When I was growing up I was one of those kids whose aptitude run parallel to my grades in the classroom. I was clearly the best in my class at math for many years, but I was also in a class for kids who weren’t great at reading – which I found humiliating/confusing. I couldn’t figure out if I was a smart kid or a dumb kid. I just wanted clarity actually, because not knowing which one I was constantly plagued my identity. I finally got out of the reading class in 3rd grade, but I still questioned my intelligence. I did however find that whenever I had a teacher who gave me more space to learn how I needed to I felt enormously more capable and, I would regularly lead in class rather than distract. Even when I did testing in college for ADD they found that I had a high level of intelligence, but I had trouble functioning within the established structures of a classroom. They found that I struggled in class not because I had ADD, but because I was anxious due to not functioning well in the established/traditional way that I was “supposed to”.
Fast forward about 20 years and I am still that same little kid. I know my limits and capacities better than I did 20 years ago, but I’m still challenged daily by not feeling like I fit in a simple box. Luckily I found a company 4 years ago that gave me exactly what I needed: flexibility, and a big green light! People doubted that changing some of the traditional paradigms in real estate would work, but I’m very proud to be a part of my company. I don’t want to take away from any other company (I’m so proud of the community that our industry has), but there is a reason why our company has grown faster than any other company, and sold more houses in Norman than any other company the last few years. Go team! Below is an article from the Norman Transcript about our success do to challenging norms. Thank you to the 7 founders of the company who took a big risk, it paid off.
Metro Brokers of Oklahoma was founded a decade ago by a group of realtors who wanted to bring a different set of values to real estate.
Apparently, their vision to combine broker autonomy with high ethical standards has paid off. According to a ranking report of 2017 calendar year numbers, Metro Brokers was the leading agency for total transactions in Norman.
With 14.33 percent of the Norman market share, 247 listings, 294.5 sales and a total of 541.5 total transactions, they are ahead of the leading and more traditional Norman real estate companies.
“We opened Aug. 1, 2007, so we’re going into our eleventh year,” said Gwen Arveson, owner and principal broker. “We have offices all over the metro with 189 agents and 35 branch offices.”
Arveson and Betty Goss, owner-manager and branch broker, believe the supportive yet independent culture of their workplace is at least partially responsible for their success.
“We are not a traditional real estate company,” Goss said. “We believe in allowing our associates to run their own business with integrity, and we support them. We don’t have production requirements.”
In 2017, Metro Brokers of Oklahoma ranked fourth in the Oklahoma City metro for total transactions, but that’s not a market Arveson, Goss or their fellow co-owners had planned to enter initially.
Goss and Arveson were friends with each other and the other Metro Brokers owners when they decided to form the company.
“We were all selling real estate, and we decided we wanted to structure a company that was different than any company in Norman,” Arveson said. “We did that all the way from writing our vision statement to writing our culture statement of the type of people we wanted to attract.”
The business started in Norman and organically spread to the metro.
“We were not prepared to do the branch office thing,” Arveson said. “There were just seven of us who wanted to sell real estate. We have never recruited anyone. People came to us. Another thing that makes us different from other real estate companies is that we allow our branches to work with total autonomy within the law.”
Goss is a long-time Norman resident who got into real estate so she could avoid an office job.
“My best friend said I was good with people and should try real estate, and I did and I love it,” she said.
Arveson and Goss say Metro Brokers nurtures self-motivated realtors rather than promoting competition. The company doesn’t recognize the top producer of the month, but it does provide support through office facilities, insurance coverage, a website, brand awareness, training and collaboration among members who are more willing to help because they’re not in competition.
“We do interviews,” said Arveson. “Before anyone can join us, they have to come to a 30 minute interview that two of the owners conduct.”
The focus of those interviews includes ethics and values.
“When we’re interviewing, we listen to their background story,” Goss said. “We listen to keywords to how they handle their previous work. Above all, we look for integrity with how they are going to treat their counterparts, owners and the public with respect to how they do business.”
Metro Brokers does not charge extra fees to brokers — there are no desk fees, technology fees or franchise fees, and the annual membership fee never increases, it is locked in for life.
“The company was started by all Oklahoma people, and we are not a franchise so the money stays in Oklahoma,” Arveson said. “We offer full service real estate. We allow the branch offices to fully run their offices however they want. We don’t interfere with their finances.”
Arveson started in real estate in 1986. Working with like-minded realtors to create a business comprised of a “professional but non-restrictive membership group” to support each other in running a “fair and profitable real estate business,” was the culmination of a dream come true and the fruition of the values she and the other owners hold dear.
“We start every meeting with prayer,” Arveson said. “All of the owners are Christians. That doesn’t mean you have to be a Christian to work here, it just means you have to respect what we do.”
Brokers determine their own goals, commission fees, income and expenses.
“We teach them to compete with themselves,” Arveson said. “We want them to work together rather than being competitive. The real estate business is already competitive enough.”
That approach is paying off in more than just sales numbers.
“We have more associates than anyone in Norman,” Goss said. “People who do business with us are pleased with our reputation as experienced realtors who do the right thing.”
Ever since I was a little boy I would tell my mom that I could live in really odd little spaces – but mostly tree houses and sheds. There has always been a strong appeal to me to having a simple and clean living space. I currently have that more than I ever have before, my house is just over 1,100 square feet. I chose to live where I do because I love the location, and I love the old charm of this little house. I had to stop to look around and admire it for a second… Well, the world has apparently caught up to my way of thinking and they’ve been obsessing over tiny houses for the last few years. My favorite one I’ve seen was probably the “Shotgun House” that Chip and Joanna Gaines redid on Fixer Upper. Oklahoma City will be getting a district filled with tiny houses soon, and I can’t wait to see how this deal plays out. If you’re interested in simplifying your life maybe aiming to have a smaller (but still functional space) is the way to go. Just click picture of the”Shotgun House” below if you want to flip through the pictures. Who else out there is excited to see how this plays out in OKC?!
