I am sure that the Government, that group in Washington, never thought to put a “Makes Sense Meter” when making laws. It would be easy and that alone would make them hesitate, table it and maybe get it right for a change. How would it work? I envision a computer that would read the future bill, sleep on it, which means feed it into two more computers and let the majority opinion go forth. The results would be given to the American public and would be one of the following:
Marginal, Nearly There, Close Enough, Not Even Close or Nonsense.
I suppose it could also have Good or Excellent, but I can’t imagine a computer which is lacking a bias, or emotion, ever reaching the good or excellent level.
I bring this up because our nation is slightly (just kidding) out of money. Actually if our Nation was
a person they would be visiting homeless shelters looking for nice bed by a window. We owe $19
Trillion to others and before you try to figure that out it will be climbing the $20 Trillion plus column.
That doesn’t include our non-funded pension liabilities, etc.
AND now to the crux of my blog. The Government is giving away “ship” in the housing market by allowing every single person who has lived in their owner occupied house for two years to sell the
house and pay no tax on the first $250,000 in profit. If you are married you get to pay no tax on the
first $500,000 of profit.
I do not feel sorry for the Government, even though they are us. I feel sorry for those who have the opportunity of a life time and either don’t know the law or don’t care about it. Check out
the future of social security and you might start being concerned now. How easy is it to find a place that you could improve and live in it for a couple of years and sell it for a profit. It doesn’t
have to be $250,000, it could be $50,000. Take the profit and put it in the bank and get another
place and start over. Keep doing it until you feel you have enough in the bank.
Lastly, adopt the phrase: Two Years and Away We Go, and your future could be made secure in five to ten years. Really!!
Our nation is busy trying to choose two candidates who will campaign against each other to
see who America considers the best one to be the new President. Unfortunately it isn’t going
to matter because neither side in this election wants to discuss the ridiculous financial situation
we find our selves in now. We owe others $19 Trillion and by the time the new President is in office
it will be closer to $22 Trillion. The new figure will puts us at about $1 Trillion in interest every year!
Now before I move forward I know that everybody has heard almost every candidate talk about their
new tax plan that will balance our budget in 4 years, 6 years in a decade etc. By the time any of these plans are operating you will see that the time limit isn’t correct. Even if it was correct our
national debt will be at $30 Trillion plus, which will take decades to close out.
I bring this all up to suggest a new strategy for preparing your retirement successfully. When I was young and buying my first house it was considered my future bank. Once I had some equity I could always use it to clean up my financial shortfall. It worked most of the time but it has to be forgotten
now because you will need as much equity as you possibly can get to make it to, and then through
your entire retirement.
There are two things that will stop your retirement dreams that you need to know: not enough equity
in your house to get you through to the end, and the U.S. Government coming after your money to keep the nation afloat. Social Security will not be there for everyone and with more mismanagement
it won’t be there for anyone. So what is a person to do?
The current tax laws for selling your house are very fair and very helpful. If you have lived in your house for two years and want to sell it for a profit: (a.) if you are single you get the first $250,000
of profit tax free or (b.) if you are married you get the first $500,000 of profit tax free. That will go a
long way toward a comfortable retirement. If you have a house with enough equity for your age, and
you are over 62, you can get a reverse mortgage which gives you a stipend of money or pays off your
mortgage or both and you don’t have to pay it back.
You need to start now because it appears our leaders are going to be more of a hindrance
than a help. It is time to put the oars in the water and start moving away from the waterfalls just
around the bend. It is never to late and certainly never TOO EARLY to get your boat and crew
working together for your common good!! Here’s to a pleasant voyage and a successful landing.
-As a Senior Citizen in the mortgage industry I am on top of reverse mortgages because they are
a terrific help to millions of senior homeowners, yet more than half of the senior homeowners think they are the worst thing ever invented in the mortgage industry. I am going to enlighten you, far more than I usually do, because I am tired of hearing how bad the best thing I have seen is, and
how the seniors are being hurt financially, which they are not.
