Archive for the 'Real Estate' Category
Friday, February 10th, 2012
Where are the best places to consider relocating to? I knew that almost every major financial media outlet had their own “best places to live” list, and my plan was to see which cities popped up most amongst them. Well, that was a bust as every list seemed to be so different; The top city on one list might not even be on the next list at all. Why? There is no one best place to live, it all depends on what criteria is important to you.
Instead, I’m just going to give you the direct links to all the major Top 10 lists (alphabetical-ish), and let you peruse at your leisure over the weekend. I listed the top city pick for each one – all in different spots across America!
Let me know if I missed one, but be careful since many other smaller lists are actually based on those above. In the end, choosing where to live is just one factor in your life, and you may already be happiest where you are right now. But why not make sure it’s a conscious decision? A good place for additional research is BestPlaces.net which I believe used to work with CNN Money on their list.
This post is part of my Expense Reduction Guide: Housing.
Posted in Frugal Living, Real Estate | 11 Comments »
Monday, February 6th, 2012
One of my overall goals for 2012 is to make this site more of a permanent resource for information. As part of this, I want to create an “Expense Reduction Guide” that will provide an organized way to find ways to maximize personal value and make your spending efficient.
I would like this to be similar to my Favorite Posts on Investing page and Our First-Time Homebuying Experience guides (which also need to be cleaned up…).
Expense #1 – Housing
I am going to go through all the major categories, but let’s start with the biggest expense – housing. I’m keeping this part to ways to reduce either rent or mortgage PITI (principal, interest, taxes, and insurance). Things like reducing heating bills or furniture costs will be kept separate for later.
Move to a different city/state/location
- Ideas for relocation: Roundup of Top 10 Lists
- What cities are people actually moving to?
- international living (working or retired)
Renting
- Rent comparison sites
- rent vs buy calculators
- buying a house for psychological benefit vs. financial
Move to a different house
- change size
- neighborhood, location
- shared living, multigenerational living
- multiple units
Buying a house
- Getting a mortgage loan
- Credit scores, income, points, etc
Refinancing mortgages
- Rate comparison
- Mortgage types (fixed, ARM, length)
- Maximizing home appraisal
Homeowners Insurance
- Shopping for homeowner’s insurance
- Deductibles, options
- Renter’s insurance
Property Taxes
- Appealing assessment value
- Special rules in certain states
I’m just starting out and I know I’ll need to write several new posts to fill in the gaps. However, I want to make this an open brainstorming post so that you the reader can make sure I don’t forget anything. Got something to add? Please leave a comment with a tip, a link, or an idea to explore further.
Posted in Budgeting, Frugal Living, Real Estate | 19 Comments »
Sunday, January 8th, 2012
Reminder for 2012! The most well known part of the Fair and Accurate Credit Transactions Act (FACT Act) is that you can get a free copy of your credit report from all three major credit bureaus once every 12 months. However, there are also several other consumer databases that you should check as well which are also available absolutely free once every 12 months, and they can also have a significant financial impact. If you got one last year, you can now get another one and reset the 12 month clock.
ChexSystems Banking History
ChexSystems is a consumer information database used by an estimated 80-90% of all banks to help determine the risk of opening new accounts. Think of it as the bank’s version of a credit bureau. If a person commits check fraud or overdraws their account, it will be listed here. In addition, the simple act of opening or closing a bank account may be recorded in their database. Getting a negative ChexSystems record can leave you blacklisted from opening bank accounts at most major banks.
Get your free ChexSystems consumer report here.
Medical History Used For Insurance Underwriting
MIB (previously known as Medical Information Bureau) is run by 470 insurance companies and has a “primary mission of detecting and deterring fraud that may occur in the course of obtaining life, health, disability income, critical illness, and long-term care insurance.” They record information of “underwriting significance” for those who have applied for life and health insurance with MIB member companies. If you have not applied for individually underwritten life, health, or disability income insurance during the preceding seven year period, then you probably don’t have a record.
Get your free MIB consumer file here.
Insurance Claims History
CLUE stands for Comprehensive Loss Underwriting Exchange, and they collect information that is used to calculate your potential risk of loss and thus your insurance premiums. You can also find out about previous claims on the house you are currently renting or recently bought, even if they weren’t made by you.
The C.L.U.E. ®Personal Property report provides a seven year history of losses associated with an individual and his/her personal property. The following data will be identified for each loss: date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name.
The C.L.U.E. ®Auto report provides a seven year history of automobile insurance losses associated with an individual. The following data will be identified for each loss: date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name.
Get your free CLUE Auto and Personal Property Reports here.
