MiB Smarter Money » Real Estate

Should I Take Out A Reverse Mortgage On My House?

hank — Tue, 08 Jan 2008 13:00:38 +0000

My brother mentioned setting my mother up with a reverse mortgage over the holiday break, so I thought I would do some research on what is was and if it was a good idea. I had heard of it before and I have a basic understanding of it, but I figured there had to be some sort of catch, as there always is, and there certainly are…

“The HECM FHA insured reverse mortgage can be used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. The loan, commonly known as HECM, is funded by a lending institution such as a mortgage lender, bank, credit union or savings and loan association. To assist the homeowner in making an informed decision of whether this program meets their needs, they are required to receive consumer education and counseling by a HUD-approved HECM counselor“

1. You need to be under the 62 year old age limit.
2. You need to own your property outright.
3. The house you’re reverse mortgaging needs to be your primary residence.
4. Needs to be a single family home, a 1-4 unit home, a manufactured home, or leased land; ( this just means that when they take your equity in your house out from under you, they need to have a good house to steal, who wants to steal a dump?
5. Reverse mortgage fees can be high, although the fees are often rolled into the loan and not paid upfront. A reverse mortgage can cost thousands more than a conventional mortgage.
6. It’s important to calculate the cost of a reverse mortgage against what you would gain, because once you enter a reverse mortgage agreement, the mortgage company essentially OWNS your home.
7. Reverse mortgages are often seen as a last resort if the homeowner needs cash and there are no other options. (Take this one the most seriously! Not only are you getting rid of the possible last piece of ground a person may own, but you’re betting their home on it.
8. What if you outlive your reverse-mortgage? I couldn’t find anything on this, but it is a valid point. What if you USE you last resort, and then you outlive it? I’d assume the bank then owns your house and kicks you out to go live elsewhere; which isn’t fun at 85 I bet.
9. To reduce their risk, lenders generally limit reverse mortgage loans to amounts that are below their estimate of the property’s full value; meaning that you’re going to get a lesser amount than your house is worth in the first place FURTHERING the idea that this should be a last resort.

Andrew Linden from Australia thinks they should be BANNED.

?Associate professor of economics at the University of Western Sydney Steve Keen, author of Debt Watch, calls them ”the most dangerous ‘innovation’ around in finance” and says any decline in house prices will see lenders and investors bearing significant risk of possible losses.

“I want them abolished. [They represent] a systemic danger to the banking system. [With reverse mortgages] the banks are building in an expectation of continued asset price inflation for the next 25 years,” Keen says.”

Can it work? Yea, I suppose it can. It sounds like most of the people don’t even qualify for them in the first place. Some people just don’t find themselves in the right position to act on it in the first place after drudging through the pre-reqs. Bottom line as with any investment, RESEARCH your options. If it IS your last option, REALIZE that it is, and take the proper steps. Bring along a trusted friend or family member to the consultation. Most of us look at the reverse mortgage as a detriment to society and squeezing of our senior citizens, but really the lenders are just targeting another audience. It may not be right for everyone, but to the select few that it is right for, the lenders have a right to advertise to them.

If you’re reading this blog and under the age of 50, well, you’re probably on the right path anyway if you’ve got a plan, at least educating yourself to get a better understanding of what is to come so you won’t make more bad decisions. It is likely we won’t have to worry about that for ourselves, but if we have parents or loved ones that ARE in that situation, at least you’ll be able to answer/help them answer many of the questions that come up in the lending process. Keep your eyes peeled and guard up and decide for yourself if it is a good decision. Prepared financial decisions are usually the best kind to make…

How Do I Plan To Reach My Investing Goals For Retirement?

hank — Sun, 23 Dec 2007 13:00:50 +0000

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Only 0 days 5 hours 2 minutes left until Hanks Holiday Handout drawing!

To make my goal of having my net worth be $1,000,000USD by 2020 I need to have a plan laid out. Yes it will change through the years, My wife and I will get raises; we won’t get the return we’re shooting for with investments in some of the years, but as a base goal if we take our current principal of $75,000 and continue to invest $21,500 per year for the next 13 and that will put us just over the 1MIL mark. That first MIL is the hardest, Pinyo lays it out here.