Designed through a community charrette in the summer of 2014, Wheeler is first to expand the modern development footprint to the south bank of the Oklahoma River. Its layout encourages walking or bicycling to school, work, dining, the Ferris wheel and beyond. From urban cottages to townhomes, Wheeler features a range of for-sale and for-rent housing for pioneering families that want the convenience and quality of a newly constructed home connected to the amenities and offerings of Oklahoma City’s dynamic urban core.
Taxes… There are but a few exercises that help people recall their anger and anxieties better than thinking about their taxes. I personally am a believer in a civil society, and I don’t find it helpful for anyone to complain so much about paying taxes. However, it does hurt each year when I have to pull out my checkbook to pay the remainder of my bill. The last few years I’ve done myself a favor and gotten them done early, and it’s a big weight off of the old shoulders honestly. Maybe it’s a good time to go ahead and start figuring out your taxes, and if you’ve bought a home recently here is a list of things you’ll want to remember. Keep in mind that this was produced by Credit Karma and you should look into any services that may be advertised or suggested before using them.
We generally make money when you get a product (like a credit card or loan) through our platform, but we don’t let that cloud our editorial opinions. Learn more about how we keep this compensation from affecting our editorial views.
Owning a home gives you access to special tax breaks, and taking advantage of them could help you at tax time.
“Many homeowners miss out on a lot of deductions every year because they aren’t aware of all the savings opportunities available to them,” says Josh Zimmelman, president of Westwood Tax and Consulting.
These seven tax tips could help you make the most of the many tax breaks for homeowners and maximize any income tax refund you may be owed.
1. Stay organized
Many of the tax deductions or credits you can take as a homeowner require you to keep detailed records of your home-related expenses. Start saving receipts and other information right away; don’t wait for tax time to roll around.
“If you take a few minutes to set up an organization system for your tax paperwork and financial records, it should be quick and easy to maintain,” Zimmelman says.
One way is to keep hard copies of all your financial documents and receipts. Or, you can scan and store your documents digitally. Apps like HomeZada can help you stay organized for a small fee.
2. Itemize your deductions
For the 2017 tax year, the standard deduction is $12,700 if you’re married filing jointly, $6,350 if you’re single or married filing separately, and $9,350 if you’re filing as head of household.
As a homeowner, though, you may have enough in eligible expenses to itemize your deductions. If those itemized deductions add up to more than the standard deduction, you could lower your tax bill even more.
State and local income taxes or sales tax (but not both)
Loss from property damage or theft
Some medical expenses not paid for by insurance
Work-related expenses your employer didn’t reimburse you for
3. Keep track of your moving expenses
Taking advantage of the moving expenses deduction can be a valuable tax tip for homeowners. If you moved into your home this year because of a work relocation, you might be able to deduct some of your moving expenses and some of the closing costs on your home.
To qualify for the moving expense deduction, you have to meet certain requirements. For example, your new workplace must be at least 50 miles farther from your old home than your old workplace was. Also, the move must occur within one year of starting the new job.
“Deductible [moving] expenses might include money spent on travel, moving trucks and storage units,” Zimmelman says.
As for closing costs, you can deduct some or all of the discount “points” you paid to lower the interest rate on the loan.
File your taxes with Credit Karma Tax
Prepare and file your federal and state income taxes for free. And if you’re owed a refund, we’ll make sure you get the max back.
If you make any improvements to your home, the expenses aren’t deductible for the current tax year. However, when you sell the home in the future, they can help lower your tax burden then.
That’s because you can add home improvements expenses to your adjusted basis, which is generally what you paid to buy the house, plus the cost of construction, renovation, or other improvements you’ve made, minus any losses you’ve experienced from damage to the home.
For the tax year in which you sell the home, your taxes on the sale are based on the sale price plus any concessions you get from the seller (such as them paying closing costs) minus your selling expenses. If the amount you gain from that equation is higher than your adjusted basis you have a capital gain on the sale. So, the higher your adjusted basis, the less taxes you may have to pay on your profit from the sale.
5. Track your home office expenses
If you work from home, you may be able to deduct some of the expenses you incur for your business use of your home.
“Not every person who works from home can claim a home office,” Zimmelman says. “The home office must be used regularly and exclusively for business and be the primary site of the business.”
Types of expenses you can deduct include the actual expenses you incur for the home office and depreciation for the portion of the home used.
You may even be able to qualify for this deduction if you’re an employee. You have to meet additional requirements, however. For example, your remote work situation must be for your employer’s convenience. So, if you’re working from home just because it’s an option, you might not qualify for the deduction. If, on the other hand, the employer has no home office and you have no choice, you could be eligible.
6. Make energy-efficient updates
Adding a solar energy system to your home is not only good for the environment, it can also be good for your tax refund. The IRS allows you to take a tax credit worth 30 percent of the cost of installing a solar energy system.
If you’re thinking about holding off on taking advantage of this tax credit, don’t wait too long. The credit amount for residential improvements decreases to 26 percent in the year 2020, then to 22 percent in 2021, after which it goes away entirely.
7. Save your tax records
Here’s one tax tip for homeowners that’s probably valuable for most people. Once you take advantage of all the available deductions and credits in the current tax year, hold onto them.
