Figuring out what the best thing to do with your money is can be difficult. Many people get caught up in all of the possibilities. They wonder is it wise to pay off your house mortgage? Should they pay off credit cards or put higher down payment on a new home? Should I pay off my car loan with home equity loan? Is it better to pay off your house or keep the money? And, most of all, should I pay my house off at retirement.

We have discussed if it is smart to pay off your home early before.

Unless paying off your home still leaves you with a sizable amount of cashable assets, the answer usually is not what you think. For people without substantial assets remaining after paying off the mortgage, owning your house free and clear does nothing but trap a lot of money where you can’t get it, inside your house. Financial professionals call the equity in your home that you are not going to sell “dead equity.”

Here is what to do with your assets before you pay off your mortgage, and also, a quick look at understanding the pros and cons of a reverse mortgage.

Reverse Mortgage Mythology

The first thing out of many people’s mouth when they come to see me with a ton of equity and no retirement savings is “reverse mortgage.” Sometime in the next decade you’ll see a major government campaign to clear up the misconceptions around reverse mortgages as more and more baby boomers find themselves unable to support themselves because they were counting on a reverse mortgage.

For a sobering reality check visit the AARP Reverse Mortgage Calculator (Stay off of other reverse mortgage web sites. This subject is an area full of scams and con-artists. Searching for “reverse mortgage” is a recipe for disaster.)

The guys in our example above can get between $150,000 and $200,000 in a reverse mortgage if the owners are 75. Want one at 65? As low as $65,000. Keep in mind that once you take a reverse mortgage, you are no longer the owner of the home for borrowing purposes, so you CANNOT get a home equity loan of any kind after you get a reverse mortgage. How long do you think $65,000 will last in retirement?

What To Do?

Obviously since this is an article on the psychology of money, I am well aware that you might want to pay off your mortgage anyway. If so, here is the smart way to go about it.

1. Cash Reserve – If you don’t have 6 months worth of expenses in a non-retirement account (not a 401(k) or IRA) then save money into a money market account first. Only after you have six months worth of savings should you consider paying off your mortgage.
2. Worse Loans – If you have ANY OTHER kind of loan you are better off paying it off first. Most important is to pay off all credit card debt. That’s right, all. Every cent. If you have any credit card debt you are an idiot for sending extra money to your mortgage. I can’t be any plainer than that. Be sure to maximize the credit cards you do have by taking advantage of credit card reward programs like the Capital One rewards and Citibank rewards. Also, pay off student loans and car loans first. Don’t bother paying off a car lease. With most leases you pay all the interest whether you pay it off early or not, so don’t bother.
3. Retirement – If you are not saving at least 10% of your salary into your 401(k), then do not send extra money to your mortgage. Instead, increase your contribution to your 401(k). You will need an account built up of many years worth of 10% savings in order to retire comfortably and PAY FOR YOUR HOUSE’s non-mortgage expenses. If you get a lump sum of money, then put it in a money market account, increase your 401(k) contribution and use withdrawals from the money market account to make up the shortfall in your paycheck. By the way, if you are over 50 and your 401(k) balance isn’t north of $300,000 then go 15% ASAP and don’t bother with the mortgage.
4. Major Expenses – Don’t be near sighted. Scan the horizon for major up-coming expenses. Want to know where to look? Try a glance at your kids first. How many years until college? Are you where you want to be for helping them out? If Annie is 16 years old and you have an extra $20,000 do you think the smart move is to pay $20,000 on your mortgage today and then get a $20,000 home equity loan in 2 years? (The answer is no.)
5. Does Another Option Sound Safe Too? – Many people who pay off their mortgage do so because it sounds “safe”. Ask yourself if anything else would make you feel just as safe. For example, if you had a $200,000 mortgage and $100,000 in U.S. Savings Bonds would that make you feel safe? (Savings Bonds are garbage by the way, it was just an example.)
6. Feel O.K. About Paying in Chunks? – Most people pay off their mortgage early by sending extra money in with their payments. I myself round up to the next $100 just because it makes me feel good and it doesn’t have any overall impact. But, if you are sending an extra $500 or $1,000 a month consider the “Big Extra Payment” strategy. Instead of sending an extra $1,000 to the mortgage company, put it in a money market account. Wait 15 or 20 months. Now, if you still want to pay early on your mortgage you can send in $15,000 or $20,000 all at once. The interest you pay in the meantime will be equalized by the amount you earned on the savings. This way, if something happens, say in month 13, you’ll have $13,000 that you can replace the roof with (or whatever) instead of scrambling to come up with the dough.