Where do I find $21,500 per year to invest? We’re currently contributing 10% of each our salaries for about $16,000 per year to our 401k plans, then add in $4,000 each for our ROTH IRA accounts and we’re well over the limit there. We’re planning on bumps in the road, so that’s why I’m giving the $21,500 number. There are a lot of calculations that need to taken into account, but that is the same with any investment plan. At 10% return with those calculations we’re looking at just under 840k, and at 12% that puts us over the 1MIL mark.

We could have a year where we can’t pay contributions to either our 401k or ROTH, but on the same note, there could be years where we’d contribute MORE to those accounts, For instance, we’re planning on trying to bump the 401k contributions up to 15% in 2008 and that would be $24,000 in itself; add in the ROTH IRA contributions and we’re looking at $32,000 invested per year and in 13 years, that will be worth 1.33MIL.

Numbers are numbers – sticking to the path of just getting money in is the key. In 13 years I’ll still be nowhere near retirement, but the first million is always the hardest to make, after that, it is quite ridiculous how fast it grows. In 35 years on this same $21,500 per year at 10% return we’re looking at 8.5MIL. Which is dreaming, and a lot can happen in 35 years, but there is no time like the present to start planning on it!

Time, as usual, is the key piece of this financial pie; variables are always tossed in to make it interesting. As long as we’re putting in the $21,500 we’ll be on a good pace. I’m sure there will be other investment opportunities, more job promotions, more raises, maybe more kids, but staying on this basic path is the key to our specific financial goal. What’s your path?

I’m Ditching My Edward Jones Deferred-Loaded, “B” Shares ROTH IRA

hank — Wed, 12 Dec 2007 15:52:56 +0000

So after writing about how my Edward Jones ROTH IRA was invested in “B shares” of NFPBX and no response back from my Edward Jones rep questioning him if I could get out without paying the 5% deferred load or reallocate the funds elsewhere, I figured it was time to do something about it, and I have. As of yesterday at 9am, I turned off the faucet to funding that account. We’ll see if he calls me back now.

Either way I wasn’t very happy with the service he was giving me. He’s a nice guy, but it just seems to me like he is selling me a product instead of investing my money, very similar to my Universal Life Insurance policy I was sold on 5 years ago (of which I have also turned off the faucet, more on that later). But an advisor should be someone that is there to ADVISE you of where your money should go to help for YOUR retirement, not theirs. I am confident enough now to select my own funds and choose my own investing path, but it is nice to have someone to ping questions off if I DO have questions and for second opinions.

The personal finance blog network is one resource, but I like to have the option to ask a question to a certified financial planner if I can as well. It’s advantageous to have as many resources in your investing bullpen to help along the way with any decisions. So I will keep the Edward Jones account open for nothing more than to utilize the resource he’s given me; I won’t close the account because he’s not the one holding the bag for the 5% deferred “ladder approach” to investing, it is the actual fund, NFPBX. The ladder approach the Edward Jones rep refers to is that the 5% deferred load on the fund will decrease each year I stay in it, up until the 5th year, at which time my account will be converted into “A” shares and the load will be gone.

His explanation of the reasoning behind this is that “it will keep me honest in my investing, and force me to invest for my future”. Well, duh, I know I need to stay in for the long haul, but I don’t need to be investing in HIS future, nor the futures of the fund managers. I think they’ll do just fine without me. I also don’t mind keeping the cash in with NFPBX because it IS a decent fund; repeat, DECENT fund. I hate the deferred load, and the expense ratio of 1.48% isn’t in my sub 1.0% range, but it HAS returned 16% this year, and I can’t balk at that. But I think I can find better ways to manage the $.

