Financial Health Real Estate

Don’t Overheat on the Cooling Real Estate Market

2007-11-14T09:44:00.000-08:00

Due to the current drop in the real estate market, many homeowners are selling their properties to save what is left in their equity. If you are considering selling for this reason, you should wait. Over the last five years there has been a steady increase in real estate prices, and there is no reason to believe that prices will not recover in the future. The areas that boomed in 2002 are now experiencing a downward trend, maybe for a couple of years, but real estate prices have proven to eventually swing upwards. However states like Texas are on the upswing and investors should consider buying outside of California. So if you can wait through this drop, you could end up with a lot more money than if you were to sell now.

If you look at a map of California real estate median prices you’ll see that in 1992 there was a decrease in prices that continued for five years. This may seem disconcerting, for a person who wants to sell. But prices did increase and these five years were the longest period of decline in the California real estate market since before 1968. Let’s see what would happen if Jane and Joe each had bought an investment property in California in 1992 for the average median price of $197,030.

Joe had been following the market and noticed that prices were declining and decided to sell in 1996 for the median price of $177,270. That is close to a $20,000 loss for Joe. Jane, on the other hand, did not sell her property until 2002. The median price for California real estate in 2002 was $316,130, which means Jane made a 60.4% profit on her investment. If she had waited two more years to sell, she would have had both a price appreciation of $119,100 and a loan reduction from the renters.

Now with the huge upward trends in the first half of this decade, it is natural that there is a drop in prices. But for those of you who are willing to fight the market and wait a few years, benefits are in store because prices will rise. So do not worry about a slight loss this year, because your house will soon continue appreciating. If you are still worried, understand that the national rate of appreciation for real estate has averaged 6.1% over the last 30 years. Moreover, other markets are booming. For those investors just starting out or those who want to continue investing, they should look into other areas of the US real estate market.

In all of the southern states, except Florida, real estate prices have been appreciating at a steady rate. This is because of three demographic factors: affordability, climate and jobs. When California prices jumped up in 2002 to 2005, so did the cost of living. People are migrating to areas with increased affordability or where they can find steady jobs. This explains why prices in California are cooling, but heating up in the South. Also many chose to move to areas where the climate is ideal like in the Sunbelt states. Therefore, investors should not be selling their California properties and should look outside of California for new investments.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at www.FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting Upcoming Events. For additional information listen to one of Dr. Alan Rosenthal’s Investment Talks.

How to Avoid Losing Money on the Weak U.S. Dollar

2007-10-25T11:32:00.000-07:00

The U.S. economy is on the rise with businesses merging for billions of dollars and the stock market growing stronger. But how much will our money be worth ten years down the line? While the economy gets better each day, our nation’s debt still inches closer and closer to nine trillion dollars (not including the interest on that debt), and the dollar continues to decrease in value. Over the last 50 years it has dropped 95% to 97% of its purchasing power. In comparison with the euro, the dollar lost 9% in this year alone and 35% in the last five years.

I was talking to a friend of mine last week who has been living in Europe for the last year or so and still holds American bank accounts. He said that every time he transferred money from his American account to his European one, aside from fees, the number of dollars in euros kept falling. Last august $1,260 was worth about 1000€ before fees. Now it is worth only 880€. That is an 120€ difference or $172 in today’s dollars not including the cost of transfer and money exchange fees.

Even if the dollar does rise in value, yearly inflation of 2%-3% will keep the money in your savings account shrinking in purchasing power. So if you were planning on saving your money or at least keeping it at the same value throughout the years, you might want to look into other substantial methods.

By getting involved in real estate investments, your money should increase at a rate higher than inflation. The 30-year national average for property appreciation has been a steady 6.1%. That is more than double the rate of inflation. Think of it as if your investment property was like a bank. If you need cash to pay bills, improve your property or make additional investments, you can borrow against your appreciating property. Furthermore you do not have to worry about debt because your property consistently increases in value, giving you more money by the time you sell. It is that simple.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at www.FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting Upcoming Events. For additional information listen to one of Dr. Alan Rosenthal’s Investment Talks.

Succeed with Real Estate Investing

2007-10-18T10:01:00.000-07:00

Do you ever feel like you put way too much thought into money and how much you spend on bills, taxes and mortgage? Will what you make ever be enough? The sad truth is that about 60% of what you make is taken from you.

Think about it for a minute. Most of us spend at least 35% of our incomes in federal taxes and, depending on the state, 9% to 10% more in state taxes. If you are self-employed that is another 15% gone. Then there are other expenses including food, clothes, car payments, insurance, gas, etc. and the 5-8% sales tax. Subsequently, you do not have much left for personal expenses, kids, vacations or anything else.

We all grew up learning that life is a rat race, but what if it does not have to be this bad? The best way to maximize your earnings and profit is to invest, but not in just anything. A good investment is one that should have a return, preferably a high one, like real estate.

Say you put $20,000 down on a house worth $100,000. If that house appreciates at 6.1% (the national average for the last 30 years), it will soon be worth $200,000. That initial $20,000 would then be worth over five times as much because the house doubled in value and the renters would have paid down a good portion of the principal. Because you used leverage by not paying 100% or cash for the house, you have a huge return on your property.

Also in today’s market, it is very common to buy a property under fair market value and have built-in equity the minute you close. If you buy a house worth $150,000 for only $125,000, you now have $25,000 in built-in equity. Very refreshing considering that most purchases decrease in value the minute after purchase. Think about how much your car cost when you bought it and how much it is worth now. Not so satisfying, is it?

So you bought a house and now you are waiting for the right time to sell. During that wait period, you can rent it. The money you obtain from renters can pay the principal on your loan as well as interest, taxes, insurance and property management fees. Now you have raised your net worth substantially and if you keep your property for longer than a year you pay a lot less in capital gains. The government also sees the structure (not the land) as decreasing in value for 27.5 years, allowing you to save money on taxes. Investing in real estate is a great way to build your financial health and to decrease future money worries.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at www.FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting Upcoming Events. For additional information listen to one of Dr. Alan Rosenthal’s Investment Talks.

How Affordable Is Your Next Housing Purchase?

