How can owning a home be beneficial for you financially? To some, the thought would seem counter-intuitive, but unknown to many, a homeowner's net-worth is forty-four times greater than that of a renter.
Federal Reserve survey of Consumer Finances revealed that the median net worth of a homeowner was $231,400 - a 15% increase since 2013. At the same time, the median net worth of renters decreased by 5% ($5,200 today compared to $5,500 in 2013).
Owning a home is a great way to build family wealth
As we've said before, simply put, homeownership is a form of 'forced savings.' Every time you pay your mortgage, you are contributing to your net worth by increasing the equity in your home.
That is why, for the fifth year in a row, Gallup reported that Americans picked real estate as the best long-term investment. This year's results showed that 34% of Americans chose real estate, followed by stocks at 26% and then gold, savings accounts/CDs, or bonds.
Greater equity in your home gives you options
If you want to find out how you can use the increased equity in your house to move to a home that better fits your current lifestyle, meet with a real estate professional in your area who can guide you through the process.
The real estate market has become competitive and intimidating place in some areas. It's best to prepare yourself before entering the market for your home purchase.
In a recent realtor.com article entitled, "How to Find Your Dream Home-Without Losing Your Mind," the author highlights some steps that first-time homebuyers can take to help carry their excitement of buying a home throughout the whole process.
1. Get Pre-Approved for a Mortgage Before You Start Your SearchOne way to show you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search. Even if you are in a market that is not as competitive, understanding your budget will give you the confidence of knowing whether or not your dream home is within your reach.
This step will also help you narrow your search based on your budget and won't leave you disappointed if the home you tour, and love, ends up being outside your budget!
2. Know the Difference Between Your 'Must-Haves' and 'Would-Like-To-Haves'
Do you really need that farmhouse sink in the kitchen to be happy with your home choice? Would a two-car garage be a convenience or a necessity? Could the 'man cave' of your dreams be a future renovation project instead of a make-or-break right now?
Before you start your search, list all the features of a home you would like and then qualify them as 'must-haves', 'should-haves', or 'absolute-wish list' items. This will help keep you focused on what's most important.
3. Research and Choose a Neighborhood You Want to Live In
Every neighborhood has its own charm. Before you commit to a home based solely on the house itself, the article suggests test-driving the area. Make sure that the area meets your needs for "amenities, commute, school district, etc. and then spend a weekend exploring before you commit."
4. Pick a House Style You Love and Stick to It
Evaluate your family's needs and settle on a style of home that would best serve those needs. Just because you've narrowed your search to a zip code, doesn't mean that you need to tour every listing in that zip code.
An example from the article says, "if you have several younger kids and donât want your bedroom on a different level, steer clear of Cape Cod-style homes, which typically feature two or more bedrooms on the upper level and the master on the main."
5. Document Your Home Visits
Once you start touring homes, the features of each individual home will start to blur together. The article suggests keeping your camera handy and documenting what you love and donât love about each property you visit. They even go as far as to suggest snapping a photo of the 'for sale' sign on the way into the property to help keep the listings divided in your photo gallery.
Making notes on the listing sheet as you tour the property will also help you remember what the photos mean, or what you were feeling while touring the home.
In a high-paced, competitive environment, any advantage you can give yourself will help you on your path to buying your dream home.
You'll be missing out on a lot of things if you skip pre-approval in your checklist. Fear of down payment and credit score hinder a lot of potential home buyers' decision-making process, with pre-approval you can do away with hesitation and show sellers that you mean business.
Freddie Mac lays out the advantages of pre-approval in the 'My Home' section of their website:
"It's highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets."
One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you through this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding "your credit, debt, work history, down payment and residential history."
Freddie Mac describes the '4 Cs' that help determine the amount you will be qualified to borrow:
Many potential homebuyers overestimate the down payment and credit scores necessary to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so.
For the sake of views and likes, some writers will intentionally use words that they think would make their headlines look more appealing despite of the fact that the thought and idea change greatly with it, misleading leading readers and netizens alike.
Many of these headline writers will confuse ''softening home prices'' with ''falling home prices,'' but there is a major difference between the two.
The data will begin to show that home values are not appreciating at the same levels as they had over the last several years (softening prices). This does NOT mean that prices are depreciating (falling prices).
Here is an example: Over the last several years, national home values increased by more than 6% annually. If you had a home worth $300,000 at the beginning of the year, it would be worth $318,000 by year's end. If the appreciation rate "falls" to 4%, that $300,000 house would be worth $312,000 at the end of next year - a $6,000 difference.