In comes Charles Schwab – Honestly, it is the infancy stage, and I’m sure there may be bumps along the way. But they’ve been nothing but cordial in my journey thus far. Yea, I know, they want me for my money. If I find they’re not doing me a service, I have no qualms leaving them either; after all, I can open as many ROTH IRAs as I’d like if I really feel like it. But I am very happy so far. The one sticker so far I’m dealing with then is the fact that I’m NOT transferring my current ROTH or cashing it out (for $400 via the 5% deferred load is what I’d have to pay to get out now) so I don’t have any capital or $ to be sending to a ROTH right now, so I’m starting with the payments I PREVIOUSLY had going to Edward Jones of $100.

The payments will now be headed towards my new ROTH with Charles Schwab under one of their funds, SWEGX. SWEGX has been doing alright this year and it’s basically a mutual fund of mutual funds because it’s holdings are smaller funds, also held by Schwab. Morningstar gives it a 5 star rating. It has a 0.80% expense ratio that I like, and is a no-load fund. Finally it’s got a 12.4% rate of return so far this year, which isn’t too bad either. We’ll see how it does over the next few months, but as a starter fund and only have 100$ to start investing with, it is going to do the trick nicely I think.

Welcome to the family SWEGX!

What Is A Self-Directed IRA And How Can I Use It?

hank — Thu, 06 Dec 2007 14:51:23 +0000

I recently had the pleasure to interview Will Sugg, a fellow personal finance blogger that works towards his fortune with Self Directed IRAs. I am no professional in the arena, so he was very willing to answer the few questions I had about them – I hope they can demystify the Self Directed IRA questions YOU may have.

1. What is an Self Directed IRA?

A Self Directed IRA is an IRA that allows you to buy or invest in things other than Mutual Funds, Stocks and Bonds. Self Directed also means that the custodian is merely a holding bank account for your retirement funds and you have to “Direct” them to buy or invest in the Asset you want to hold in your retirement account. The “Direction” for the custodian that I use is a several page form that you fill out with all the details of the investment, then I fax or email it to the custodian. It tells them what to do, what to expect, and where to send a check. I think of a Self Directed IRA as “The Do It Yourselfers” retirement account/plan. If you have specific knowledge bout some area that makes money then you can profit from that in your IRA. There is very little that you cannot invest in with IRA funds. See a list below.

2. Who can use a Self Directed IRA?

Anyone can open a Self Directed IRA as long as you have earned income or your spouse does. Basically if you can open an IRA with a bank you can open Self Directed IRA. Business owners can benefit significantly once they realize the potential of this type of IRA or 401K.

3. What is the difference between a SD IRA, a Traditional IRA, and a ROTH IRA?

There is really only 2 choices in IRAs; Roth or Traditional. Either can be Self Directed.

4. Where can I sign up for one?

You open a Self Directed IRA with a custodian that understands what they are. I’ve listed several on my blog here.

5. Why should I use a SD IRA over a ROTH or a Traditional IRA?

You can have either as Self Directed. If you are opening a new account and you’re not yet retired I would say that you should open a Roth account since the growth it creates is tax free on harvest. I have both a Traditional and Roth Self Directed IRA but almost all of my investment activity is done in the ROTH. The reason you want to Self Direct your IRA is so that you can use your specific knowledge to help your retirement account grow instead of relying on others opinions and management skills.

6. How much can I invest in one?

If you already have a Roth or Traditional IRA established at another custodian you can roll it over to a Self Directed custodian. If your opening a new account with a Self Directed Custodian. Right now the IRA says you can contribute 4,000.00 per year. That figure can change as dictated by the IRA and congress. Of course for the Roth type you are also constrained by the Earned Income limits set by the IRS.

7. Can I roll a ROTH or Traditional IRA over to an SDIRA? How about my 401k?

Sure you can roll over either type of IRA into a Self Directed Custodian. It’s very simple and painless.

8. How long have you been investing in SD IRAs?

I’ve been using my Self Directed IRA for investing for the past 4 years.

