have the right to review all of your credit reports without charge once a year and every consumer should do so. The agencies and regulators have agreed on a website to allow access at annualcreditreport.com. The agencies also run credit-monitoring services on a variety of terms, a common one is for a monthly fee. Credit Karma is a recent entrant into the market that is disrupting these paid services because you can sign up for free and has immediate access to your credit records and to a wide array of information about your financial self.

Taking Over The World

Your credit score and reports have become vital parts of the modern world. The value and virtue of this state of affairs is one that could be argued at length. In practical terms it is something that must be dealt with, whether you agree with it in principle or not. Everything from banking access to insurance rates and who gets hired for employment are all decided based on the credit background of the applicants.

It used to be that hiring decisions depended on character references and references. Those days are now gone as litigation has made it difficult to give a reference without incurring liabilities. For example, in California and presumably other states as well employers will now limit references to giving confirmation of employment dates and job title. Hence the same companies are forced to seek alternative sources of information and credit histories have become established in that role.

You should take advantage of the information available about your credit reports as discussed above, even if you have no immediate plans to apply for a loan. Getting your financial house in order is vital for all sorts of transactions these days. It is a process of creating a long-term record and you will be glad of the effort invested when the time comes to begin hunting for a home.

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The Internet Of Things And How It Can Help Sell Your Home

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Home Selling TipsAs a homeowner or a potential home buyer it’s important to be aware of the things that have an impact on what the term homeowner actually means. Over the years and even centuries owning a home has come to mean an increasing number of features can be expected in your possession and at your convenience.

Indoor plumbing and central heating go back to the basics of what it is to have a house and to make it a cozy home. There are many other things that have made life at home more comfortable such as vacuum cleaners and refrigerators. We can all too easily discount that there was a time when we did without them and take them for granted.

The Internet Of Things Is Getting In Everything

The next big innovation in the conveniences of the home are likely to come as part of the emerging trend of all appliances and machinery to include electronic monitoring gear and software that can connect it directly into the Internet. This potential of connecting everything to everything else is referred to as the Internet of Things. It has been building momentum in recent years and it could easily become an accepted part of the home in the near future.

The possibilities include the connection of all heating, air conditioning and the rest of your home’s utilities. Other appliances will be connected wirelessly and so your Wi-Fi router will become another vital appliance, the hob of the network of everything that is connected in your house.

The Internet of Things will give you immediate access to vast amounts of information about the state of each appliance or piece of furniture, warning of failures and energy usage. You won’t have to be at home to utilize such features. By connecting through the appropriate app you will have it all at your fingertips, even when you vacation on the other side of the world. It is likely that your refrigerator will soon be able to inventory its contents and alert you to replace anything in short supply. A more extreme possibility is that you could select options that allow the fridge to contact the supermarket on your behalf and make the order directly.

Living In Public

The downside of the Internet of things is that we could be tracked so completely that our every move is noted and logged. Whether it is by the range in the kitchen, the air-conditioning in the living room or a humble lamp in the back bedroom.

IN spite of that privacy invasion the Internet of Things promises to have such complete coverage of everyone’s lives that it will be like you are in a cocoon of electronic tracking. This is something that new homes will have as standard. For some people this may be less appealing but still it may become an important factor in creating the most modern curb appeal for your property. Millennial new homebuyers may be much more comfortable with total envelopment by the Internet of Things than the rest of us but we need to consider the potential benefits going forward.

If you are considering buying or selling in the near future the Internet of Things is a topic that you should discuss early in the process with your realtor. The possibilities and trends are evolving so rapidly that you will need to be aware of what to look out for and what to offer buyers as high-tech incentives that might be all the difference in how quickly you sell and the price that you can agree in negotiations.

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The Breakdown For Condo Fees

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real-estate-basicsWhether you are hunting for your first home or the next, you will probably want to look at condominiums as an option. They cost less than detached homes generally and there is someone to take care of the chores and upkeep of the building so you don’t have to do it yourself.

