Build or Buy? Making the Right Decision

By ALDO SVALDI The Denver Post
Published: April 6, 2017 @ 6:29 pm UPDATED: April 7, 2017 @ 11:02 am
The real estate market in the Denver metro area continues to heat up this Spring. Houses haven’t been staying on the market long in Aurora. Homes for sale in the Saddle Rock neighborhood. (Photo by Steve Nehf / The Denver Post)
Not that it may offer much solace to homeowners trying to come up with property taxes due on April 30, but Colorado homes are taxed at some of the lowest rates in the country, according to an analysis Thursday from ATTOM Data Solutions.
The effective property tax rate for single-family homes in Colorado last year averaged 0.52 percent versus the 1.15 percent rate averaged nationally, according to ATTOM Data Solutions, which looked at property taxes on more than 84 million single-family homes in 586 U.S. counties.
Nationally, single-family homeowners paid an average of $3,296 in property taxes last year, while in Colorado they paid only $2,046. The tab was smaller here even though the average market value of a home, at $394,604, was $109,110 higher than the U.S. average of $285,495.
Only Hawaii and Alabama had lower effective property tax rates than Colorado. And in New Jersey, Illinois and Texas, residential property tax rates were around four times higher.
Colorado’s lower rates come with a price. When local governments and school districts don’t collect enough in property taxes, the state must back-fill from its coffers, leaving less money to go around for things like roads and higher education.
“This puts more pressure on the state budget,” said Chris Stiffler, an economist with the Colorado Fiscal Institute in Denver.
Colorado legislative leaders want to refer a measure to the ballot that would lift the state sales tax from 2.9 percent to 3.52 percent and raise $705 million a year for transportation projects.
One reason Colorado ranks so low on property tax rates is the passage in 1982 of the Gallagher Amendment, which limits the share of the property tax base attributable to residential to 45 percent of the total.
Over the decades, Gallagher, in combination with other measures like the Taxpayer’s Bill of Rights, has pushed down Colorado’s residential property tax rates. But homeowners don’t necessarily realize or appreciate it, because rising home prices, primarily along the northern Front Range, have forced them to write bigger checks to their counties, Stiffler said.
Nor do most people realize the connection between low residential property tax rates and more rapid home prices gains.
“Property taxes are a major cost of homeownership and factor into a buyer’s decision to buy or not buy. They also affect a borrower’s debt-to-income ratio, which can impact a lender’s decision to lend or not lend,” said Daren Blomquist, a senior vice president at ATTOM Data Solutions.
Everything else being equal, a borrower who pays less in property taxes can qualify for a larger mortgage. Having more borrowing capacity in a market gives home prices more room to rise when demand outstrips supply.
In California, Proposition 13 caps property tax increases to 2 percent or less a year. Home prices in that state are up 76 percent over the past five years. In Colorado, median home prices are up 59 percent the past five years, Blomquist said.
Both states outpaced the 45 percent gain in U.S.home prices over the past five years. Conversely, high property tax rates can weigh on a market and dampen home price growth and home sales.
In New Jersey, home prices are up only 5 percent in the past five years and in New York less than 1 percent. Even in Texas, considered an economically robust state with strong migration, the average home costs $168,100 less than in Colorado.
Among Colorado’s larger metro areas, Grand Junction had the lowest effective property tax rate on single-family homes at 0.42 percent, followed by Colorado Springs at 0.44 percent. Greeley at 0.46 percent, Fort Collins at 0.48 percent, Boulder at 0.54 percent, and Denver at 0.56 percent.
Within metro Denver, Douglas County had the highest effective residential property tax rate at 0.63 percent, followed by Arapahoe at 0.6 percent and Adams at 0.57 percent. Differences in county mill levies explain those differences.
Written by Jaymi Naciri
Close More Deals – Qualify homebuyer leads fast and free
Most of us who have bought a home have at least some awareness of the loan-to-value ratio, or LTV – one of the factors lenders use to determine whether a borrower is qualified for the loan they want. Lenders typically want your mortgage payment to be between 28 and 33 percent of your income and your total debt (including car payment, credit cards, etc.) under 40 percent, according to “Money Under 30.”