Discipline Anyone?

Tons of people proudly tell me how they claim less withholdings on their W-4 than they have to because then they get a big refund when they do their taxes. You’ve heard all about how this is a dumb strategy because it’s the same thing as giving the government and interest free loan. They do it anyway. Why?

For most people an extra $200 in their paycheck is something they just spend without ever noticing. But, $2,400 all at once is something that they would do something smart with. For these people, the “forced savings” plan of low-balling your W-4 withholdings is the only way they’ll ever save money. I suppose it is better than nothing.

A similar kind of person likes the idea of paying off their mortgage early for the same reason. The theory is that if they saved $500 a month, then eventually they would notice $5,000 in the bank and they would blow it on a vacation or a car. Instead, if they send $500 a month to the mortgage company then they won’t have that extra money so they won’t spend it.

You know yourself better than anyone else and if this describes you then by all means, do what works for you. I’m the first one to say that financial planning is about more than the math. It’s about what will actually work. So, send the extra money to your mortgage company, but do yourself a favor and see if you can’t work on building the financial savvy and discipline that would help you in the long run. Maybe send $400 to the mortgage company and save $100. Put the $100 someplace it’s harder to get to like at a bank a four-hour drive away. Don’t setup online access and cut up the ATM card the second you get it. Then, that $100 will build up and you won’t be able to spend it on a whim. With the extra time to think about it, you might just find that you have the discipline after all.

Good Luck

If you do manage to pay off your house, congratulations. It is a noble goal and I am not speaking against it. In fact, the best retirement planning I do is for people with their house paid off. But, it has to be that they have their house paid off AND they have significant savings. Planning for someone with no mortgage and $700,000 is a joy. Trying to squeeze a budget out of $250,000 even with no mortgage is an exercise in bargain shopping and cutting down to the bare necessities.

Just understand that there are many factors to be taken into consideration. Once you have looked at all the factors, then pay the darn thing off. I’ll be the first to shake your hand.

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Should I Pay Off My Mortgage Instead of Investing originally published at Personal Finance Blog - FinanceGourmet.com

This is part 2 of the series, the first part is: Not Time to Refinance Your Home

Future Interest Rates With Adjustable Rate Mortgages or ARM

Right about now, when you are starting to feel better, someone will throw in your face the fact that even if your rate is good, IT COULD GO UP AT ANYTIME.  That, is the second thing that is different. 

Mortgage companies and customers found that changing the interest rate every month was a hassle for everyone and only created more opportunity for errors and losses both for lenders and borrowers.  Almost every ARM adjusts on set periods.  The most common is a mortgage loan that adjusts once per year.

In other words, if our ARM started adjusting today, we would lock in a low rock-bottom 3.25% interest rate for a full year. 

What if interest rates do rise?

They will, you can count on that.  When, and how fast, is another question.  However, consider that everyone still considers the economic recovery that we seem to be having (or may not be having, no one is really sure) is very fragile.  The last thing the Fed wants to do is raise interest rates too far, too fast, and kill off the economy again.  You can expect them to be erring on the side of NOT raising rates for once.

When they do start raising rates it will be done slowly.  The first rate increase will almost certainly be 0.25%.  When that happens, mortgage rates will rise too.  If you like, you can go refinance that day.  It should be much easier to get a mortgage since that interest rate increase will come because the economy, and the banks, are doing better, so there will be less fear in lending.  Assuming the 30-year fixed rate jumps a full 0.75% on the news, compare that to what your current non-adjusted rate is.

On the 5-year note, we have, it is 5.125%, that is roughly what interest rates might be AFTER the Fed starts raising them.  So, there is really no downside even if rates do go up, and no one is expecting them to go up much soon.