2007-10-12T16:24:00.000-07:00

The first half of the 2000’s increased home ownership to a record 69% with the help of low interest rates. This was a huge plus for Americans wanting to buy homes. But according to the National Association of Realtors, the low rates during the earlier half of the decade offset higher prices and allowed national housing affordability to climb.

Your affordability is based on total monthly payment costs, the income to qualify and mortgage loan stipulations including interest rates, length, down payment, points and the maximum allowable ratio of expense to income. For example, Jason wants to buy a house for $250,000 and has $100,000 annual income. He plans to put 15% down on a 30-year fixed rate mortgage loan with an interest rate of 6%. Points and property taxes are both at 2% and closing costs at 3% of the purchase price. If the maximum ratio of total monthly housing expense to income is 30%, Jason will need a total of $49,250 in order to buy this home. That is nearly 50% of his income. The breakdown goes as follows:
Down payment: $37,500
Points: $4,250
Closing costs (separate from points): $7,500
Loan: $237,500
Monthly Housing Expense: $1,728
Minimum monthly income required: $6,171
Monthly payments: $2,500

Jason might not be able to afford his house if the required income percentage increases, which would lower housing affordability for everyone. Using the above set of finances as standard, a recent study shows that with each percentage point increase in mortgage interest rates adds 5.5% to required income. And with effective property tax rate, insurance rate and utility costs, the required income ration jump up 8%. Therefore it is better to get into the market now while interest rates and insurance is relatively low. When buying a house, your affordability is what matters most and it is important to buy at the rates and prices with which you feel most comfortable.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at www.FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting Upcoming Events. For additional information listen to one of Dr. Alan Rosenthal’s Investment Talks.

Where Does Your Money Go? – The Breakdown of Construction Costs

2007-10-04T14:08:00.000-07:00

So now you have survived escrow, packed up your things and moved into your new home. But the buck does not stop there. Now you have bills to pay, furniture to buy, maybe some repairs to make and then there is the mortgage. You are starting to think, “Hey, I paid $225,000 for this house. Where on Earth did that money go?”

If you were to build a home instead, what would you have to do? Let’s say you buy some raw land outside of California for $30,000. Before you can start building you need to deal with processing approvals, remove trees, level the ground, pave it and prepare for building. This will probably cost around $11,000. Next you have to get environmental assessment which will be around $750. Then lay water and sewer lines and maybe deal with sediment control – another $5,700. After the lines are down, there is water-electrical hookup for around $1,250 plus tree preservation, planting and wetland preservation for another thousand. On top of that you have financing, bonding fees, escrow, and other costs totaling to $4,000.

Now you have to buy you building permit, sewer and water inspection, steel for foundation and maybe even impact fees. Together this will cost around $4,900. Before construction, you have already spent $57,600 just over 25.6% of the cost of your bought house.

Now you are ready to build. Construction expenses will be 54.8% of the total purchase price ($123,300). Nearly 10% of that money will go for excavation, backfilling and foundation; 6% for plumbing; 20% for framing, sheathing and trusses. Then there is tile and carpeting, cabinets and countertops, drywall, heating and air conditioning, and siding which together will take up 23.5% of your budget. Another 20% will include windows, exterior and interior doors, patio, stairs, roof shingles, gutters and downspouts, driveway, landscaping, trim materials, appliances, painting, electrical wiring, light fixtures, insulation and other costs you might encounter. The rest will go to overhead and general expenses, the builder’s profit (9% of the total purchase price), sales commission, marketing and financing.

Sounds like it is much easier to deal with your monthly mortgage payments for 15 to 30 years then have the headache and hassle of dealing with all the small costs and worries of building your own home.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at www.FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting Upcoming Events. For additional information listen to one of Dr. Alan Rosenthal’s Investment Talks.

How to Win at Supply and Demand Real Estate Market

2007-09-27T11:38:00.000-07:00

Remember high school Economics’ supply and demand? If there is an increase in demand for your product, you raise your prices. If you have an increase in supply, prices fall. Well, it turns out that is the best advice anyone can give. When we look at real estate investments, we always want to buy where there will be increased demand. Then, when the time is right to sell, you will be well-positioned to make a substantial return on your investment.

From 2001 to 2004, the U.S. experienced a housing boom, meaning the demand exceeded the supply. The nationwide average home price during this time increased 25.6% – mainly because of the East and West coast and Florida booms. But it did not stop there, home sales also improved by 28.7% according to local MLS. With such housing booms how was 2006 supposed to compete? The U.S. Census Bureau chart for Median and Average Sales Prices of New Homes Sold in United States indicates that for 2004 the median sales price was $221,000 with the average at $274,500. In 2006 the median sales prices rose to $246,500 with and average selling price of $305,900. The higher demand for houses in 2004 paved the way for the 2006 housing price increases. But how do you know where the demand is or will be?

When dealing with real estate you always want to start at the bottom of the bell curve, ride the upside and sell before the fall. As long as you make an educated decision on where to buy, your real estate investment should continue to rise in value. For example, you would not want to buy a home in a city where a major corporation had transferred to another city. Sure the houses will be less expensive, but people are less likely to move to a city with a decreasing job market. If you buy in this city, the health of your investment will suffer.

The one good aspect of real estate investments is that there will always be a demand for housing especially with population on the rise and foreigners consistently moving to the U.S. If you look at demographics and the job markets in the area in which you are considering buying, it will help you in your decision and maybe even save you from a big mistake. Remember there will always be a demand for housing. The best way for you to gain financial health is to get some supply!

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at www.FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting Upcoming Events. For additional information listen to one of Dr. Alan Rosenthal’s Investment Talks.

What You Need to Know about Mortgage Interest Rates

2007-09-20T11:37:00.000-07:00

There is a popular misconception concerning interest rates and when is the best time to buy or refinance a home. Most believe that if the Federal Reserve Bank (FED) lowers interest rates, then it is a clear signal to act. In reality, the interest rates that are affected by the FED are short-term interest loans and not long-term. If you wait on the FED as the determining factor to buy or refinance a property you may be doing yourself a disservice.