All of this comes at a price obviously and that cost is called a homeowners’ association fee or condo owners fee. This monthly bill covers the cost of managing the community. You will need to factor it into the equation of your decision to buy or to make your purchase elsewhere.

The Structure And Purpose Of Condo Fees

The legal term describing condominiums that you may see in documentation is common interest development or CID. The whole point of a condominium is that it is a community that is managed collectively by the homeowners association or HOA.

HOAs usually employ a professional management company to run the day-to-day operations. The fees that go to the management company for your condominium association or HOA what do they cover? There are several factors that account for the monthly homeowners’ association fees that you pay each month for your condo unit or townhome.

Some Services Covered

Here is a list of some of the most common elements of the bill you will pay each month as a member of an HOA:

  • Insurance – For everything outside your unit, you still need a policy of your own to cover the interior of your unit.
  • Pest control – the shared structure of your building requires that there is a holistic approach to fighting the sort of pests that can get up inside it.
  • Lawn and landscaping If you look closely you can tell the difference between condos and rental units by the quality of the yard work.
  • Maintenance and repair – All work on the shared structures and spaces of the community and the shared link to municipal services.

HOAs Wrap It Up And Put A Bow On Top

This list is not exhaustive however when you are looking at condos to buy your realtor should be able to acquire a comprehensive breakdown of what you will be paying and why.

Likewise, once you are settled and living in your condo there should be at least an annual report detailing what your board of directors has spent and what they intend to spend in the next year.

Work Gets Done So You Don’t Have To

HOA fees mean that you don’t have to worry about doing the yard work and yearly upkeep that is essential to keep the property looking good and habitable. The fee that you pay may go up in future years if there is an unexpected expense or just an increase in the cost of management.

In the balance, if you lack the time or inclination to do chores or potter around and work on your home you might find that your HOA fees represent good value and a subscription to membership in your community.

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The Difference Between Houses Townhouses And Condominiums

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real-estate-basicsShould I Stay Detached Or Go Condo?

Have you ever wondered about the differences between detached homes, townhouses and condominiums? From a standpoint of comfort it is a matter of choosing the lifestyle that best suits your needs. However, from legal and practical standpoints there are numerous things that clearly mark out the distinctions between one and the others.

The main division is between the ownership of a single, detached property and one in which there is a common, shared interest with other members of the community. This shared interest is governed by the condominium agreement, a relationship that dates back to ancient times. You are said to own a condo, or a unit, meaning a unit of space when it is part of a legal condominium community; the name refers both to the unit and the contract.

The HOA Advantage

The organization that supports and operates the community, the homeowners association or HOA, is the main feature of the difference. If you own your own detached home you are responsible for all of the bills and maintenance issues.

In a condo communities the shared assets are the responsibility of a management team. Oversight of the management is provided by a board of directors that is elected by all of the members of the association.

The use of condominium rules is something that is applied to a wide range of housing needs and building types. The most familiar is the unit that is most commonly associated with the word condo and it usually brings to mind an apartment in a building that stacks up the units like shipping containers. In fact many condo complexes start out as apartment buildings that convert at a time when it is best suited to get the best return on the developer’s investment.

Different Structures Still Strictly Condominium

A townhouse is an attached home that has is like the close-packed row houses in many urban communities. They are arranged side-by-side and usually consist of two levels or more. They have an HOA to take care of the common areas and some of the amenities. Landscaping for each unit might not be included.

Detached houses in gated communities and in some privately developed subdivisions are another type of community that share responsibilities and costs. The same services as with condos and townhomes but homeowners may be expected to contribute more in the upkeep of the exteriors of their homes as well as adhere to strict rules on appearance.

For the avid gardener who is keen to create a unique and distinctive look to their home this may be a restriction that prevents them doing what they really desire. In such cases the independence of a traditional home might be much more preferable. For other buyers, the sense of community and grooming of the common areas might be just right. There are many types of ownership options because there are so many different needs of people seeking to own their own homes.

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