Of course, you might not want to refinance even if the Fed does start raising rates.  Why?

Because most adjustable mortgages include clauses defining the maximum amount the interest rate can go up during any one adjustment period (in our case, one-year).  In our case, the rate can never change by more than 2% from the previous year.  That means that if we did get locked in at 3.25%, the highest our interest rate could possibly rise to next year would be 5.25%.  Again, compare that to what you could refinance to today with no fees and no closing costs.

In other words, we would be set from now until June 2011 without the possibility of our interest rate increasing any amount that would justify refinancing.  In fact, through June 2012, we are guaranteed to not pay anything higher than 7.25%.  That isn’t rock-bottom, but hardly sky-high either.

Refinancing will cost you a couple thousand dollars in fees most likely which means it could take years to break even once the rate you have locked in for 30 years is actually lower than would you could have by not refinancing.  Again, by way of example, if we could get something like a 5.0% 30-year fixed mortgage for just $2,000 worth of TOTAL costs including any administrative fees or charges, it would be June 2012 before we started saving any real money on our monthly payments.  It could be 2014 before we started coming out ahead.

So, while not refinancing guarantees us a low-cost mortgage through June 2011, and an average mortgage through June 2012, actually refinancing can’t even POTENTIALLY offer us any advantage until at least 2014!

Can you guarantee that your job, desired home location, family size, and lifestyle will stay the same through 2014?  Me, neither.  We won’t be refinancing.

(Just for full disclosure, the Note I’m referencing actually adjusts at the end of 2009 making this a slightly bigger gamble, but still a pretty safe bet.  No one expects rates to rise much between now an the end of 2009.)

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ARM Interest Rates Adjusting Soon May Be Good News For Homeowners originally published at Personal Finance Blog - FinanceGourmet.com

The world of adjustable-rate mortgages isn’t very old when it comes to the general population.  Sure, the product has been around for a long time, but it wasn’t until late in the 1990s that it turned into the kind of thing your average neighbor would have.  That lack of age also means a lack of experience. 

So when media outlets start reporting about “Black Wednesday” when mortgage interest rates shot up, and then follow up it up with “news” asking if homeowners who didn’t refinance already have missed the boat and wondering if there will ever be lower interest rates again, the average person starts to worry.

Many homeowners are doing the wrong thing right now, or are up nights worrying about something they don’t need to worry about just yet, because now might just be the perfect time to NOT refinance your mortgage.

With the economic recession and collapse of the banking industry, as well as the drying up of the credit markets, the Federal Reserve Board (FED) has cut it target short-term interest rates to near zero—officially 0% to 0.25%.  Doom and gloom headlines about socializing banks, Chrysler and then GM bankruptcies and of course, plenty of stories about how bad the lending business is may have put the silver lining about your adjustable rate mortgage in your blind spot.

If you have an adjustable rate mortgage that will start adjusting it’s interest rate in the near future, you may have been waiting with dread for that date to arrive. This likely applies to you if you picked up a 5-year ARM toward the end of the real estate bubble, or a 7-year ARM or 10-year ARM earlier on.

The conventional wisdom has always been to refinance out of your ARM before the interest rate begins adjusting.  The idea is that you don’t want your mortgage interest rate behaving like a credit card interest rate and changing your mortgage payment every month.  But, two things have changed so much that the conventional wisdom might actually steer you down the wrong path.

ARMs Adjusting Interest Rate Lowest Ever

While the Fed has struggled to keep long-term interest rates on new mortgages as low as it would like, it does not have that problem in one area.  Most existing ARMs are tied to interest rate index.  Usually, the adjustable rate mortgage interest rate is equal to that index plus a specified amount.  The index your interest rate is tied to and the interest rate spread added to that rate are spelled out in your mortgage documents, or more specifically, in your “Note.”

  For example, a 5-year adjustable rate mortgage we have on a property is set based on the weekly yield on the United States Treasury securities adjusted to a constant maturity of one year.  That sounds like a nightmare, and it probably is if you actually have to calculate it buy you don’t since the Federal Reserve Board publishes that number daily.