What the FED does control is the rates at which banks lend and borrow to each other, not the mortgage rates. Long-term rates are related to long-term bond yields (the cost of federal funds) that can change on a daily basis and are dependent on the health of the economy and inflation. Whether the FED has reduced rates is not critical. You can still get a great loan if you have a clean credit history. So buying at a low rate does not necessarily mean it will be the most cost effective, especially if the mortgage will expand over a few years. Inflation rates could increase causing mortgage to also increase. Therefore inflation and the economy are factors to take into consideration as well as interest rates when choosing when to buy or refinance.

Currently it is a good deal if you can lock in your rate at 7% or under because there is no way to tell how low a rate can fall before it starts rising again. As a rule of thumb, some experts believe that in the end a good rate is one that works within your budget.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at www.FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting Upcoming Events. For additional information listen to one of Dr. Alan Rosenthal’s Investment Talks.

ABC’s of 1031 Exchanges

2007-09-12T15:38:00.000-07:00

A 1031 exchange is named after the section of the Internal Revenue Code that states:
"No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment."
1031 is also called a “like-kind”, a term used to identify the types of properties allowed, such as commercial, farm and bare land, residential rental or industrial.

Basically under this section, you can exchange a property, receive a tax exemption from capital gains and not pay the depreciation recapture. This is great because every year we receive phantom depreciation on our taxes and when we sell, we need to pay the government recapture taxes. Even though our rental investment property is increasing in value, the government views the property structure, not land, as reducing to zero for the first 27.5 years. By doing a 1031 exchange, you can defer the depreciation instead of recapturing it and allow your investment portfolio to build and defer taxes. These advantages give the investor power over the money they make on the sale. And since you are deferring the taxes, the government will give you the difference as an interest-free loan and allow you to use the gains from the relinquished property to buy another.

There are three qualifications to follow in doing a 1031 exchange. The first being identification, meaning that you must identify your new “like-kind” asset within the first 45 days of the transfer of the relinquished property. The property needs to meet on of these three rules in order for it to be identified: the 3-property, the 200 percent or the 95 percent rule. The first is exactly what it sounds like, three properties at any market value. The second is any number of properties provided that the combined fair market value does not exceed 200% of the property sold. The 95 percent rule is any number of properties at any combined fair market value on the condition that your net gain is 95% of the total. If your property meets one of these three stipulations, then you move into the next stage.

The exchange period has two specific and unchangeable time limitations. The deadline for acquisition of your new property is before the first 180 days or by the due date of your tax return for the year in which you relinquished the property, whichever occurs sooner. Finally to obtain full tax exemption your replacement property needs to have an equity and value equal to or greater than the relinquished one.

For example, if the closing date for your relinquished property is October 1, 2007, the 45th day is Thursday November 15 and the 180th is Friday March 28, 2008. If your due date for tax returns is March 20, 2008, then that is your acquisition deadline. It is a good idea to mark these dates on your calendar so you don’t forget and let your tax exemption fall through your fingers. 1031 exchanges are a great way to save money and allow your investments to grow tax deferred.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at www.FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting Upcoming Events. For additional information listen to one of Dr. Alan Rosenthal’s Investment Talks.

Why Investors Should Buy in Texas

2007-09-06T10:32:00.000-07:00

Texas is one of the best states to invest in real estate. It is a Sunbelt state, the job market is diverse and affordability is high. When buying real estate investment property, you want to look in areas of high growth. Texas A&M University’s 2000-2005 statistics show that Texas was the only state to have more than one city among the fastest growing in the nation with San Antonio gaining more than 105,000 people, Fort Worth – 82,700, Houston – close to 60,000 and El Paso with almost 35,000. Fort Worth, now the fifth largest city in Texas, was the city that had the fastest growth percentage in the nation at a whopping 15.3% increase.

More and more people are packing up and moving to Texas. I spoke to someone the other day at the airport who currently lives in Westlake, California. He told me that living in California was too expensive and that he is tired of working only to pay the mortgage and barely getting by on his income. Instead of waiting around for better days, he said that he was going to move to Texas and start over. With a few interviews scheduled, he was flying out to Texas to buy a house near Fort Worth. There he will have many options for jobs and be able to afford the lifestyle he wants. Dallas-Fort Worth had one of the top five biggest increases in jobs last year in the U.S.

Texas is one of the best areas to buy right now and the prices are relatively low. Fort Worth had median price of $115,200 in 2006. Texas has the great prices, a diversified job market, sunny climate and the affordability is a lot higher than states like California and New York. What about property taxes? It is true that Texas has fairly high property taxes, but the low cost of housing and the high rent creates a beneficial balance. The numbers work better in Texas than in most of the country. If you were to buy a rental property in most areas of California, Arizona or Nevada, you would need to put at least a 50%-60% down payment for California to break even and 40% or more for the latter two with a 30-year fixed rate mortgage. In Texas with its high rental rates, you can break even with as little as 20% down. In ten or less years, there is a good chance that the price of the home would double, making the property taxes seem like small change. Why would anyone not want to invest in Texas?

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at www.FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting Upcoming Events. For additional information listen to one of Dr. Alan Rosenthal’s Investment Talks.

Reap Rewards from Rising Rent

2007-08-31T09:27:00.000-07:00

Rents and occupancy rates are rising throughout the U.S. RealFacts, a firm who tracks over 12,000 rental districts in 15 states, recently did some rent research and discovered that over the past year rents increased 5% on average. Areas like San Jose, California and Seattle, Washington are seeing the highest long-term increase in rent – the former at an 11% increase and the latter at 9.9%.

Lots of people had been renting in 2005 and 2006 because in many metropolitan areas, like Los Angeles, rent for an apartment was nearly half the monthly price of buying a house. For example the monthly cost to own a home in Los Angeles is around $2,500 to $3,000. The cost of rent for an apartment is around $1,000- $1,200 a month, about 40% of the owning costs. Following the laws of supply and demand, the logical move is for home prices to soften and rent prices to rise.

How you can reap the rewards from such accelerated rent growth is by investing in real estate in other areas. If rents rise, families who rent apartments in Southern California and can barely make ends meet will be searching for areas with higher affordability. Let’s say a family wants to move but continue renting. If you have an investment property in an affordable area and a family decides to rent from you, you have just increased your cash flow. Even though rents may be lower near your property, they are still growing and you are still getting positive cash flow. By buying real estate investments in affordable areas, you can gain handsome benefits as people move away from the more expensive areas and the high rents in Metropolitan Statistical Areas.

