How can one man lift a big rock?

How can one man lift a big rock?  Why does Donald Trump win so often in high-stakes negotiations?  How can you buy five income producing properties with very little of your own money?

You’ve heard me talk about it often.  It’s leverage.  Let’s take a quick look at why the concept of leverage is so crucial to growing wealthy. Leverage is the ability to use a small amount of your own money to control an asset of far greater value. For example, when you put down 20% on the purchase of a single family residential home, you are essentially using the bank’s money to extend your own buying power.

Assume that you have $100,000 cash to invest. You could find a $100,000 house and purchase it outright. A better idea would be to find five single family residential properties each costing $100,000. Rather than plow all your resources into one property, put down 20% on all five, let the bank loan you the rest, and suddenly you have a portfolio of five income producing properties.

If you’ve done your homework and chosen appropriate deals that provide positive cash flow immediately, you’re sitting in the proverbial catbird seat. Later, you’ll refinance all five loans in seven to twelve years and use the resulting proceeds to buy as many properties as you have the down payments to afford. You should NEVER pay off your loans, but rather frequently refinance into more and larger real estate deals.

Here’s the reality of this type of investing. You use other people’s money (OPM) to buy assets that you will eventually own. Along the way, you also use OPM to cover the monthly expense of your investment, which is the mortgage payment. How do you do this?

By renting the place out! Assuming the deal is right, which it should be when you do your homework, a tenant’s monthly rent payment should cover the mortgage, all associated expenses, and still leave you with a little cash in your pocket. This is called positive cash flow.

Here’s the bottom line. There is no other asset which allows you to rent it out! Don’t try this in the precious metals market or on Wall Street. They’ll laugh you out of the place.

Let’s grab a cup of coffee and discuss the how investing can help you with your wealth goals!  Call me anytime at 425-330-0663.

Book em danno

Our team is always looking for tools and resources that will help our clients make informed decisions in home buying. Now you can see what crime is like in that area you’re thinking about living in with Trulia’s Crime Map.

Drawing from three data sources, Crime Map starts with a national view for cities with available data, and then zooms into specific areas. Darker red areas and larger circles on the maps indicate more incidents, whereas green areas and smaller circles represent the opposite.

Click on regions or the scaled circles to see details on individual crimes during the past year.

This is good stuff and very useful for both home buyers and sellers.  For example, if you are thinking of selling your home, check out the crime stats in your area.  You’ll see what buyers are seeing when it comes to crime.

And then there’s the little things like permalinks for locations, filtering by crime type, quick zooms to locations with the most crime, and discussion pages. It’s that little bit of awesome sauce that makes for an extra informative application.

Spring Cleaning Guide

Make spring cleaning less of a chore by following these smarter–and mostly greener–tips for this annual rite of homeownership.

Bathrooms

When it’s time to get down and dirty, many people start with the bathroom. Allen Rathey, founder of The Housekeeping Channel, says removing mineral deposits, rust, and such from toilets doesn’t have to mean chemical warfare. Don rubber gloves and use a pumice stone to erase stubborn stains. If you want more scouring power, Rathey recommends mixing baking soda with acidic vinegar. The concoction is just as effective as conventional cleaners, and there are no toxic fumes to inhale. This approach works equally well on tub and shower stains.

Buy your supplies in bulk to save. A 64-ounce bottle of vinegar costs about $4; a 12-pound bag of baking soda, about $7. Both items can be used throughout the house. For just $1 you can mix equal parts vinegar and water in a 32-ounce spray bottle to make a terrific all-purpose surface cleaner. That’s about $4 cheaper than buying a spray cleaner at the store.

Spring cleaning is the perfect time to extract dirt from porous grouted surfaces. For tile floors use your usual cleaner, but don’t mop. Instead, run a wet/dry vac, which will suck contaminants out of the grout. Mopping drives the grime into the grout rather than removing it. According to Rathey, grout can harbor stinky bacteria that leave a bad odor in the bathroom. This technique is more time-consuming than mopping, but it’s worthwhile to do at least once a year.