The United States Treasury Securities Adjusted to Constant Maturity of One Year index is 0.50%.  Actually, it fluctuates daily and for the end of May was 0.49%.  It’s been lower the first few days of June, not higher.

In other words, on this particular mortgage, if our interest rate were to adjust today, our new adjustable interest rate would be 3.25%.  I dare you to find a mortgage you can refinance into with that interest rates with no closing costs or loan fees of any kind, because when it comes to a mortgage you already have, you pay zero fees, with no fine print!

What if mortgage rates go up after you decide not to refinance

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Time To NOT Refinance Your Mortgage originally published at Personal Finance Blog - FinanceGourmet.com

It was with much fanfare last month that Congress and the Obama administration passed laws putting into effect government programs to help American homeowners with their mortgages.  Both The Emergency Economic Stabilization Act, and The American Recovery and Reinvestment Act were front page news all over the country. A lot of this publicity was due to the fact that Americans have started to perceive the government as helping out Wall Street and big banks more than they are helping ordinary taxpayers and homeowners who did nothing wrong during the housing bubble and subsequent market collapse and banking collapse.

However, the same publicity also made it easier for scammers and dishonest marketers to take advantage of people’s hopes by pretending to have something to do with the government programs when, in fact, they are either outright scams to steal your money or steal your identity, or they are mortgage brokers or mortgage companies that have nothing to do with the government mortgage aid programs trying to insinuate that they are part of those programs.  Unfortunately, many people are falling victim to these con artists and their tricks.

How To Protect Yourself From Scams, Thieves, and Con Artists Using Government Mortgage Aid Lies

First, understand the facts about how people take advantage of these government mortgage aid programs. There ARE NO EMAILS of any kind being sent to homeowners by any government agency or banking institution associated with the programs.  None, zero, zip, nadda.  Any email that you get of any kind, from anyone, no matter how official sounding or looking is a scam.  Delete it immediately.

Second, there are no checks being issued to homeowners.  Some mailings include checks that ask you to call a toll-free number for some official sounding reason.  When you do, they will ask you to deposit the check, but wire some money to another account for some reason.  This is a scam.  The check will bounce and your wire transfer money will disappear.  NO CHECKS ARE BEING SENT TO HOMEOWNERS by the government or banks.  Any and all help you might be eligible for will come in the form of a refinanced loan or a load modification.  Either way, there is no check involved.

Third, is junk mail designed to look like it has something to do with the government’s mortgage aid programs, but carefully worded to actually just mislead you into thinking this without actually saying it.  These come from banks and mortgage brokers and mortgage companies.  They are nothing more than junk mail hoping to get you to refinance with them, most likely at a higher interest rate and with higher closing costs than you could get elsewhere.  There is no proactive attempt of any kind going on to contact homeowners in this way.  Anything that is sent via 3rd class mail, or bulk mail of any kind is clearly not from the government or banks.  It is junk mail, throw it away (actually, shred it).  Even mail sent first class is most likely fake junk mail.

Use these guidelines to see if the offer you have received MIGHT be legitimate.  You will still have to follow up with your mortgage company, but if any of these apply, don’t even bother, what you have gotten is phony.

• Only Mortgages backed by Fannie Mae and Freddie Mac are eligible.  If yours isn’t, there is no aid program for you.
• The official title of the Government Refinancing program is “The Home Affordable Refinance” program.  Scammers will carefully avoid using those exact words to avoid fraud liability.The overall program name (both loan modification and refinance) is “Making Home Affordable”, again, scammer will avoid the exact wording.   If those exact words are not used, then you are holding onto a scam.
• There is no charge, no fee, and no up front payment of any kind.  Anything asking you to send money is a scam.
• There is no need for you to send your personal information to anyone.  The government and the banks already have your name, address, and social security number.  There is no need to “verify” this information for any reason.  Anyone calling on the phone, or any mailing asking you to reveal your social security number for any reason including verifying your identity is a scam.

The best way to avoid scams is to look-up your lender’s phone number independently (do not use the number provided which obviously rings where the scammers want it to ring) and call them to ask if you qualify.

