Author: Marlowe Clark

Steps to Take Before Buying a Home

Buying a home can be a stressful process, especially if it’s your first time. But there are several things you should consider beforehand to make sure you know what you’re getting into. If you come up with a solid plan, you won’t be as nervous when it comes time to make an offer.

The first thing you should do is check your credit score. If your credit score is below 620, private loans may be more difficult to acquire or come with high interest rates. Having poor credit may not be a good thing, but at least by knowing your credit score, you know you’ll be looking at a government-backed loan. If your credit score is good, you’ll have more options.

Examine your long-term budget closely. Keep records of income and expenses, and gather together your financial documents, such as pay stubs and tax returns. Not only will this help you personally understand your budget, some of these documents are used by lenders for prequalification or preapproval. Prequalifications estimate your ability to pay to give a solid idea of what range of prices you can probably afford. Preapproval is the next step, after you’re more sure of an area and timeframe in which you want to buy. Once you know what your options are, you need to research all of them. If you can, go to multiple lenders and shop around for the best interest rates. Be sure to ask questions.

Even if you get a preapproval, that doesn’t mean you can immediately breathe a sigh of relief. Preapproval is based on your current levels of income and expenditure. Lenders will be consistently re-checking these until the loan closes. If you make any sudden financial moves, they will know, and your credit score will suffer. Not to mention you may not actually be able to afford the house you plan to buy if you suddenly lose your income due to quitting your job, or drop a bunch of money on new furniture. If you are considering something major, call your lender and discuss it with them, before you decide to do it.

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How To Improve Your Credit Score

If you’re looking to buy a house, unless you intend to pay cash, you’re going to need to get a loan. One obstacle to getting a loan is having a low credit score — if lenders don’t trust that you’ll be able to pay them back, they won’t want to give you a loan. Even if they are willing to lend you money, they will do so at a higher interest rate. Your credit score ranges from 300 to 850, with 800 or above being considered excellent credit, though most people have a credit score between 600 and 750. If you want to know your credit score, or check for errors or fraud, you are entitled to one free annual credit report on AnnualCreditReport.com from each of Equifax, Experian, and TransUnion.

The easiest way to ensure that your credit score doesn’t drop is to make bill payments on time. You may think that as long as the payment gets made, it doesn’t matter if it took a bit longer to get the money to them. That’s not the case, as payments made 30 days late or more can stay on your credit report for up to 7 years. If you are allowed a minimum payment, such as on credit card bills, even making the minimum payment on time is better than waiting until you have the full amount. If you do find yourself in debt, paying down existing debt will also increase your credit score. One thing that you may not realize affects your credit score is the timing of applying for cards. If you apply for several credit cards in a short time period, it looks like you’re wanting a large amount of cash very soon, and may not have the money to pay back loans.

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More: https://www.usatoday.com/story/money/at-home/2021/05/05/homes-near-me-how-to-improve-credit-score-buying-house/4943218001/

Struggling Landlords Need Assistance, Not Eviction Powers

The National Association of Realtors (NAR) has been pushing for an end to the eviction moratoriums, citing the struggles of landlords who are losing profits without either getting payments or having any occupancies to fill. This isn’t an unexpected position, since 38% of NAR members are landlords, but it’s clearly in their personal interest and not the interest of the majority. Beyond this, only 1.8% of landlords are actually delinquent in their mortgage payments, so the majority of them aren’t truly struggling too much. Furthermore, there’s actually a better solution even for the small percentage of landlords that are having issues.

Ending the eviction moratorium is not going to do anything to enable people to afford rent payments. It could help landlords slightly by reducing their upkeep costs, but it’s not likely to bring in new renters. Most units would remain vacant, merely exacerbating the homelessness issue in the US and weakening efforts to curb the ongoing pandemic. California’s SB 91 is a good example of a better solution: It keeps tenant protections in place while still giving landlords 80% of the rent payments they would receive, in exchange for waiving 20% of the payment. This is a better deal for the landlords than evicting their tenants if the unit is simply going to remain vacant. More efforts like this one are going to be the solution to this crisis, not ending eviction moratoriums.