Let’s see how much rental money you could make on a house in an affordable growing area in Texas whose fair market value is $123,500 and annual rental increase at 5.2%. The first year you might not make too much money, around $100 per month with a 20% down payment. But after eight years you could have close to $650 of extra cash in your pockets every month. That is just on one house. Imagine how much you could have if you had two, five or even ten houses. That should certainly be enough to fund a retirement or a few nice vacations every year.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at www.FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting www.FinancialHealthRealEstate.com/UpComingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at www.FinancialHealthRealEstate.com/InvestmentTalks.html.

2006 Was Still a Great Year

2007-08-23T09:27:00.000-07:00

Some people say that 2006 was not such a good year for real estate investors. The truth is that it was not bad either. Because 2004 and 2005 where the 2nd and 1st best years in real estate history, disappointment ensued for ’06 even though it was the 3rd best year. One great aspect of real estate is that you cannot lose money on your property unless circumstances force you to sell when markets are down. But the market tends to correct itself over time – so if you can wait, you should.

The national median price for 2006 was up 1.1% in December, confirming the fact that over the past 31 years housing prices have dropped in cities and states but not nationwide. It was $222,000 whereas in December 2005 it was $219,600. Sales in the South increased 0.8% from the annual sales rate with a median price of $182,000 (the same number in December 2005). In the West, sales fell 9.1% and by December 2006, the median price rose 1.5 % to $349,000. The Midwest saw an 4.3% increase in December with a median price of $167,000. The Northeast was up 3.7% from 2005 at a $283,000 median price but declined 2.8% in sales. Over the course of the year, there were 6,480,000 home sales an 8.4% decrease from ’05, but still an incredible amount.

Now in the first quarter of 2007, this year is great for buying in at the bottom while interest rates are low. I recommend avoiding investments in areas where the weather is poor and jobs are moving out like in Detroit. Most people tend to migrate to warmer climates, where there are stable jobs and affordability is high. Sun Belt states like Texas, Nevada and Arizona will continue to attract jobs and high migration rates, but make sure you buy where the numbers work. In closing, 2006 was a good year and set the stage for an even better 2007.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at www.FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting www.FinancialHealthRealEstate.com/UpComingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at www.FinancialHealthRealEstate.com/InvestmentTalks.html.

Choosing an Adjustable Loan That Is Right for You

2007-08-16T15:47:00.000-07:00

When purchasing a real estate investment, you want to select a mortgage rate that fits your budget, accomplishes your goals and will not leave you surprised or in financial jeopardy. There are three types of adjustable loans offered: teaser, subprime and option adjustable. Let’s take a look at the benefits and disadvantages of each.

A teaser adjustable rate mortgage (ARM) initially has a low monthly interest rate which will later reset and adjust to market values. The problem with the reset is that when the low introductory period expires, borrowers might be shocked at the increase in price as it changes to market value.

The common types of teaser loans are the 11th District Cost of Funds Index (COFI), the one-month London Interbank Offered Rate (LIBOR), the 12-month moving Treasury average (MTA), and the constant maturity Treasury (CMT). COFI indexes are month to month but tend to adjust slower. They are also based on the Federal Home Loan Bank’s 11th district, which includes California, Arizona and Nevada. With LIBOR indexes both borrowers and lenders share the risk, because the rates are based on at what cost London banks borrow from reserves and rise and fall more rapidly. MTA loan rates, also known as MAT for monthly average Treasury, are based on the U.S. Treasury’s monthly report. CMT rates are similar to the MTA’s but are based on the U.S. Treasury’s yearly report. These rates, like LIBOR’s, change quickly. Teaser rates can be very dangerous if the rates jump from, say, 2% to 7%.

Two important factors when dealing with are the index and the margin. The index is the rate of market forces. You can choose between rate averages or spot rates, the former with gradual changes and the latter with more abrupt ones. The margin is the agreed percentage amount added to the index to equal your rate.

The next type of loan is the subprime ARM which has very few advantages for the borrower. Lenders approve loans for people who might not qualify for a loan otherwise such as those with low incomes or bad credit. The interest rates start out very low for the first 2-3 years. The downside is that the rates increase abruptly, leaving people already in financial difficulty in a worse condition. In recent times, subprime loans have been directly associated with foreclosures due to borrowers not being able to keep up with rate payments.

The last loan is the option ARM. These loans are more appealing than the others because of their flexibility. With option adjustable, the borrower can then choose between loan payments that are interest-only, specified minimum or 15 to 30-year fixed rate. This loan is geared toward people who do not have set incomes, such as those self-employed. Another benefit is that it offers initial low interest rates and low minimum payments while maximizing deductions on mortgages and minimizing income taxes.

The problem with ARMs is negative amortization – when a borrower pays less than full interest in any given month. The amount left is added to the total amount owed. If the amortization reaches a maximum, the borrower is in big trouble because the minimum payment could rise to the amortization of the balance. The worst-case scenario is if the increase reduces the property’s equity or the value declines.

Basically when buying an investment property the three factors you need to look at when choosing an adjustable loan, payment plans and the potential for negative amortization. If you make an informed decision, you will end up with a great investment and fewer problems.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting FinancialHealthRealEstate.com/UpComingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at FinancialHealthRealEstate.com/InvestmentTalks.html.

The Bottom Line on Loan Length

2007-08-09T14:38:00.000-07:00

In 2005 banks introduced 40-year mortgage loans as a means to obtain long-term borrowers. Now banks are offering loans as long as 50 years. But does getting a loan that expands over half a century beneficial to borrowers?

First we must consider the fact that both the 40- and the 50-year loans require a switch to an adjustable rate mortgage (ARM) after a specified period – three, five, seven and ten year terms for 40-year and ten year for the 50-year ones. The 30-year loan is a fixed rate for the entire length of the loan and does not convert to an ARM. Another factor is the increasing interest rate premium, generally a quarter percent increase for extending the loan’s amortization. Premiums are used to reimburse the lender for the extended time his money is tied up. In spite of these new developments in loans, the 30-year fixed is still the most popular in America today. Let’s put together some numbers to see which one improves affordability.

