Upside Down?

I recently read an article on MSN.com about underwater homeowners that made me a little angry. First, the article’s focus was on a young lemming, I mean man, who was only $30,000 “underwater” on his mortgage. I say “only” because though he may be slightly upside down on his mortgage, $30,000 isn’t nearly as much as some current homeowners today. Second, the reason this young man was the focus of the story was because he was hoping to find a job elsewhere and felt “tied-down” to his house. Didn’t he think about this commitment when he purchased his house to begin with? Obviously not.

The recent housing bubble seemed to entice many people into home ownership without thinking about the true consequences of owning a home. It sort of reminds me of the lemmings all falling off a cliff together. As a person on a mission to own a home in the near future (though that may be anywhere from 1-3 years from now), there are some definite advantages and disadvantages that need to be clarified:

Advantages of owning a home:

• If you live in your home long enough (usually a minimum of 5-7 years), you can make a small profit or at least recoup some of your mortgage payments. With renting, you never recoup any of the money you paid over time. Some will argue that renting costs much less than owning and you can invest the difference. However, I beg to differ. I live in an area where rent is about the same as a mortgage (at least at this moment in time).
• You can settle into your home knowing you’ll be there as long as you’d like (providing you continue making your mortgage payments!) Renting a house means you are subjected to the owner eventually selling the place or raising your rent beyond what you can afford. At least with a mortgage, you know how much you are paying each month (unless, of course, you didn’t read the fine print!)
• You can decorate your home anyway you feel. As a renter, I’ve had to repaint walls back to eggshell white because my creative inspiration ticked off the landlord.
• You can keep as many pets as your city allows you to. Another disadvantage with renting – some places don’t allow pets or have a maximum allowable amount (usually 2).
• Tax write-offs. Some of your interest can be written off your taxes. I’m not very familiar with this. Anyone care to comment on this advantage?

Disadvantages to owning a home:

• If you need to move to find a new job, you might have a harder time moving. With a mortgage, you’ve signed an agreement to pay on the property for 15 to 30-years. Of course, there are alternatives to selling your home, you could rent it if need be. In contrast, as a renter I can move with a 30-day notice; no strings attached.
• If you purchased your home at the peak of a housing bubble, your home may have lost thousands if not hundreds of thousands of dollars on your investment. Obviously, this could be a serious negative consequence of owning a home. However, if you’re willing to live in the house 15-30 years, you might be able to recoup that loss due to appreciation. This doesn’t apply to renters.
• You might see your home as an ATM and pull out whatever equity you’ve built up. A common trend seen during the past bubble was people taking out home equity loans, or easy money. Those loans need to be repaid and now that the homes aren’t worth what they were, they now have negative equity. Renters are never in a position to “borrow” back some of the rent they paid so that easy money loan stuff doesn’t exist.
• Home repairs. In order for homes to remain in a livable condition, annual maintenance and repairs need to be completed. Depending on the state and age of a home, those repairs can be costly. As a renter, I’m technically not responsible for repairs, which theoretically saves me money. (Someone needs to remind my landlord of this!)

I’m sure there are more advantages and disadvantages that I could list. The bottom line is most people have to pay for shelter. You can either own that shelter or rent it. Because of the recent housing fiasco, many people view owning property negatively. Yet there are still benefits to both renting and owning. So don’t be a lemming! Weight the pros and cons then make a sound financial decision based on your own needs.

Next week I’ll be reviewing a book called Renter’s Win, Homeowner’s Lose. The title alone piqued my interest. Stay tuned for my review….

What other advantages or disadvantages am I missing? I’m I way off the mark?

One of my goals this year is to become better prepared for retirement. I’m the first one to admit that I’m starting late. I have a small pension plan set up, but I don’t feel confident enough to completely rely upon it come 20-25 years from now. I’ve also had some close friends recently retire and realize that poor planning can cause undue anxiety and uncertainty; something I don’t want to worry about when I reach retirement age. For September, I marked down in my calendar to begin a 403 (b) to help support my piddly pension plan. Though I won’t be able to contribute to it as much as I’d like in the beginning, at least it’s a start!

