Good Ideas in Real Estate
Tired of reading all the bad news in real estate? Well, you’ve come to right place. I’m currently working on compiling a list of good ideas in real estate. Now you might ask, what exactly do you mean by good ideas in real estate? Basically, it’s a list that I intend adding to which comprises of great things people have thought of that adds value to our homes or our rentals. It can be construction-related, such as solar panels on the roof, for instance or a way not to get knocked off your feet, such as an impoun account. With all the bad news out there currently, we thought some happy music might break the monotony. Enjoy! (But let me remind with my legal disclaimer here that none of this constitutes legal or advice.)
Real Estate Good Idea #1: Bi-Monthly Payments
This was a concept promoted most vehemently in the recent years by David Bach in The Automatic Millionaire. Basically, it involves making bi-weekly payments to the mortgage company of half the mortgage payment. So if your mortgage amount is $1000, a bi-weekly payment would be a payment every two weeks of $500 each. A lot of the times this kind of payment helps with cashflow since many people today get paid bi-weekly and also takes years off your mortgage.
This is how it works: a monthly payment makes 24 mortgage payments in a calendar year. However, there are 52 weeks in a complete year. So with bi-weekly payments, instead of the usual 24 payments, you make 26 payments - that’s an extra mortgage payment that goes directly toward the principal, not the interest. Thus, on average you can cut off seven years from your 30 year mortgage. Some mortgage companies charge a hefty fee to be enrolled in this program however which can be easily sidestepped with some planning and an extra mortgage payment a year. Same difference!
Real Estate Good Idea #2: An Impound Account
This is also referred to as “an escrow” many times, but I like to call it an impound account so we don’t confuse it with a home purchase escrow that takes place at a title company. Basically, an impound account - as I’m sure all homeowners know - is set up by and at the mortgage company where money toward your property taxes and home insurance is saved.
A little more is paid by you every month with your mortgage and is reserved in safe-keeping by the mortgage company. This helps you not have a heart attack when those fated bills arrive because the reserves pay for them. Not everyone needs an impound account, however, most people feel comfortable paying a little more each month with their mortgage because they would rather not have to remember to set money aside themselves each month to cover the tax bill.
Real Estate Good Idea #3: Making 15 Year Payments on a 30 Year Mortgage
This is an idea I recently came across here. Many people like the idea of a 15 year fixed mortgage instead of a 30 year. While getting a 15 year fixed mortgage does provide for lower interest rates, lesser interest overall in the mortgage terms and just the psychological relief of debt for just 15 years to many people, it can cause cash flow problems due to its inflexibility.
Kevin of the No Debt Plan suggests you keep your 30 year fixed, calculate the difference and make your 15 year payments. The extra will go to the principle and instead of 30 years, your mortgage will be paid off in 19 years. Not a bad plan if you want a shorter mortgage without refinancing and the flexibility during some months when money is tight. This idea does not appeal to everyone however because there is still a significant difference in how much interest you will pay over those four years, even while making extra payments.
Real Estate Good Idea #4: Home Mortgage Interest Deduction
Usually, making those mortgage payments every month, month after month isn’t fun, unless you’re one of those people that enjoys watching the principal when you do so and watching the number go down (slowly, very slowly). But tax time is a good time to be glad for making those mortgage payments because the interest you pay on your home is tax deductible. The home interest by itself is usually enough to warrant itemizing deductions for a lot of homeowners because it exceeds the standard deduction afforded to them.
Around tax time, you will receive a form 1098 from your mortgage company that tells you the total interest you have paid through the year. It usually is a good idea to double-check the number, especially if you make your mortgage payments earlier. For example, if you’ve made your January payment early, ie. in December, it’s a good idea to see if they added that in. If not, you might want to mention that to your tax accountant.
Real Estate Good Idea #5: Refinancing your Mortgage
This one can seem a bit controversial now that so many people have received bad mortgages but refinancing, if done right, can save you thousands in interest payments. Just be sure you understand the kind of mortgage you get. Many people will say you should refinance if you can save a percentage or half percentage point on your interest. The best way to tell is to use this calculator and look at your family budget. Remember that if you choose not to pull cash out of your home, most refinances are cheaper in terms of interest and fees. Bankrate also gives you an idea of the national average for 30 year and 15 year fixed, but it’s a good idea to talk with a mortgage professional and see what your real interest rate is to get a more accurate picture of how much you would be saving.
Well, that’s it for today’s installment of good ideas in real estate. Next week, I’m going to be focusing on good ideas for investment real estate. If you can think of a few or want me to focus on a specific area in real estate for ideas, feel free to contact us and let me know.