Photo by Viktor Talashuk on Unsplash

More: https://journal.firsttuesday.us/nar-pushes-for-a-quick-end-to-the-eviction-moratorium/77535/

Licensed Vs. Unlicensed Property Management

Contrary to popular belief, there is no governmental license designated as a “property management” license. The Institute of Real Estate Management (IREM) does have a Certified Property Manager (CPM) designation; however, the IREM is a private company and not a regulatory organization. There are also other third party certifications. It may be useful to have these certifications, because it could increase your credibility, but it’s not a legal requirement. That said, there is a government license that is required for some activities of a property manager: a real estate broker’s license.

Not all of a property manager’s activities require a broker’s license, and not all activities requiring a license are performed by all property managers, even if they are licensed. Two common property management services that do require a license are managing the operations of income property and collecting rent. Other things requiring a license are less commonly done by property managers: listing and marketing the property for lease or rent, locating income property, listing prospective tenants, and trading in leasehold interests. A property manager with a broker’s license could also designate an employee to perform these tasks, but the employee must have a brokers-associate license or a sales agent license.

There are still some things you can do as an unlicensed property manager, if you are managing an apartment or vacation rental. You can show available units and facilities, provide information about listed rates and provisions, provide application forms and answer questions about them, and accept screening fees, signed agreements, and rent and security deposits. Note that while a license is required to collect rent for an income property, it is not required to collect rent on apartments or vacation rentals. In addition, no license is required to act as a property manager if the income property owner has given you “attorney in fact” under a power of attorney as a result of temporary inability.

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More: https://journal.firsttuesday.us/brokerage-reminder-property-management-licensing-keeping-employees-compliant/53718/

Proposed Tax Law Changes for 2022

President Biden is due to release his 2022 budget plan in the fall of this year. Though nothing is set in stone yet, we have some ideas about proposed changes Biden plans to make to federal income taxes as well as estate and gift taxes. If any of these come true, it’s likely that the effective date will be January 1st, 2022, though it could be earlier. Here are some of the key proposals that may significantly shake up tax laws.

There are proposed increases to individual income tax rates, capital gains rates, and corporate income tax rates. Under these changes, the maximum individual income tax rate and maximum capital gains rate would likely become equal, both at 39.6%. A major change expected is the repeal of 1031 exchanges, which allow property owners to defer, sometimes perpetually, taxes on property sales when the proceeds are reinvested into real estate. There will probably also be changes to state and local income tax deductions. In the realm of estate and gift taxes, Biden is expected to drastically reduce the exemption amount and increase the tax rate.

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How to Establish a Living Trust

Many people may say that a particular property is owned by a trust, or in the name of a trust. Such statements may be pragmatically useful for conveying the idea, but it can lead to confusions. Not everyone is aware that trusts can’t actually own property. Instead, property is in the name of a trustee of a trust, and is held in trust, not by a trust. In addition, trusts for which the grantor is sole trustee are not separate taxable entities. When a property held in trust being titled, the titling should include the name of the trustee plus “trustee” or “as trustee,” as well as the name and date of the trust.

When establishing a trust, your Declaration of Trust is called a trust instrument. The name of your trust instrument must provide the name of the trust in addition to the instrument. Information about the property should be provided in the form of a separate Property Schedule attached to the trust instrument. When providing copies of your trust instrument, such as to banks, many will have their own certification of trust forms for you to fill out instead of copying the entire document. If they don’t, your state may be able to provide such a form. If you can’t find such a form, the relevant pages banks need is generally a page with the grantor’s name, a page appointing the trustee, a page listing the trustee’s powers, and signature pages.

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More: https://www.livingtrustnetwork.com/estate-planning-center/revocable-living-trust/how-to-fund-a-living-trust/titling-property-in-a-living-trust.html

Selling Over Asking Is A Likely Scenario

If you’re wanting to sell but don’t think you can get as much as you want for your property, you may want to reconsider. The current market climate heavily favors sellers, as demand is quite high and inventory is low. Cutthroat competition means many prospective buyers are willing to pay significantly more to secure a purchase amid the limited supply.

This is especially true in 11 states, where half or more of sales are for over the asking price. In California and Colorado, a full 60% of properties sell for over the asking price. Only one state, Louisiana, had a percentage of sales over asking below 20%, at 19%. Unfortunately, there is no data available for Idaho, Alaska, or Hawaii.

Though buyers are at a disadvantage in today’s market, you can still use this knowledge to your advantage if you are looking to buy. Expect to pay more than the price range you’re looking for, which means get pre-approval for a higher amount. Be aggressive in your offers, and round numbers up, not down. While there’s always a chance sellers will accept low offers after some time on the market, properties aren’t staying on the market. If you’re not able to afford a solid offer, move on and look elsewhere.