9. Where did you learn about SD IRAs?

I learned about using an IRA to buy Real Estate from talking with family, friends, and some business contacts that were using theirs to do the same thing. Then I did a lot of research on the internet to determine which custodian I like better and opened an account. I first rolled just a small amount into it so I could do one transaction. Once I got the hang of it and understood how this could significantly help my retirement plan I rolled the rest of the money I could into my account.

10. What CAN’T I invest in with an SD IRA?

There are such things as Prohibited Investments and you need to learn what they are. Here is a short list:
- Artworks
- Rugs
- Antiques
- Metals
- Gems
- Stamps
- Coins
- Alcoholic beverages
- Certain other tangible personal property

But most folks wouldn’t want to invest in these any way. Here is the IRS language about Prohibited Investments in case you want to see everything. You also can’t profit from the IRA meaning you can’t loan yourself money from it or buy a Rental Property and then go live in it, that is considered Self Dealing.

11. I want to invest in real-estate through my SD IRA. How do I go about telling my brokerage account that I’m buying a house with my SD IRA?

This example is just to illustrate of the process there is Due Diligence you need to perform to ensure that the investment is prudent for you. It also assumes that you have the entire purchase price in cash. You first open a Self Directed IRA with a Custodian that understands what that really means.
Not all IRA’s are self Directed so that you can buy Real Estate in them. Check out the short list from above, all of those custodians are real Self Directed Custodians. After you have the account open and funded, you find the investment. In this case some Real Estate property and get it under contract. Have your agent if there is one open Escrow. Then it’s merely ending the Custodian the “Direction of investment” forms and them sending a check for the purchase price. Once Escrow closes the transaction and records the deed your IRA is now owner of the property. Your SDIRA can borrow money to fund the purchase, however the down payment required is usually 30% or more. That however is another topic for another day…

12. When can I withdraw from my SD IRA?

The same times as you can with any other IRA or 401K plan (59 1/2).

13. Is my SD IRA funded by pre-tax or post tax dollars? Do I pay a tax
when taking it out?

Depends if your IRA account is Roth or Traditional.

14. Can I have an SD IRA for my spouse if they are unemployed (contribute
twice as much)?

If you can do it with a Roth or Traditional IRA you can do it in a Self Directed IRA.

15. Is there a phase-out schedule like in the ROTH IRA that pertains to an SD IRA?

Yes, these apply to your Roth IRA whether or not it’s Self Directed.

14. What is your SD IRA invested in?

My Self Directed IRA is 100% invested in Promissory Notes secured by either Real Estate or in some cases by Mobile Homes. Some of the Notes I bought at a discount and others I lent the entire amount of the Note to the Borrower. I’m still in the cash generating mode of investment so I am investing to get cash flow going. Once I build up a nice monthly cash flow I may move to another type of asset. Certainly in the long term goals I have I want to own Real Estate.

Will clearly has a vast knowledge about the subject and I’m happy he was willing to take an interview for it – I suggest you all check out his website regularly at http://willsugg.com/irablog/ to keep up to date on the latest happenings in the SDIRA arena!

Should I Use My 401k To Pay Off My Mortgage?

hank — Thu, 29 Nov 2007 17:23:55 +0000

I got an email from a reader yesterday that asked:

“Hello Hank, I’ve been with my company for almost 20 years and I have over $1,000,000 in my 401k. I am 45 years old and I have a house mortgage still of $295,000 for another 13 years paying about $2000 per month. Would it make sense to get out of my mortgage and have that extra $2000 per month to put towards better investments? I plan on working for 10-15 more years before retiring. What do you think? Is that a good idea?” - Neville from Mississippi

Welp, where to start. First of all Neville, GOOD JOB on putting away $1,000,000 in your 401k by 45! That’s tough to do and the first million is always the hardest! Which leads to point #1 (again, take it how you like, I’m not a professional, but this is what I’d do in this situation):
1. The first million is the hardest to get! It’s taken you 25 years to get there! Do you have another 25 to wait? Yes, I know you’ll only be taking out $295,000, but that off of $1,000,000 still knocks you down to $705,000, which isn’t bad at all, but to get back to the power of that $1,000,000 it’s going to take 6 years to get back there, and on top of that, the 705k in15 years investing 15k per year (3% inflation) is going to be a tidy $2,286,545 (click the image to enlarge)