Remember, there are no government mailings, government phone calls, or government emails of any kind.  Anyone saying differently is a con artist, fraud, and liar.  Hang up, shred, or delete immediately and save your money and your identity.

Here is the latest OCC Tips for Avoiding Mortgage Modification Scams and Foreclosure Rescue Scams

Copyright 2009 – Exclusively Published at FinanceGourmet.com – ArcticLlama, LLC

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Government Mortgage Help Programs Scams and Deceptive Marketing and Mailings originally published at Personal Finance Blog - FinanceGourmet.com

When considering refinancing your home mortgage, the first step is to get all of the details on what you have now.  Sure, you have vague numbers in your head, but that won’t help you answer all of the loan application questions, or make a real hard-numbers based calculation about the value of refinancing.  What exactly do you need to know before you dive into looking for low interest rates and refinancing your mortgage?

Required Information Before Researching Interest Rates and Refinancing

• Current Balance of Home’s First Mortgage – Not a ballpark, an exact number according to your last statement.
• Current Balance of Home’s Second Mortgage or HELOC – Again, the number from the last statement.
• Current Interest Rate – What are you paying on your mortgage right now?
• ARM or Adjustable Interest Rate Features – When does your rate go up? (The actual date, not just the year.)  How much can it go up in the first year?  The second year?  Each year after that?  Is there a floor (minimum)?  Is there a ceiling (maximum)?
• When Did Your Mortgage Start? – What day did you close on?
• Current Home Value? – Check Zillow and Trulia to get a ballpark.  Print those pages out so you have them for reference.  Keep in mind that these values are based on public information at your county’s records office, so they won’t include any improvements you have made to the house.  Don’t worry about it too much unless it was something major.  This is just for your calculations not for the application yet.
• Credit Score? – If you don’t know, call your banks first and see if one of them will tell you what it is.  Make sure they tell you the date it is from too.  Many banks and credit unions will get your credit score on a regular basis both to keep your records up to date and to be able to offer you services you might qualify for.  So, a teller or loan officer might just be able to pull it up for you as a courtesy.  If not, put looking into a better bank on your to-do list.

Ok, now you are ready to get started with some research.  Having this information up front will not only make your research easier but also more accurate.  It is a huge let down to do a bunch of research based on “remembering” that you mortgage balance is $315,000 when it is actually $350,000, only to find out you will have to start over with the real numbers, or worse, just go with the wrong research because you don’t want to start over.

One important thing to remember is the limit for Jumbo mortgages.  Right now, this number is $415,000 in many places, but that number is adjusted based on where you live and the cost of homes there.  For example, this number will be much higher in San Francisco. It is important to know this number for your area because the rules change if you are getting a jumbo mortgage versus a regular mortgage.

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1. Refinancing the Mortgage to Take Advantage of Lower Interest Rates
2. Fed Cuts Interest Rates to Zero – How Does This Affect Your Mortgage, Home Equity Line, and Credit Cards

How To – Refinancing a Home Mortgage Steps and Tips originally published at Personal Finance Blog - FinanceGourmet.com

Ok, it’s time to look at refinancing the old homestead’s mortgage.  I’ve been putting it off because of holidays and the fact that rates can still go lower even though the Fed recently cut rates to zero.  Now, it’s time to take a serious look at refinancing and how it might work out for my family.  I’ll be posting a series of articles here on Finance Gourmet to help guide you through the process.  By writing these articles in “real time” with my refinance adventure, you can see the whole process from A to Z and use it as a guide for your own refinancing now, and in the future.

To make sure you don’t miss out, I recommend grabbing the RSS feed.  If you aren’t familiar with RSS or “feeds”, they are basically a way to get the article pulled from here by a RSS reader which is just software that goes and gets articles from the websites you ask it to watch.  That way, you don’t have to remember to open your bookmarks to get back here.  It is kind of like the old idea of subscribing to emails that updated you on website content, but this way, all of your articles are kept separate and your inbox does get filled up with article postings from a bunch of web sites.

If you have never used RSS feeds before and you have a Google account, you can just use Google’s feed reader.  That way, you don’t have to install any software, and if you decide to junk the whole thing, you can just delete your feed reader subscriptions and you’re done.