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More: https://www.bankrate.com/mortgages/states-where-most-homes-sell-for-more-than-list-price/

Housing Market Optimism is Trending Upwards

The Home Purchase Sentiment Index (HPSI) is a 100 point scaled measurement of housing consumer optimism based on Fannie Mae’s National Housing Survey (NHS). The HPSI is an aggregate of several categories within the NHS. Only one category decreased in March from February, which is mortgage rate outlook. Overall, the HPSI increased 5.2 points in March, up to 81.7, and the year-over-year increase was 0.9 points.

Multiple factors have contributed to this increase. More people are being vaccinated against COVID. Stimulus checks had just been sent out. The spring season also naturally brings more homebuyers, and in this case, even more than usual as buyers had pent up demand from being unable to purchase the prior March due to lockdowns. The statistics generally point to a seller’s market, so prospective sellers should be even more optimistic.

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More: https://www.fanniemae.com/research-and-insights/surveys/national-housing-survey

Tax Deduction Changes Aimed at Helping Restaurants Through Pandemic

Part of the COVID relief package included a change to tax deductions for business meals. Until December 31, 2022, businesses can write off 100% of their food and beverage spending at restaurants. This provision does not include grocery stores, office cafeterias, or similar. It was designed to assist restaurants, which have been greatly affected by the pandemic, by encouraging business spending. It does include writeoffs by freelancers who are considered to own their own business.

There are some requirements. The business owner or an employee must be present, so it doesn’t apply to situations such as contactless pickup or delivery directly to a client. You need to keep your receipts and provide an explanation of when, where, why, and with whom the meal was shared. The meal must reasonably be considered business related, such as between coworkers or an agent and client, though it’s not necessary that the meeting be successful.

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More: https://blog.freelancersunion.org/2021/04/13/covid-era-business-meal-deductions-and-freelance-taxes-2021/

FHA Loans Are Losing Their Appeal

The FHA has its origins in the Great Depression, as a method for people down on their luck to secure a loan without much upfront cost. Given the current recession’s similar circumstances, it may be expected that FHA loans would increase in popularity around this time. That isn’t the case at all, because now there’s competition. FHFA loans — those backed by Fannie Mae or Freddie Mac — are currently a better deal.

The normally low upfront cost of FHA loans is countered by the fact that they have mortgage insurance premiums (MIPs), part of which is an upfront cost. This means that you are spending more over the life of the loan than with a conventional loan even with an equal interest rate. This MIP can be cancelled after 11 years if the down payment was at least 10%. However, the appeal of an FHA loan was the minimum down payment of only 3.5%, so this circumstance rarely came up.

But now, 3.5% isn’t even the lowest minimum down payment. FHFA loans have adopted a 3% minimum. What’s more, their upfront costs are actually lower, with no upfront mortgage premium. The MIP cancellation criteria are also different: The down payment amount and loan length don’t matter, and it can instead be cancelled whenever the home equity reaches 80%. Given that it’s rare for a house to be owned for 11 years, especially for first-time buyers who benefit the most from low down payment minimums, this flexibility is highly attractive.

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More: https://journal.firsttuesday.us/are-fha-insured-mortgages-declining-in-popularity/77177/

Amending Your Tax Return This Year May Give You a Bigger Break

Under normal circumstances, unemployment benefits are considered taxable income. However, the current circumstances aren’t normal. The American Rescue Plan brought with it a provision that the first $10,200 — or $20,400 if married and filing jointly — of your unemployment payments will not be taxed for 2020. The estimated tax break is around $1000 to $2000.

While the IRS will automatically adjust your tax refund amount, it may be helpful to send in an amended return, because tax credits are not automatically adjusted. The Earned Income Tax Credit (EITC) is a frequently unclaimed tax credit that can net you up to $6600 in additional credits, based on filing status, income, and number of children. Because a large portion of your unemployment benefits can be dropped off your income amount, it may cause you to become eligible for EITC if you were not already. Given how frequently it’s unclaimed, it’s also entirely possible that you were already eligible and didn’t bother to claim it, and you can still do so in an amended return. However, be aware that filing an amended return can cost money, and may not actually benefit you depending on the amount of additional tax credits you are eligible for.