Learning from others mistakes, here are my top ten signs you’re not (or I’m not) prepared for retirement:

10.) “Gone Fishin’” or camping is a slogan you wish to live during the retirement years. Reality check: Though camp site fees range from free to $20 a night, camping every night in a tent or camper is unrealistic. Most camp sites have a maximum-night stay and the large, comfy RV’s are expensive (about $275K for a base model!). I love camping, but when I’m 70 I may not want to be warming myself over a camp fire every night.

9.) You don’t plan to live long after retiring. Reality check: People are living much longer these days. Even if you retire at 65 or 70, you might have another 15-20 years of living to do. Trying to eek out an existence for an additional 10 years on an income you originally thought you’d need for only 5 years is tough.

8.) You plan to work until you drop dead. Reality check: People have many different definitions for retirement, such as working part-time. This is a great way to supplement a retirement fund, but deciding to NOT plan for retirement because you think you’ll just keep working isn’t a plan at all. Though people are living longer these days, illnesses and disabilities are a reality of growing older. (I just rode my bike a few miles the other day in 100+ degree heat and let me tell you: I’m too old for that crap!)

7.) You’re banking your nest egg on the sale of your home. Reality check: Prior to the real estate’s bubble rise and fall, most people didn’t consider their home or property their retirement fund. However, during those few years, people began thinking more about how the sale of their home could be their nest egg. Unless you purchased your home many, many years ago at a bargain-basement price, counting this as part of your retirement fund may not be such a good idea due to the volatility of the real estate market.

6.) The federally-funded nursing home is looking more appealing every day. Reality check: No one plans on ending up in a nursing home before the age of 65. However, poor planning combined with poor health equals limited options.

5.) You’ve lately found yourself eying your grand-kid’s bedroom counting down the days until they move out. Reality check: Depending on your family’s culture, moving in with immediate family may be a reasonable option. However, if it’s not considered the “norm” within your own family or culture, you might want to have a sit-down discussion with those you intend to intrude upon share space with and make sure everyone is in agreement.

4.) Commune-style living is something you’ve wondered about, and are now thinking you’d like to try. Reality check: I don’t know much about commune-style living. Those words alone conjure up images of hippies growing their own food. Who knows, maybe it’s a great option for retirement!

3.) You plan to stay young forever. Reality check: Unless the fountain of youth has been found, chances are we are all going to get old sooner or later. As the saying goes, “It’s better than the alternative!”

2.) You’re still waiting for your ship to come in. Reality check: The ship’s not coming!

1.) Too many of my top ten signs are eerily hitting the nail on the head! Reality check: Like me,  you’re running a bit behind. It doesn’t mean you can’t catch up or at least begin a solid plan towards your retirement. Start today or mark it down as a “to-do” on your calendar to start this year. The key to compound interest is TIME, something that begins to run sooner than you think!

Though many of my signs are very tongue-in-cheek, the bottom line is retirement planning needs to begin before retirement begins! I’ll be following up this post with  my detailed plan in the next couple of months (keeping me accountable for my goals!)

Do you have a handle on your retirement? What advice would you give someone starting late?

Tuesday Tips, Just Another Great Post from Little House. I'm so humble.

This week’s Tuesday Tip, pick up trash at your local park or favorite camp site. It often blows my mind how an entire bag of fast food can end up on the ground at my favorite campground. People should feel privileged to experience the great outdoors instead of trashing it. This weekend while camping, my husband and I walked around the camp site and picked up a small bag of trash. I felt like the little bit we did was good for the park.

Tip #25: Make it a challenge; pick up 20 pieces of garbage at your favorite outdoor hang-out.