The thinking is that the higher the LTV, the more likelihood a borrower may default on the loan, which is why, “Assessments with high LTV ratios are generally seen as higher risk and, therefore, if the mortgage is accepted, the loan will generally cost the borrower more to borrow or he or she will need to purchase mortgage insurance,” said Investopedia.
The danger in a high LTV ratio for a buyer is the possibility that you’ll end up house poor.
“You may not have heard of the term “house poor” but you probably know what it means. The family that owns a 3-bedroom house, but can’t afford to pay their credit card bill,”said lifehacker.
Investopedia described it as, “A situation that describes a person who spends a large proportion of his or her total income on home ownership, including mortgage payments, property taxes, maintenance and utilities. House poor individuals are short of cash for discretionary items and tend to have trouble meeting other financial obligations.”
Fixing up the house, and other ways to become house poor
Buying a home you can’t comfortably afford is only the beginning. Even if the desire to own a home triggers an intense period of saving and a whole new outlook on being thrifty and delaying gratification, can you maintain it once you’ve gotten your keys? The urge to nest, rip the home apart, fix it up, and make it reflect your taste and style can sometimes be more tempting than buying a house in the first place.
What will you do about the fact that the kitchen countertops are from 1972 and so is the mold growing on the grout in the secondary bathroom’s shower? How about the new living room set that would look so great in front of the fireplace you’re going to redo? Or a pool in the backyard or at least a new patio set so you can entertain friends. Oh, and you’ll need to add a great big grill for that and maybe a pergola, too.
And, you’ll probably be too busy painting and ripping out floors and gardening and hanging window treatments to cook dinner, so add in a bunch of restaurant meals.
Before long, you may just find yourself maxed out on credit and struggling to make all your payments on time. Or, huddled around the table eating Cup-o-Noodles with no cable or Internet and trying to come up with more cost-cutting measures. That can be a dangerous place, not only for your credit and, ultimately for your living arrangements, but also for your psyche.
“Living house poor not only hurts your finances, it takes a toll on you mentally and physically,” said Money under 30. “Knowing that your income and your home expenses rule your life can be a great source of anxiety. Being house poor removes the liberating feeling of being in control of your finances. Ironically, we Americans view home ownership as the ultimate symbol of financial security and success, but if you’re living house poor, your finances are anything but secure.”
And that may not be the worst of it. Being house poor can get really risky if there’s a job loss or other change of circumstances in your family. When you’re living paycheck to paycheck, missing just one could be enough to crumble your world.
Preparing well for the purchase
Still ready to take the plunge despite the potential pitfalls? Remember the three Ps: price, practicality, patience.
By: Jessica Mai
According to Jonathan and Drew Scott, stars of the HGTV show “Property Brothers,” it doesn’t take a lot to increase the sale value of your home.
In fact, there are two inexpensive, quick tricks you can use to potentially convince buyers to pay you more: Keep it clean and fix anything that needs it.
“Buyers associate dirt, clutter, disorganization and poor maintenance with serious problems they might not be able to see,” they write in their book, “Dream Home: The Property Brothers’ Ultimate Guide to Finding & Fixing Your Perfect House.”
“You can get an additional $20,000 or more for a house that’s neat and clean,” they write. “Why would you leave money on the table when it costs next to nothing to clean and declutter?”
Here are some suggestions from the Property Brothers to prepare your home for sale:
The brothers suggest packing up all personal items and keeping only what is necessary to start your cleaning. This not only shows off the features of your home, but “removing a lot of personal items helps buyers picture their family in the home instead of yours,” they write.
Beyond personal items and a cluttered space, general poor maintenance can make buyers write off your property.
“We call it the Ick Factor: The more times a buyer says ‘ew’ in your home, the more likely they’ll just write off your property,” they say.
A quick vacuum is only a start. The Property Brothers suggest that you:
• Do a smell check to eliminate musty-smelling areas of your home. If you have become too accustomed to your house smells, bring a friend to your house for an honest second opinion.
• Scrub around doorknobs, which tend to get dirty easily.
• Sweep, weed, and wash paved walkways, patios, and sidewalks.
• Clean out the refrigerator — potential buyers are going to look.
• Tidy up the medicine cabinets and closets. Again, buyers will be looking.
The next step to getting more for your home is zeroing in on what might need to be fixed. The brothers suggest creating a list of what needs to be repaired, replaced, or updated.