Before I get into the subject let me tell you what I have been told to my face about reverse mortgages. One senior lady told me her realtor told her that if she takes a reverse mortgage her
health insurance will go up in price. (I just shook my head from side to side), One prospective borrower told me that his wife said if we took a reverse we would be the most selfish parents in the world. (I am still shaking my head). One young man, son of my reverse borrower told me that I was stealing the equity out of his parents house that belonged to him. (I asked him why he hasn’t volunteered to pay their monthly house payment and then he wouldn’t have to worry. I
said they really can’t carry it alone. He just got up without saying anything and left the house).
When I first sit down with the prospective borrowers and their family I always start with the
title of an old song: Born Free! I state every time that it is very possible to have a child that is
born free, my oldest daughter is one example of it. But the room turns silent when I make my next pronouncement: I have yet to hear any song that references Dying Free. It doesn’t happen very often. When it does happen and you aren’t prepared, reality is hard to accept.
So lets take a look at this wonderful invention and show why I believe it is one of the best things
that ever happened to seniors. The following is a list of benefits to you which cost you nothing.
1. You borrow money on your house up to a certain limit (explanation to follow).
There are no payments on this loan until the last person on the loan leaves the
house permanently. You must pay your property tax and insurance.
2. You can sell the house or refinance out of the reverse mortgage at any time. It
is just a loan. The difference is no payments are required and the interest on the
loan accrues and is added to the balance.
3. The only requirement to get the loan is age: 62 for the primary borrower and the
secondary borrower (spouse) can now be younger than 62. You also must own
the property and have enough equity in it. You also must have social security or a
small amount of money in the bank to show you can pay your property tax.
4. The house can lose all its value for any reason and the loan continues. The house
can gain in value and the only thing that happens is when the occupant leaves for
good the occupant or heirs will get more money from the sale of the property.
5. If you live and own 2-4 units there are extra perks for you when you take out your
6. You can get a reverse mortgage if you have had a bankruptcy or a foreclosure
without waiting years.
7. You can get a lump sum of cash or a line of credit or both from the money coming
out of your house.
8. You NEVER lose ownership of the house because you took a reverse mortgage.
Take the pressure off and look into a reverse mortgage. It will change your life from
worrying about making the mortgage payment and waiting for the check to arrive monthly
or seeing the bank statement with a bigger balance than, in some cases, ever before.
In today’s economy owning a home appears to be the best way to live, create wealth and secure a good retirement. I rest my case with two or three reasons: tax write-off from the interest on your home loan and your property taxes, and the fact that most real estate increases in value because of demand, supply, inflation and government regulations.
The tax law on the sale of your owner occupied house that is currently in affect can help you create an estate that most Americans could only dream about a few decades ago.
I will explain my case so that nobody can say they didn’t know. The write-off of your mortgage interest that is part of your monthly payment (the other part being the principal pay down) and your property taxes are tax write-offs that lower your state and federal income taxes. Generally houses increase in value because of inflation which forces prices up for the materials that are used to build your house. This means that each year and each decade require a higher price to build a house and thus a higher price when you sell your house. The supply of homes usually diminishes by the neighborhoods that are more desirable forcing prices up as well. Even when we go through hard times, recessions, the prices of homes can drop but almost always the prices recover and the upward climb continues.
The best thing the government has done recently for homeowners is to allow a single homeowner who has lived in his or her owner occupied home for two years before they sell it. The single owner gets the first $250,000 in profit without being taxed by the Federal government. If you are married you receive a $500,000 exclusion from taxes on the sale of the house, again if you have lived in it for two years.
If you have 4 to 8 years with a mission you can become a millionaire by selling your houses every two years. If you are single you need to do this 4 times and pocket $250,000 each time from the profit. If you are married you need to only sell the house and put $500,000 in the bank each time. Now you have seen the bright side of the picture, but that usually doesn’t happen
Most people will have to be in their house for 5-10 years to get that much profit from the sale of
their house. So instead of 4 great sales for and individual and 2 for a couple it could easily be
double: 8 for a single person and 4 for a couple. It really totally depends on how driven you are. If you are a handy person who can do a lot of the fix up work yourself it will go quicker because you will be doing it and it won’t cost too much.
If I were a young man my future would depend on a steady job and most of my free time fixing
up my house so equation will work for me.