Kitchens

The kitchen can be a tough room to clean because there’s usually so much stuff in it, says Justin Klosky, founder and creative director of The OCD Experience, an organizational service. Before you break out the broom, go through your cabinets and drawers, and put together a box of items to donate and a box of items to store somewhere besides the kitchen. Clear your countertops of everything except items you use nearly every day.

After you’ve de-cluttered, you can get to work cleaning. Cloud Conrad, vice president of marketing for cleaning company Maid Brigade, says one tool you shouldn’t overlook is an all-purpose microfiber cloth (about $5). These aren’t run-of-the-mill dusting rags. Microfiber is a densely woven synthetic fabric that picks up dirt and greasy deposits without chemicals thanks to its unique composition. You should be able to clean surfaces like countertops, sinks, and stoves with warm water, a microfiber cloth, and a bit of elbow grease, Conrad says.

Since you prepare your food in the kitchen, consider using green commercial products for surfaces, or make your own vinegar/water spray. Conventional cleaners may remove dirt, but they can also harbor some nasty substances you don’t want in your PB&J. Microfiber, vinegar, and baking soda will clean and disinfect almost every kitchen surface at a fraction of the price. Don’t neglect once-a-year chores like vacuuming refrigerator coils (unplug your fridge first), and tossing out expired food from the back of the pantry.

Bedrooms

Since bedrooms are such individual spaces, there’s a lot of diversity in what needs to happen. Most homeowners should at least rotate and flip innerspring mattresses, and store out-of-season sheets and clothing. Also go through your closet, and donate or Freecycle items you haven’t worn in the last 12 months. For carpets and mattresses, consider using a professional cleaning service. Figure a typical mattress will cost about $70-$90 to clean, a bargain considering how much time you spend in bed.

Even if you’re getting your carpet professionally cleaned, you still need to break out the vacuum, says Leslie Reichert, owner of The Cleaning Coach. Use the hose attachment to get to the hidden particles along baseboards, under your bed, and in your curtains, favorite environments of dust mites. If you have a large-capacity dryer, throw curtains in on high heat for good measure to kill the little pests.

Living area

Another surface you should consider getting professionally cleaned is living room upholstery. It can be tricky to know exactly how to deep-clean different types of fabrics, says Rathey, especially if there are stains you can’t quite identify. Costs vary widely depending on the size of the furniture piece and the quality and state of its covering, but a typical sofa might run $70 to $90.

Microfiber cloths are great to use in the living area as well. Make sure you have cloths for each area of the house, though, so you’re not cross-contaminating bathroom, kitchen, and living areas. Use a damp microfiber cloth to wipe down windows, wood, mirrors, the tops of bookshelves, ceiling fan blades, and even the plastic housing of electronics for a quick, chemical-free clean.

Are They Smarter Than Us?

People who are good with money are truly different from the rest of us. Know why? They use tax code to their advantage in ways the rest of don’t even know about or take the time to learn.

One example of this – they take the equity in their home, financed at a lower interest rate, then invest the it in tax-deferred accounts, according to a new study.

In other words, they are getting a tax break on both sides of the deal.  These investors deduct the mortgage interest on their tax returns and then sit back and watch their money grow tax-free.

The study found that taxpayers who itemize were more likely to have high mortgage debt and they also found that investing in a tax-sheltered retirement account was related to higher mortgage debt.

The results seem to indicate that the more sophisticated households are responding to government tax incentives by borrowing against their house and investing in their 401(k).

There’s nothing illegal here. The government has created this incentive.  It’s a wonder why even more people don’t take advantage of this this setup.

But is this a good idea to risk your home equity?