• Keep our parks clean. The cleaner our parks are kept, the longer they’ll be accessible to the future generations. I don’t have kids (yet), but I do see the value in preserving our parks and forests for future generations to enjoy. Picking up trash and placing it in the dumpster is a simple step towards cleaner parks.
• Keep our park fees low. Just think, if we all dropped our trash on the ground and didn’t pick up after ourselves, more park rangers and maintenance people would need to be hired. While this may be good for the economy, park budgets are usually the first to be “cut” out of the budget (so no new jobs are formed.) Making up for this expense would either mean closing the park or raising the entrance or camp site fees. I don’t know about you, but I’m already paying $20 a night to camp at my favorite site!
• Use this as an inexpensive exercise activity or game. Keep the kids moving and make trash pick-up a game. Of course, you might want to set some safety rules before you begin; like don’t pick up sharp objects, glass, or toilet paper – that still leaves plenty of things they can pick up, like bottle caps and candy wrappers! The first one to collect 20 trash items gets to choose dessert (or something to that effect!)

A clean environment is a healthier environment.

• One less plastic bag or chip bag is better for the environment. Instead of watching the refuse flow down the stream only to get caught up in a tree branch, make it one less item that will become a catch-all for garbage.

You might have noticed my header states I’ve “Gone Fishing.” I just couldn’t find a “Gone Camping” sign in time to replace it, so for now it will have to do. But YES, I’ve gone camping and will be back in time for another Tuesday Tip! In the meantime, feel free to snoop around for articles that whet your appetite. OR, take a peek below at some camping tips (mishaps from my more naive days):

1. Love da ‘coons! – Want great critter photos? Just leave delicious chocolate Power Bars on the picnic table right out side your tent. I never knew raccoons loved Power Bars, too.
2. There’s nothing better than a campfire, minus the smoke. – Making a long-burning campfire takes experience and finesse. There’s nothing better than getting the logs all sorted, then watching them smolder in their own smoke.
3. Day 3 – forgo that makeup and forget about brushing thy hair – Day 1: arrive clean and well kept; Day 2: brush hair, throw it up in a pony-tail, put on a little make-up and deodorant; Day 3: the grime has set in. Forget about the hair or makeup, just putting in the contact lenses is good enough! Oh wait. We’re going into town?! Crap.

Some Yakezie reads for your pleasure:

• Everyday Tips and Thoughts with Got Some Money? A Private Island May be Just for You! I don’t know about you, but some days a private island sounds real nice!
• The Saved Quarter with a Giveaway: The Secret to a Successful Budget.  Budgets made easy?
• Ultimate Money Blog with Stop Buying Bottled Water! I couldn’t agree more.
• Len Penzo with 22 Signs Your College Degree Might Not be Worth the Money. I love that one of the comments mentioned a friend taking 10 years to get their Leisure Studies degree. That’s hilarious! Of course, maybe that was the point.
• Frugal Zeitgeist with Cost of Living by State. I like comparing state cost of living statistics. However, I usually find myself wanting to move someplace less expensive.
• One Money Design with Earn Cash-Back Rewards with PerkStreet Financial. Sounds similar to SmartyPig. I really like the sound of the Starbucks gift card rewards, though…mmmm.

See you soon. A wee-ma-whack, a-wee-ma-whack, a-wee-ma-whack, a-wee-ma-whack….

Each month, I chip away at a little bit of principal on my Crummy Line of Credit. Little by little, the total balance due shrinks. However, the process has been slow-going and quite frustrating. The loan itself is a monster, and with an interest rate at almost 30% (29.99% to be exact) it’s disappointing to see how much interest I’ve paid over just this year alone: a whopping $1,557.98. I’m terrified to actually pull a Quickbooks report and find out how much I’ve paid on the life of this loan to date.

But……I’m happy to report I managed to secure a much, much lower interest loan and pay off more than HALF of the crummy line’s balance. Whoo hoo! Of course, I’m just moving half the total balance due to another financial institution that I have to pay as well, but at an incredibly low rate (and zero percent to start), I can focus on getting the crummy line’s balance paid off.

