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Wednesday, July 21, 2010

It Pays to Conform (Be More Like Your Neighbors)

Have you ever gone into a neighborhood and noticed a few homes that stuck out like sore thumbs? One might be much fancier than the houses surrounding it while the other might be a "dump" in comparison to neighboring properties.

This scenario illustrates the real estate principle of "conformity." The main idea behind this principle is that a house is more likely to appreciate in value if age, size, condition and style are similar to, or conform to, other houses in the neighborhood.

How Does this Affect Buyers?

This principle of comparison also extends to buyers. By that I mean that if you make your property more "fancy" than others in your neighborhood, you end up limiting potential buyers. Of course, the opposite is also true – if you don't take care of your property, you'll definitely have fewer buyers looking at it.
Conformity is closely related to two other principles - progression and regression. In plain English, regression means that high-valued properties often tend to suffer when located close to lower-valued homes. Progression, on the other hand, means that lower-valued homes will often see increased value when found amongst higher-valued properties.

This formal principle leads the informal maxim: "Buy the cheapest property on the block!” The higher value of the homes around it will, in turn, make it more valuable.

As A Buyer, How Can I Use the Principle of Conformity to My Advantage?

I've already mentioned one method - buy the least expensive house in the neighborhood! Once you do that, improve it, and you'll get most ‘bang for your buck’ on your improvements. Of course, take caution when looking at such properties (often called "due diligence"). Spend the money on a real estate appraiser so you get an objective evaluation.

As A Seller, How Can I Use the Principle of Conformity to My Advantage?

As a seller, simply make sure that you maintain your home and lot on par with surrounding properties. Of course, if you've already done that, then invest in low-cost improvements such as new paint inside and out, landscaping, a professional cleaning job, etc. You might also want to add new carpets and/or new appliances if they are lacking.

Do it Yourself! ...if You're Sure You Can

All these actions will improve the value of the home in the eyes of potential buyers. If you're an experienced do-it-yourselfer, you should definitely tackle some improvement projects since they can cost less than half of what professional contractors charge.

However, notice that I emphasized “experienced!” An amateurish job on, say, cabinets or roofs can actually reduce the value of your home. So, unless you're really, really good at it, leave major home remodeling projects to the professionals.

You Don't Want a House with Too Many Areas Needing Improvement

Avoid any homes that need major fixes such as roofs, foundations, siding, plumbing, electrical work, etc. The last thing you need is a "money pit" into which you keep investing money and get little or nothing in return. Be sure to seek out sound properties, like homes needing only minor fixes such as painting, cleaning, landscaping, carpets, new appliances, etc.

If you're a buyer interested in real estate investment, purchase a home in a neighborhood that's just beginning a revitalization cycle. That way you can be sure values will appreciate.

You can also look for ‘under-improved’ properties such as single family homes which can be converted to residential income or commercial use, especially if such properties lie in the "path of progress;" meaning areas experiencing positive growth.

Want to learn more about buying a home at best value or selling it at maximum value? Then, call me today!

Wednesday, July 14, 2010

5 Steps to Raise Your Credit Score and Get a LOWER Interest Rate on Your Mortgage

Pay Off Your Debt, Now!

The only way to raise a credit score is to pay off your debt or at least reduce it to an acceptable level!
I recommend paying off high interest rate credit card debt first. They can suck the life out of your finances! As for those, "magic cure" credit repair commercials you hear and see promising a quick fix, their scam is even greater than high interest rate scam your credit card company is charging you!

What steps do you need to take to build your credit score to the highest level possible? How can you secure a mortgage with a lower interest rate? Use my common sense guidelines provided below to get rid of the debts that have reeked havoc on your chances for a lower-interest mortgage on your dream home.

View Your Current Credit Report and Know Your Credit Score.

Getting a free copy of your current credit report is easy online. Once you get it, study it and make sure that there are no errors in the report. There is no sense in paying dearly with a lower than necessary credit score for a mistake someone else made. Correcting errors can dramatically decrease your credit score. At the same time, just knowing your credit score can help you work towards raising it.

1.) Pay Your Bills on Time – All the Time!

I know, I know – this isn’t always easy. But, lenders of all kinds look for reliability on your part. Since loaning money is a risk for them, they look for signs that you have a reliable income and the discipline to pay your bills over time. When they see those signs, they say to themselves, “Hmmm, this person looks like a good risk to me; therefore, he or she deserves a lower interest rate.” Focus on paying all of your credit cards down a little bit each month rather than focusing on just one. Focusing too much effort on one while neglecting other credit cards can also impact your credit.

2.)  Do Not – I Repeat! – Do Not Open Unnecessary Credit Cards!

People sometimes open credit card accounts in order to increase their available credit. Absolutely avoid this temptation! It’s simply too darned easy to charge for items you don’t really need, and, before you know it, you’re back in debt or have increased it to an unreasonable degree.

3.) Budget, Budget, Budget!

Financially, this is possibly the most “unsexy” task there is, and yet it’s the most vital and important one you can possibly undertake! YOU need to figure out where you stand financially. Remember, part of your budget must be timely payments on your current credit card debt. Budgeting will allow you to get rid of debt, improve your credit score, and shape a low interest rate financial future for you!

4.) How Much Debt is Too Much?

Here’s the first question to ask yourself in terms of budgeting: How much debt is too much?
Actually, there’s a standard financial formula that allows you to answer that question. This formula is called the debt to income ratio, and what it does is measure your net monthly income against your debt.

Here’s an example:
"George” has a net monthly income of $2000 and his monthly debt payments are $500.

So, to get his debt-to-income ratio, George divides $500 by $2000 and gets this ratio:

500÷2000 =.25 (25%)

Is this a good ratio?
Well, financial experts generally agree that debt expenses should be 25% or less of your income. George’s ratio is reasonable but could be better. So, what’s the ratio of your debt to your income? Figure that out by taking the next step.

5.) Calculate Your Debt-to-Income Ratio

You can answer that question by completing the following tasks:

Task 1: Analyze your bills from the last month. Add up all the fixed expense items (rent, mortgage, car payments, child support, loan payments, etc.)

Task 2: Review your credit card bills and add up the minimum payments owed on each card.

Task 3: Figure out your monthly take-home pay (net salary).

Task 4: Divide your monthly fixed expenses by your monthly income to get your debt-to-income ratio.

What percentage did you get? If it’s 25% or greater, then it’s definitely time to budget in order to reduce or eliminate your debt.

 I’d be happy to discuss some more in-depth budgeting tips and provide you with information on mortgages at the same time! Give me a call right now so we can get together and have an interest friendly financial chat!