The downsides

In some ways, it’s not a good idea. For instance, the incentive — the mortgage interest deduction — that encourages homeowners to borrow against the value in their home results in this potential problem: It appears to encourage greater housing leverage and vulnerability to housing price shocks. Indeed, “there is increasing concern, especially in light of the recent housing crisis, that rising mortgage debt among older households is a prelude to foreclosure or financial distress during retirement.

Plus, you are more vulnerable to income shocks. If you lose your job at age 58 and you’ve got extensive mortgage debt and you’ve got all your money in sheltered accounts it might not be so easy to take your money early out of sheltered accounts to pay your mortgage every month.

What’s more, you could lose on both bets. The value of your house could decline along with the value o your 401(k), which is exactly what happened staring in 2006.  If you are in your late 50s, having an extensive proportion of your retirement savings invested in equities funds is the rational thing to do,” said Finke. “It just didn’t work out very well in 2008 and 2009.

Another potential downside is this: If tax law changes, especially the mortgage interest tax deduction, then you’ve got a little bit of risk there.

And finally, there’s the risk that you won’t invest the borrowed money in a sheltered account. Paying down one’s mortgage is an example of thrift and sound financial decision making.  And that’s essentially a behavioral argument That is saying that people are able to accumulate wealth passively by paying down their mortgage. And, if you encourage people to start pulling money out of their house they might then spend it on things that are not in their long-run best interest. So, you also have to consider when you pull money out of your house, are you really going to invest it in a sheltered account or are you the kind of person to buy an RV and deplete your wealth right before you need it the most in retirement.

The upsides

One positive, however, is this: When you look at your total portfolio, not just your financial assets, but the entire portfolio from which you plan to fund your retirement, you’ll find that taking on more mortgage debt changes your overall asset allocation in ways that might be beneficial.

As we age, we tend to accumulate home equity which is essentially increasing the bond share of our portfolios.  Borrowing against this home equity allows us to maintain our optimal portfolio balance of stocks and bond-like assets.

The home equity, Finke said, is not providing you the same kind of upside potential as an equity portfolio will.  What an economist would say is that you should have a rational allocation of your household wealth in bonds and equities. But what happens over time, with your home is that you are essentially investing more and more in a bond-like asset. And, so, by simply paying off your mortgage you’re investing more and more in a bond. And it may be rational for you, especially if you are in your 50s to be shifting some of the wealth into the stock market.

In practice

So what if you decide lever up your home and invest in retirement accounts?  Make sure you’re in a position to maintain your mortgage payments should you suffer an income shock. You’re exposing yourself to a certain amount of risk so you want to make sure you have enough in emergency funds to make your mortgage payment.

The present system encourages upper income households to increase their leverage and that could make them more vulnerable during a recession. If they lose their job, they may also lose their home.

Homes designed to produce as much energy as they use

How about your home paying you!  How cool would that be.  We been watching news and developments about homes designed to produce as much energy as they use — one of which is a stylish modern prefab to benefit Brad Pitt’s charity.

Since actor Pitt founded the non-profit Make It Right in 2007 to build low-cost, sustainable homes for New Orleans’ Hurricane Katrina victims, green building has exploded nationwide. On Friday, two builders are announcing plans to offer affordable homes designed to produce as much energy as they use — one of which is a stylish modern prefab to benefit Pitt’s charity.

California-based LivingHomes, a developer of high-end, ultra-green, factory-built homes, is debuting its lowest-cost model ever — the C6 — that will be available in most states. The 1,232 square-foot. $179,000 prefab, which is about half the size of the average new U.S. home, has three bedrooms and two baths as well as a courtyard that blends indoor and outdoor living. Part of the proceeds from each home’s sale will be donated to Make It Right.

“This is by far the most energy-efficient home we’ve built,” says LivingHomes’ CEO Steve Glenn, noting it’s designed to earn the top or platinum rating from the U.S. Green Building Council. He says it’s also the easiest and fastest one to build, since it’s fully constructed by Cavco — a manufactured housing company with factories nationwide — in less than two months and installed on-site in one day.