In addition, you should also request your free A-PLUS report (Automated Property Loss Underwriting System), which is a smaller database that also contains information about property loss claims.
Employment History
When a potential employer runs a background check through LexisNexis (formerly known as ChoicePoint), this is the information they see. It doesn’t seem to claim be comprehensive, and they may have only limited or even no data about you, but I would still check for potentially negative data.
LexisNexis Screening Solutions Inc. provides Employment History Reports to employers only with a job applicant’s or employee’s consent. Employers utilize a variety of companies to obtain employment history information. Our files would only contain information on you if LexisNexis provided your Employment History Report to an employer.
Get your free LexisNexis employment history report here.
Tenant History
This report can be important if you are a renter and someone runs a background check on you at LexisNexis (ChoicePoint).
LexisNexis Screening Solutions provides Resident History Reports to housing providers that have the subject’s consent. Housing Providers utilize a variety of companies to obtain tenant history information. Our files would only contain information on you if LexisNexis provided your Resident History Report to a housing provider.
Get your free LexisNexis tenant history report here.
Now you know some of what Big Brother does. 
Posted in Banking, Insurance, Real Estate | 10 Comments »
Tuesday, December 20th, 2011
It’s time for a end-of-year checkup on the ole’ portfolio, as I’m afraid that I’ll forget about it between Christmas and New Year’s. There isn’t much change to my investment portfolio itself, the target asset allocation is the same, and the specific fund holdings are pretty much the same. I’m closer to 70% stocks and 30% bonds now. With only about 7 trading days left, I wanted to see how the various asset classes that I own performed in 2011.
My portfolio is similar to the David Swensen model portfolio, which uses low-cost index funds to gain exposure to specific asset classes. Here is an implementation of the portfolio using actual ETFs in a recommended 70% stocks / 30% bonds breakdown.
30% Domestic US Equity (VTI)
15% Foreign Developed Equity (VEA)
10% Emerging Markets (VWO)
15% Real Estate (VNQ)
15% U.S. Treasury Bonds (IEF)
15% Inflation-Protected Securities (TIP)
The chart below shows the growth of $1,000 invested this way (eMAC) at the start of 2001 until the end of November 2011, as compiled by the financial advisory group ETF Portfolio Management for benchmark purposes.
I have also taken the liberty of updating their annual returns table to including 2011 year-to-date total returns (see highlighted) using Morningstar data as of 12/19/2011.
The weighted year-to-date return of the overall model portfolio is 0.35%, essentially zero for 2011. But from the table, you see that each individual asset class may have moved a lot. European and Emerging Market stocks performed quite poorly (in case you don’t read the news), the S&P 500 looks like it will more or less go nowhere for the year, REITs (Real Estate) did okay, and Treasury bonds did very, very well considering this low-yield environment. Inflation-Protected bonds (TIPS) were the superstar in my portfolio, they saved my bacon.
Another year, another reminder that predicting short-term market movements is way beyond me. I continue to be happy with owning various asset classes with long-term expected positive returns, but which tend not to move in sync and thus smooth out the ride.
Next year, I intend to learn more about an income-oriented portfolio as that may potentially work better – at least psychologically – for the early-retirement set. My secret crush, the Vanguard Wellesley Income Fund (VWINX) was up 7.91% in 2011 YTD. It’s a income-oriented actively-managed fund with about 35% in dividend stocks and 65% in corporate bonds – but with a tiny expense ratio of only 0.28% for investor shares, 0.21% for admiral shares.
Posted in Investing, Real Estate | 12 Comments »
Tuesday, November 29th, 2011
I can’t stop posting map infographics! They’re just so pretty. Richard Florida of The Atlantic shared the map above, which shows the percentage of residents of each state that were born in that state. He then goes one step further and concludes that this map backs up his theory that America is being divided into two economic classes – the stuck and the mobile:
The mobile possess the resources and the inclination to seek out and move to locations where they pursue economic opportunity. Too many Americans are stuck in places with limited resources and opportunities. This geography of the stuck and mobile is a key axis of cleavage in the United States.
If mobility was once considered to be a quintessentially American attribute, it is now one that only an elite sliver of the population can lay claim to. It is both a significant shift and a sobering one. (source)
He cites the fact that fewer Americans are moving now than before, ostensibly because they are stuck in underwater homes. Still, using this particular map as proof of such a class divide seems like a stretch to me. There are many reasons why someone may or may not end up living in the state they were born. This map is the result of decades of complex interactions, not just what happened the last few years.
