Choose Your BEST Deduction!

Once again it’s almost tax time (sorry…didn’t mean to bring you down) and we continue “Tax Week” on the Fabulous Portland Blog.  On Monday I posted a long list of documentation you might need to prepare your taxes.  However, some other “stuff” to consider:  one third of all U.S. households, 75% of households with more than $75,000 income and most homeowners itemize their deduction on their federal income tax returns (according to the IRS). Of course, this (usually) makes sense because the interest paid on their mortgage and their property taxes probably exceeds the allowable standard deduction.  However, with interest rates as low as they have been in the last two years it is possible that the standard deduction may be the better choice for some.

Each year, any taxpayer can compare the total of the itemized deductions to the standard deduction to select which method will result in the most benefits. The 2011 standard deduction is $11,600 for married couple filing jointly and $5,800 for single filers.

The Housing and Economic Recovery Act of 2008 allows homeowners to take “the standard deduction and the lesser of their actual property taxes or $1,000 if filing their return married jointly”. For more information, see Schedule L  found on www.IRS.gov and consult your tax advisor.

Here’s a great article about enjoying what tax deductions we currently have while we can!!

Information and supporting documentation used to prepare tax returns

• Copies of all compensation and pension distribution reports – W-2(‘s), 1099(‘s), etc.
• Form(s) SSA 1099 (Social Security benefits)
• Form(s) 1099 (interest, dividends, etc.)
• Schedule(s) K-1 (income/loss from partnerships, S corporations, etc.)
• Form(s) 1098 (mortgage interest), property tax statements and property tax receipts
• Brokerage From(s) 1099-B from stock, bond or other investment transactions
• Closing statements pertaining to real estate transactions, including refinancing
• Form(s) 1098-E for student loan interest, Form(s) 1098-T for tuition payments
• All information regarding educational expenses and fees, scholarships, etc.
• All other relevant supporting documents (schedules, checkbook registers, etc.)
• Any tax notices received from the IRS or other taxing authorities

For small businesses some records include:

• Checking account and bank statement information. Computerized bookkeeping of your business accounts is recommended. Records of all income sources. This should be totaled and accounted for monthly (and in some cases daily and weekly) with appropriate backup documentation. With TAX Organizer your information should easily be merged with all your other data.
• Records of all expenses. Disbursements showing all payments made should be meticulously saved. This includes all check, cash and credit card disbursements. All invoices, bills and receipts related to this should be maintained as part of the record keeping. Purchase of assets such as vehicles, equipment and real estate used for business may require special depreciation analysis.
• Employee compensation and tax records. This can get complex so it is important to evaluate this regularly and keep current. Our firm can assist in setting up a proper system for maintaining payroll records.

Top 5 Supplies for Self-Storage Storage

So you thought you were ready for your move, until you realized that you just don’t have the space needed at your new home to house all of your belongings. What do you do? Sell your stuff, or perhaps give it away? Sounds displeasing. Instead, consider renting a Portland self-storage unit for the safe keeping of those non-essential items you can’t seem to part with.

Self-storage units are the best way to store your excess inventory during what is sure to be a stressful time. And SpareFoot is here to make sure your self-storage experience goes as smoothly as possible, so we have prepared a top 5 list of the most important components of an organized, safe storage unit.

1. Locks. Despite the modern security features in many self-storage facilities, a sturdy lock should be your number one investment to ensure the safety and security of stored belongings. Discuss with your self-storage manager to determine which lock will be best-suited for your needs.

2. Boxes. Not only are boxes easier to stack and stow, but they will create much more usable space within your storage unit. You can find boxes for free at liquor stores and supermarkets (get there early in the week when fresh inventory usually arrives), or you can cough up a few bucks for new, more durable moving boxes available at your self-storage facility and most home improvement stores. Get uniformed sizing to avoid unbalanced mixing and matching, which will help facilitate a more accessible unit.

3. Tape. A good roll of duct and/or clear packaging tape is the perfect tool to seal your boxes. And be sure to stock plenty of it, you never realize how much you need until you run out.

4. Wrapping supplies. When it comes to padding, you can never be too safe. Save newspapers while you plan the move so you don’t have to go searching, and opt for bubble wrap to protect your more precious items. Small bubbles will reduce the shock of a dropped package to fragile items like glass, while larger bubbles are well-suited for protecting antique furniture items.

5. Shelving. An organized shelving system is what separates professional-grade storage spaces from amateur closets. Shelving makes your unit accessible, and facilitates your move by providing a designated spot for each item. Many storage facilities will equip your storage unit with shelving according to your specifications, or you can snag some on the cheap through Craigslist or Ikea. Just make sure to get the correct measurements first.