Also late this week, Scottsdale-based Shea Homes, the developer of Trilogy resort communities and a builder in eight states, is announcing the launch of its “no-electric bill” home aimed at the age 55-plus, Baby Boomer set. The “SheaXero” will combine energy efficiency with solar panels to produce all the power the house is expected to need.

FOLLOW:  Green House on Twitt

Other production builders have also debuted affordable, zero-energy homes as green building appears to be gaining market share in a still sluggish housing industry. Green homes, which comprised 17% of new residential construction last year, are expected to increase to 29% to 38% of the market by 2016, according to a report last week by McGraw-Hill Construction, a part of The McGraw-Hill Companies.

By value, the McGraw Hill report said this growth equates to a five-fold increase — $17 billion in 2011 to $87-$114 billion in 2016. It attributes the hike to consumers’ interest in “higher quality” and lower utility bills as well as the decreasing costs of building green — down from an extra 11% in 2006 to 7% today.

At LivingHomes, Steve Glenn says the new C6 is “less than half the costs of our lowest cost home.” He says his company has learned from its own experience and from its partnerships with both Cavco and Make It Right on how to get the most bang for the buck.

The model’s average price of $179,000 does not include the solar panels needed to make the homes zero-energy nor does it include the costs of transportation, assembly, permitting and site preparation. Those items could add another $50,000. Land is also not included.

Glenn says the homes are not only energy-efficient but also sustainable because they use Cradle-to-Cradle inspired products such as cork flooring and natural wood millwork.

“Many of the products are available at The Home Depot,” Glenn said, citing their affordability and accessibility should replacements be needed.

The C6 was inspired by the modern homes built by developer Joe Eichler throughout California in the 1950s and 1960s that were organized around a courtyard accessed through multiple sliding glass doors. It has floor-to-ceiling glass, clerestory windows, light tubes and transom windows, as well as a lighting control system accessible from an iPhone.

Glenn says there are much cheaper prefab homes available, but they’re not nearly as stylish.

“We’re targeting people who really value design and sustainability,” Glenn says, adding his customers are likely to shop at Whole Foods, drive a Toyota Prius and practice yoga.

I’d love your comments on this.  Feel free to chime in.

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Report: Seattle Home buying Most affordable in decades

http://www.mynorthwesthomes.com

Home prices are at rock-bottom and so are mortgage rates.  According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index hit a record level of affordability.

Buying a home is now more affordable than it has been in the last twenty years.

The index shows that 75.9%  families earning the national median income of $64,200, could afford a new or existing homes.

That was the highest percentage recorded in the 20-year history of the index, and a sharp increase from just three months earlier when 72.9% of all homes sold were considered affordable.

Today’s report indicates that home ownership is within reach of more households than it has been for more than two decades.

Those who obtain a mortgage, will be able to take advantage of rates that seem to hit a new low every week. This week interest rates for 30-year loans averaged a record low of 3.87%, according to Freddie Mac.

Where the deals are

The Seattle area is more affordable as well with 67.5 percent of homes within reach of those earning the median income of $85,600. That’s the highest number recorded since the index started in the first quarter of 1999.

Youngstown, Ohio is the most affordable major metro area in the nation to buy a home, according to the NAHB. The faded steel town, located in eastern Ohio, could be on the verge of an economic renaissance with new gas drilling techniques that could help exploit nearby gas reserves, according to the report.

There, 95.1% of homes sold during the quarter were deemed affordable to typical local households earning the area’s median family income of $54,900.

The other metro areas near the top of the list included Lakeland, Fla., Modesto, Calif., Harrisburg, Pa., and Toledo, Ohio.

Among small housing markets, Kokomo, Ind. had the highest housing affordability index with more than 99% of all homes sold there affordable to typical families. Fairbanks, Alaska, Cumberland, Md., Lima, Ohio, and Rockford, Ill. were all very affordable as well.