“You never know when you might get audited,” Zimmelman says. “It’s important to have the documentation to back up your deductions.”
The law requires that you keep all the records you use to file your tax returns for three years from the date a return was filed. That’s typically how far the IRS goes back when doing an audit. Keep in mind, however, that the IRS can go back further (usually no more than six years back) if it identifies a substantial error in a return.
Owning a home can be expensive, but, fortunately, the tax breaks can help make up for the extra costs. As a homeowner, it’s critical to know which deductions and credits you qualify for and to make sure you maximize them to your benefit. Using Credit Karma Tax™ to file your taxes for free, and following these tax tips for homeowners could help.
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Planning ahead for retirement is arguably going to be a much more important conversation for millennials, and generations to come. One way of planning ahead for retirement is to buy rental properties. Below is a great guideline of how to begin thinking like a landlord and an investor in real property.
How Many Rental Properties Do You Need to Retire?
Rental properties are a great way to fund some or all of your retirement. They produce steady, predictable income without eating into your principal. And they have many tax advantages and other benefits for retirement. But before you embark on a multi-year real estate investing journey, you should first figure out how many rental properties you actually need to retire.
Once you know how many rental properties you need, you can more easily pick an investing strategy and find the right real estate niche. You’ll also have a clear milestone to measure your progress against. And you might even realize that you’re closer to retirement (aka financial independence) than you think!
In the rest of this article, I will share the math behind real estate retirement planning and examples of how to retire with rental properties. Then I will also show you 5 steps to help you personally calculate the number of rental properties you will need to retire.
Your principal or equity invested in real estate (P)
The yield or cash-on-cash return on that equity (r)
The basic formula is this:
For example, let’s assume you need a minimum of $70,000 per year from rental income to retire. Let’s also assume you can find properties with a 10% cash-on-cash yield.
This means you need to invest equity of $700,000 into rental properties.
If that math doesn’t work for your situation, you can change each of those three variables as needed.
For example, if you need $100,000 per year, you may need to invest $1 million instead of $700,000
Or, you could also receive $100,000 by investing the same $700,000 but find properties with higher cash on cash returns of 14.3%.
So, the math begins with your retirement income needs. You decide what that number is. But if you need help, I’ll get into how to calculate those needs in more detail later in the article.
Then you plug in a cash-on-cash return assumption (like 10%) for what you can expect from your rental properties.
The result of that math equation is the amount of equity you need to either invest (if you already have the capital) or accumulate (if you’re still growing your portfolio).
Simple math, right? But of course actually DOING that math in the real world is a little trickier.
So, let’s look at an example.
What a Retirement Rental Property Looks Like
Examples are always the easiest way for me to understand concepts. I bet you feel the same way. That’s why I want to give you some real numbers here.
But examples are only helpful when you understand the assumptions. You may need to adjust these assumptions to make them relevant to your situation.
So, in my examples assume that all of the rental properties will have the following characteristics:
Single family houses
“Middle America” (i.e. south, midwest, and other parts of the U.S. where rent to value ratios are reasonable)
a medium-sized city with a growing population and good long-term economic prospects
a median-priced neighborhood (not the lowest, not the highest)
$120,000 = Total cost of investment (purchase, closing costs, repairs)
$1,200/month = Total Rental Income
$700/month = Net Operating Income (what’s left after expenses, not including your mortgage)
$90,000 = Mortgage loan fixed at 4.4% interest for 30 years
$30,000 initial cash investment per property
In an ideal world, each house would also be built for low maintenance renting with a large crawl space, masonry or brick exterior siding, hardwood and tile floors inside for inexpensive tenant turnovers, and wonderful neighbors. But getting 100% of that may be asking for too much!
Now let’s look at two different examples of rental properties to produce retirement income.
The Leveraged Rental Retirement Portfolio
There is an endless debate about how much debt you should use in real estate investing. Some even question whether you should use debt at all. I’ll be happy to jump into the nuances of that debate in future articles, but for now, I’m just going to give you two examples – one with debt leverage and one with no debt.
The goal in both examples will be $84,000 per year in rental income (pre-tax).
Here’s example #1 with leverage:
28 rental properties
Total cost = $3,360,000 ($120,000 per property)
$840,000 equity capital invested ($30,000 per property)
$2,520,000 debt financing ($90,000 per property)
Total rental income/month = $33,600 ($1,200 per property)
Operating Expenses/month = -$14,000 (-$500 per property)
Net operating income/month = $19,600 ($700 per property)
Mortgage payments/month = -$12,600 (-$450 per property)
Total net positive cash flow/month = $7,000 ($250 per property)
Total net positive cash flow/year = $84,000
Using the math formula from earlier, we can calculate our cash on cash yield as follows:
There are positives and negatives to every investing and life decision you make. This portfolio is no different.
You locked in low-interest, long-term debt secured by quality rental properties. This is a GREAT inflation hedge.
In addition to cash flow, you will also receive growth from amortization of loans ($41,356 just in year #1 of the loans)
You have the potential for price and rent appreciation since you bought these in a solid location, which could send your returns off the chart in the future.
28 properties to care for as an asset manager and/or property manager. Without strong systems, this could be a hassle.
Financing for 28 properties at those attractive terms could be challenging (probably the weakest link of this portfolio).
The next Great Depression could expose the entire portfolio to a risk of loss. Would you have cash reserves to survive if rents crater by 25% or even 50%? Few investors could survive that, which is something to think about even if the chances are very small.
This example, like all case studies, has more details we could discuss and debate. But I hope it illustrates one possible type of retirement rental portfolio.