During your next move, try using the security and convenience of a self-storage facility. These units will have you rest assured that your belongings are safe and ready for you whenever it is you decide that you need them.

This article was written by Matt Schexnayder. Matt is on the SpareFoot marketing team and writes for the SpareFoot blog. SpareFoot is the largest online marketplace for self-storage with more than 5,000 self-storage facilities listed nationwide. SpareFoot offers consumers the most complete comparison shopping experience in the storage industry and has been a big part of the national moving and storage industry for over 3 years.

Despite indications that both the local real estate market and the local economy are ever-so-slowly stabilizing and/or improving, the ridiculous and the sublime often still reign supreme!!  I see two major obstacles to the real estate recovery:  extremely over-reactive mortgage lending practices and our new, revised and “improved” appraisal guidelines!  Of course, I realize that this is the pendulum swinging completely the other direction, as a reaction to the “loosey-goosey” mortgage loan underwriting which helped propel us into this quagmire!!!

Common sense has never necessarily been an element of acquiring a mortgage (not in my 25+ years of real estate sales and service), however some underwriting and appraisal requirements still completely floor me!!

For instance, a very well qualified young couple who are buying their first home and were more than approved for the conservative mortgage they were pursuing, received word the day before signing that closing would be delayed until his next paystub was submitted due to a PAY RAISE!!??  Really???

On the appraisal front, a newer well-maintained home I had listed suffered from a few minor dry-rot repairs (we live in the drippy state of Oregon, by the way, and dry-rot is a “state of mind”).  We were forced to have two re-inspections to get the repairs completed perfectly.  And, even though we supplied a photo of the required CO detector hanging on the wall and the wrapper from which it came, the underwriter had to have a receipt.  Really?  Now compare this to a total fixer property (that had been a drug “grow house” unbeknownst to the out of state estate trustee) and was so filled with trash and discarded furniture that you had to turn sideways to walk through the house, and the appraiser calls nothing/nada/zip! Really???

A seasoned investor, willing to put 30% down (to get the best interest rates) is told that’s not enough. Despite the fact that the duplex appraised for more than the sales price, the appraiser could not verify the new buyer’s proposed rents (since when are appraisers up-to-date on rental prices?).  And, even though the buyer showed multiple examples of current comparable rents, the bank insisted on more $$$ as a down-payment.  Really??? (By the way, the investor did get the rents)!

Regarding inspections and required repairs, I’ve always suggested to my sellers that they not necessarily spend their money for a pre-inspection of the house they are about to put on the market (unless there were extenuating circumstances).  A majority of buyers are going to insist on having their own inspection, for obvious reasons.  However, I recently had a situation that has made me re-think this recommendation.  A very clean, well-maintained house was short a few roof vents and, thus, there was some harmless black mold growing in the attic space.  Mold has become the new “asbestos”, “radon”, “lead-based paint” or “LP siding” (pick your decade).  I know all of these CAN be serious issues, but are often the subject of inspection over-reactions.  What could have been remedied by a spray bottle of clorox, water and a little elbow grease, became a relatively costly repair (as the buyers would not hear of a self-remedy and insisted on a contracted remedy).  Really???

These (unfortunately) are just a few of my most recent experiences.  Note:  I had to “change the names to protect the innocent” and mostly had to wait until these homes all closed and recorded to post this story, so as not to jinx the outcome!!!  :-)

1. Don’t stop making your mortgage, rent, auto or any other payment!!  If you have a late payment, even on a silly $10 a month credit card it could mean the difference between “yes” and “no”.
2. Don’t buy or lease an auto!!  Lenders look carefully at your monthly debt obligations.  A large payment such as a car lease or purchase can greatly impact those rations and prevent you from qualifying for a home loan.
3. Don’t move assets from one bank account to another!!  These transfers show up as new deposits and complicate the application process, as you must then disclose and document the source of funds for each new account. It’s a paperwork nightmare.  Wait until after close of escrow to consolidate accounts.
4. Don’t change jobs if you can help it!!  A new job may involve a probation period, which must be satisfied before income for the new job can be considered for qualifying purposes.  If you job is part-time or temporary, please let your mortgage broker know as it affects your approval.
5. Don’t run a credit report on yourself or have anyone pull your credit!!  This will show as an inquiry on your lender’s credit report and could lower your credit score 7-10 points per credit inquiry!
6. Don’t buy new furniture or major appliances for your new home!!  If new purchases increase the amount of debt your are responsible for on a monthly basis, there is the possibility this may disqualify you from getting the loan.
7. Don’t attempt to consolidate bills before speaking with your lender!!  Moving around credit balances can destroy your credit score!  Ask your lender first before you change any balances around.
8. Don’t pack or ship information needed for the loan application!!  Important paperwork such as W-2 forms, divorce decrees and tax returns should not be sent with the movers along with your other household goods.  Duplicate copies take weeks to obtain and could stall the closing date on your transaction.

yeah…that’s right!  I NEED a job!!  And, I’m not just referring to the fact that in a real estate career, you wake up every morning looking for your next job.  I’m referring to a deep requirement for that feeling of accomplishment and fulfillment.