Here’s what I did; I paid off $3,500 of the remaining $7,626.77 using the new, low interest loan. Because I made a whopper of a payment, the financial institution offered me a “settlement” amount that is $1,480 LESS than the original loan balance for a total of $2,646.56 remaining. The $3,500 loan is zero percent interest for a year, then a low 7.5% fixed rate.

The remaining $2,646.56 is no longer generating interest charges, but it is generating a daily fee of $5.99. I agreed to make two more payments of $1,323.28 and will have this baby paid off by the end of October. Not too shabby compared with the 32 months it would have initially taken me and the interest I would have paid, $3,526. Yikes!

According to Credit Karma’s calculator, the $3,500 low interest loan will take approximately 10 months to pay off at a monthly payment of $350 and zero percent in interest if I stick to my plan of paying it off in 10 months. Here’s a quick comparison:

• Total paid in fees on the remaining crummy line of credit: $359.40
• Total amount of time until zero balance: 12 months
• In contrast, if I had kept the crummy line of credit I would be paying $3,526 in interest over 32 months. Yuck.

For those visual learners out there, here’s a quick visual aid:

Crummy Line of Credit Balance Due

Lower Interest Rate Loan: Switch and Bait

By calling the Crummy Line of Credit’s customer service and explaining that I wanted to make a large payment, I was able to negotiate a “settlement” amount. If I had been able to pay off the complete loan balance, I would have saved an additional $359.40. If I can pay if off sooner than expected, I save approximately $5.99 per day.

For now, I’m happy with the idea that this sucker will be completely paid in full and no longer generating balloon-interest payments.

Have you negotiated lower balances or “settlement” amounts to reduce a debt? What was your experience?

Tuesday Tips, Just Another Great Post from Little House. I'm so humble.

This week’s Tuesday Tip, black-out your windows to reduce cool air from escaping. Living in a rental house with older, drafty windows has made me aware of how difficult heating and cooling a house can be without good sealant. Since I’m not going to replace the windows in my rental home, I’ve had to come up with less expensive alternatives instead.

Tip #24: Black-out your windows using drapes, blinds, shutters, or reflective film.

• Reflective film: One of the least expensive ways (besides a tube of caulk!) to reduce heat seepage is by purchasing a self-adhesive reflective film that you can cut any shape to fit your windows. It’s not the most attractive option, but it has definitely kept the heat out of our east and west facing windows. Note to self: Do not purchase a home that faces west!
• Dark-colored curtains. Curtains and drapes may sound passe, but you can still score some modern-looking curtains that are more attractive than flimsy blinds. When we first changed out our cheap, flimsy blinds, we opted for a rust-colored drape for the fore-most facing window. The curtains, along with the reflective film, minimize the amount of summer sun that bakes our computers.
• Shutters or wood/faux-wood blinds. As much as I would have loved to install shutters on the outsides of our windows to block the heat, it just wasn’t in our budget and didn’t make financial sense considering we live in a rental house. Instead, we purchased faux-wood blinds for much less. The thicker, wider levelor’s block out quite a bit of heat as compared to the less expensive, thinner metal ones.

Keeping the heat out is better for the environment.

• Reducing the amount of heat that seeps in means using the air-conditioner less often. There are still days when I need to turn on the air conditioner. However, by blocking most of the sun’s heat out, I can turn the air on later in the day running it less often. This saves electricity, which means I’m reducing my carbon footprint.

The Yakezie.com

Last week, the Yakezie.com launched it’s website with great response. Today,  a few of our members and leaders are formally introducing themselves. Every week for the next few weeks the Yakezie Leaders and members will talk about how and why they started blogging about personal finance and share their individual stories. Stay tuned for some PF fun! First up, Budgeting in the Fun Stuff.

Town A: Deodar cedars on White Oak. Remember the scene in ET when they fly over trees on their bikes? This is the street.

The Deodar cedars line the sleepy street of White Oak to the north of where I live. The trees tower many feet over the well-manicured homes, set back far from the street. The wide avenue, built to handle plenty of cars, sees but only a few with one single stop sign at the end of the block. A couple walks their small, white toy poodle down a quiet residential sidewalk covered in a blanket of pine needles.