CAUTION: The Federal Government is in heavy debt and their generous tax plan for those
who are selling their owner occupied house could end at any time. They also could modify
it by extending the holding period of 2 years to maybe 4 years. They could also cut down the
amount of profit that doesn’t get taxed. If you are really anxious to do this
Let me begin by telling you that the current crop of young working people, either out of high school or out of high school and college aren’t looking for a house and many cases they aren’t looking for work either.The youngsters are not excited about owning a house because they haven’t convinced themselves as of yet, that they are their sole responsibility. While the baby boomers were coming of age they not only were house oriented they were work oriented and anxious to get both started.
Today the graduates will work for executive salaries even though only a small majority of them have enough education and work experience to qualify for the jobs and pay they want. One of the reasons they don’t have work experience is student loans. Today everybody has them; in my day almost everybody worked through college and learned the basics of hard work.
Home loans aren’t particularly easy to get today, but virtually impossible to get without working for a period of time before applying for a loan. Many of the student/workers or non worker do not have an opportunity to live at home and must seek an apartment or a rental property to shelter themselves. This is the foundation of the rental market and it is growing. Amazingly the rents in many cities are in line with the mortgage payments on an entry level house which was never true in years gone by.
Developers generally build tracts of homes for owner occupiers with very few building them for renters. Apartments are going up throughout most cities and are renting for higher prices than ever before. Individuals with an eye to the future have been buying up older houses, refurbishing them and renting or leasing them to the crowd of humanity that is trying to find a decent and less expensive way to live.
Others are buying homes in new developments and renting those to married couples as well as groups of two or three roommates that are looking for something that is more like a home than just shelter. In the suburbs of Los Angeles I have been helping investors buy these properties and rent them for $1.40 to $1.65 per square foot for 4 and 5 bedroom houses in 2400 to 2750 sq. ft. houses. 1800 square foot houses are renting for even more.
With long term mortgage rates in the 3% range the rents from the properties not only cover the costs but produce positive cash flow. If you currently live in a more expensive neighborhood the rental rates escalate very quickly and many seniors have moved to second homes, or rented smaller houses, to use the rent on their house to specifically meet their monthly overhead. There are many that make this work..
I have written this article to show what is really happening in the real estate industry. You can probably find a way to increase your cash flow without switching professions or adding a second job. Those who have cash in the bank can purchase a home that will produce a cash flow that can close any gap you may have between your current income and your expenses. Those of you who are 62 or older can possibly get a reverse mortgage, take out cash from your house and purchase a rental. The reverse doesn’t require payments on the mortgage and if you buy the rental with the cash you get from the reverse from your house you may have a balanced budget for the first time in years
Please feel free to contact us to help you design a program specifically for you. It isn’t impossible to become landlord and it can make all the difference during your senior years.
1. A first time buyer of an owner occupied house is defined as someone who hasn’t owned
a house in three years. Prior to that you could own as many houses as you wanted but
that would have to be sold before the three years starts.
2. If you take out cash from your house with a home loan the money you received is not
taxable. It is a loan, not income .
3. If you take more than $100,000 out of your house, whether the house didn’t have a mortgage
prior to this loan, or had a mortgage of any size you can only deduct the interest of an
additional $100,000 you take out on the new loan.
Any amount you take out over the additional $100,000 does not qualify to have
the deduction from your taxes for the interest you will pay.
You can take the interest on any loan over $100,000 if the proceeds go to improve the house.
4. If you have a VA certificate because you were in the military or are currently in the military
you can buy a house with no money down up to $625,000. If you have a house and want
to pull cash out up to $625,000 you can do it without any money of yours.
5. If you have a VA certificate you can buy a house over the $625,000 maximum allowed you.
must put down 20% of the difference of $625,000 and the amount of the house.
6. Property tax does not increase when you are refinancing your house and the value is higher
than the assessed valuation. The mortgage industry doesn’t share information with the
taxing authority in the area.
7. You cannot use the income from renting a room in your house to qualify for the loan.
8. A second home that is bought with a conforming loan will get the same rate as a primary
home. Second homes that need a jumbo loan to purchase the property will generally pay
a higher interest rate
9. A high percentage of second homes are bought with monies pulled out of the primary
house and a mortgage loan for the balance. There are advantages with this formula
from tax savings and the price appreciation on the second home.
10. New tax rules have recently been adopted when selling your personal residence. A full
dissertation will follow shortly .