Wednesday 30 October 2013

Reasons Why a Home Isn't an Investment



Reasons Why a Home Isn't an Investment

Editor's Note: This is a guest post by Go Banking Rates

Is a Home a Good Investment - Is a House a Good InvestmentBy definition, an investment is "the act of laying out money or capital in an enterprise or asset with the expectation of profit." So by definition, is a home really an investment? With mortgage rates at a historical low and depressed home prices, it really depends on who you ask.

The self-made, multi-millionaire real estate investor who bought in when homes were cheap would answer with an emphatic yes. But times are different now, and many of those same home flippers and amateur investors are declaring bankruptcy while banks are seizing their assets.

In the wake of one of the worst economic catastrophes ever (and caused by overzealous home purchases), people are finally starting to realize that the era of easy money is gone when it comes to housing. While most people still believe a home is a great investment, there are several good reasons why you should reconsider thinking like most people.

1. Homes Don't Always Appreciate.



Take a look at the major decline that the housing market has suffered from lately. Things are not looking good for millions of homeowners who are now late on their mortgage payments or are already in foreclosure. Try telling them that housing is a good investment.

This recent development only shows how volatile housing can be. Unlike stocks or smaller investments, you cannot sell a home quickly if you needed to.

2. Investment Properties Often Lose Money.



It sounds great to own a second home or investment property. You get the title of landlord, get to brag to people that you own property, and you're finally in charge.

Guess again.

Many people have no clue how difficult managing a property can be, especially in states that often favor tenants over landlords. You could have periods of vacancy, vandalism from horrible tenants and a host of other regulation issues on your hands.

On top of that, maintenance fees and property taxes can cripple you. Have you checked on the price of a new roof or a set of new pipes? It's definitely not the dream many expect.

By the time investment property owners are ready to call it quits, they've either lost money or broke even after years of stress.

3. Returns are Minimal.



Using data from the Case Shiller Index of 10 major cities, The Wall Street Journal ran an article showing that home prices produced a real return of just 1.15 percent a year over inflation.

If you bought a home in one of the 10 major cities in 1994, almost the lowest historical trough for home prices, you would still only come out 2.5 percent ahead of inflation. Compared to stocks and inflation proof government bonds, that's a pretty low return. Factor in other things like maintenance and property taxes and you could have actually lost money.

So the next time you're at a party and someone brings up the abundance of opportunity being presented by the weak housing market, you'll be able to provide them with some facts.

You can definitely come out ahead in housing if you're buying for the long term (about 10 years), but then, isn't that more of a home than an investment?

This guest post was written by Go Banking Rates, bringing you the best interest rates on financial services nationwide, as well as informative content and helpful tools. Subscribe to RSS

guest writers blogAbout Guest Writer
This post was written by a guest writer. If you'd like to add a guest post in Money Hacker, please check out Write for Us page for details about how YOU can share your knowledge with our community.


Enhanced by Zemanta

Secured or Unsecured loan - What`s the Difference?



Secured or Unsecured loan - What`s the Difference?

A guest article by Andreas Nicolaides of moneysupermarket.com

secured-vs-unsecured-debtWhen researching loans, no doubt you'll come across the terms, "secured" and "unsecured", but what does this mean exactly? Both loans are big financial commitments, but one may hold more advantages for you over the other.

Secured Loans

A secured loan is a loan that has a particular asset backing it. This means that if you fail to comply with the loan terms, such as repaying it, the asset can be repossessed.

The first type of secured loan that comes to mind is probably a mortgage, since the house and property are assets backing the loan. Homeowners that fail to make their monthly payments are faced with foreclosure, which is when the bank or lender repossesses the home to cover their losses.

Other types of secured loans include home equity loans, car loans and title loans.

The great thing about these loans is that you can borrow much more than you can with an unsecured loan. As there is less risk to the lender, interest rates tend to be lower.