Now that’s not too bad at all, and I’m not knocking it – I hope to be somewhere around there soon too, but think if you leave that $1,000,000 in there for the next 15 years and add 15k per year at 3% inflation you’re looking at $3,077,503 (click the image to enlarge)

Doesn’t that look better? By keeping that money there, you’re banking $790,958 MORE than by taking out the $295,000 that you “thought” you were taking out – but that’s only the beginning -

2. The 401k is set up as a RETIREMENT account – you shouldn’t be dipping into that bucket, that’s what you set it up for, RETIREMENT, not “HOUSE PAYING OFF” – You clearly make enough money to be able to put money away, so why cut the compounding interest short by hacking it into quarters? It’s for retirement, I’d leave it that way!

3. Taxes, taxes, taxes – You’re going to get raked over the coals taking out 401k $ now to pay for your house – not only are you going to have to claim the 401k money as income for the year, that’ll toss you into the highest possible IRS tax bracket at 35%!

Schedule Y-1 — Married Filing Jointly or Qualifying Widow(er)

If taxable income is over–	But not over–	The tax is:	$0	$15,650	10% of the amount over $0
$15,650	$63,700	$1,565.00 plus 15% of the amount over 15,650
$63,700	$128,500	$8,772.50 plus 25% of the amount over 63,700
$128,500	$195,850	$24,972.50 plus 28% of the amount over 128,500
$195,850	$349,700	$43,830.50 plus 33% of the amount over 195,850
$349,700	no limit	$94,601.00 plus 35% of the amount over 349,700

That’s a pretty penny to pay out, especially if you’re used to the 25% bracket you’ve been in. An additional tax on an early distribution is 10% of the taxable amount. The taxable amount is also included in your taxable income. This 10% tax is in addition to regular income taxes. So you’re giving 45% away right there to ol’ Uncle Sam.

4. Your mortgage interest is a tax write off. I don’t know how your mortgage is structured, but I DO know that when your mortgage is paid off, you won’t have that write off.

5. Even if you DID have an extra $2000 to put somewhere each month instead of paying your mortgage, your nest egg is now at $705,000 and even if you put $2k more each month or 24k more per year on top of your 15k, for a total of 39k per year, you’re going to be sucking tailpipe to your $1,000,000 you would have had making regular distributions(click the image):
vs.

By putting $39,000 per year into an investment making 10% with 3% inflation, you’re going to bank only $2,920,604, which is $156,899 less than if you would have kept that $1,000,000 in there and made standard 401k donations. If you never wanted to see that 157k extra, I guess it’s no big deal though.

So ultimately I’m saying it’s probably not a great decision. A few things you COULD do though:
1. Ask your plan administrator if you can borrow against your 401k plan; take out a loan to pay off your mortgage, the money would still be working for you, but you’d have to pay it back, but that’d be better than just taking it out -
2. Do you have a ROTH? The tax benefits might be better (I strongly suggest NOT doing this) but you can take out the PRINCIPAL that you have put in to it at no tax consequence, but suggest against it – see response #1 at the top of this page and check out this post on it here.
3. Just contribute $100-$200 more per month to your mortgage – it’s amazing what a few extra dollars per month will do to melt away the balance. Ask Money&Happiness, BuildingEquity, LivingAlmostLarge, or MyMoneyBlog.

If anyone else has any info, feel free to share, but from my perspective, I think you’d be making a bad decision to take 401k money and use it towards your mortgage, but like I said, I’m no professional financial guru.

My Monthly Expenses Are High; How Can I Cut Down My Monthly Expenses?

hank — Tue, 06 Nov 2007 01:12:22 +0000

So I decided to try out Flexo’s monthly expense template, and it isn’t looking too promising for me this month. I’m doling out more than I am taking in this month. Off the top, that sounds like it is bad, but really it isn’t TOO bad. I figured my cash allowance was high this past month, so I had some room to spare since I have $6,000 in cash. I’ll pay off the $4,300 on the credit card so as not to get a ridiculous fee charged for interest on it, but then I don’t get billed for anything for another 2 weeks. So I’m alright there.