Let’s say Ralph, Jonathan and Jim take a $100,000 mortgage loan on their respective houses. Ralph decides on a 30-year fixed rate loan at an interest rate of 6.25%, Jonathan decides on a 40-year loan at 6.5% and Jim a 50-year at 6.75%. After ten years, Jonathan has paid 8.2% ($62,880.42) more interest than Ralph but 53.2% ($7,374.40) less on the total principal. Jim’s interest is at 14.4% ($66,479.14) more than Ralph’s and he has paid 78.2% ($3,435.95) less on the total principal. Ralph’s balance is now $84,237.71 while Jonathan’s is $92,625.60 and Jim’s is $96,564.05. Ralph is in a financially better position than both Jonathan and Jim because the latter two have not even paid off 10% of their respective loans.

One would think that a longer amortization during a high interest rate period would be more beneficial to the borrower, but it is substantially more expensive than the popular 30-year fixed rate. And both the 40- and 50-year loans eventually switch to ARMs, creating the potential risk for even higher rates. Ideally the 15-year loan is the best loan for your money, but the monthly payments are incredibly high making it difficult for average homeowners. In closing, the longer your loan the more money you will be spending and the harder it will be to amortize.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting FinancialHealthRealEstate.com/UpComingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at FinancialHealthRealEstate.com/InvestmentTalks.html.

What is the Secondary Mortgage Market and How it Benefits Homeowners

2007-08-02T16:05:00.000-07:00

No one ever pays attention to what lending institution holds your mortgage loan. You are focused on the interest rate, the down payment and your monthly payments. What happens behind the scenes is a competition for who lends you money. Most borrowers do not realize that their local lender often times is not large enough to cover loans throughout your community. Local banks, mortgage companies and credit unions know they can resell your mortgage to stronger financial institutions in what is called the secondary mortgage market. This market is a great benefit to homeowners because it spreads the risk, attracts investors and saves the homeowner time and money.

The competition between lenders for second mortgages is beneficial to homeowners for many reasons. First it brings down interest rates, allowing more families and investors to buy homes. With competition, the rates no longer rely on fluctuating financial services industry but rather on world capital markets which are steadier. Also the increased amount of foreign capital flooding into U.S. real estate brings these rates down and liquidizes the financial climate.

Secondly, competition lowers closing costs and fees. Because of modern communication and internet, lenders are able to send out information on mortgages quicker which greatly improves the number of options. With new choices and options for second mortgages for homebuyers and investors, financing property has become more affordable. The secondary mortgage market supports statistical tools and objective observations on credit making it easier for families to be approved for loans without racial biases or stereotypes. Also it has now evened out regional gaps, making it even easier for people to be approved for loans even when the economy is down. These changes in the secondary mortgage market have made the way for our current record breaking high in U.S. home ownership at 69%.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting FinancialHealthRealEstate.com/UpComingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at FinancialHealthRealEstate.com/InvestmentTalks.html.

Top 5 Reasons Foreigners Invest in U.S. Real Estate

2007-07-26T12:04:00.000-07:00

According to the National Association of Realtors (NAR) Research November 2006 report, “Foreign Investment in U.S. Real Estate: Current Trends and Historical Perspective,” foreign real estate investment in the U.S. increased 8.5% from 2004 to 2005 rising to $1.87 trillion, a national record. Many foreigners, especially from Europe and Japan, are now looking to retire in the U.S. not only to use U.S. real estate as a vacation home. Here are some of the main reasons why foreigners invest in our country:

Exchange Rates: One euro is currently equivalent to $1.379, which presents foreign buyers with an exchange rate advantage. Now that exchange rates are floating and not fixed, U.S. real estate becomes a prime bargain for foreign investors.

Financial Market: The liberal financial market in the U.S. allows foreign investors to buy properties without many restrictions. Also, foreign companies may invest in the U.S. so as to avoid their own country’s tariff restrictions on products or services. By moving to the U.S., there will be new jobs which also call for new real estate.

Stability and Size: The U.S. real estate market is the most stable and largest worldwide due to the high capital appreciation according to the Association of Foreign Investors in Real Estate’s Annual Survey. Another attractive quality is the low risk potential for investors.

Fixed Mortgage Rates: The 30-year fixed mortgage rate is a huge benefit to foreign investors considering that many European countries’ rates are not as stable. The low mortgage rates encourage foreign purchases in residential areas and wield pressure for lower interest rates. The interest rates, in turn will create a higher demand for commercial property and make all properties favorable relative to inflation.

Population: Over the last few decades, population has increased mainly because of immigrants moving to U.S. soil. Going back to NAR statistics, the last decade of the 20th century saw a 35 million person increase in which approximately 16 million were foreigners. That is nearly half! More and more foreigners come each year creating a demand for property investment.

Foreigners will continue to help fuel demand for housing and real estate which will create further investment appreciating for decades to come.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at http://www.FinancialHealthRealEstate.com/ where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting www.FinancialHealthRealEstate.com/UpComingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at www.FinancialHealthRealEstate.com/InvestmentTalks.html.

How to Make Inflation Work for You!

2007-07-19T09:54:00.000-07:00

by Dr. Alan Rosenthal

Inflation is an ever-present issue, but what if you could find a way to make the depreciation of the dollar a benefit rather than a loss?

We all know that the value of currency changes and that a dollar in 1907 is not the same as a dollar in 2007. If you look at the Bureau of Labor Statistics website (http://www.bls.com/), you’ll find that, aside from 1955, inflation has increased every year for the last 60 years. Knowing this, how are we able to keep our money working for us and not have it lose value with inflation?

The answer is fairly simple — real estate property investment. It’s easy to do, increases in value over the years, and has great tax benefits. Plus, it’s safer than the stock market and will keep your money working for you.

Let’s go into more detail with some simple number crunching. Because of inflation the depreciation of the dollar over the last 25 years has been 53.5%. This means that a dollar in 1982 has the buying power of 46.5¢ today. Therefore, it does not make good economic sense to leave your money in a low-yield savings account or other low-yield investments with such a high rate of decline. So instead of letting that money stagnate, let’s buy a house.