People with poor credit histories can often get secured loans, although it may depend on what the loan is for. You may have trouble qualifying for a mortgage but have no issues getting an auto loan, for example

The obvious disadvantage is that you could potentially lose the item being financed, whether it's a home, car, boat, RV, or even furniture.

Unsecured Loans

An unsecured loan doesn't require an asset. The lender simply relies on your signed loan obligation, to repay the debt. These types of loans include personal loans, cash advances and payday loans.

The great thing about this type of loan is that you don't risk any asset and you don't need to be a property owner to take out the loan. Personal loans tend to come with lower interest rates than credit cards and store cards, so they are often used as a means of paying off credit debt to save money on interest.

The downside of unsecured loans is that the interest rates can be incredibly high. The interest rates are based on your income level and credit rating, so the higher your score, the better interest rate you will get.

You won't be able to borrow as much money simply because an unsecured debt poses more risk to the lender. The life of the loan also tends to be less. This means that you have a much shorter repayment period, which may or may not be a good thing depending on your situation.

Which type of loan you need would greatly depend on your reasons for needing the financing. Shop around carefully, regardless of which loan you need and compare interest rates and lender terms to find the best loan for you.




Enhanced by Zemanta

Top 5 Mistakes When Investing in Rental Property


Top 5 Mistakes When Investing in Rental Property

It cannot be denied that there has never been a better time to invest in rental properties, provided you have the cash for a down payment and the credit to get a loan (or you've decided to join an investment group). With the housing market still floundering you can buy into properties at cut-rate prices, and some of them need very little work to be habitable. From there you simply rent them out (more people are renting than buying these days), let your tenants pay the mortgage, and get a little passive income on the side. It all sounds too good to be true, right? It might be if you're not careful. If you have the money to invest, you want to make sure that you do so wisely, so here are just a few common mistakes that you'll want to avoid when investing in rental property.

1. Buying "as is". In terms of pricing, you're not likely to find a better deal than foreclosure properties, but they don't come without their hassles. Once a bank takes over they usually slap an "as is" addendum on the sale, which means that you agree to take on any troubles that may come with the property with no chance for financial recourse. If you buy from a homeowner you may pay a bit more; but you'll also have options should you face issues that weren't disclosed at the time of sale.

2. Failure to research. Most people understand that they need to arrange for an independent inspection of the property before they buy to uncover any issues that could be costly down the road. But since you'll be renting out the property you should ensure that you have chosen a good neighborhood that is desirable for renters (low crime, good school district, etc.). Sites like Zillow can show you what a variety of properties in an area are valued at, but keep in mind that buying the most expensive house on the block doesn't mean you've chosen a good neighborhood that renters will jump at.

3. Exceeding your budget. If you feel like you've found the goose that laid the golden egg, you may be willing to go beyond your preapproved budget in order to obtain what you see as the holy grail of homes. But by purchasing a property that is beyond your means you're only putting your entire investment at stake. What if you don't get renters right away and you have to pay the mortgage on your own for several months? What if you hit a snag with getting the house up to code? You don't want to be overextended in these cases or you could lose everything.

4. Partnering with the wrong people. Investing in property is expensive, so you might be tempted to start a joint venture with family members, friends, or even an investment firm. Just remember that you are trusting these people with your money (and vice versa) so you'd better be sure they are worthy before you get into bed with them.

5. Second mortgages and hidden liens. One terribly common mistake is failing to verify the provenance of a property. Just because a seller doesn't mention a second mortgage or liens against the property doesn't mean they aren't there. With the economy in the toilet, it's not that surprising that many homeowners have done a remortgage search, borrowed against their property, and even used their house as collateral. So do your homework here and make sure that you'll be the only one with a claim to the property once the paperwork is signed.

Enhanced by Zemanta

Why & How We Can Teach Our Children on the Merits of Property Investment


Why & How We Can Teach Our Children on the Merits of Property Investment

Editor's note: This guest post contributed by Jack Photon

investment-real-estateOne of the best things a parent can teach a child is how to manage their personal finances. Parents teach this both through words and actions. Beyond the basics such as how to manage a credit card, balance a check book and budget, parents can also teach their children the merits of property investment.