Just to throw out some examples, perhaps some states simply created significantly more job openings than could be filled by existing residents (DC Metro area, Alaska, Nevada). Some are retirement havens (Arizona, Florida). Also, I can’t tell if this map excludes residents born outside the US. Hundreds of thousands of immigrants came from around the world to settle in America – they were often both poor and mobile. Immigrants also tended to settle in coastal areas, which would affect the results above as they obviously weren’t born in the state they currently reside in.
In the end, I bet this map would have looked very similar even before the housing crash. A quick look at the same US Census data from 1990 confirms that states like Ohio, West Virginia, Kentucky, Pennsylvania, Mississippi, and Louisiana also had “low mobility” over 20 years ago, and states like Alaska, Arizona, Florida, and Washington DC had “high mobility”. I’m afraid I don’t see the evidence that mobility has been limited to an “elite sliver of the population”.
Posted in Real Estate | 9 Comments »
Monday, November 7th, 2011
We closed on our mortgage refinance about a month ago, the old loan has been paid off, and we are just about to make our first payment on the new loan. Still, I always seem to go back and forth between different possible scenarios of paying down the house quickly or according the “minimum payment” as I call it. Technically, I could just about pay off the house now, if I chose to liquidate my taxable investments and empty out my emergency fund reserve.
I decided to go back and reconstruct a chart of our home equity over time, and compare it to a couple of alternate scenarios.
The red line represents our actual home equity, as a percentage of our purchase price. We use the purchase price because our home is currently worth about the same as when the bought it. An appraisal done for our refinance last month came in at 6% above our initial purchase price. Before the big refinance, we did a haphazard combination up of throwing in a few hundred extra bucks each month and one big lump sum prepayment. Currently, we’re right at 35% home equity.
Just for fun, the dotted red line is an exponential trendline of the red line. It has the loan being paid off somewhere around 2020.
The blue line represents our theoretical home equity if paid according to the normal 30-year payment schedule of our initial 6% fixed mortgage, starting from when we bought the house in the start of 2008. This would have had the loan paid off in 2038.
The green line represents our theoretical home equity if paid according to the normal 15-year schedule of our new sub-4% fixed mortgage, starting from this month. This would have the loan paid off in 2026.
I definitely still want to pay it off in under the current 15-year term, but as usual I like the flexibility. If children come into the picture, we’ll probably cut back on work and slow things down. But for now, I’m still hacking away. We hit the 401k cap already for 2011, so we have some extra cashflow.
By the way, I am only a proponent of paying extra towards your mortgage if you are maximizing your available tax-advantaged accounts like 401ks and IRAs as well as have a nice cash cushion. Although now I do think everyone should consider 15-year mortgages. Who wants to take 30 years to own a home? Most other countries don’t even offer 30-year mortgages, and the government support of 30-year mortgages here simply inflates property prices.
Posted in Goals, Real Estate, Retirement | 14 Comments »
Wednesday, October 12th, 2011
Last week, the average rate for a 30-year fixed-rate mortgage fell below 4% for the first time in recorded history. Why? The Federal Reserve and the US Government.
Check out this chart that breaks down the source of new mortgage originations for each year from 1990 to 2011. Blue is Federal Housing Authority (FHA) or Veteran’s Administration (VA), Red is Government Sponsored Enterprises (GSEs) including Fannie Mae and Freddie Mac, and Green is Other, presumably private sector mortgages held by banks and credit unions.
This is a fascinating and telling chart. In 1990 FHA/VA and GSE loans made up roughly 50 percent of all loan originations. This remained the story for the entire decade. The private sector got incredibly hungry with their toxic loans in 2004, 2005, 2006, and 2007. But look at 2008 up until today. For the last three full years, government backed loans made up over 90 percent of all loan originations.
Credit to Dr. Housing Bubble, found via AFM.
Posted in Real Estate | 6 Comments »
Monday, September 26th, 2011
Over the weekend, we signed the closing documents for our refinancing into a 15-year fixed rate loan. It’s hard to believe that less than four years ago we bought our first house with a 30-year loan at around 6%. Thanks to additional principal prepayments and lower interest rates, our new monthly payment is actually lower than the payment from our original loan. Our lender sounded swamped with loan applications, and we basically closed on the 45th day of our 45-day interest rate lock. Here are some thoughts about the process.