Now let’s look at one without debt.
The Free and Clear Rental Retirement Portfolio
In this example, you have the same goal of $84,000 per year in net, pre-tax rental income. But the portfolio looks very different.
10 rental properties
Total cost = $1,200,000 ($120,000 per property)
$1,200,000 equity capital invested ($120,000 per property)
$0 debt financing
Total rental income/month = $12,000 ($1,200 per property)
Operating expenses/month = -$5,000 (-$500 per property)
Net operating income/month = $7,000 ($700 per property)
Mortgage payments/month = $0
Total net positive cash flow/month = $7,000 ($700 per property)
Total net positive cash flow/year = $84,000
Using the math formula from earlier, we can calculate our cash on cash yield as follows:
Just like the last portfolio, there are positives and negatives to this example.
Asset and property management is relatively simple. I could easily manage this number and type of properties part-time while traveling and enjoying life. A third-party property manager could make it even more passive.
Low deflation risk. Even in the next Great Depression, rents could be lowered or even bartered for goods and services, if needed.
Benefit from price and rent appreciation if and when it comes.
Higher equity capital requirement ($1,200,000) means it could take longer to reach retirement goal.
Less attractive inflation hedge compared with a leveraged portfolio (although growth is less of a concern in a mature portfolio as long as it generally keeps up with inflation).
I have used two extremes in these examples to demonstrate the positives and negatives. In real life, it may make more sense to mix the two (which is more like what my business partner and I have done). You can and should adjust the basic principles to the reality of your situation and to your comfort level.
Now that I’ve shared some general examples, let’s move on to your situation. I’d like to share 5 steps to calculate the number of rental properties you will need to retire.
Step #1 – Calculate Your Current Personal Expenses
The problem is that many of us don’t really know our personal expenses. Sure, you spend less than you earn. And you probably save a lot of money too.
But if you want to gain extreme confidence in your plan and possibly retire earlier than you thought, you need to know your expenses with more certainty.
If you’re a financial nerd like me, you will probably already know your current expenses and even have a detailed spreadsheet! But if you’re not a nerd yet, here are a few tools to help you get started calculating your personal expenses:
Mint.com – This is a free online tool from Intuit that automatically tracks your personal expenses by pulling data from your bank accounts and credit cards.
YNAB (You Need a Budget) – This is a paid software app that has more bells and whistles than Mint. I have not used it personally, but you can read a good review from my blogger friend J Money at budgetsaresexy.com.
If you have not calculated your expenses before, just know that it won’t be a quick 60-second exercise. But it’s not overwhelming either. I recommend scheduling a few hours on a weekend to really dig into the numbers.
But for now, just make an educated guess and let’s move on to the next step.
Step #2 – Adjust Expenses For Retirement (if needed)
Will you spend more, less, or the same in retirement? Of course, that depends on your situation. But don’t be surprised if the total expenses are less than you spend during your working years.
Why would this be so?
What if you own your residence free and clear? Won’t that save you money?
What if you earn most of your income from rentals sheltered by depreciation? That’s the point of this article, right? You’ll pay a LOT less in taxes with sheltered rental income compared with the high salary years at work.
And what if the free time and flexibility you have as a retiree allows you to negotiate much more than before. When you’re working a job 50 weeks per year, that 2-week vacation in the summer will be expensive. But when you have many months of free time, you can choose to travel during the times of year and to the places where you find good deals. There are many more examples of savings just like this.
Will you have other sources of income when you retire? Or will rental properties be your only source?
Other sources could include:
Social security pension (for those of us old enough to receive it)
Employer pensions (more rare today than ever)
Interest from bonds
Interest from personal loans or crowdfunding sites like Lending Club.
I tend to heavily concentrate in one sector (real estate). I do like Warren Buffett says and “put my eggs in one basket and watch them very closely!” But I plan to continue diversifying over time. So, an estimate of other income sources makes sense.
And if real estate investing is only a small part of your overall retirement plan, this is where you incorporate the other income streams from your portfolio. Mixing and balancing those will take some thinking and perhaps some professional advice. But real estate can be the solid and steady source of income at the core of your plan.
Step #4 – Create a Profile of Your Retirement Rental Property
Earlier in this article, I described what a retirement rental property looked like for my example. I included characteristics like:
The property type
The general location within the country
The specific location within a region
The price range
The cost and debt structure
The rental income, net operating income, and cash-on-cash return
At a minimum in this step, estimate the cost, debt structure, and cash-on-cash return for your rental properties. The cost and debt structure can be figured out with your real estate agent and with your mortgage lenders, respectively.
For the cash-on-cash return, I don’t recommend going below 6%, even on a free and clear property in a quality location. On the other hand, I also don’t recommend assuming you will get larger returns like 15-20%. Although those yields are possible and I have achieved them, it is better to build a retirement plan on a more conservative foundation.
This upfront work is really the blessing and the curse of real estate investing. Few people will choose to do it, but that leaves you with less competition because you will!
Step #5 – Calculate Rental Properties Needed to Retire
Now we’re back to the simple math and three variables from the beginning of the article.
How much income you need at retirement (I)
Your principal or equity invested in real estate (P)
The yield or cash-on-cash return on that equity (r)
In this case, you already have #1 and #3 from prior steps, so you need to figure out #2 – the equity to invest.
For example, if you want $80,000 income at retirement and expect to get an 8% cash on cash return, you need to invest equity of $1 million.
With that number in hand, your final calculation depends upon the property values and the debt structure you’ll choose.
For example, if the properties in your market will cost $100,000 and if you plan to own them free and clear, you’ll need 10 rental properties.