In other cities in Washington state, Spokane was the most affordable with 82.2 percent of homes within reach of those earning the median income of $60,300. Olympia recorded 81.8 percent; Tacoma, 78.5 percent; Bremerton-Silverdale, 70.1 percent; Bellingham, 69.7 percent; and Mount Vernon-Anacortes, 60.5 percent.

New Yorkers could only shake their heads at the housing opportunities available outside their metro area. Just 29% of the homes sold in the New York metro area during the last three months of 2011 were affordable for the typical local family.

That’s the lowest level in the U.S. — even though locals typically earned $67,400, roughly $3,000 more than the national median. It was New York’s 15th consecutive quarter as the least affordable metro area.

Nearly as expensive are housing markets in Honolulu, San Francisco, Santa Ana, Calif., and Los Angeles.

We’d love to be your trusted source for news, information and all things real estate. Call Dave and his team today at 425-330-0663 and start planning your house warming party!

Start your home search here
Low down payment programs
Find a great deal on a Bank Owned Home

Let’s Have Some Fun Shopping For Your New Home!

That’s the message we have for our clients. Finding your next home should be fun and enjoyable. You’re moving into a new place and you get to choose which place that will be.

Think about that for a minute. You’ll meet new people, get a new outlook on your life, and you’ll probably be moving into a home more suitable for your lifestyle, or buying your very first home.

That’s exciting, yet many people miss the fun because they can’t get into the right frame of mind for it.

Financing, inspections, appraisals, and the pressures and anxiety associated with relocating can weigh down your spirit. And that’s why it’s so important to work with my team.  We work very hard to take the stress out of the buying process and allow you to enjoy it.

Having the right agent means having someone there to help search for homes and show you homes you’re going to want to see. Most buyers are searching on-line now, but our team knows the market and knows the right areas and homes that are going to fit your wants and needs. It’s a different experience driving all over looking at everything you can find, and having someone schedule and only show you through the homes that you’ll want to see. It’s not about wasting time- it’s about the experience.

Would you rather take two weeks seeing fifty homes that aren’t what you want and five that are, or would you rather spend an afternoon just seeing the five that are what you want? Actually wasting all that time going through those other homes can be very frustrating and drain the excitement from your search. If you spend thirty minutes walking through each home and driving to the next- seeing fifty homes means wasting twenty five hours of time being frustrated.

Having a great experience also means having an agent that is going to negotiate price and terms that are good for you, ensuring your investment is prudent, and that you win the deal.

Dave and his team handle the entire workload for you, scheduling inspections and appraisals and negotiating all the issues that arise from them. It means coordinating the transaction all the way closing so that you can enjoy yourself and the process. And it means having a single point of contact before, during, and after the sale where you can get answers to your questions and information.

Buying a home should be an exciting experience. You should be able to have some fun with it and not have to worry about the details. Let someone help you with your relocation and educate you about different areas and schools and the feel of different neighborhoods and cities.

Think of all the things you’re going to enjoy about your new space and all the memories you’ll make in your new home. Imagine reading in your new sitting room, or cooking in your new kitchen. Think of having friends and family relaxing and sharing conversation in your new family room. Have some fun with your search and work with an agent who will work for you and make the process more enjoyable so you can be excited and have some enthusiasm for your yet-to-be-discovered new home.

We’d love to be your trusted source for news, information and all things real estate.  Call Dave and his team today at 425-330-0663 and start planning your house warming party!

Start your home search here
Low down payment programs
Find a great deal on a Bank Owned Home

Where have prices risen the most in the last month?

Median list prices nationwide have risen 4.05 percent on a year-over-year basis, according to November housing data of 146 metro areas. Fewer cities are reporting year-over-year list price declines, “suggesting a growing optimism on the part of sellers about 2012 market conditions.”

So where have prices risen the most in the last month? The following are the 10 cities that saw the largest median list price increases from October to November.