Owning a home can be a rewarding experience, or it can be a devastating experience that can ultimately lead to bankruptcy. Financially savvy parents can teach their teen and teenage children several important lessons when it comes to buying a home:

1. Save for a down payment. Many of the homeowners who find themselves having difficulty paying their mortgage currently are in trouble because they took out two loans, one for 80% of the home’s price and another for 20% of the home’s price because they did not have the 20% down payment recommended. True, it does take time to save up a down payment for a home that will cost several hundreds of dollars, but home ownership should not be rushed.

2. Have a hefty emergency fund. Home ownership involves more than just the mortgage payment. There can be expensive repairs such as a new heating and cooling system or a new roof. If children are taught to have an emergency fund, as homeowners, they will be able to afford these unexpected repairs.

3. Check home loan comparison sites. The home loan interest rates can vary from institution to institution, and the lower interest rate one can obtain, the less one may pay on a monthly payment and the less one will pay over the life of the loan. When I was young, my mom showed me every month how much of her payment was applied to the home’s principal and how much was applied to interest. This was during the 80’s and record interest rates; I still remember the shock of how little actually went on the principal.

4. Consider buying a two or three flat. One of the most economical ways to own a home is to buy a two or three flat; live in one of the floors and rent out the other ones. Savvy parents will teach their children that the renters will then be paying most, if not all, of the mortgage. If there is a surplus every month, it could be used to begin investing in more properties, which will then generate more monthly income.

Parents have so much more to teach their children than just the basics. If they focus on teaching them the ins and outs of property investment, their children will be one step ahead of their peers and on their way to a wealthy future.


guest writers blogLike to Add Your Guest Post here?
This post was written by a guest writer mentioned above. If you'd like to add a guest post in Money Hacker, please check out Write for Us page for details about how YOU can share your knowledge with our community.


Enhanced by Zemanta

Home Loans and Government Help


Home Loans and Government Help

Buying a home for the first time can seem like a foreboding endeavor thanks to the often unstable state of the housing market. Thankfully, the United States Government offers several alternatives to private and conventional loans that make buying a home a real possibility for ordinary people. In this article I’ll list four different programs, the ways they work and their limitations. I’ll also provide links that provide even more information about each of these programs.

FHA Loans

The FHA (Federal Housing Administration), is part of the HUD (US Department of Housing and Urban Development) and has been active since 1934. In a nutshell, FHA loans offer relatively low down payments, easy credit qualification and low closing costs. In fact, the down payment can sometimes be as low as 3.5% of the home’s total purchase price, and the loan can include the price of closing costs and other fees. The cost of fixing up an existing home can be included in the loan, and the loan can also be used to make a home energy efficient (via an FHA Energy-Efficient Mortgage). In addition to this, an FHA loan can be used to purchase a mobile home or manufactured housing. Due to the all-inclusive nature of FHA loans, they are often ideal for first time home owners. For more information, the HUD website is a valuable resource.

VA Loans

For veterans of the armed services (including some Guard and Reservist members), a VA loan is often a wise and convenient choice. Qualified buyers can purchase a home with no down payment, no mortgage insurance premiums, receive a property value appraisal and enjoy low, fixed closing costs. In addition, a 1-year warranty on all homes is demanded from the builder in most cases. VA also offers loan and financial counseling to veterans. There’s no maximum VA loan, but most lenders cap the amount at $417,000. Prospective buyers must meet certain income and credit qualifications, and there are several clauses that make building a new home using a VA loan difficult. It also must be said that not all lending institutions are VA-approved. For more information about VA loans, Military.com provides a wealth of information.