If you don’t know what should be on the list, you can hire an inspector for about $300 to $500, depending on where you live and the size of your property.
“It’s money well spent if you can correct issues that may become points of contention for the buyer,” they write.
But fixing doesn’t have to cost much, if anything. The Property Brothers also suggest making a checklist of small items you might need to attend to, such as:
• Check all faucets for leaks, and make sure drains and toilets are working properly.
• Replace any broken or ripped screens in windows, doors, and porches.
• Check the baseboards for scuff marks you might want to repaint or go over with a Magic Eraser.
“Your house is only as strong as its weakest link,” they write. “Even the smallest of issues can become a huge concern for buyers.”
Written by Realty Times Staff
For most buyers, the mortgage is the largest monthly expense they will have. Yet most borrowers will do little to no preparation, negotiation, or shopping to get the best deal. And they end up paying much more for their loans than they need to. You? You’re smarter than that, or you wouldn’t be reading this article. Here are five of the biggest mistakes that can cost you real money.
1. Believing advertised rates are what you’ll pay
Unless you have perfect or near-perfect credit, most advertised rates are out of your league. To get boasting rights on a rate that good, you have to pay part of a point (one percent of the loan amount) a point, or more to get the best rates.
Your lender will go over your credit with a fine-tooth comb to find anything to raise the rate. That includes qualifying you at the beginning of the transaction, and then running your credit again a day or two before you’re supposed to close on the home and loan. If there’s been any change in your debt-to-income ratio, goodbye low mortgage rate.
2. Not comparing lenders
Just like everyone knows two or three real estate agents or more, everyone knows a loan officer or a mortgage broker. A loan officer works for a bank or savings and loan and can only offer you loan packages that the bank has put together. A mortgage broker prequalifies you just like a loan officer, and shops your deal around to various lenders.
Whether you talk to a loan officer or a mortgage broker, you’re going to have to share personal financial information in order to get a realistic rate. Reputable brokers will show you what certain banks and credit unions quoted and you can pick the loan you like best.
If you’d rather do your own shopping, consider talking to a local bank, a national bank, a credit union, and a savings and loan, but remember, unless you give them personal information and permission to run your credit, it’s just talk.
3. Not paying attention to terms
Advertised rates even for those with perfect credit aren’t what you will actually pay. The true cost of the loan is the APR or annual percentage rate, which includes fees from the lender.
Understanding loan terms is harder than shopping for a new mattress. There are so many ways lenders can inch up the fees. A loan origination fee is also called a processing fee. It pays the loan officer or mortgage broker, so this fee can vary widely. You may pay one lender more for an appraisal than another might charge you.
One lender may charge more for pulling your credit than another. It’s all in your good faith estimate, which you don’t get until you’ve applied for the loan.
All terms are negotiable, so don’t be afraid to ask what a particular fee is for and can it be reduced or eliminated.
4. Waiting for a better rate
It’s great to have bragging rights on a low rate, but you don’t want to lose the home of your dreams over a quarter of a point in interest.
There’s a big picture here you could be missing. No matter what your interest rate is, you’re going to pay thousands of dollars in interest up front before you make any serious gain in equity. If you go all the way to the end of your loan’s term, you’ll pay so much interest that you could have bought the same home two or three times.
Instead of focusing on the percentage rate, work on how quickly you can build equity. Make one extra payment a year. Pay $25, $100, or $500 extra per month and you’ll more than offset the rate you’re paying.
Down the road, if rates drop through the floor, you can refinance, but even that’s not an ideal solution. You’ll pay loan origination fees, title search fees, appraisal fees and so on — enough to equal the closing costs you paid the first time around.
And don’t forget, you’ll start the amortization schedule all over again — with most of your payments going to interest instead of principal.
5. Choosing the wrong type of loan
Many families were hurt post-9/11 when lenders opened the spigots and gave a loan to almost anyone who could sign the paperwork. Suckers bought homes that were too expensive using balloon loans with low teaser rates.
The type of loan you choose should depend on current market conditions and how long you plan to stay in your home, not how much home you want to buy.
If you get an adjustable rate mortgage, you are at the mercy of market conditions. While there’s a cap on how high your interest rate can go, it’s still a risk.