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Refinancing the Mortgage to Take Advantage of Lower Interest Rates originally published at Personal Finance Blog - FinanceGourmet.com

I’ve been a professional writer and business consultant for over a year now, but many people still remember me from my financial advisor days.  So, I get plenty of questions about investing, the stock market, and real estate.  The number one question I get these days, is, “Should I be buying real estate now?”

The answer?

Yes, if you need a new house.

Real Estate Investment Cycles are Long

The funny part about all of this to someone who has been “on the inside” is that these are the very same people who refused to have anything to do with the stock market following the Internet bubble of the late 1990s.  While I patiently tried to explain to them that buying low and selling high meant buying now, when things looked at their worst, they shook their heads and said they were going to do something else. 

The same thing about the stock market holds for all investing.  Buying low and then selling at a higher price is how you make money.  But, here is the thing everyone seems to have forgotten, or maybe they just never knew.  Real estate market cycles take much longer than stock and bond investment cycles. In other words, the time from bottom to top (and vice versa) is much shorter in the stock market than it is in the real estate market.

This is not true, but for example, if today was the bottom of real estate prices and the bottom of stock market prices, and if both markets are headed for 25% gains, the stock market will be up 25% way before the real estate market will be up 25%.

How do I know?

History. Facts. Reality. – Take your pick.

Real Estate Bubble – Stock Market Bubble

There is a reason people keep calling the real estate market of the last few years the real estate bubble.  Just like the stock market bubble of a few years prior, it was an unsustainable, and phony rise in real estate prices.  Prices were driven up by a variety of factors, all of which led to increases that were too quick and not supported by the fundamentals.  Just like in the stock market bubble.  If you are intelligent, you don’t count on 50+% up years for the stock market any more.  Similarly, if you are intelligent, you don’t count on 20+% up years in the real estate market any more either.

What can you expect from the real estate market?

When the price increases do come, numbers like 5% are much more common in real estate than numbers like 10%.  A little math is in order.

If you buy a $200,000 with 5% down (good luck getting an investment loan like this anymore) that means you will pay $10,000 out of pocket.  We’ll ignore closing costs, but they could be a thousand dollars or so.  If your real estate goes up 5% starting next year and keeps going each year thereafter(unlikely) then, it will be worth $210,000 at the end of 2009, $220,500 at the end of 2010, and $231,525 at the end of 2011.  That is a $31,525 profit in raw numbers.

Now, real estate cheerleaders will point you toward the math of $31,525 from a $10,000 investment is around a 100% per year return.  Of course, the devil is always in the details.

Your monthly payment on that $190,000 mortgage at 6.0% for those 36 months is $1,139 for a total of $41,004.  Some of that pays down the mortgage, but thanks to the way amortization works, those first few years are mostly interest.  At the end of year three, you will still owe around.$182,500.

So, the real math is $10,000 investment (down payment) + $41,000 in payments = $51,000 total investment.

$182,500 remaining mortgage value sold at $231,525 = $49,000 profit.

OOPS! 

And we haven’t even included property taxes yet. 

Right about now, someone will mention the mortgage deduction, and yes, there is some value there.  Rough math suggests that if you are in the 30% tax bracket then you would have saved around $10,000 in taxes if you deducted the mortgage.  Of course, if we are going to get detailed, there is also possible capital gains taxes, maintenance, upkeep, repairs, real estate commissions and so on.

The next argument involves renting the house to pay the mortgage.  The counter argument is that there are costs to renting a property, it might sit empty for some number of months, and the taxes all change when you rent a property.  (You can’t claim a home as your primary residence if you are renting it out.)  Again, there are a million ways to slice this, but no matter how you do, this is not a no-brainer.  And, no matter how you slice it, the same arguments being made now for real estate are the arguments made for stocks. 

Keep in mind that I am not your stock broker or your real estate agent, so I don’t get anything out of it either way.  Just don’t give in to the feeble minded tricks that social conditioning creates.  If real estate is a good investment at the bottom, then so are stocks.  If you are too afraid to invest in stocks right now, why aren’t you too afraid to invest in real estate?  Answer those questions honestly and completely and you will be in a much better position to think rationally about your money and investing, both now and in the future.