Five miles south on the same block renowned for its cedar trees (yet are predominately lacking), I look out my window and see a beater van parked indefinitely outside of my home. A group of five men from the nearby wayside house, quietly disguised behind a large, black fence, saunter down the sidewalk. The alley where I enter and exit from my garage is riddled with graffiti of the unattractive kind.

Though only five miles apart, the scenes from my current neighborhood and the one I grew up in are worlds apart. The “Valley”, once known as a rustic get-away for the celebrities of yester-year, has grown into a hodge-podge of seedy neighborhoods intermixed with a “good” pocket every now and again. The valley is perplexing; a large, flat sprawling suburb built on a seemingly-endless grid system bordered with rolling hills and mountains. Without the obvious barriers, the cities merge into one another with barely a marker to distinguish you’ve entered into a new zip code.

But why is one town so well taken care of, while another just a few miles away without any geographic barriers, has become a dumping ground for litter, graffiti and over-grown lawns?

Due to the lack of physical barriers, cities seem to define themselves through subtle cosemetic differences: graffiti and litter,or statues, pergolas, and renovated shopping centers built to attract consumers willing to spend. Since I’m not a city counsel member, I can only assume a city’s budget and income are dependent on property tax, and the concept that the community will continue to generate income within its own city.

A few things I’ve noticed that may be directly related to the differences between these two towns (I’ll call them town A and town B) are:

Town A:

• A small, well-maintained business center reminiscent of the 1950’s. Though many stores have closed due to the recession, the landlords haven’t allowed strip clubs or Triple-X stores to open in their place. The town recently built a statue and seating area at the beginning of the 4-block district under a giant Deodar Oak to show their dedication to their small, yet clean business area. One can tell the residents pride themselves on these four blocks – very rarely do you see graffiti.
• Well maintained lawns. During the real estate boom, this area increased in price by a near 4-fold. Even though this area has been hit hard by the drop in prices, there aren’t very many homes for sale or overgrown lawns. Either people have lived in these homes a long time, or the people able to afford these homes are doing okay financially. I assume this area is financially stable.
• Renovated shopping center. Over the past few years, the city took a very old, vacant shopping center and completely renovated it making it the center shopping district complete with grocery store, home store, and plenty of fast-food restaurants. (The high school kids love it.)
• A renowned high school. It’s funny, I graduated from this very same high school many, many years ago. However, it has since turned into a well-respected charter school that is the envy of all who can’t get their kids into it.
• Movies filmed: E.T. was filmed all over Town A from the trees you see in the photo above to the homes being built in the surrounding hills in the late 1970’s early 1980’s. Fast Times at Ridgemont High car scenes were filmed in Town A’s business district.

Town B:

• A run-down business district. Back in the 1950’s, the area near my house was one of the first bustling business districts of the valley. Unfortunately, time has not been very good to this center. Riddled with graffiti, burned out buildings, and corner payday loan offices, the business district lacks a cohesive purpose.
• Over-grown lawns and vacant homes. During the bubble, prices in my area peaked over $500,000. I feel terrible for the people who purchased homes at these prices considering the area really isn’t deserving of those prices. I’m beginning to think they feel bad for themselves as well, as many have walked away from their homes.
• Corner Mini-Marts. Sprinkled at almost every busy intersection is a mini-mart. Great for a quick soda. Not so good for a community. How many liquor stores does one city need?
• Low-income apartment buildings for blocks on end. People from every economic level need a place to live. Unfortunately landlords often associate low income with low maintenance; uncared for properties quickly become the target for graffiti, broken windows, and littered lawns only further depressing an already depressed area.
• Movies Filmed: Boogie Nights was filmed on a busy street in Town B. The television show My Name is Earl was filmed extensively around my neighborhood as well. (Note the glaring difference?!)

What are the solutions for town B? Obviously, the economy picking up steam would help; fewer people leaving the area would fill the vacant homes. Home owners tending to their lawns and cleaning up the graffiti would also be a positive movement. I’ve found that if graffiti is painted over immediately in an area, the tagger usually moves on to another area that doesn’t seem to care as much.