If you purchase a house in today’s market and in the right location, the value will increase in a few short years. Real estate has appreciated at an average of 6.1% over the last 30 years, whereas inflation is usually between 2-3%. Furthermore, real estate investments often exceed the rate of inflation. Assuming that these trends persist, in less than 12 years the house would be worth more than double the original cost.

Another benefit to purchasing an investment property is that you can rent it. This is one more way to make your investment work for you and accelerate your mortgage payoff. Receiving rent money is a great way to safeguard your investment and use inflation to your advantage.

Real estate investments are certainly a viable way to reap monetary benefits. Think of it as credit but instead of “buy now, pay later” it’s “buy now and it’ll pay off later”.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at http://www.FinancialHealthRealEstate.com/ where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting www.FinancialHealthRealEstate.com/UpComingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at www.FinancialHealthRealEstate.com/InvestmentTalks.html.

Real Estate Investing in an Affordable Area

2007-07-12T10:19:00.000-07:00

By Alan Rosenthal

According to demographers, Baby Boomers (people born between 1946 and 1964) and 18-30 year-olds are the largest groups that will be moving homes in the next two decades. The reasoning behind this shift is due to domestic migration and immigration, especially with 18-30 year-olds. This shift, said to be the biggest in our country’s history, will create a major boom in real estate.

But where will they move? One of the deciding factors for locations for these two groups, as well as many others, will be affordability. Let’s look at a few examples.

Bill and Mary are two married Baby Boomers who live in Southern California. Even though the weather is beautiful, they want to retire to a more affordable area. Mary and Bill each have an IRA as well as a small pension plan. They have a little money saved and, fortunately for them, they’ve paid off their house in Woodland Hills. It’s now worth $800,000.

They sell their house and, after commissions and fees, walk away with $750,000. Because the basis price of the house including improvements was $250,000, they make a $500,000 tax-free profit. Since Bill and Mary used the house as their primary residence for two out of the last five years, they are entitled to a tax exemption from the capital gains. Mary and Bill now have $750,000 and do not have to give the government a penny in taxes.

If Mary and Bill decide to move to Arizona or Nevada, they can buy a newer home for roughly the same square footage or bigger, let’s say for $200-$250,000. Now they have $500,000 dollars or more to help fund their retirement and pay for a lot of nice cruises, trips, theatre, dinners out, money for charitable contributions, etc.

Now let’s see what could happen with the 18-30 year-old age bracket. The people in this group have a higher propensity to move because many of them are getting into a career or starting families. This group is huge in regards to domestic migration and immigration.

Let’s take Jim for an example. Jim was living on his own in a townhouse he purchased a couple of years ago in Agoura Hills, California. Because the cost of living in this area is high, he needed to get a roommate to help cover expenses. But even with the roommate and his job at Countrywide Mortgage, he got by paycheck to paycheck never having much extra money at the end of every month.

Last year Countrywide transferred Jim to Plano, Texas when it moved 500 jobs, and has since shifted its home base from California to Fort Worth, Texas.

Jim purchased a beautiful 2,200 square foot home to live in, with no roommate. Because he moved to an area of high affordability, he also bought two rental properties in which he has positive cash flow. Now he can go out to a nice restaurant and take vacations.

The last example is of a married couple in their early twenties who are just starting their careers.

Tami is a pre-school teacher and Matt is an engineer. What could they afford in the San Fernando Valley of Southern California? A two bedroom apartment conversion can cost $400,000 and would require both of there incomes to pay for it. These prices do not leave many options for Matt and Tami.

If they moved to an area of greater affordability, such as Texas, Nevada or Arizona, they could afford a home in a very nice subdivision with good schools on Matt’s income alone. If or when they wanted to start a family, Tami would not have to work to help pay expenses and they live comfortably owning their own home on one income.

So even if you or I decide not to move, there will be millions of Americans, as well as immigrants, moving to areas with greater affordability in the next couple of decades. This will help us real estate investors, who purchase properties with appreciation in such areas where demographics show high growth rates.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at http://www.FinancialHealthRealEstate.com/ where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting www.FinancialHealthRealEstate.com/UpComingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at www.FinancialHealthRealEstate.com/InvestmentTalks.html.

Real Estate Investing and Eviction Laws

2007-06-28T11:07:00.000-07:00

By Alan Rosenthal

California has some of the best weather in the country. I have a blast being with my family in the pool and taking my three year-old, Blake, to swim lessons. We love living here. But because we live in California, does that mean we have to invest in real estate here?

California is a great place to live but, for a landlord, the laws are very pro-tenant. I believe California and New York are the worst states for landlords, as far as fairness goes.

If you ask an attorney who handles a lot of evictions, they will tell you that in California it’s quite common and legal for a tenant to live in your house for up to six or seven months without paying rent. In some cases, it can be up to eight to ten months or even longer, if they know how to work the system and conveniently go bankrupt. Even if the house you own is across the street form where you live, what can you do? You cannot drag the person off your property. I’m a very charitable person; but I want to pick my charities, not have them pick me.

There are, however, some states where the laws are more landlord-friendly where the laws say that if you do not pay your rent, you must leave. Nevada, Arizona and Texas are three such states.

In Texas, a tenant has approximately 30 days to move out of your house, if they do not pay rent. After the appropriate actions are taken and they do not move out, the constable will oversee the removal of their possessions. This is a very important aspect to consider in deciding where I hold investment property.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at http://www.FinancialHealthRealEstate.com/ where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting www.FinancialHealthRealEstate.com/UpComingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at www.FinancialHealthRealEstate.com/InvestmentTalks.html.

Pro’s and Con’s of Buying an Investment Property with a HOA

2007-06-21T16:44:00.000-07:00

By Alan Rosenthal

For many who buy a single family residence for investment purposes, getting a letter from the HOA (Home Owners’ Association) can be a hassle. Let’s look at the pros and cons of purchasing within a HOA community.

Pros: Having a rental property within an HOA community is having another set of eyes on your property in addition to the property management company. If you’ve ever lived in a community with an HOA, you know that those eyes can be eagle-like. That can be comforting to many people, especially if the property is not near your residence.