RHS Loans

The Rural Housing Service falls under the USDA (US Department of Agriculture) and provides both direct loans and guaranteed mortgage loans. In some specific cases, the RHS offers people in rural locations a direct loan based on their income and their ineligibility for other types of loans. In most cases, however, the RHS provides a guarantee on a loan issued by a traditional lender. The RHS will repay the lender if the buyer defaults on a loan, and also helps many people who would not otherwise be approved for a loan obtain financial assistance. People with poor credit and low income are much more likely to receive a loan with the RHS, a division of the USDA, supporting their request. As long as the buyer makes less than 115% of the medium income in his/her area, they qualify for no down payment and other benefits. The loan can be used to purchase (and fix up!) existing property or to buy a new home. Buyers must live in a rural area, meet very specific income requirements and, in most cases, have a good credit rating. For more information about RHS loans, visit the USDA.

Section 184

Section 184 is the go-to program for Native Americans to purchase property on Tribal land. A buyer must be a member of a federally recognized tribe to qualify for Section 184. Created in 1992, the program makes a guarantee to private lenders so they can provide loans for those living on Tribal lands. If a home is on Tribal Trust Land, the buyer works with the BIA (Bureau of Indian Affairs) and HUD to turn the property into a leased entity for the duration of the mortgage + 10 years. This means that if the buyer forecloses, the lender purchases the lease and not the Tribal land itself. If the buyer already owns Trust land, there is no need for a leasehold estate. To qualify for Section 184, land does not need to be Trust land, it just needs to be located on a Native American or Native Alaskan estate. Lending limits are based on the current market and not on a buyer’s credit rating.

With one of these programs standing behind them, any prospective home buyer should have the confidence they need to purchase a home without endangering their financial future. In any case, research, shopping around and asking as many questions as possible are the best resource to ensure long term stability.

Author bio: Tim Richmond is a passionate blogger who writes about the economy, finance and home ownership. He is an online publisher for 1st Tribal lending.

Enhanced by Zemanta

How to Apply for Obama's Home Loan Modification Plan


How to Apply for Obama's Home Loan Modification Plan

Editor's note: This guest article contributed by Mark Tye

Obama's Home Loan Modification PlanBACK IN 2009 in an attempt to help an estimated 9 million families stranded in deep water with no help in sight, President Obama authorized $75 billion bucks into the "please help me" pool, and designated it a mortgage relief plan. Would this money life preserver save every homeowner? Would it turn the tide of the massive foreclosure wave that hit the country? It helped, but it acted more as a band aid than a cure.

What was this "money pot" supposed to really do? The answer is simple enough. Help hard hit states like Arizona, Nevada, and other desperate states stem the tide of foreclosures and stop or at least temporarily halt a widening recession. Headlining this Obama $75 million dollar loan modification program was an initiative that provided incentives to mortgage lenders to convince them that taking advantage of this loan modification opportunity might be able to save millions of homeowners who are on the verge of foreclosure - even bankruptcy.

Many borrowers were confused on how loan modifications worked as it applied to them. Basically, the Obama loan modification program was a process that helps you restructure your current loan terms to make them more affordable to you. An example of how a loan modification works can be easily explained this way. You have a current loan amount of $255,000. Your monthly PITI payment before any loan modifications is $2,108.47. Your monthly payment after using the Obama loan modification would be, $1,669.00. Big difference

To apply for the Obama loan modification you'll have to jump over a few hurdles to see if you're eligible.

** Go online. Visit a mortgage lender to verify eligibility for the loan modification program

** Apply for a loan modification. Remember to negotiate with your lender

** When applying for a Obama loan modification, there should be no credit check for an inquiry; no obligation

** Who is eligible? Help may be available for loan modifications if you are about to miss several mortgage payments,you are nearing or already in foreclosure, you're a homeowner thinking about a short sale, the sheriff has already nailed a sale notice on your front door, your current lender doesn't answer your phone calls or emails or heads for the coffee room when you enter his office building. These are urgent times. People need urgent help, not a promise. Maybe a loan modification is your life jacket.

About Guest Writer
This post was written by a guest writer. If you'd like to add a guest post in Money Hacker, please check out Write for Us page for details about how YOU can share your knowledge with our community.


Enhanced by Zemanta