Mortgage Rates Still Dropping
Here’s a chart of the historical mortgage rates, courtesy of HSH.com. It includes the 30-year fixed, 15-year fixed, and the 5/1 30-year adjustable. I’ve stopped trying to predict future rates, and just try to take advantage of what happens. National averages since 2010:
Since 1986:
Appraisal
It may be hard to believe, but the new appraisal for our house actually came in at 6% above our purchase price in late 2007. We have made several improvements to the house, including adding a small amount of square footage. But the main reason is simply that the prices in our neighborhood have held up well during the national price declines. Real estate is definitely local. As a percentage of our original purchase price, we have 35% equity.
Closing Documents
The new final HUD-1 settlement forms seemed to be clearer than what I remember last time. Charges are broken down more clearly, and the form compares side-by-side what was presented on the Good Faith Estimate (GFE) and what you were finally charged at closing. You can view a copy of the form at HUD.gov.
Mortgage Offset Account
Some people prefer 30-year mortgages because borrowing at low rates for a long period can act as a hedge against higher inflation. I personally would rather minimize my interest costs now and worry about higher rates if and when they come along. When the day arrives where I can invest in safe bonds or bank CDs that pay higher rates than my mortgage rate, then I plan on creating a mortgage offset account where I buy those CDs instead of paying down my mortgage. But either way, I’m still not satisfied with a 15-year payoff, our goal is to pay it off in 5-10 years.
Compare rate quotes from and Quicken Loans
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Posted in Real Estate | 30 Comments »
Monday, September 19th, 2011
The NYT Economix blog points out that rents are rising again according to inflation data from the Bureau of Labor Statistics. The chart included doesn’t have zero on the y-scale, but a value of 100 corresponds to rent from 1982-1984. Rents nationwide are about 40% above their values in 2000. I recently saw the last house I used to rent on Craiglist and the rent was up 15% from 4 years ago.
Credit: NY Times, Bureau of Labor Statistics, IHS Global InsightThere is definitely an increase in the number of renters, and perhaps there is also an overall psychological shift in that less people think homeownership is a part of the American Dream. Perhaps this means it’s a better time to be landlord? Home prices are still hanging around 2003 levels:
Credit: Marketwatch, S&P/Case-Shiller Home Price IndicesAlthough I know many successful people who are landlords, I don’t now if I’m cut out for it. However, I do like buying real estate investment trust (REITs), which allows me to collect rent like I collect stock dividends. (Not familiar with them? Here’s a post all about REITs.) I even did a comparison post of rental property vs. REZ, a residential ETF. I see REZ has done quite well recently.
Now, I’m not pushing REZ, and don’t own it myself. I continue to get my real estate exposure through the low-cost, passively-managed Vanguard REIT Index Fund, available both as a mutual fund and ETF. It tracks the MSCI US REIT Index and includes all kinds of real estate, currently holding 20% in residential ETFs that own things like apartment complexes. It like the diversification of this fund, even though it can be a rough ride, and in a struggling economy things like commercial properties will be harder to rent out.
Here’s the growth of $10,000 chart of both the Vanguard REIT Index Fund and the S&P 500 index, from mid-1996 to today. This type of chart accounts for total return, including dividends.
The REIT fund has done better than the S&P 500, which some may find surprising (or not) given the housing bust. As you can also see, they don’t always move together, which is good. Including REITs and rebalancing has offered a way to achieve better returns even if you like a simple buy and hold portfolio. I can’t guarantee that this type of helpful diversification will continue in the future, but I’m happy with my current portfolio right now, and am glad to be a lazy “landlord” in this manner.
Posted in Investing, Real Estate | 4 Comments »
Monday, August 15th, 2011
After the interest rate drama last week, I managed to lock in a refinance of my current 30-year mortgage (with 26 years left) which had a 4.75% fixed rate into a new 15-year mortgage at a 3.875% fixed rate. You’ll probably see lower rates in ads and elsewhere, but it did come with negative points that offset my closing costs completely and then some. Anyhow, I wanted to run the numbers to see the potential financial benefit.
To simplify the numbers, I am just going to assume a new mortgage with a loan amount of $300,000. First, we have a 30-year fixed rate with a lower payment, but higher interest rate and longer period of paying interest. Now, we do have the option of making extra payments toward principal and making the loan end early. Alternatively, we have a 15-year fixed mortgage with lower interest rate but higher mandatory monthly payment. There are many calculators out there, but I still like the simple and familiar ones at Dinkytown.
The 30-year at 4.75% would have a monthly payment of $1,565, while the 15-year would have a monthly payment of $2,200. Now, what would happen if we simply paid the $2,200 towards the 30-year mortgage? Using the calculator, we would enter an additional monthly payment of $635. That tells us the 30-year plus extra mortgage would be paid off in 16 year and 5 months, requiring an additional 1.4 years and $36,000 in interest. However, the 30-year does allow me the flexibility to reduce my payment by $600 a month if needed.