I’ve always been a hard worker, nose-t0-the-grindstone and all that jazz.  In the last few years I’ve been giving myself the gift of more travel.  And, it IS a gift!  I’ve always had a sense of adventure and have enjoyed new experiences but I’ve had the recent luxury of getting away more.  And, I’ve learned so much…such as:

• patience (in airports)
• tolerance (for those whose ideas and cultures differ from mine)
• confidence (in new situations)
• graciousness (towards other human beings)
• joy (in new experiences)
• intrigue (what’s around the next corner?)
• relaxation (from getting out of my regular routine)
• appreciation (for home and hearth)
• gratitude (for the incredible privilege we enjoy in our country, that I sometimes take for granted)

January 2012 Portland Metro Real Estate Update!!!

The “word” for the last several months of market stats has been “improvement”.  And, last month was no different!!  Closed sales saw a 10.3% increase and pending sales saw a growth of 19.3%.  And, get this!!!  We are now at 5.3 months of inventory (there are currently 8,612 active residential listings).  In the last 3 years we have been at a high of 19.2 months of inventory and this is the lowest in that time period!!  The average sale price dropped 6.7% compared to 2010.  So, in some areas pricing is still declining, in other areas we are seeing some stabilization.

BUYERS:  What does this mean for buyers?  I still see a slow recovery, so I don’t believe that interest rates or pricing will improve so suddenly that you need to feel an undue sense of urgency.  That being said, a declining market is going down until it isn’t!  And, interest rates are low until they’re not!  So, not being a gambler I would begin whatever steps you might need to feel comfortable making that purchase.

SELLERS:  What does this mean for sellers?  Well, it at least gives us hope that our market might be moving towards more balance.  When is the market going to improve?  Probably not any time soon, but we are making some progress.  I do believe that we still have a lot of “shadow inventory” of short-sales and foreclosures that haven’t surfaced.  And, pricing is still “King”.  Stay tuned!

INVESTORS:  What does this mean for investors?  It’s a very solid investor market as rents have been rising due to a shortage of rental properties and more renters entering the market that have either lost their home or decided they can’t buy.  The vacancy rates are low.  Well priced, well located smaller plexes sell quickly so investors must be prepared with mortgage pre-approvals or cash.  But, they must also do their homework and make sure the property will cash flow (how much is based on your developed strategy).  Then you rely on the tenant paying down the mortgage every month to increase ROI (return on investment).

Why Pay Full Price?

No one wants to pay more than its value regardless of the product. When you buy anything at one store and see it for less at another store, it’s not the difference as much as it is about overpaying.  No one wants to overpay!

It seems like the natural way to start the negotiation process is to offer less than the asking price for the home, especially in today’s buyer’s market. However, instead of the price, a buyer could negotiate condition, timing or terms. A few thousand dollars off the price may not make much difference in the monthly payments but it might make a big difference if it was negotiated in one of the other areas.

A buyer who only has enough available funds for the down payment and closing costs will have to live in a home exactly the way it is for some time. They may not be able to make the changes that they desire until they’ve saved more money.

Let’s say you found a home that needed $5,000 worth of improvements and the seller would lower the price by that amount. Financing those improvements with a separate bank loan will result in higher payments due to a higher interest rate and shorter term than your mortgage (if you can even get that loan).  And, taking $5,000 off your asking price will not make as big a difference as might think (amortized over 30 years at today’s low interest rates)!!

Another idea might be to offer full price and negotiate with the seller to pay your closing costs so you’d have the cash to make the improvements.  You’ve already got diminished pricing and the lowest interest rates in quite some time!!!

Paying full price may cause the seller to consider concessions regarding condition or terms which can be balanced to affect the value of the property. Buyers can and should negotiate to acquire the home that meets their needs at the lowest possible cost of housing NOT just the lowest sales price!!!

Of course, all of this is idle chatter if the home is overpriced for the marketplace!  But, once buyers have been in the marketplace for even a short while, they are quickly educated to value.  Sellers: price to sell!  Buyers: offer to buy!