The point still remains the same.  Yes, a LONG-TERM investment in real estate might make sense now.  Of course, so would a LONG-TERM investment in stocks.  Just THINK first, and remember that you are not sitting on a “sure thing” idea.

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Buy Real Estate Now – Or Maybe Not originally published at Personal Finance Blog - FinanceGourmet.com

I’ve written recently about our attempt to sell our home without a realtor using Iggyshouse.com.  We used them because we got a free MLS listing and a place to upload a ton of description and pictures.  Their site was down for a disturbingly long time in June and part of July but is back up for now.  The only reason I’m not blasting them is that our MLS listing stayed up the whole time.  Still, proceed with caution.

There was some confusion about the MLS listings caused mostly by the way MLS operates.  As a member of the general public, you can search MLS to your heart’s content, but you cannot directly contact the sellers.  MLS does not list the contact information on any publicly available view of MLS, only on the version that you have to pay for.  This is how MLS maintains its monopoly position and forces people to use realtors.  In fact, one of the warnings from Iggyshouse is that it is against MLS rules to use pictures that have any contact info on them (because then you wouldn’t need a paying subscriber to get a phone number).  So, your picture can’t have your phone number at the top.  It can’t even show the sign in front of your house if there is a name or number on it.

Part of MLS’s settlement with regulators was to open up some but not all of their information and this is one of the areas where MLS won.  So, if you know a realtor you can have them look at the professional’s view that they get and that will have your contact information. 

List on More Than Just MLS

This is why you have to post on some other sites if you want to get buyers who don’t have a realtor.  Craigslist is popular for this, but if you do use it, make sure and put a watermark on your pictures with the address, the sale price, the words “for sale”, and your phone number.  Keep it simple.  Just something like:

3273 Main St – For Sale – $450,000 – 555-555-2395

Scammers like to take the photos and descriptions from legitimate for sale ads and turn them into bogus for rent ads to trick people out of their money.  The watermark should keep them from bothering, or keep people from falling for it.

Also, update your information on Zillow, and on any other free real estate sites you can find.  I’m experimenting with a site called Postlets which supposedly pushes out what you put on their site to multiple real estate sites.  I’ll let you know how that goes.

Good luck.

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Free MLS Listings No Realtor originally published at Personal Finance Blog - FinanceGourmet.com

Ok, I’ve stopped daily updates about selling our own home. Truth is, there just isn’t that much action in real estate to justify daily postings. However, today we have 3 showings scheduled, so that is very good news. We haven’t got much in the way of feedback. One of the downsides about selling your home without a realtor is that other real estate agents won’t talk to you in the same way. It isnt’ anything against people selling their homes themselves, it is just that they can’t be sure that the homeowner understands the code that goes along with giving feedback and might use something that is said later in a way that another realtor wouldn’t. So, we put out sheets to solicit feedback. That way either the client or the realtor can jot something down if they feel so inclined.

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Sell Your Own Home – Update originally published at Personal Finance Blog - FinanceGourmet.com

As you may have noticed, we are getting ready to sell our house.  After living in our first house for about 7 years, we’ve been in our last two for 2 and 3 years respectively.

The interesting thing is that each time we have made a lot of money.  The past two times we’ve used this new wealth to buy more expensive houses.  This time, we’ll be trading down, but we will also be paying off every dollar of debt we have other than the new mortgage.  This isn’t insignificant when you consider that we are in our early thirties and both had to go to college on the back of student loans (including the wife’s three years in law school.)

Looking back, I’ve noticed a parallel to the stock market.  In the stock market, there are day traders.  You probably remember more than one or two friends who tried this way to easy wealth in the late 90s.  Only, it turns out it isn’t so easy, and ironically, that most of the people who thought they were day traders really weren’t.

A day trader buy and sells positions within the same day.  The entire concept is based upon taking advantage of quick moves in stock prices, so the very thought of holding a position overnight, let alone for several days or even weeks is not what day trading is about.  However, one can make good profits by trading in this longer range particularly when the market overreacts to events.