But if you plan to have 50% leverage and the properties cost $100,000, you’ll need to own 20 rentals.
The point of this step-by-step process was to focus your financial goals down to a certain number of rental properties. Your goals may vary, of course, but I highly recommend you try the process for yourself.
How Many Rental Properties Do YOU Need to Retire?
So far I’ve shared the simple math of real estate retirement, two examples of rental retirement portfolios, and 5 steps to calculate the number of rental properties you need to retire.
Will this be a perfect prediction of your retirement rental income? Of course not. But it doesn’t need to be perfect in order to move you towards your goals. A solid, approximate goal will do the job.
But most importantly I hope this information will give you confidence and a solid framework. You can then build upon those to create a retirement income from rental properties for yourself.
Keep in mind that this article primarily shared the end result of a retirement plan. If you want case studies and articles that explain how to grow your portfolio and move towards retirement, I’ve got more reading for you:
Understanding the power of compounding interest can truly change your life. You’ve probably heard people describe money as a snowball – meaning it’s either shrinking or growing at an exponential rate. Well that simple concept should give motivation for people to aim to pay off their mortgages early if they can. If you’d like to see what I’m talking about Click Here to play with a mortgage calculator and study how much money you might save in interest if you pay a little extra each month. Or study below one of the other 3 paths. There’s never a better time than now to make a positive change in your life.
4 ways to pay off your mortgage early
by: Dana Dratch
If you can afford it, it might be simple to pay off your mortgage early. But should you? That’s a complicated question.
Homeowners with low mortgage rates may be better off putting extra money in a Roth IRA or 401(k), both of which might offer a higher return than paying off the mortgage.
Then there’s the college aid factor. If you’re applying for need-based aid for your kids, that home equity could count against you with some colleges because some institutions view equity as money in the bank.
If, after those caveats, you want to pay off your mortgage early, here are four ways to make it happen.
Should You Pay Off Your Mortgage Before You Retire?
There are many misconceptions about mortgages and retirement. Greg McBride breaks down the facts.
1. Refinance with a shorter-term mortgage
You can pay off the mortgage in another 15 years by refinancing into a 15-year mortgage.
Let’s say you got a 30-year fixed-rate mortgage for $200,000 at 4.5 percent. Then, five years later, you can refinance into a 15-year loan at 4 percent. Doing so pays off the mortgage 10 years earlier and saves more than $60,000 (if you exclude closing costs on the refi).
Those shorter-term mortgages often carry interest rates a quarter of a percentage point to three-quarters of a percentage point lower than their 30-year counterparts.
Refinancing isn’t quick or free. It requires filling out the application, providing documentation and having an appraiser visit. There are closing costs.
And even with a lower interest rate, that quicker payoff means higher monthly payments. And this method is a lot less flexible. If you decide that you don’t have the extra money one month to put toward the mortgage, you’re locked in anyway.
Unless the new interest rate is lower than the old rate, there’s no point in refinancing. Without a lower rate, you’ll get all the same benefits (and none of the extra costs) by just increasing your payment a sufficient amount.
Divide your monthly principal and interest by 12 and add that amount to your monthly payment for a year. Result: You make the equivalent of 13 payments in 12 months.
Let’s say you got a $200,000 mortgage at 4.5 percent. After five years of making the minimum payments, you add an extra 1/12 of a month’s principal and interest to each monthly payment. Doing so pays off the mortgage three years and three months earlier and saves more than $18,000 interest.
Before you make anything beyond the regular payment, call your mortgage servicer and find out exactly what you need to do so that your extra payments will be correctly applied to your loan.
Let them know you want to pay “more aggressively” and ask the best ways to do that.
Some servicers may require a note with the extra money or directions on the notation line of the check.
In any event, if you’re putting extra money toward your loan, always check the next statement to make sure it’s been properly applied.
3. Make an extra mortgage payment every year
Instead of paying a little more each month, make one extra monthly payment each year. One way to do this is to save 1/12 of a payment every month, and then make an extra payment after every 12 months. This gives you the flexibility to use the extra savings for something else if a more pressing expense arises.
Let’s say you do this starting the first month after getting a 30-year mortgage for $200,000 at 4.5 percent. That would save more than $27,000 interest, and you would pay off the mortgage four years and three months earlier.
4. Throw ‘found’ money at the mortgage
Get a bonus? A tax refund? An unexpected windfall? However it ends up in your hands, you can funnel some or all of your newfound money toward your mortgage.
Let’s say you got a 30-year, fixed-rate mortgage for $200,000 at 4.5 percent. Then, five years later, you can make an extra $10,000 lump-sum payment. Doing so pays off the mortgage two years and four months earlier, and saves more than $19,000 in interest.
The upside: You’re paying extra only when you’re flush. And those additional payments toward the principal will cut the total interest on your loan.
The downside: It’s irregular, so it’s hard to predict the mortgage payoff date. If you throw too much at the mortgage, you won’t have money for other needs.
When George and Barbara Henderson moved from Detroit to Norman with seven children and Barbara’s mother nearly 50 years ago, they were embarking on an uncertain journey, one that many of their colleagues and friends encouraged them not to make.
Norman was a white town and the Hendersons were a black family. Their friends feared for them.
After some soul searching and labored consideration, they made the move anyway. In 1967, the Henderson family became the first black family to buy a house in Norman, a town that still had sundown laws that prohibited blacks from public life after dark.
The University of Oklahoma had offered George a job as an educational sociologist. He ultimately accepted the position on the condition that he could find adequate housing for his large family. Realtor Sam Matthews, whose name would later grace the Xenia Institute’s humanitarian award, sold them the house at 2616 Osborne Drive.