1. Central Fla.-Regional Statistical Area.  Month-to-month median increase: 5.63 percent. Year-over-year increase: 14.27 percent. Median list price: $169,000

2. Phoenix-Mesa, Ariz.  Month-to-month increase: 4.46 percent. Year-over-year increase: 10.54 percent.  Median list price: $164,700

3. Miami, Fla.  Month-to-month increase: 3.60 percent. Year-over-year increase: 29.50 percent. Median list price: $259,000

4. Tampa-St. Petersburg-Clearwater, Fla.  Month-to-month increase: 3 percent. Year-over-year decrease: -2.50 percent.  Median list price: $144,200

5. New York, N.Y.  Month-to-month increase: 2.71 percent.  Year-over-year decrease: -2.57 percent.  Median list price: $379,000

6. Fort Myers-Cape Coral, Fla.  Month-to-month increase: 2.69 percent.  Year-over-year increase: 21.63 percent. Median list price: $224,900

7. Iowa City, Iowa  Month-to-month increase: 2.50 percent.  Year-over-year increase: 3.02 percent.  Median list price: $204,900

8. Tucson, Ariz.  Month-to-month increase: 2.41 percent.  Year-over-year increase: 2.41 percent.  Median list price: $174,000

9. Sarasota-Bradenton, Fla.  Month-to-month increase: 2.13 percent.  Year-over-year increase: 16.56 percent.  Median list price: $240,000

10. West Palm Beach-Boca Raton, Fla.  Month-to-month increase: 1.86 percent. Year-over-year increase: 15.26 percent. Median list price: $219,000

We have the numbers on the Seattle area as well.  Click here to find out.

Hey Who Do You Know?

Most of you know I love to give out referrals to my friends.  I really stick to my mantra “do business with those you know and trust” when choosing whom to do business with. When I don’t know someone providing a service I need who I know and trust, I ask you, my friends and clients.

But even with a referral, you need to do your homework. In terms of a mortgage, you have always had the Better Business Bureau and local regulators (like state banking departments) that you could contact. Over the past few years, the internet has become a easy way of finding information about company or a loan officer. Two other places I recommend you visit online (one for the company and one for loan officers) are:

https://entp.hud.gov/sfnw/public

This is the website for HUD’s Neighborhood Watch. Neighborhood Watch is where HUD publishes a lender’s loan performance on FHA loans and how it compares to the national and local averages.

A compare ratio of 100% means “average” performance. Numbers greater than 100% are below average. And a ratio under 100% is above average. Understand that the Neighborhood Watch numbers measure the quality performance of FHA loans only. Further, be aware that HUD recently stated that lenders with compare ratios over 200% were subject to suspension from being able to participate in the FHA Program, and lenders between 150-199% were going to be scrutinized very closely and subject to audit. Be wary of “riskier” lenders.

When you go to the website, click on the “Early Warnings” tab and either research an individual lender or look for a list of lenders in an area, and then just follow the instructions. Remember, many lenders nationally have similar names, so make sure you have the right lender.

www.nmlsconsumeraccess.org

Here you can search for loan officer and company licensing status. Loan officers are individually licensed now and that includes Washington State. Those who have taken the required courses, passed the required tests and been approved by their respective state licensing authority have all that information verified on this website, along with their employment history.

Loan officers who work for federally chartered institutions (like banks) have not yet been required to take the classes and pass exams and are listed on the site with their license number and their employment history. I think this will change but for now, that’s the case.

Make sure you are dealing with a loan officer who is licensed! Ask questions if they have a lot of job changes.

Like in real estate, there has been a cleansing in the mortgage industry over the past few years, but there are always lousy people in any service area. I beleive nothing beats a word of mouth referral from someone you know.  And while not the end-all, these websites may help you avoid poor performers when choosing who you ultimately do business with.

 

Got a Million?

In 2011 in King County, 735 houses sold for 1 million or more.  471 were on the Eastside.  The most expensive one sold for $14.75 million in Hunts point.  Snohomish County saw 18 homes sell for 1 million plus.