Why don’t more sellers offer “seller-carried-contracts”?:  There aren’t that many sellers in that position.  You’d have to have your home paid off or almost paid off.  I’m just surmising here, but interest rates are so low that, perhaps, many sellers know they can’t get the $$$/interest rate they would want to carry the burden of the contract.  Or, the seller has passed-on and the estate (could be multiple beneficiaries) wants to settle the estate, thus a seller-carried-contract is too complicated.

Why don’t more sellers offer “lease-with-an-option-to-purchase”?:  many times lease-options simply do not make it to close of escrow!  Home-ownership is based on a set of deep-seated psychological factors!  Like having a baby, you just can’t imagine how it will feel till you experience it.  And, like having a baby, once you’ve done it…there’s a level of commitment that you don’t experience till it happens!  And, that means that you’ve “bought it” (hook, line and sinker).  A “lease with an option to purchase” is like renting!  You haven’t completely made the transference and statistically (even with non-refundable monies up-front) they simply don’t close!!

Why don’t more sellers “wrap” an existing loan or have an assumable loan?:  Wrapping a loan involves monies exchanged between buyer and seller and the buyer assuming an existing loan.  Unless, the loan is an assumable loan (some FHA & VA loans are assumable, you’d have to check with your particular loan documents) it is not sanctioned by the underlying lien-holder (i.e:  the bank).  Thus, if the “wrap” was discovered your loan could be called (payable upon demand)!  So, that speaks to possible future value of FHA or VA assumable financing.  In the ’80′s they were gold!!  As interest rates went up (to 13% when I first started the business), any assumable financing (at a lower interest rate) was VERY attractive!!

What do you predict will happen in the real estate market in 2012?  It’s been a crazy 3 to 4 years in both our local and national real estate markets.  If you agree with the statistic that March 2007 was the absolute pinnacle of the real estate frenzy, then we are coming up on 5 years of instability and various levels of distress!  I know we definitely started to see some signs in 2007 (and, even earlier) and in 2008 Portland began to experience the adjustment in earnest, albeit slowly! Portland was a little “late to the party” as compared to some areas of the country.  And, we may be out-staying our welcome?

We’ve had these real estate “mood-swings” before in my illustrious 25+ year career, but the difference this time was the “depth of the deceit”; the dark under-belly of a world most of us know nothing about.  The “behind-the-scenes” marketplace wheeling and dealing which ultimately undermined our economy.

But, what’s done is done!  Now we have to slowly and surely re-align our real estate expectations to our new normal.  I do believe that we still have a considerable reserve of foreclosures and short-sales which will continue to plague our local market.  Jobs are an integral part of our recovery and with jobs comes confidence.  The jobs numbers of late are a little better but hard to correctly gauge.  Consumer confidence does appear to be on the rise.  We have the lowest inventory of homes for sale in the Portland area in three years!  And, the total “days on market” (DOM), or the time it takes to sell the average home, has decreased.  I think we will continue to deplete inventory in 2012…again…slowly.  Should this sales trend continue, expect prices to level off soon and they could potentially resume their climb from there.  However, I don’t really expect any real noticeable appreciation to begin in 2012.

The first of the baby boomers will begin turning 65.  Woo hoo (or not)!  So, that could precipitate some housing changes.  I think the uber-low mortgage rates will stay with us and attract 1st time buyers who have the credit scores and means for a down-payment. Who knows what the 2012 elections will bring but it usually does NOT mean a lot of drastic changes in policy.  It will continue to be a cautious market!!  I am starting to see a little new construction again.  I believe that tight money will continue to be a stumbling block but we are already seeing a bit of loosening of the mortgage-lending purse strings.  However, my recent experiences will make me predict that the appraisal process will be behind the rest of the mortgage industry.  The appraisal industry received a huge brunt of blame for some of our recent trials and tribulations.  The sins of the few were absolutely visited on the many in that situation!!!

I definitely do NOT have a crystal ball but I do have confidence that the only consistency in life IS change.  However, the one thing I love about owning a primary residence or an investment property is that, no matter what, a certain amount of your investment (principal) goes towards your overall wealth development (whether there’s appreciation or not)!  In a primary residence (your home), you pay a certain amount towards the principal in the mortgage (the rest goes to interest; a tax write-off) every month.  In a cash-flowing investment property, your tenants pay for your mortgage by buying down the principal (you still get the interest write-off plus depreciation plus maintenance=nice tax advantages) .

The Wall St Journal wrote in an article yesterday:  ”The U.S. Housing bust has made the single family home an extremely attractive investment. House prices have fallen sharply and 30-year mortgages are available for people with good credit at rates below 4%. Housing affordability has never been better”.  I’d love to hear other thoughts and opinions.