The Hendersons still call it home to this day. Now, they couldn’t imagine living anywhere else, but when they first moved, they weren’t joining the black community in Norman, they were it.
“You have to understand, we lived in an all-black neighborhood,” George said. “We were part of Detroit society. So, we were integrated into that community. And at that time, Detroit was roughly 75 percent white and 25 percent black. There was no way for us to be prepared for this … I should have listened to my mentor. They said don’t do it. Don’t go there.”
The Hendersons were plugged into the community in Detroit. Oklahoma would prove to be a fresh start with a predictably sour taste. Though gradual attitude shifts occurred over time, and some Normanites did welcome them with open arms, George and Barbara said their initial arrival was met with an unfair share of dirty looks and racist whispers.
Barbara said they knew immediately that they were not wanted by some of their neighbors. It took many forms: Rude phone calls, trash in the yard, hateful messages passed between acquaintances and even threats to their daughters. Their son became the first black player to win a varsity letter in basketball at Norman High, but despite his talent, he still faced an uphill battle. George said that his son’s coach, the late Max Marquardt, told them straight up: “Norman isn’t ready for a black starter.”
George said that may have cost his son an opportunity to vie for an opportunity in the college ranks. Despite those setbacks, he said his children were strong.
“We had never lived this experience,” George said. “I taught it. I even fantasized about it from time to time but I never had a chance to live it. My children did. They were living it. But they didn’t come looking for the negatives. They came looking for the positives and they found them. We were fortunate that their was a university school here. And many of the faculty and staff had their children in that school. Some of the most liberal and progressive people in Norman had their children their.”
When George made the move, he said he was embracing a chance to study the sociological perspective of racism and culture first hand. He was involved in civil rights activities in Detroit, so he considered the move to be “just another challenge.”
He became a stranger in a strange land, an embedded scholar in a hypocritical environment that dominated the cultural landscape of the South during the 60s and beyond.
As time went on, George said things improved, but there was no definitive moment. Eventually, even Marquardt would apologize to their son for lacking the courage to start him.
“It was like Dickens. It was the best of times and the worst of times, but in reverse. The worst of times became the best of times.”
Barbara said it happened because they were working for it. They were unapologetically living their lives here. They were making friends and claiming Norman as their own in spite of it all. Their home became a beacon for guests of the university who had nowhere else to go. When world-famous poet Maya Angelou came to Norman, she visited the Henderson house. When 11-time NBA Champion Bill Russell came to Norman, he visited the Henderson house. He shot baskets with neighborhood kids in the Henderson driveway. The only kids in the neighborhood who got left out were those whose parents had forbidden them to play with the Henderson kids. George said those moments revealed the ridiculous nature of those prejudices.
“What’s interesting to me,” George said, “is that most of the people who didn’t like us just avoided us, or moved out of the neighborhood.”
Barbara said their children were crucial to that issue. She said as they grew, they made connections to other children that would ingrain the Hendersons in the Norman landscape.
When they were faced with slurs and condescension, Barbara said their friends would counter back.
“Or (my children) would,” Barbara said. “They knew who they were. They didn’t have any complexes about being lesser human beings.”
While his family helped change racial attitudes in Norman, George went on to a storied career with the university. The son of Alabama sharecroppers founded OU’s human relations program. He was inducted into the Oklahoma African American Hall of Fame, the Oklahoma Higher Education Hall of Fame and his work garnered him awards like the Walter Nuestadt Award, The Xenia Institute Sam Matthews Humanitarian Award, the Distinguished Service Award from OU, the White Buffalo Mask Award and many more.
After a lifetime in Oklahoma, George said things have changed, but the change he has seen over the decades may only go skin deep. Beneath the facade of social equality there’s still much work to be done.
“Racism hasn’t gone away,” Barbara said. “The face of it’s just changed.”
George said he still sees it.
When he enters the elevator, he sees it.
When he waves hello and gets the cold shoulder, he feels it.
“People are politically correct now,” George said. “You can think it. You can say it privately, but publicly it’s not kosher. It hasn’t gone away. Its death was greatly exaggerated. It still happens on a regular basis.”
Still, George said he isn’t angry. He wasn’t angry when he saw the video of OU students chanting racial slurs on a party bus.
He wasn’t angry when racist vandalism popped up in Norman last year. He believes the path to a brighter future is born of understanding, not judgement.
“The university asked me, and I agreed, to offer diversity training to the students that remained. All of the students who were not expelled spent a Saturday morning with me. I felt that I had to get to know them. They were shocked at first. Here they were going to have to spend a Saturday morning with a black professor …”
Barbara said those students probably expected the worst. What they got instead was George.
“What they got instead was someone who was just curious,” he said. “I felt like I needed to get to know them. I asked them to tell me about themselves, what’s happening to you, for you, about you. And I shared my regret that they indeed had to suffer through some of these things. What they shared with me was that for the first time, they understood what it was like to be a minority and singled out. They were demonized and people didn’t even know them.”
George said those students didn’t just wake up and decide to create that chant. It had to be taught to them. It’s a matter of ritual, the kind that takes time to create, and time to dismantle.
“They will think now,” George said. “It will stay with them for a long time. They got a chance to see the other side. I guess it was good for them to see that (I) could have extracted a morning of pain and that wasn’t the purpose. It was a teachable moment.”
Those are the kinds of moments that George said will make the difference. He’s still combating racism, one class at a time.