It does seem, quite often, that the association does not do much more then patrol the area and play watch dog. This can be a hassle, if you live in the community, but with a rental property, you have another set of eyes policing your property as well as the neighborhood. This can be quite comforting when the property is out of town or out of state.

A few other benefits are:

You’re not going to have a neighbor paint their house an unpleasant color, since most HOAs have rules regarding changes to the outside of your house.
Your tenant or a neighbor will not be permitted to leave a car on blocks or have a junker car parked week after week in front of a house.
Some communities with HOAs have community parks, playgrounds, swimming pools or other nice amenities to help attract prospective tenants.

Cons: The biggest con to me is to have to deal with the HOA when a tenant does not comply with HOA rules. With my experience, most of the problems that I’ve encountered have been very minor:

The trash cans are not brought back within the proper time frame.
The tenant does not have the front lawn taken care of to the satisfaction of the HOA.
A tenant leaves a portable basketball hoop outside overnight.

If you’re going to purchase an investment property in a HOA community, just be ready to deal with minor hassles like these. In my opinion, the hassle is worth the benefits and I deal with any problems in the following fashion.

If and when a letter of complaint arrives from the HOA, I fax it to the property manager and send an email to let him know it’s on the way. Then put a hard copy in that property’s file and never worry about it again. If a second notice arrives for the same violation, I simply repeat the process. Now if the tenant does not remedy the situation, the next letter will accompany a fine, usually from $50 to $100. I pay the fine, as not to have a bigger problem and fax a copy of the letter along with a copy of the paid check to the property management company. Then they charge the tenant for the fine and the money has shown up on my next statement and check from the property management company. If the tenant does not pay the fine, they are in breach of the lease agreement and subject to eviction.

The biggest key with HOAs is to not let the letters bother you, if they arrive. Let the property management company deal with the tenant and always pay any small fine, if you receive one, so it does not escalate to a bigger problem.

I’ve owned many properties both within and outside of HOA communities. I let the deal speak for itself and will continue to purchase both ways.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at http://www.financialhealthrealestate.com/ where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting www.FinancialHealthRealEstate.com/UpComingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at www.FinancialHealthRealEstate.com/InvestmentTalks.html.

Real Estate: Consider the Risk of Natural Disaster When Purchasing

2007-06-13T16:12:00.000-07:00

By Alan Rosenthal

Around hurricanes season, there are a lot of nervous investors. Almost daily I’m asked about cities on the gulf coast where the propensity of major storms and hurricanes is higher. Hurricane experts believe that the frequency of hurricanes will be rising.

Two of the many resources I follow are Bert Sperling from Sperling’s BestPlaces and SustainLane.

SustainLane lists cities at risk for natural disaster. Here are there top 5 most likely to have a natural disaster:

Miami, Florida is extremely vulnerable to major hurricanes and storm surge flooding (a wall of water up to 20 feet high).
New Orleans, Louisiana is also extremely vulnerable to major hurricanes and storm surge flooding.
Oakland, California straddles the Hayward Earthquake Fault.
San Francisco, California is on the San Andreas Fault and at risk for tsunamis.
Honolulu Hawaii is subject to hurricanes, tsunamis and storm surge flooding.

At the least risk for natural disasters is Mesa, Arizona tied with Milwaukee, Wisconsin.

According to the hurricane forecasters, the next two or three decades will bring an increased number of hurricanes. After analyzing the tracts of tropical storms for the past 100 years, the experts at Sperling’s BestPlaces have ranked which areas are most likely to be hit next by a major hurricane:

Southeast Florida (Miami-Fort Lauderdale-West Palm Beach)
Key West and the Florida keys
Southwest Florida (Fort Myers-Naples)
West Florida (Tampa-St. Petersburg-Sarasota-Clearwater)
Outer Banks island, NC (Cape Hatteras)
Central Texas Gulf coast (Galveston)
Central Florida Atlantic coast (Melbourne-Cocoa Beach)
Florida Panhandle (Pensacola-Panama City)
Central Gulf coast (New Orleans, LA-Biloxi, MS-Mobile AL)
South Texas Gulf coast (Corpus Christi-Brownsville)

This is great information for all of us when considering areas in which to purchase investment real estate.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at http://www.FinancialHealthRealEstate.com/ where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting www.FinancialHealthRealEstate.com/UpComingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at www.FinancialHealthRealEstate.com/InvestmentTalks.html.

Six Major Benefits of Real Estate Investing

2007-06-04T15:16:00.000-07:00

By Alan Rosenthal

Accessible: Real estate is relatively easy to understand and purchase, especially when investing in single family houses. Most of us have a good concept from purchasing the homes where we live. Having a mentor, reading books on real estate investing, going to workshops and seminars can all be great ways to become familiar and more comfortable with the process.

Appreciable: Real estate increases in value over time. Over the last 30 years real estate has appreciated at an average of 6.1% per year. That’s huge when you factor in leverage (see below). If you look back 10 or more years ago, you’ll see that it would have been hard to find a property in the US that you would not have benefited from today.

Great Tax Benefits:

Deductible: With investment property, everything but the principle portion of your payment is deductible. This includes repairs, interest on the loan, travel expenses to see your property, the list goes on.
Depreciable: Even though your investment property is increasing in value, the government will view the structure (not the land) as depreciating. For example, if you have an investment house worth $275,000 the government sees it as decreasing in value $10,000 per year for the next 27.5 years. So if your AGI (Adjusted Gross Income) is $90,000, you can take $10,000 off the top of your taxes. This can put a few thousand dollars directly into your pocket instead of Uncle Sam’s. Now imagine how much you would save if you have 6, 8 or 10 houses.
Deferrable: By doing a 1031 exchange you can sell a property, buy one or more properties with the proceeds and defer the taxes indefinitely.

Instant Equity: If you buy a foreclosure at a discount, it’s possible to purchase it for 10% to 20% or more under fair market value. Let’s say you buy a rental house with $10,000 down plus closing costs. Because you bought it under value you could have $30,000 equity in the property the day you close escrow. That’s an instant profit of $20,000. Good luck asking your stockbroker for a 10% or 20% discount with your next stock purchase.

