Alternative Investments

Unique lighting house sign in group of houses. Real estate property industry concept background. 3d illustration

In a recent article, The Wall Street Journal reported that investors have rarely been this flush with cash.  The economic uncertainty due to the pandemic and the volatility of the stock market has caused assets in money-market funds to increase to approximately $4.6 trillion, the highest level on record according to Refinitv Lipper.

The question becomes should an investor be “out of the market” until things settle down or should they seek to find alternative investments to produce satisfactory results.  Even in the middle of this uncertainty, residential rental property has been a stable performer.

Rents are continuing to increase along with values.  Investor mortgages are available at 80% loan-to-value at fixed interest rates for 30-year terms.  Most other investments must be purchased for cash or at best, are limited to low loan-to-value loans, at floating interest rates for relatively short time frames.

The use of borrowed funds, especially at today’s low interest rates, contribute to the rate of return and in some cases, increase it.  This characteristic is known as leverage.

Income properties enjoy specific tax advantages like long-term capital gains rates lower than ordinary income rates, standard depreciation, which is a non-cash deduction, as well as expensing many big-ticket items in the year purchased.

Tax deferred exchanges are available for investors wanting to avoid the tax due on sale and defer the profit into the replacement property.

One of the most cited reasons people invest in rental homes is that they feel they are more in control.  They understand a rental home because it is the same type of property and requires the same maintenance as the home they live in.  They can make the decisions to improve it, repair it, what rent to charge and when to sell it.  For most owners, a home represents their largest financial asset.  That familiarity becomes a natural bridge to decide to invest in rental property rather than something they are less familiar.

If you’d like to know more about the benefits, download the Rental Income Properties guide and call me at (281) 370-5100 to discuss what kind of opportunities are available.

6 Mistakes to Avoid

This should be one of the best times of your life and we’d like to help you with it.

Homeowner Equity

Low mortgage rates and low inventory helped to drive home prices and increase homeowner equity.

Who is This?

This sounds like someone who is really concerned about your best interests.

Wholesale or Retail

To realize the maximum amount of your equity, get all the facts first.

Smart Sprinkler Controller

It seems like most homes have sprinkler systems and if they do, they have some form of controller to automatically turn the water on and off for the time and days you feel necessary.  It seems like basic functionality and if it isn’t broken, you may not feel the need to replace it. 

Today, there are so many smart home devices that are not only convenient, but they’ll end up saving you enough money to pay for the upgrade.  There are different manufacturers, but you should at least consider the Rachio if for no other reason than the easy installation procedure. 

The process is simple.  Unplug the old controller and disconnect the wires being sure to label which wires went to which stations.  Using the Rachio template, mark three spots on the wall, drill holes in the drywall, insert the anchors into the holes and screw the new controller to the wall. 

This model has convenient wire connectors that do not require crimping a wire around a screw.  It is quick and easy to put the numbered wires in the corresponding slot.  The directions are simple and easy to follow.  When complete, connect the power source and plug it into a wall socket. 

Now, install the Rachio app to your phone and continue following the instructions to connect the controller to the Wi-Fi.    In minutes, you’ll be sitting in a lawn chair making adjustments and seeing what it will do. 

Some of the features you’ll find very convenient are the multiple schedules that can be created and easily switched from one to another.  As you set up each zone, you can take a picture of the area and be able to identify with a glance which area you want when individually selecting one. 

Another thing you might like is that when you’re trying to track down a broken head or just need to adjust it, you can turn on a zone from your phone while looking at the yard.  When you identify which head is the culprit, turn the water off from your phone, make the adjustment or repair and turn the water back on to test it without having to go back and forth to wherever your controller is located.

Rachio will even monitor the weather to skip a scheduled cycle in case of rain, high wind or freezing temperatures.  You could literally be anywhere in the world where you have an Internet connection and you’ll be able to adjust your watering cycle.  This device really does save time and money while being fun to operate. 

Poorly Fitting Door

Your mother warned you about trying to heat or cool the outside.

Primary Mortgage Market Survey

Notice that a fixed-rate 30-year loan is lower than the adjustable rate mortgage.

How Does it Measure Up?

Simple blueprint for the front of a modern house.

People are always looking for a “down and dirty” way to determine the value of a home and square footage seems to be one of the most common things used by people whether they are buyers, sellers or real estate agents.  While it seems straight forward, there are several variances that can lead to inaccurate determinations.

The market data approach to value uses similar properties in size, location, condition and amenities to compare with the subject to arrive at a price.  Differences in any of these things can affect the price per square foot.  Appraisers are trained and licensed to make these adjustments but the differences are not necessarily objective and that is where opinions start to influence the value.

Even if a person were to make accurate adjustments, they would be based on the assumption that the square footage of the comparable properties is correct.  That leads to the next area of concern: how was the subject property measured.

It is commonly accepted to the measure the outside of the dwelling on detached housing.  Is it customary in this area to include porches and patios under roof and if so, do they get full value or only partial value?  Is there any value given to the garage since it isn’t living area?  What about other areas that do not have HVAC coverage?

Some areas don’t give consideration to basement square footage at all.  Others might give some value if it is finished or has access directly to the outside like a walk-out basement.  Similarly, attic space could be finished and under HVAC but if the ceiling height is not standard for the home, it may not receive value.

The problems become exacerbated when different comparables are not treated consistently and yet the common denominator ends up being an average of the square foot price of each.   This is calculated by taking the sales price and dividing it by the number of square feet being quoted.

The source of the square footage should be listed to help determine the accuracy.  It could be what the builder said it was to the original purchaser.  If there is a set a plans available, that might seem credible but it is not uncommon for the builder to make changes while the home is being built which could increase or decrease the square footage.

Another source is the tax assessor.  In many cases, they don’t actually measure the home but take the word of the builders or appraisers for it.  If permits were obtained to add on to the home since it was built, it should be reflected in the square footage.  However, sometimes permits are not secured properly.

After reading this, you may think that more doubts have been introduced than solutions and you are correct.  It takes diligence on the part of all parties to determine the correct amount.  The most highly trained person will be the appraiser and they should be measuring the home in its “as is” condition but understand that even a competent person can inadvertently make a mistake.

Missed Payment

35% of your FICO score depends on payment history and a single missed payment can adversely affect that score.