My expenses can certainly get a trimming though. This is eye-opening to say the least though, as I KNOW that I’ve been right at breaking even for the past few months, especially after the trip to Australia that pretty much drained the rest of what I had from the sale of my house last year. That’s ok though because my wife took home less because we bumped her 401k allocations to 10% matching mine, and I’m still contributing to my ROTH IRA at $200/month. This pretty much smashed the urge to get the new car though – It’s certainly helpful to see everything out on paper to further the need to back away. That’s maybe the allure piece grabbing me.

I’m probably going to start a new car fund though shortly because my 2001 burb isn’t going to cut it going forward. I took it in last week to check out a “clunk” it was making and they quoted me at almost $1,900; 95% of that money was for upkeep, 60k lube and maintenance, a few leaky pipes, but ultimately I got out of it and fixed the clunking noise for $108.

So here is the first installment of my monthly expenses (click to expand):

Obviously I can cut down the Retail Store Purchases and Dining Out, and if everything goes as planned, I’m in the market for a raise in a few weeks; I’ll be certain to keep the post up on that one. It’s pretty ridiculous what the ol’ government takes out each month, but it’s nice to actually see it out on [electronic] paper. Daycare is a killer, but we get that back when we can write it off at the end of the year, but that takes a good monthly chunk, and we’ve got a GOOD rate!

My wife wants to have another in the next year and good grief that Daycare budget is only going to rise in time; add another kid and it is starting to get ridiculous…

Laying this information out has really been a beneficial exercise and I can get this info from my credit card each month. I’m going to start doing this monthly from now on to get a better grasp on it so I can realize what we’re spending/saving. I highly recommend doing this for anyone curious as to what they’re spending $ on. Do you have a budget worksheet you can work off?

My wife has about $80 in Starbucks that I didn’t account for on here that I’m sure we can trim also! Anyway, goal for next year is to get these numbers and stick to a budget more strictly going forward. We’re making money off our investments, but we’re not getting the best bang for our buck because we’re leaking money in other areas when we could be putting it to better use.

Do I need a Last Will and Testament?

hank — Thu, 25 Oct 2007 06:52:24 +0000

I have been rolling this one over for a bit now and wondering where it fits in my investment path. I just got back from a trip to Australia and probably 3-4 months ahead of it I asked myself the worst case scenario. What happens to my kids? What happens to my house, cars, cat, dog, bad paintings, gym socks, 1984 Casio calculator watch in my underwear drawer? Well, not all of those, but a few of them… So I decided to look into it a bit beforehand…

If you DON’T have a Will, odds are your kids will be taken care of. The court isn’t going to send them to a foster home if you have family willing to take them. The court is cold and cruel, but not that cruel. So if you have brothers, sisters, grandmothers willing to take them, they’ll probably be alright.

As far as your assets though, they can bounce around for months or even years till they find a proper home depending on what you’re worth. Principality.co.uk actually has a good flowchart of what will happen to your assets upon “expiration”. But they don’t add in the timeframe that you’re looking at for the entire procedure to bounce its way through court. Again, if you’re dirt poor though and don’t have anything worth fighting for, you probably don’t have to worry. The chicken scratches on the napkin should suffice. Another good splurge of info from the United Kingdom was here.

In the unfortunate event of intestacy, many people believe the Government takes their assets if they die without a Will. This isn’t true. It could only happen if you have no living next of kin. However, if you die without a Will, your assets will be distributed according to a legal formula. This might mean that your assets do not end up with the person you would have chosen, but may end up like this (courtesy of RCW 11.04.015). Basically it means that your assets become “community property” or “separate property“. By default in some states, without a valid Will and testament everything is community property.