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More: https://www.marketwatch.com/story/expecting-another-refund-after-the-irs-calculates-the-10-200-unemployment-tax-break-why-you-might-want-to-do-more-than-just-wait-11617794140

More Measures Needed to Protect Jobs During Eviction Moratorium

The eviction moratorium has received multiple extensions, buying tenants some time to gather necessary funds. Unfortunately, buying them time doesn’t actually aid them in getting funds, and all the while, landlords are also missing a portion of their income. There is no plan for loss mitigation. SB-91 may help somewhat — it allows landlords to acquire 80% of their rent payments via federal funds by waiving the remaining balance. However, this law exists only in California, and doesn’t apply to all rental situations.

Landlords do have another way to mitigate their losses, but it’s not a good option. Landlords who are close enough to do the job themselves could reduce their costs by laying off their property managers and maintenance staff. This doesn’t help anyone, though, and results in increased job losses. While landlords definitely do take a risk in getting a mortgage on a rental property, currently their best recourse to offload that risk is in ways that do nothing to aid a recovery and instead exacerbate job losses. It may be tempting to let risky investments fail, but at the same time, it could be worthwhile to also give landlords as well as tenants some breathing room to avoid worsening the issue.

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More: https://journal.firsttuesday.us/the-eviction-moratorium-extension-a-band-aid-solution-for-a-gunshot-wound/77162/

US Death Rates Far Exceed European Averages

Death rate is a regularly documented figure within most countries in the world. Less common is calculating the excess death rate — the number of deaths in one country in excess of a control rate. An international study used the average rate in western Europe as a baseline and compared 18 individual countries to that rate. The US ranked among the worst for individuals under age 75.

This isn’t even about COVID — the study examines the years from 2000, 2010, and 2017, well before COVID was a thing. In 2017 alone, Americans between the ages of 30 and 34 were three times as likely to die as those in Europe. This is mostly attributed to drug overdoses and gun violence. The US has much laxer gun laws than many other countries, and drug abuse is usually not medically treated. Structural inequality is also a large factor, including in access to health care.

The category in which the US actually fared better than Europe was those over age 85. There were 97,788 fewer deaths than expected based on the control rate in 2017. The reason is not entirely known, but one suggestion is the fact that US medical care places higher emphasis on end-of-life care. Another possibility goes back to the inequality in access to health care. Access is higher for senior citizens; in addition, those with good health care are more likely to have reached age 85.

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More: https://www.theguardian.com/us-news/2021/apr/12/us-death-rate-mortality-europe

Common Interest Developments Subject to Rental Laws

Common interest development (CID) is a broad term referring to condominiums, community apartments, planned developments, and stock cooperatives. CIDs often have a homeowner’s association (HOA), which has been the governing force for how units within the CID are rented out, as CIDs have not been subject to government rental laws. California changed this in January, requiring CIDs to allow at least 25% of the owners to rent out the units. They also may not prohibit rentals of accessory dwelling units (ADUs). CIDs can still prohibit short-term rentals.

The law came into effect on January 1st, 2021. CID documents may not immediately reflect this change, but they still must abide the new law and are required to amend their documents by December 31st, 2021. Violation can result in a fine of up to $1000.

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Homestead Exemption Increased Earlier This Year

Assembly Bill 1885 went into effect January 1st of this year, increasing the debt exemption amount on a property when the owner’s spouse dies. Prior law set the amount at either $75,000, $100,000, or $175,000 depending on factors related to the residents. New law instead bases the amount on the countywide median sales price. The exemption amount is equal to this amount if the countywide median sales price is greater than $300,000, up to a maximum exemption of $600,000. Otherwise, the exemption amount is the minimum of $300,000.

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Revocable Transfer on Death Extended for Further Review

Back in November 2019, the California Law Revision Commission (CLRC) recommended some changes to the laws surrounding the Revocable Transfer on Death Deed (RTDD). RTDD simplifies the process of transferring properties upon death. CLRC also suggested a 10 year extension, but noted that further study would be required. RTDD was set to expire on January 1, 2021, but the pandemic has made review difficult. To give more time for review, it has now been extended an additional year, to January 2022.

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Pallet Shelters Expand into Wilmington

Several pallet shelters have been going up around Southern California to aid in housing the homeless, including in Riverside, the San Fernando Valley, and Redondo Beach. Wilmington is the newest addition, with 75 structures expected to be finished sometime this month.