If you plan to stay in your home five years or more, get a fixed-rate mortgage. If you plan to sell your home sooner, you’re taking a risk. It takes most borrowers five years just to earn back their original closing costs in equity.
Once you’ve narrowed your choice of lenders, ask them on the same day to give you a quote. If you wait even one day, rates may have changed, so you’re no longer comparing apples to apples.
Written by Andrea Davis
Whether you’re looking to sell your home or simply improve its overall appearance, consider upgrading the landscape. These six tips will help you utilize landscaping to increase your home’s curb appeal:
1. Freshen your mulch
Mulch eventually dulls and blends in with the surrounding plants and shrubs. Adding new mulch doesn’t cost very muchand can greatly improve the appearance of your flowerbeds.
2. Add potted plants
Container plants allow you to add mobile color to your home. Add attractive containers to your porch, driveway or any other place that company enters your home.
3. Plant shrubs
Make sure to trim existing bushes for a well-manicured appearance. Adding additional shrubs in sparse areas gives your yard a lush look. Shrubs also add privacy to your home and property. For additional springtime appeal, invest in flowering shrubs.
4. Spruce up your porch
Add a porch swing with comfortable, colorful cushions to create an inviting atmosphere. Rocking chairs are another way to add some old-world charm to your home and porch.
Whether you’re looking to sell your home or simply improve its overall appearance, consider upgrading the landscape. These six tips will help you utilize landscaping to increase your home’s curb appeal:
1. Freshen your mulch
Mulch eventually dulls and blends in with the surrounding plants and shrubs. Adding new mulch doesn’t cost very muchand can greatly improve the appearance of your flowerbeds.
2. Add potted plants
Container plants allow you to add mobile color to your home. Add attractive containers to your porch, driveway or any other place that company enters your home.
3. Plant shrubs
Make sure to trim existing bushes for a well-manicured appearance. Adding additional shrubs in sparse areas gives your yard a lush look. Shrubs also add privacy to your home and property. For additional springtime appeal, invest in flowering shrubs.
4. Spruce up your porch
Add a porch swing with comfortable, colorful cushions to create an inviting atmosphere. Rocking chairs are another way to add some old-world charm to your home and porch.
5. Plant trees
Even smaller trees have a big impact on the beauty of your property. Plant a few trees that have interesting blooms and trunks, like dogwoods or Japanese maples. Trees also help with your home’s energy efficiency by providing cover from the sun and storms.
6. Add landscape lighting
Choose a style of landscape lighting that complements your home and its amenities. There are various types of outdoor lighting available, each priced to work within a certain budget. Some types of landscape lighting also double as security lights.
Conclusion
Landscaping will enhance the value, enjoyment and appearance of your home. A few fundamental improvements to your yard will help your home entice prospective buyers or keep your family comfortable for years to come.
By Laura Agadoni
Trulia
Here’s how to avoid common mistakes of first-time landlords.
First-time homebuyers are a declining group. Historically, 40% of homebuyers have been first-time buyers, but that percentage continues to shrink, even as millennials continue to show more interest in becoming buyers (eventually). If you’re already a homeowner, your wheels might be spinning right about now — if people aren’t buying starter homes, then the rental market has to be booming, right? It is in many areas, particularly where unemployment is low, the population is high, and homes are not overpriced. But before you start searching for a home for sale in Austin, TX to rent, you should think about the responsibility that comes with being a landlord — and learning by trial and error is not the best way to go about gathering intel (or a steady income). Before you take the plunge, study up on how to become a landlord with these seven tips.
1. Ideally, you want to live near your rental property
Living close to your property allows you to check on it periodically (after giving your tenants proper notice), take care of repairs yourself, and show the property when it’s time to list it for rent again. Research the best investment areas — but even if you don’t live in a prime rental region, you can still invest in one by hiring a property manager to take care of day-to-day details.
2. Know landlord-tenant law
Most states have specific landlord-tenant provisions that cover issues such as security deposits, level of access to the property, and how much notice you need to give your tenants when you want them to leave. There also are federal laws you need to know, such as habitability and anti-discrimination laws. “Many landlords gloss over housing discrimination laws because they assume that as long as they’re not racist or sexist, they needn’t worry about fair-housing violations,” says Ron Leshnower, real estate attorney and author of Fair Housing Helper for Apartment Professionals. But fair-housing liability traps can arise in many ways, so it’s important that you fully understand the law and ensure that you aren’t breaking it.