Using Leverage: Leverage is important when purchasing real estate. We might put 10% or 20% down and have the bank front the rest. See if you can think of any other investment where you can say, “Hi Mr. Banker, I’d like to put up 20% of the money and you pay 80% – but I want all the tax benefits and all the appreciating value!”

Rentable: Over the last 30 years rents have gone up an average of 5.2% per year. This cash flow provides us with a steady stream of unearned income. That is income that comes not from our jobs. We can spend the extra money, invest it by paying debt on the property or use it to purchase additional property.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at http://www.FinancialHealthRealEstate.com/ where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting www.FinancialHealthRealEstate.com/UpComingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at www.FinancialHealthRealEstate.com/InvestmentTalks.html.

30-Year Fixed Rate Mortgages: Why We Are So Lucky to Have Them

2007-05-16T15:19:00.000-07:00

By Alan Rosenthal

Most of us take 30-year fixed rate mortgages for granted. They’ve been around so long and are so popular that we do not realize how lucky we truly are to have them.

Whether we’re buying as an owner occupant or investor, we can lock in a specific interest rate for the next 30 years. It does not matter who becomes the next president or the next Federal Reserve chairman. Even inflation does not matter as far as our loan is concerned. If interest rates go up to 8%, 9% or 10% five or seven years from now, we do not have to worry or lose any sleep over it. Our rate is fixed for the next 30 years.

But what happens if interest rates go down? We can refinance to a lower rate, right? Would you loan me $100,000 or $200,000 at 7% interest for the next 30 years? I did not think so.

The reason we have this opportunity is because of the United States’ commitment to home ownership with the help of a highly developed secondary market. Investors throughout the world provide liquidity to our lenders mostly through secondary intermediaries such as Freddie Mac and Fannie Mae.

Let’s look at some other highly developed Nations and see how lucky we, in the United States, are.

Germany: While the home ownership rate in the United States is now 69%, the largest economy in Europe has a home ownership rate of only 40% because of the high cost of housing. Down payments are usually 40% and fixed rate loans are available for one to ten years. If the loan is paid off early, you are still required to pay all the interest the lender would have collected had the loan reached maturity.

Japan: Down payments are on an average 50%-60%. Most loans are adjustable rate mortgages or shorter term fixed rates – three years is the most common fixed rate term.

Great Britain: The most common type of mortgage here is the reviewable-rate mortgage. Whenever the market rate changes, the mortgage company reviews the borrower’s interest rate and decides to raise or lower the rate at its own discretion. The only factor that helps the British is competition from other lenders.

France: French borrowers typically put as much as a 40% down payment. The 15 year fixed rate mortgage is the most common. Financial institutions relay more on a borrower's credit record than on the property’s equity as collateral on the loan.

Italy: Italy’s average down payment is a whopping 50%. Mortgage loans are typically ten to 15 years, and the majority is at variable rate.

Canada: Mortgages in Canada usually have fixed rates for up to five years and then “roll-over”. At “roll-over”, the borrower picks another mortgage period before it “rolls-over” again. These loans almost always have a “yield maintenance penalty” that guarantees the lender a minimum return over the length of the loan. All down payments of less than 25% require private mortgage insurance.

In conclusion, to be able to put 10% or 20% down and finance the rest with a 30-year fixed rate mortgage that is 100% fixed for the length of the loan is truly a very rare gift. It allows us investors to know with complete certainty that no matter what happens with our economy and country, rates and interest payments will not be effected for the next 30 years unless we want it to be. That’s very nice peace of mind.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at http://www.FinancialHealthRealEstate.com/ where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting www.FinancialHealthRealEstate.com/UpComingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at www.FinancialHealthRealEstate.com/InvestmentTalks.html.

Using Real Estate Investments to Pay for Your Kids College

2007-05-03T14:55:00.000-07:00

By Alan Rosenthal

If you have children like my wife and me, it’s probably a big goal of yours to send your kids to college. My oldest son, Eric, is 16 years old and in two short years will hopefully be in the university of his choice. Right after he was born, I began saving to cover the costs of future college tuition. But, simply putting aside money is not enough. Since then, I’ve learned a lot and am doing things differently for my other two sons, Blake, 3 years-old, and Shane, 4 months-old.

For them, I’ve purchased a house to help with college costs. Think for a moment, if you invested in real estate property 10 or 15 years ago in a well researched area for the sole purpose to hold long term and to pay for your child’s cost of college, you’d be in pretty awesome shape now.

Here is what I did for Blake and later for Shane:

About 3 years ago I purchased an investment property for Blake worth approximately $120,000 at the time. Because I bought it right, a foreclosure in Texas, it only cost me $97,500. Now the house values approximately $150,000. It was purchased with a 20% down payment on a 30-year fixed rate mortgage. Ever since the house was bought, I’ve put positive cash flow back in the mortgage to pay it off quicker. In the past 3 years the positive cash flow has grown and I’m confident that the trend of increased money, through appreciating rents will continue. With almost complete certainty, this house will be paid off in the next 15 years, maybe a lot sooner.

But what does this do for Blake? A house worth $120,000, in 2004 dollars, bought for $97,500 that should continue to increase in value during the time it takes Blake to reach college age. The house should appreciate at least at the ever-increasing rate of college tuition, hopefully more. Figuring that the cost of college would be around $100,000, I bought a house worth $120,000. Just in case the cost of college would rise faster that the anticipated appreciating of the home, I took a margin of approximately 20% upon purchasing.

So in 15 years, most likely a lot sooner, I’ll have a house completely paid for to use for Blake’s college. At that point, I can pull money out, sell it or do a 1031 Exchange to whatever city Blake wants to go to college.

In doing a 1031 Exchange, I defer taxes on the capital gains and use that money to purchase a house or small apartment building near campus. Therefore, Blake has a place to live, and will learn to manage the house/small building by renting rooms or apartment units to other students. The positive cash flow would cover Blake’s cost of school and he’ll live in the house or one of the apartment units rent free.

What a great way to cover college expenses as well as help teach him the ins and outs of the real estate business.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at http://www.FinancialHealthRealEstate.com/ where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting www.FinancialHealthRealEstate.com/UpComingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at www.FinancialHealthRealEstate.com/InvestmentTalks.html.