Without a valid Last Will and Testament, the legalities can take months or sometimes even years. Until that time comes though, your surviving spouse or partner could be in a financial bind with the household, weekly, monthly, and daily bills to find and they will probably be on a reduced income. They don’t want to worry about how you’re going to make it to the final resting place. Your surviving spouse or partner may not have access to money needed for expenses he or she would normally have a right to, because the assets could be frozen until all the formalities have been sorted out.

Long story fairly short (not too short, but not overly long either), you should have a Last Will and Testament somewhere in your mix if you’re worth anything and/or have children. You’re going to make it a lot less stressful if you take an early “dirt nap”. I have to admit that I didn’t craft one up before I left for my trip because they can be fairly expense, I was quoted 3 times between $800-$1400 and I wanted to make sure I had the funds for the trip beforehand. But it is in the plans once we’ve settled back in and are back in the black (after paying ourselves first with our retirement portfolio), which is likely beginning of the year 2008.

One other caveat I looked into, as I have my ROTH IRA through Edward Jones, is a Transfer On Death agreement. The T.O.D. is basically an abbreviated Will and Trust that legally allocates your funds within that firm (I don’t know if other firms offer this, please chime in if this is the case). So I had a money market and my ROTH that would have been figured out without a will for $75.00. Which is a much cheaper price than the $800-$1400 bill I was quoted earlier. Unless this form works also, and I can hide it next to my fancy calculator Casio wristwatch to cover myself in the future – anyone have any insight on printing one off the internet? Is that valid? I couldn’t find any info on it -

If anyone has any advice or recommendations of a good place to sign up for a Will for less than $800, drop me a line, I would certainly be “willing” to sit down and chat about it with them -

Ending on a comical note, I ran across this joke in my search to find all the dirt on Wills…

No related posts.

How Much Is Too Much For Homeowners Insurance?

hank — Wed, 17 Oct 2007 00:23:12 +0000

I recently got my bill in the mail from Travelers Insurance. I went with them because when I called up Geico to renew my auto insurance, they mentioned they cut a deal with these guys to give me the best deal on homeowners insurance. But did they? I own a fairly new house (it’s a year old) and am slated to pay $1,043.00 for the upcoming year to cover:

Also last week I got a quote in the mail from Allstate saying they could cut it for HALF the price with this quote:

Who is the real deal here? My house is about 2700 sq ft. 2 story, built in Nov 2006, 5 bed, bonus, 2.5 bath, nothing out of the ordinary, in a good area, not in a flood plain, not subject to high winds or fire zones. What do you pay for homeowners insurance? Do you have a better deal? A better recommendation? Certainly I’d like to re-invest that extra $500.00 per year in a better place, but I don’t want to get bent over in regards to payments – ideas? Suggestions?

Is There An Investing Age Gap?

hank — Sun, 14 Oct 2007 04:36:03 +0000

I am 28 years old and I have limited, but learning comprehension of how investing works. I wasn’t taught my my parents, I wasn’t taught by my school, I wasn’t taught by my friends. I came into learning about it more forced than anything else. I went backwards from the standard: Date–>Marry–>Save/Invest–>House–>Child.

I went Date–>Child–>Marry–>Child–>House–> Save/Invest. I don’t think there is anything terribly wrong with that as long as the Save/Invest hits somewhere before 40. It’s sad there isn’t a class in school that forces you to learn these basic financial principals. Yea, there are classes that you can take by choice, but it honestly needs to be something that is required by the school districts, but I digress; the post is about the age gap I think there is an investing/saving gap between generations.

You may be asking, what the heck is Hank talking about here? Well, ask your grandparents where or how they invest? I bet 95% of readers will say their grandparents keep most of their money in the bank in a low interest savings or even their checking account.

Short Tangential point; yes, they MAY have some money in bonds or short term MMAs, yea, well OBVIOUSLY that’s where they want it, quick money, modest returns, low risk and they’re at the stage of life where they need to have it there but how did it get there? I’m guessing your parents or yourselves that told them about that part. You think we have little financial education now, think about how it was in 1919.