3. Make sure you can enforce that the rent is paid on time
This seems like a no-brainer, but believe me, if you get too friendly with your tenants, you might just let them slide a couple of weeks beyond the first of the month, or allow a partial payment when they’re between jobs. Before you know it, your tenants are six months behind and you’re struggling to make the mortgage payments. But being firm doesn’t mean you shouldn’t treat tenants with respect. Cultivating a good relationship with your tenants often goes a long way to ensure rent will be paid on time and that repair requests will be easier to deal with.
4. Screen potential tenants
It’s worth the time to do a background and credit check on all potential tenants: online tenant-screening services are convenient, and you shoule be sure to check potential tenants’ credit scores. A credit score alone shouldn’t be the sole reason to accept or deny an applicant, but it is a useful screening tool: For instance, if your renter is fresh out of college with a solid job offer, they may not have enough credit history to warrant a good score—but could be a great rental candidate.
You should also conduct an interview to make sure you’re comfortable interacting with them, and check references, especially from employers or past landlords. But be advised, it’s hard to find the perfect tenant. According to Casey Fleming, author of The Loan Guide: How to Get the Best Possible Mortgage, it’s important to have a thick skin, and advises people not to buy rental property if tenant shenanigans will “drive you crazy.” Case in point: Fleming once had an evicted tenant break into the house, change the locks, and move back in!
5. Customize the lease
If you don’t hire an attorney or a property manager, you can use a standard lease form from Nolo, for example, but you should tweak it to fit your situation. For example, if you allow pets, specify how many, what kind, and any rules that apply. Your lease could state that tenants should leash their dogs when outside the fenced-in yard and stipulate that pets should not become a nuisance to neighbors.
6. Inspect the property regularly
“Have language regarding inspections clearly written in your lease documents,” says Timmi Ryerson, CEO of Smart Property Systems. She suggests taking pictures to establish a base line (and document the move-in condition) and conducting an inspection at three months. If you find problems, Ryerson recommends that landlords “issue a notice to comply and set another inspection in one week.”
7. Understand this is not a get-rich-quick scheme
Being a landlord is not just sitting around collecting a big wad of cash each month. You’ll need to spend some money to ready the property for tenants, buy landlord insurance, and pay property taxes. If you’re taking out a mortgage, be prepared to fork over at least a 20% down payment. Think of being a landlord as part of your overall investment strategy and be realistic about your goals — most landlords aim for about a 5% return on their investments.
By Aldo Svaldi
The Denver Post
Borrowers made big push to lock in equity gains on homes ahead of interest rate hikes
Metro Denver homeowners burned with refinancing fever in the fourth quarter, according to an analysis on mortgage activity from RealtyTrac.
Denver area residents refinanced 28 percent more mortgages during the last three months of 2015 than they did in the same period in 2014.
That was the fourth-biggest jump among the 65 metro areas that RealtyTrac studied with 5,000 or more loan originations and way ahead of the 2 percent increase in mortgage refinancings measured nationally.
Three Tennessee cities ranked ahead of Denver — Nashville up 80 percent, Knoxville up 46 percent and Memphis up 31 percent.
Other cities with big gains in refinancing activity included Grand Rapids, Mich., up 25 percent; Fort Meyers, Fla., up 23 percent; and Portland, Ore., up 21 percent.
Des Moines, Iowa; Tulsa, Okla., and Albuquerque all had 19 percent gains.
Borrowers who refinanced might have been trying to get ahead of a Federal Reserve interest rate hike in December. A more likely motivation was a move to capture equity after a big run-up in home prices.
“In many of the major metros with a big increase in refinancing originations, the common denominator is home prices that have reached new peaks or are at least close to their previous peaks,” said Daren Blomquist, a vice president at RealtyTrac.
Denver differed from the Tennessee trio and other cities with heavy refinancing activity in that mortgages taken out to purchase residential properties didn’t increase. Those actually dropped 3.3 percent in metro Denver, which lines up with reports on sluggish home sales in the final months of last year.