A note on interest paid. Lots of people simply look at how much interest is paid on a 30-year and compare it to a 15-year. It’s a big difference! However, you have to remember that you could have done something the money saved each month from a lower monthly payment. Theoretically, if you went out and bought a bank certificate of deposit paying the same rate of interest as the mortgage, there would be no real difference. For example, currently Discover Bank
has a 10-year CD yielding 2.50% APY (see CD Rates & Calculator tab). This makes the true interest gap less than what it may appear. Still, there isn’t anything available at anything higher than 4.75% or even 3.875%, so I’m still happy to pay off this house in 15 years.
Posted in Real Estate | 35 Comments »
Thursday, August 11th, 2011
In their most recent attempt to try and control the economy (notice I said try), Ben Bernanke and the US Federal Reserve made another carefully-worded psuedo-commitment earlier this week:
The committee currently anticipates that economic conditions – including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.
Usually they don’t talk about firm dates, so many analysts that spend their lives parsing these FOMC statements take this to mean that interest rates are very likely to stay low for a while. Low interest rates are usually bad for savers and good for debtors. Since I am both due to my mortgage, here are my action plans in response:
1. Buy more flexible, longer-term CDs. If interest rates on savings accounts will be low for a couple of years, any kind of “bump-up” CD like the Ally 2-Year Raise Your Rate CD is unlikely ever to be triggered. Instead, I still like the Ally Bank 5-year CD that currently yieldsAPY with a 60-day interest penalty. The rate on this CD has been dropping regularly since I bought some initially at 3% APY and more at around 2.40% APY. But this way, I keep earning the higher rate as long as rates are low. More details here. 2. Refinance my mortgage.Every time I think rates won’t go any lower, they do. Even though I am currently at a 30-year mortgage at a 4.75% interest rate, I am seriously considering a 15-year mortgage at 3.75% that will actually leave me with a nice cash-out. This will be a commitment to continue my extra principal payments, but saving thousands of dollars a year in interest is a good incentive. Check out the major loan match/FHA/VA comparison sites likeand Quicken Loans, but also compare with credit unions like PenFed and NavyFed if you are eligible. It’s a good time to explore your options.
Posted in Banking, Real Estate | 31 Comments »
Tuesday, July 12th, 2011
I’m making another step towards a more ratio-driven way to track our financial progress towards early retirement. This is just a quick recap/explanation of the new status bar.
Emergency Fund
Our goal is to always have a full year of expenses in cash equivalents as our “emergency fund”. (This is not the same as a year of income. Our expenses are much lower than our income.) This is a cushion for a variety of potential events including job loss or other unplanned costs, and allows us to take a more long-term view with our investment portfolio.
Since our emergency fund is relatively large, I try to maximize the yield. If we stuck it all in a money market fund, the yield would be barely above zero. With a bit of work, our cash earns a blended rate of over 2% annually without taking on extra risk. See here for our most recent breakdown of cash investments.
Home Equity
I don’t think everyone should buy a house. I don’t necessarily think it’s a very good investment over time. However, if you are geographically stable, I do think buying and eventually owning a house free and clear can be a solid component of an early retirement plan. My current forecast is to have our house paid off in 10-15 years. Housing is very expensive where I live, so once that mortgage payment is gone, the actual income my investments will have to produce will drop drastically.
There are many ways to define home equity, and I admit I am using a rather generous method of calculating home equity by taking 100% minus (outstanding mortgage balance / original home purchase price). I just enjoy having continuous progress without worrying about my home’s exact market value. See here for my most recent mortgage payoff calculations.
Investment Portfolio
The goal of my investment portfolio is allow withdrawals to support my expenses (minus the mortgage). Again, income and expenses are not the same thing. I expect our required expenses to be less than 25% of our current income. I like to assume a simple 4% safe withdrawal rate, which means for every $100,000 saved, I can generate $4,000 a year of inflation-adjusted income. This may be too optimistic, but again it does provide a quick estimate of progress. My target asset allocation remains pretty much the same as here.
(The actual implementation of my plan will probably require more flexibility. I plan on using some of my money and invest in an Immediate Annuity, as well as vary my exact withdrawal rates a bit with market conditions. Once I reach 67 or so, Social Security will kick in something. No, I don’t think it will disappear, and I don’t expect to be so rich as to not get anything. Finally, I expect to continue my low-demand freelance work and thus maintain a low level of income indefinitely.)
Posted in Goals, Investing, Real Estate, Retirement | 13 Comments »