The price of the home did not fall. It just didn't increase at the level it had the previous year.
Appreciation rates are projected to end this year at approximately 5%, and then drop to somewhere between 4-5% next year. This drop in appreciation rate will cause home price increases to soften.
Again, this does not mean that home prices will depreciate, but instead that they will appreciate more slowly.
Be careful when reading headlines that discuss home values. Some headline writers will be legitimately confused and will use the word falling in place of softening. Others will realize that the headline "Home Prices are Falling!" will get more clicks than "Home Prices are Softening" and will intentionally write the more compelling headline.
The internet is filled with myths and fake news coming from all platforms, social media sites, blogs and vlogs are amongst the commonly utilized channels. It has conquered politics, entertainment, and product and services alike. Unfortunately, they have infiltrated the real estate market as well.
Here are the top myths on Real Estate today.
Myth #1: We Are Headed for Another Housing Bubble
Home prices have appreciated year-over-year for the last 76 straight months. Many areas of the country are at or near their peak prices achieved before the last housing bubble burst. This has many worried that we are headed towards another housing bubble.
Reality: The biggest challenge facing today's real estate market is a lack of homes for sale! Demand is strong, as many renters have come off the fence and are searching for their dream homes.
Historically, a normal market requires a 6-month supply of inventory in order for prices to rise with the rate of inflation. According to the National Association of Realtors (NAR) there is currently a 4.3-month supply of inventory.
The US housing market hasn't had 6-months inventory since August 2012! The concept of supply and demand is what is driving home prices up!
Myth #2: The Rumored Recession Will Lead to Another Housing Market Crash
Economists and analysts know that the country has experienced economic growth for almost a decade. When this happens, they also know that a recession can't be too far off. But what is a recession?
Merriam-Webster defines a recession as "a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two consecutive quarters."
Reality: Recession DOES NOT equal housing crisis. Many people associate these two terms with one another because the last time we had a recession it was caused by a housing crisis. According to the Federal Reserve, over the last 40 years, there have been six recessions. In each of the previous five recessions, home values appreciated.
Myth #3: There is an Affordability Crisis Looming
Rising home prices have many concerned that the average family will no longer be able to afford the most precious piece of the American Dream - their own home.
There are many different affordability indexes supported by different organizations that all measure different data. For this reason, there is a lot of confusion about what "affordable" actually means.
The monthly cost of a home is determined by the home's price and the interest rate on the mortgage used to purchase it. According to Freddie Mac, interest rates have risen from 3.95% in January to 4.59% just last week.
Reality: As we mentioned earlier, home prices have appreciated year-over-year for the last 76 months, largely driven by high demand and low supply.
According to a recent study by Zillow, the percentage of median income necessary to buy a home in today's market (17.1%) is well below the mark reached in 1985 - 2000 (21%), as well as the mark reached in 2006 (25.4)! Interest rates would have to increase to 6% before buying a home would be less affordable than historical norms.
The starter-home market has appreciated at higher levels (9.4% year-over-year) than any other market. One reason for this is the fact that many of the first-time buyers who have flocked to the starter-home market are being met with high competition. For some hopeful buyers, it may take more than a good offer to stand out from the crowd!
There is a lot of confusion in today's real estate market. If your future plans include buying or selling, make sure you have a trusted advisor and market expert by your side to help guide you to the best decision for you and your family.
We are all aware that not everything shown on television is true, even those shown on reality TV shows. And although most reality TV shows about Real Estate try to stay honest to the science and process of home buying and selling, and often comes close to portraying real-life situations. They just can't show the entirety of the process. Let's admit it, editing teams just wouldn't find it favorable to show a 3-hour discussion, in a 30-minute segment. Anyway, let's find out the top 5 myths that just aren't true about real estate reality TV.
Reality TV Show Myths vs. Real Life:
Myth #1: Buyers look at 3 homes and decide to purchase one of them.
Truth: There may be buyers who fall in love and buy the first home they see, but according to the National Association of Realtors the average homebuyer tours 10 homes as a part of their search.
Myth #2: The houses the buyers are touring are still for sale.
Truth: Everything is staged for TV. Many of the homes being shown are already sold and are off the market.
Myth #3: The buyers haven't made a purchase decision yet.
Truth: Since there is no way to show the entire buying process in a 30-minute show, TV producers often choose buyers who are further along in the process and have already chosen a home to buy.
Myth #4: If you list your home for sale, it will ALWAYS sell at the open house.