“Their children will not be taught the way they were taught,” he said. “They are more accepting. I see the hope in the next generation and the one after that, if I can just reach them.”
He said change is slow, but in a way, inevitable. As younger generations supplant older generations, they supplant old ideas. And though he said it’s absurd to ignore our differences, he said he looks forward to a future where our diversity as Americans and Normanites is celebrated.
“If we were all the same,” George said, “what kind of world would this be? I see the future I want every semester I teach.”
This article was written in 2016 and it is a little bit simplistic, but overall I think that it is a good quick read to talk about the general state of the economy in relation to Real Estate. I know that in Norman in particular this year we’ve definitely had many conversations about the rental market. If you have anything you’d like to add feel free to comment below or on Facebook.
These 6 Charts Tell You Everything You Need to Know About the Real Estate Market
There’s likely no sector as important to the U.S. economy as housing.
In the first quarter of 2016, residential investment accounted for roughly half of the 1.1% increase in real GDP. Historically, this is on the high side, but when you count spending on housing services as well as spending on various kinds of housing construction, the home construction industry can account for as much as one fifth of overall output in the U.S. economy.
That’s why housing has traditionally powered the American economy out of recessions, and that’s why housing’s role as the trigger of the Great Recession was so damning to the subsequent recovery. While housing prices have improved—with home values in some markets higher than before the crisis—there’s evidence that the housing bust has inflicted long-term damage on the home building industry and therefore the American economy. Here are 6 charts from Torsten Slok, Deutsche Bank’s Chief International Economist, that show the state of the housing market and how it’s powering, and holding back, the rest of the economy.
People Really Want to Buy Homes
There’s evidence that the millennial generation has been slow to warm to the idea of homeownership, as they are generally delaying decisions like marriage and child rearing. But as this chart shows, overall, Americans are still in the market for new homes.
But Homebuilders Have Been Slow to Respond to Demand
The rate at which homebuilders are constructing new single family homes remains quite depressed, despite steadily increasing demand. Those in the business have argued that supply-side factors, like increased regulation and a short supply of skilled labor as reasons they have been slow to meet demand.
The Homes Being Built are Mostly for the High End of the Market
There are many metrics that one can use to show that homebuilders have decided that it makes sense for them to target wealthier buyers, but the above chart is striking. During an otherwise sluggish economic recovery, the increase in the size of new homes for sale has actually accelerated.
Because Middle-Class Homebuyers Can’t Get Financing
Home builders aren’t the only business that has been turning it’s back on the American middle, for the simple reason that middle class incomes have been on the decline for years now. Furthermore, the mortgage finance industry is still leery of lending to all but the most creditworthy borrowers.
Rental Markets are Tighter Than They’ve Been in Generations
The lack of credit available for new homebuyers has forced more and more homeowners into the rental market, driving up rents and put further pressure on already strained middle-class budgets.
Hope Springs Eternal
Despite what appears to be a negative feedback loop of stagnating middle-class incomes, tight credit, and a homebuilding industry that can’t profitably cater to most of the country, demographics have analysts hopeful that things will turn around in the future. The modal age in America is 26, and this echo-boom generation has yet to settle down and seriously consider homeownership. Analysts hope that this new demographic wave will jolt the housing sector back into pre-bubble normalcy. And we’re moving in the right direction.
Time heals all wounds, even in the real estate market.
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I posted this on Facebook today, and it had very little / nothing to do with Real Estate. Oh well, it was worth posting about, and if you have the ability I highly recommend you watch this documentary airing on television tonight about the Oklahoma City Bombing at 7:00 cst.
Ever since I was a little boy I would talk to my mom about how I like to think that I can live pretty much anywhere – especially funny little spaces like sheds. I’m mostly bark and little bit, but I do love the idea of a smaller/simpler living arrangement. I’ve been pretty excited about the idea of tiny houses for a long time, but the more that I think about them in the areas in which I work the more that I come to the same conclusion as this article – they aren’t allowed where they make the most sense and are most needed. So, I hope you enjoy this little read, and feel free to share or comment because I always love hearing from my homies!
“Society is moving faster than the law in housing; tiny is affordable, and darn cute, but you probably can’t have it”
HGTV loves a Tiny house; you do too, but in the communities that need them most they’re outlawed
While America might be known for its philosophy of expansion, a growing number of citizens are diligently trying to reverse-engineer Manifest Destiny. Much of the focus on people who opt to live in tiny houses is written by gawkers who focus on their chic designs, radical downsizing, and feasibility. However, living tiny is literally about as close to a grassroots movement as one can get, and proponents are actively engaged in advocacy with local governments to realize their vision of decentralizing materialism. With a groundbreaking proposal to amend the International Residence Code — which is the model code for the majority of residential construction in the United States — submitted by movement leaders last fall, 2017 might be the year that sets up this niche market to go mainstream.
“Tiny House communities or pocket neighborhoods provide the opportunity for closer human connections, sharing and intentional communities, and a release from the ‘work to live’ trap so many of us are ensnared in,” says Cy Englert, who administers the popular online group Tiny House Community.
Escaping the work-to-live trap appeals to many, but it’s hard to enumerate an accurate sense of the movement’s boots-on-the-ground momentum. Who’s all in and who’s just engaged in escapist fantasies?
There are some key identifiers. The most visible are the binge-worthy television ratings. A representative for Scripps Network Interactive, the company that owns HGTV and DIY, told Salon that in 2016 tiny house programming attracted an average of more than 10 million total viewers during primetime each month. There’s a steep drop-off, however, offscreen. Many folks don’t want to reveal that they live in tiny houses because it could cause them trouble and jeopardize their security. HGTV super fans willing to make the tiny commitment might be heavily deterred by the fact that putting down roots is much tougher than the network’s popular hour-long narratives reveal.