Perhaps I need to make it a point of walking up and down my alley painting over graffiti-covered walls. Maybe I need to begin picking up litter within a 1-mile block range; my initiative alone could cause a much larger change by encouraging my neighbors to do the same. This may be my Labor Day Weekend goal.

What changes have you seen in your town? What is the solution? Is there anything you could do to help?

This guest post was written by Go Banking Rates, bringing you informative personal finance content and helpful tools, as well as the best interest rates on financial services nationwide.

Buying a home is especially difficult these days, especially because it’s hard to predict what will happen next. Mortgage interest rates and home prices are at their lowest in decades, but it doesn’t mean now is the time to buy.

The real issue is whether you’re really getting the best deal possible on your home: Interest rates are low, but they could keep dropping. Prices are down, but they may not seem so spectacular in a couple of years from now. A home you would have considered a steal five years ago may be ridiculously expensive now, right? So how do you buy a home in a down market and know you’re paying what you should?

How Market Value Is Determined

The market value of a home is what a seller can expect to receive from a buyer at any given time. It’s sort of like the Blue Book value on a car–an average asking price, but not necessarily the exact amount someone would pay.

The market value is determined by a professional like a real estate appraiser or agent based on a number of considerations. These can include what homes of similar size and location have sold for in the past six months to a year, but does not factor in things like cosmetic improvements made to the property. Importantly, the market value of a home can change dramatically over a short period of time, which is why the number is not completely reliable.

How To Tell If a Home is Worth Its Price

One way many potential buyers gauge whether the property they’re interested in is a fair price is similar to how appraisers judge market value–by comparing it to similar homes for sale in the area. However, this can be misleading. According to lendingtree.com, homes that have been on the market for just over three weeks might be priced too high.

Valuation

This is why valuation is important to consider. Valuation is the difference between what a home should cost and what the actual price is. For example, CNNMoney reports in mid-2006, at the height of the housing bubble, 53 metro areas were considered to have over-valued properties. Just two years later, that number dropped to only 8.

Aim for Pre-Bubble Prices

Right now, most areas are considered to be undervalued, which means you could score a good deal on a home. Additionally, due to the recession, unemployment and high rates of foreclosure, the demand for homes for sale is weak. This means sellers are forced to cut prices even further to entice buyers.

Even if it’s already a bargain basement price, judging the accuracy of a home’s market value can still be difficult. To be sure you’re really going to get your money’s worth from a purchase and not want to kick yourself years down the road when prices drop further, judge how closely the asking price matches what you would expect in a “pre-bubble” environment.

MSN Real Estate writer Luke Mullins describes a scenario where we will return to pre-bubble prices where there was only an increase of one to two percent above the inflation rate over the next decade. This is in line with average historical appreciation rate of about half a percent every year when adjusted for inflation. So, with this trend in mind, compare the historical value of a property you’re interested in against the asking price today. Ascertain whether the two match up by starting from 1995 and adding a percentage point or two above inflation each year until you get to 2010.

Will Home Prices Continue to Drop?

Even if home prices are abnormally low now, they might continue falling, making a premature purchase more expensive than necessary. Associated Press real estate writer, Alan Zibel, explains that home values are projected to to decline well into 2011 and maybe even 2012. He writes that Moody’s Analytics senior director expects “home prices could drop another 20 percent by early 2012 if there is another recession. If the economic recovery remains on track, she sees prices falling another 5 percent and hitting bottom early next year.”

Waiting for home prices to fall further could really be a gamble, though. It seems they will trend downward at least for a little while longer, but wait too long and you might miss out on rock-bottom numbers. Homes are already priced at historical lows, so if you use the above criteria to judge a home’s true value and find you’re set-up to profit from your purchase in the future, you might want to snag the opportunity while it presents itself. Of course, missing the boat and buying on the way up will still ensure that you’re purchasing during a time when home prices will continue up.