Truth: Of course, this would be great! Open houses are important to guarantee the most exposure to buyers in your area but are only a PIECE of the overall marketing of your home. Keep in mind that many homes are sold during regular showing appointments as well.
Myth #5: Homeowners decide to sell their homes after a 5-minute conversation.
Truth: Similar to the buyers portrayed on the shows, many of the sellers have already spent hours deliberating the decision to list their homes and move on with their lives/goals.
Having an experienced professional on your side while navigating the real estate market is the best way to guarantee that you can make the home of your dreams a reality!
Despite the common belief that renting will save you more bucks, research shows a big gap in between buying and renting wherein for the first time in six years favors going to the former.
The results of the latest Rent vs. Buy Report from Trulia show that homeownership remains cheaper than renting, with a traditional 30-year fixed rate mortgage, in 98 of the 100 largest metro areas in the United States.
In the six years that Trulia has conducted this study, this is the first time that it was cheaper to rent than buy in any of the metropolitan areas.
It's no surprise, however, that those two metros are San Jose and San Francisco, CA, where median home prices have jumped to over $1 million dollars this year. Home values in San Jose have risen 29% in the last year, while rents have remained relatively unchanged.
For the 98 metros where homeownership wins out, 97 of them show a double-digit advantage when buying. The range is an average of 2.0% less expensive in Honolulu (HI), all the way up to 48.9% in Detroit (MI), and 26.3% nationwide!
Below is a map of the 100 metros that were studied. The darker the blue dot on the metro, the cheaper it is to buy there.
In order to calculate the true cost of renting vs. buying, Trulia includes all assumed renting costs, including one-time costs (like security deposits), and compares them to the monthly costs of owning a home (insurance, mortgage payments, taxes, and maintenance) including one-time costs (down payments, closing costs, sale proceeds). They also assume that households stay in their home for seven years, put down a 20% down payment, and take out a 30-year fixed rate mortgage. The full methodology is included with the study results here.
Below is a chart created with the data from the last six years of the study, showing the impact of the median home price, rental price, and 30-year fixed rate interest rate used to calculate the 'cheaper to buy' metric.
In 2016, when buying was 41.3% less expensive than renting, the average mortgage rate was the driving force behind the difference. Rates this year are the highest they have been in six years which has narrowed the gap, all while home price appreciation has also been driven up by a lack of homes for sale.
Cheryl Young, Trulia's Chief Economist, had this to say,
"One point deserves emphasizing: The ultra-costly San Francisco Bay Area is not a harbinger for the nation as a whole. While renting may outweigh buying in San Jose and San Francisco, it is unlikely that renting will tip the scales nationally anytime soon."
Homeownership provides many benefits beyond the financial ones. If you are one of the many renters out there who would like to evaluate your ability to buy this year, meet with a local real estate professional who can help you find your dream home.
Everyone is bound to retire at some point, and everyone wants to spend their retirement days comfortably and securely. What most don't know is that investing a portion of one's retirement fund to real estate will provide more yield and let one get the most out of the fruit of their life's work.
Ultimately, the goal of most individuals when they retire is to live a comfortable lifestyle while drawing from their retirement accounts. This is where the self-directed retirement account comes into play. This retirement vehicle allows accountholders the ability to own investment real estate within their retirement account. Instead of selecting bonds or annuities, which have long been the traditional investment of choice by most retirees, investment real estate often provides a higher annual yield and more flexibility for the accountholder.
For example, let's suppose you are 60, ready to retire, and your retirement account is worth around $500,000. Let's also assume your self-directed retirement account purchases three investment rental properties totaling $450,000. The rental income minus expenses equals $31,500 (a 7% return) each year. Keep in mind, this is the net cash flow back into the retirement account and does not include any property appreciation. So, in this scenario, you have $50,000 in cash within your retirement account for easy liquidity should a personal need arise, $450,000 worth of real estate, and $31,500 of rental income being generated each year.
Under this scenario, provided the properties remained occupied with no major property expenses, you could draw $31,500 per year from the account in perpetuity without reducing the value of your retirement account. Down the line, you may want to liquidate an investment property to give you the ability to take more money out per year, which will then begin to actually deplete the value of the account.
Owning real estate within your self-directed retirement account allows you to preserve your retirement income, and gives you the flexibility to control how you retire.
As exciting as it is, real estate can truly be tough to those who venture into it unprepared. It's just fair given that the rewards are just as wonderful. Nevertheless, here are five things you should have not just to survive but to thrive in real estate sales.