“If you build or buy a Tiny House, you face the stark reality that it is illegal to live in them full-time. So, the movement to provide affordable housing and simpler lifestyles is undoubtedly hindered until it becomes legal,” says Englert, whose Tiny House Community Facebook group boasts about 30,000 members. “Building codes and zoning ordinances need to change to accommodate smaller and tiny houses.”
Just because we’ve heard a lot about tiny houses since the 2008 economic crash where many people lost their homes, tiny habitation is still in the early-adopter phase. Unless you move into a pal’s back yard or live in an RV park, local zoning and code restrictions are a big bummer for the mobile generation’s trendiest alternative to suburban McMansions and Manhattan high-rises.
“It’s important to understand that zoning and code are two very different yet equally complex universes,” says Jay Austin, whose self-constructed 140-sq ft. home The Matchbox is part of one of America’s first tiny communities in Washington, D.C., called Boneyard Studios. “Zoning generally dictates what you can build where, while building code dictates how you can build it. Or, more often, how you cannot.”
Zoning can prove to be problematic for tiny house dwellers, but building to code requirements are worse, Austin says. For instance, with respect to zoning, a mobile, residential tiny house can’t legally be placed on a vacant commercially zoned lot. This leads many folks to put them on wheels, where they’re governed by less constricting building code; however, parking becomes a major concern and most options are temporary. With respect to code compliance, “a whole lot of code just doesn’t make sense in a fairly unpredictable tiny house.” Regulations such as minimum square footage of bedrooms and kitchens can exceed the entire square footage of a tiny house. Plumbing and electrical code might require that homes be connected to city electric and water even if the house is capable of sustaining itself. Trivial things like the height at which outlets are placed or the number of them in a room can become “impossible to accommodate when space is at such a premium and furniture must be configured just so.”
“It’s not that these issues are insurmountable,” Austin says. “Indeed, building a tiny house on wheels turns building code into more of a suggestion, but they’re often so cumbersome and complicated that your average non-builder, non-architect, non-electrician will simply give up or second-guess themselves into inertia.”
Many tiny homes are constructed by do-it-yourself types, even though professional homebuilders in the tiny house business do exist. It’s significantly more expensive for a professional build, although residents might be more confident that they’re in compliance. The Tiny House Building Company in Fredericksburg, Virginia, notes on its website that they offer financing through a partnership with People’s Community Bank. Unique deals like this allow some to live tiny.
“I think the issue here is not necessarily a lack of demand, but a lack of demand commensurate to the supply of large-scale home builders,” says Austin. “Tiny houses are a rapidly growing market, but still a very, very small one. At this point, the volume might not provide sufficient economies of scale to well-established, non-bespoke home builders to be worth the initial outlays. That may or may not change as the movement grows.”
This sentiment was confirmed when Salon reached out to the National Association of Home Builders, where a representative for the organization said that not many of their members specialize in this niche field.
“Those who have the perseverance to figure this all out are generally pretty determined and pretty do-it-yourself, and this may be why so many folks looking to go tiny choose to build themselves, pulling some demand out of the established home-builder market,” Austin says.
A volunteer group known as the American Tiny House Association emerged in 2015 as a voice for change. They’re the definitive starting point for bringing the revolution to your town, and offer a useful “How to Initiate Tiny House-Friendly Zoning Changes” guide on their website.
At the local level, there’s evidence that this type of advocacy can be effective. Laura LaVoie is a popular tiny house blogger who is part of the volunteer-run Asheville Small Home Advocacy Committee in North Carolina.
“Because building a tiny house was the catalyst for major change in our lives, our real goal for starting the Asheville Small Home Advocacy Committee was to offer the city of Asheville another alternative to their housing crisis,” LaVoie says. “With a tourism boom, our city relies on service industry workers, but that same tourism boom makes it nearly impossible for those critical workers to live inside the city limits. There is a housing shortage, rents are high, and it’s extremely difficult for someone making minimum wage or tips to buy their own home. Tiny homes offer the option of home ownership to these individuals.”
The group started when locals who were in various aspects of the tiny house community started talking to each other. They met with the city planning office and discussed viable options. In the summer of 2015, LaVoie says, Asheville made it easier for residents to build accessory dwelling units on their own property, which opens the door for backyard tiny home owners or renters.
“It was a great first step and felt like a real victory,” LaVoie says. “People often ask us how to start their own advocacy group. Honestly, the answer is pretty simple. Get together and start advocating for tiny homes. We had no community organization experience, we just felt strongly about the subject and began to organize meetings to discuss the options.”
Approaching local government with a positive attitude is key to success, says Englert of Tiny House Community.
“There is no value in being on the offensive when speaking to government officials since they are our elected officials who are responsible for satisfying the needs of their citizens,” he says. “Make it obvious that it is in their best interest to help to provide affordable but safe housing. There are pockets of success all over the country, so it can be done.”
For the cable news crowd that isn’t quite hardcore enough to do this kind of heavy lifting, HGTV Senior Vice President of Original Programming and Production John Feld has a plan for waiting it out.
“Declutter and reprogram your life,” Feld says. “Viewers are enamored with our lineup of tiny house programs not only because we show creative tips on living in smaller spaces, but they fantasize about getting rid of most of their junk. I think there is a tremendous amount of stress caused by filling up our 3,000-square-foot homes with stuff, and HGTV’s tiny house programs showcase how real people are happily embracing the tiny lifestyle.”