But back to the main point honestly, I have asked probably 15 or 20 friends/family that same question and sure enough, it is almost SAD that they still keep their cash in the bank checking account or savings. One of my close relatives I found has had 175k in a checking account for the past 35 years making less than 1% on that money for the past 35 years, and yes it was 175k in 1971. Now she is in a retirement home, will never go back home, and the government is just going to take their share until it is gone and medicare will then take over. Just imagine the $ loss. I asked her about it and she said that she’s never wanted her money out of her immediate possession. She would have kept it in a mattress if she could, but instead kept it in a local small town bank that was really not doing anything for her and the $. I think it has a good piece to do with growing up in the Great Depression, hide-your-$-in-a-coffee-can mentality.

So the next piece is our parents between 50-70 – they’ve got a better knowledge than my grandparents, but in my case anyway, maybe just the household I grew up in, but they had no idea of what to do with $ until about 1990 when the stock market became hip again maybe. My immediate family doesn’t understand still what time can do with $, again my mother said she never learned about money management from the grand’rents (obviously), and didn’t feel the need to learn about it in college. College was about several other “smoking” guns in the 60s and 70s. So they’ve gotten a better feeling about the market and compounding interest, but still not as much as Generation X -

Granted, GenX’ers don’t know everything, but I think they’re at a better vantage/vision point then our predecessors for sure – True, it is probably only 30-40% of the GenX’ers investing, but that is 29-39% more than our grandparents. Like the disclaimer on my blog says, “I would just like to be able to someday give better advice to my kids than when I was young…” I think it passes a little more down the line with each generation for sure – Guess only time will tell – no?

Is Your House An Asset Or A Liability?

hank — Fri, 12 Oct 2007 01:43:51 +0000

Where to start with this one – lets start with a few of the folks I’ve seen post on it already – Flexo, LazyMan, Jim, Matthew, Smith Financial Place, MyMoneyBlog, Associated Content, FreeMoneyFinance, Canadian Capitalist, MoneyMonk, Crazy Engineer, Yahoo!, Watson Inc, Project Senso, Google Forum, just to name a few.

Let me precursor this with the fact that I bought my first condo in 2005 for 112k and sold it 1 year later for 175k (Yea, yea, I paid capital gains, but still made 40k in real cash and NEEDED to get out of the small house with the second kid on the way). Any way you slice that it is an increase in the asset column.

I too read R. Kiyosaki’s book and was excited at first in digging in to it, but towards the end it found myself curious as to where the meat of the book went. Anyway, yea, he mentions it is a liability, and I agree with him 50% of the way. My belief is that the house itself is an asset, and the mortgage a liability. Could I put that $3200 per month towards something else giving me more return on my investment? Probably. But how do you determine the value?

It’s a real downer when I look up at my Progress Bar in the upper right corner of my page showing I still have a hefty wall to climb to reach the 1MIL mark. I am only at 5.29% today because I have incorporated my home mortgage in on the balance sheet as a liability, because, technically the MORTGAGE is a liability in my opinion. However, how do I compensate for the asset part of it? How do I include the VALUE of the house? Well, here is my new hypothesis to solving the debate:
1. I’m going to log in to all the major players in the “house value” webrings:
a. Zillow.com
b. Yahoo.com
c. MoveUp.com
d. RealEstateABC.com
e. Eppraisal.com
f. Cyberhomes.com
g. Reply.com

2. Then I’m going to take the average of each of them, throwing out the highest and lowest prices to get a better average.
3. Next I’ll take that number and subtract the mortgage payment that I still owe, showing my appreciation.
4. I can then take the total mortgage payments I’ve made that year and assess a value to what I’m getting for my 40k per year I’ve put INTO the house.
5. Rebalance that number into my Net worth statement -

It’ll certainly make the progress bar look a bit healthier. I’ve been thinking of how I could leverage the MORTGAGE vs. the HOUSE. They both should be accounted for, but how. Everyone does it differently and this is going to be my solution to the problem. Sound like a plan? Feasible? We’ll see!