Pallet shelters, while considered temporary housing, have several advantages over more permanent structures. Notably, it only costs $5000 to build a pallet shelter. It may seem inexpensive to convert existing buildings, but the truth is, it’s costly to modify buildings that aren’t meant as residences to accommodate living quarters. Pallet shelters are designed as residences from the get-go, meaning they’re more similar to traditional housing and feel more like a place to live, rather than a place to seek temporary shelter. They also offer more privacy than 100-resident shelters.

The Wilmington project is also designed to instill a sense of community. While the individual shelters are private, the area itself is public and includes communal areas for the residents to interact with each other and friends from outside. Food will be catered to the site. The site will be overseen by The Salvation Army and they will provide case workers and housing counselors.

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More: https://www.dailynews.com/2021/03/19/temporary-pallet-shelters-coming-to-wilmington-adding-options-to-the-fight-against-homelessness/

Understanding Mortgage Payment Schedule

I’m sure you all know that when you take out a mortgage loan, you pay back the principal plus interest over the life of the loan, in monthly payments. But it’s important to understand that monthly payments are not simply the principal plus interest divided by the total length in months. Because the amortization schedule ensures that each monthly payment is the same amount, it may appear as though each payment is identical. However, this is not the case.

Amortization schedules determine what percentage of each monthly payment is principal and what percentage is interest. When you first get a loan, nearly the entirety of your monthly payments are used to pay off interest, with scarcely any reduction in the principal. As you pay off more of your interest over the life of the loan, a greater percentage goes towards the principal. When you sell a home that still has a mortgage, the amount of money you receive due to equity depends on how much of the principal amount is paid off. If it’s still very early in the loan’s lifetime, you haven’t paid much of the principal, so your equity will be quite low.

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More: http://blog.mattgoeglein.com/real-estate/an-overview-of-amortization-it-plays-a-role-in-monthly-mortgage-payments/

Should I Buy Now or Wait?

Well, as with most things, that depends. Sooner rather than later is certainly the correct time to buy, since mortgage interest rates are going back up and prices are still going up. However, it’s also very difficult to buy right now, because high demand and low supply makes for cutthroat competition. The pandemic certainly played a role in this, but the principal factor in the low availability is lack of construction that has been going on for decades, particularly of multi-family residences. So, the question is really, “Can I buy now?”

Houses are not staying on the market very long, and only the best offers are being accepted. Hesitation is sure to lead to a failed attempt. If you think you can provide the best offer, just send it in; don’t wait. If you attempt to wait out the competition, you’ll be waiting quite a while to get the best deals. It’s likely that inventory is going up in the near future, but that’s not going to instantly impact prices — prices are unlikely to go down at all until interest rates are higher. If you can’t provide the best offer, your chances may be low now, but they will be even lower in the future in the short term. Either act now, or play the long game.

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More: https://www.cnn.com/2021/03/29/success/when-will-housing-market-cool-off-feseries/index.html

Single-Source Financing May Be Key to Affordable Housing

The nonprofit company Restore Neighborhoods LA (RNLA) has just built a small homeless housing development in the Vermont Knolls neighborhood of LA. The cost per unit to build was a mere $225,000, less than half of the $500,000 average for homeless housing in LA. With only eight units, it does little to solve homelessness on its own, but RNLA hopes its financing strategy can be used by others to build more affordable housing faster.

How many builders get money is called the “lasagna of financing” — acquiring funding from several sources, including city, county, state, federal, and private sources. Going through this process takes time, as each different source requires a different application and approval process, and things could change between getting approval from one source and being rejected by another. It could also incur additional costs, such as application fees and hiring financial and legal experts. RNLA instead avoided this bureaucracy by opting for mostly single-source financing. They received the entirety of their $920,000 loan from a single private company called Genesis LA, and the rest of their financial support came from LA county grants and crowdfunding.

Unfortunately, it’s not likely that many builders will be able to acquire funding in this way for larger projects. Single sources simply don’t have the money, or don’t want to risk it, for a large project. The lasagna system has the benefit that no single source is incurring much risk, since they are each able to finance a smaller portion of the costs.

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More: https://www.kcrw.com/news/shows/greater-la/affordable-housing-oscars-oc/restore-neighborhoods-la-homeless-housing