Without the right mindset, it will be difficult for you to build a solid foundation for a successful real estate career. Having a clear purpose will be imperative to get over the bumps and bruises in your career. Also, it is crucial that you are constantly feeding yourself with positive reinforcement. Hang around with successful, positive people to increase your own chances of success. This leads us to the next point.
Mentors have invaluable experience and knowledge...and they can provide you with a map to guide you on the road to success!
Learning and Training
In the real estate industry, you must be a learning-based person. The real estate industry is constantly changing, and you need to adapt and grow with the times. By attending great real estate training programs, staying current with your education, and really expanding your knowledge base, you will be able to keep up with the competition and expand your business.
This is the fuel for your real estate business. Without clients, you are going to struggle to sell real estate. If you are just starting out in real estate, you must understand that in order to be successful, you need to be in both the lead generation and real estate business. If you maintain a constant focus on lead generation, you will not only increase your business, but you will avoid the ups and downs of the real estate income roller coaster.
Once the first four steps are in motion, you will most likely feel a bit overwhelmed. This is natural when starting a successful business. When it becomes too much to handle, you should look for help. In most business, including real estate, the first place to look for help is on the administrative side. If your focus is sales, you don't want to get bogged down by paperwork. An administrative assistant can be one of the best decisions you will ever make for your real estate business.
The best thing about a career in real estate is that you get out of it what you put into it. If you give it your best effort, connect with positive people who can mentor you, and continue to train and learn about the business, then you can look forward to a long, successful career in real estate.
Whatever venture you decide to go into, it's always right to be equipped with information to know what to expect to be able to thrive. Speaking of which, here are few things you need to know before making the career leap in the real estate industry.
1. You Decide How Successful You Are
That's right! You will get out of a real estate career exactly what you put into it. This is a career that rewards hard work. If you dedicate yourself to being successful in real estate, you will greatly increase your odds of success. Your income potential as a real estate agent is basically unlimited. But it goes both ways...part-time effort will likely lead to part-time pay.
2. You're Going to Need a Plan
When newly licensed real estate agents fail, it's usually because they didn't think about that period of time between passing their exam and cashing their first commission check. You need to set goals, as well as develop a business plan and marketing plan. That plan should include metrics and daily activities all driven toward helping you meet your goals. Hold yourself accountable to the goals you've established and the tasks you've identified to help you get there.
3.You Should Have a Small Nest Egg
The period of time between earning a license and getting a commission check is not a set amount of time. Having a plan will certainly help you keep that time period to a minimum, but you're going to need to be able to cover the costs of your day-to-day life, as well as business startup costs. If youâre thinking of earning a real estate license within the next year, start saving whatever you can now. Put a little away at a time to ensure you can cover your costs for a couple of months while you wait for that first payday as a real estate agent.
4. You're Going to be the Boss Now
If you're used to the typical company structure with a boss telling you what you're responsible for, this can sometimes be a shock. The broker you work for will likely keep an eye on how you're performing. But for the most part, it's up to you. You need to be disciplined enough to take control of your career and make the most of your time. Nobody will be as invested in your success as you are.
5. You May Have to Work Some Weekends
If you are planning to work in residential real estate sales, you will likely need to dedicate at least a portion of your weekend to work. People shop for homes in their free time. And their free time is typically on nights and weekends. As a result, buyers and sellers expect their real estate agent to be available for showings, open houses, and office visits on the weekend. However, compromise is attainable. Many successful real estate agents work one day of the weekend to balance client service with their personal lives. As long as you're upfront with your clients about your availability, it's usually not a problem.
6. You Need to Set Yourself Apart
The good news is your friends and family will likely be eager to work with you as a newly licensed real estate agent. The bad news is nearly everyone knows someone who sells real estate. So what are you going to do to set yourself apart from someone's neighbor, brother, or best friend from college? The most successful real estate agents know the value of differentiation. You need to develop a brand that sets you apart from the rest of the market and gives potential clients a reason to choose you over someone they know on a personal level.
7. Real Estate is an Incredibly Rewarding Career
Some people enter the real estate business with unrealistic expectations. It isn't easy, and it is incredibly competitive. There also isn't a guaranteed weekly pay-check. But all of these challenges are what make real estate such a rewarding career. If you dedicate yourself to exceptional client service and hard work, the rewards are worth it. There's nothing like helping someone find the perfect home for their family and handing them the keys to their future.
After reading this and you still feel that you're up to it then this must be the path for you. You know what to expect and have the advantage of preparing yourself for the challenges before you get the first closed deal.