Likewise, there is a method for making money in real estate call Fix and Flip.  With a Fix and Flip someone buys a house and then fixes it up and then sells it immediately for a profit.  There is a lot more to it than that, and as they say, the devil is in the details, but the concept is similar to day trading stocks.  What we have done can be considered more along the lines of trading over days or weeks in the stock market.

If you still think that every time you sell your home you have to roll all of your money into a new home, or another kind of real estate, you’ve fallen behind the tax times.  These days, the first $250,000 (if single) or $500,000 (married) of capital gains in your home is tax free, no matter what you do with the money.  The catch is that it must be your primary residence, and you can only do it every 2 years.  Although it was never our intention, this is what we have done the last two times.  Each time we bought a house that wasn’t at it’s full potential.  When we bought our current house we paid the lowest price per square foot in the area.  This was a bit of an ego blow to our real estate agent who bought a home in the same area a couple of months before and said her goal was to pay the lowest price per square foot in the area, which she did, but we paid even less when we bought our house.

The reason we were able to do so is that the house is an older bungalow house.  Although it had been updated some, the last time was probably back in the 1980s.  Wallpaper everywhere, and not the subtle kind either.  One room had wallpaper that literally had white fibers “peeling” from the wall.  I assume this was someone’s idea of adding texture, but it was clearly out of fashion when we looked at the house.  The not so popular wallpaper, plus a pink kitchen, and tons of clutter kept people from seeing the house’s potential.  When we bought it another realtor remarked to our realtor “You finally found someone who could see the upside.”

We spent the first two weeks we owned the house stripping wallpaper and painting.  The next year we remodeled the kitchen.  It’s now a nice blue color and we took out a half wall that made a breakfast nook, but also made a tiny kitchen.  People interested in the house now are looking at a nice big kitchen with plenty of counter space and granite counter tops.  More importantly we remodeled the bathroom which was the only room in the house to have never been redone.  When we met the previous owners at the closing the woman remarked that they always meant to do it, but they didn’t want the inconvenience (the other bathroom is in the basement.)  Our reward for two months of construction is a shining gem of a house, and a pretty tidy profit when we sell.

Our previous house went down in a similar way.

How to Slow Fix and Flip

Real estate can be a great wealth building tool.  Usually this comes from the leverage provided by mortgages.   Of course, this is also it’s biggest risk.  Going the Slow Fix and Flip route though mitigates this risk and still offers big rewards.  Here is how.

First, you have to live somewhere and you are going to pay for it anyway.  By living in your investment you are splitting the expense of the house payment between investment and cost of living.  Basically, killing two birds with one stone.

Second, by living in the house, you get get to see all of the potential.  While a quick stroll might reveal that new kitchen cabinets would be nice, a few months in a home might open other possibilities.  As you try and figure out where to put your cappuccino maker, you might notice a way to extend the counter by removing a not very useful closet, or notice that the sun is really great in the summer and would be even better if you could get a skylight, and so on.

Third, eliminating the ticking clock.  When you buy a property to fix and flip, the clock on your profit starts ticking.  Everyday that passes before you sell the house eats into to your profit.  When you live in the house that clock goes away.  Who cares if it takes you an extra month to get the new landscaping in.  You aren’t going anywhere for a while.

Fourth, tax free profits.  If you live in the house as your primary home for two years, then you can take all the profits (up to $500,000) tax free.  With a regular fix and flip you’ll have to pay taxes or jump through some pretty tight hoops to get the money into your next investment.

Finally, you might accidentally end up owning your dream home.  Frankly, we love our home and the only reason we are looking to move is that we both want to make the jump out of the corporate ship.  A smaller mortgage and no debt will make that easier.  So, when you look for your next home, or if you think there is the possibility of selling in the future, start looking for things that you could fix or update while you live there.  You just might reap some nice profits down the road.

Related posts:

1. Buy Real Estate?
2. Other Information on Real Estate

Get Rich Not So Quick in Real Estate originally published at Personal Finance Blog - FinanceGourmet.com