Keep Your Home Safe With Storm Shutters

New Brunswick is one of Canada’s three Maritime provinces, and has a significant seacoast. It’s the gateway to Atlantic Canada. Tourism is a big part of the economy, and whale-watching is a huge part of that. The Bay of Fundy in southwestern New Brunswick is a rich feeding ground for whales and is one of the world’s most accessible sites for viewing them.

The area is also very prone to storms and hurricanes because of its extensive coastline. Just recently, in fact, a storm knocked out power to tens of thousands of residents across Atlantic Canada. Nearly 45,000 homes and businesses lost power during the storm. The area was slammed by 160 kilometer per hour winds, and extensive flooding was caused by a storm surge. A state of emergency was declared after homes and businesses were flooded, and storm surge pushed water levels up.

Meteorologists and other weather experts agree that coastal areas of the United States and Canada may be facing serious hurricane activity for the next 15 to 20 years. That means a vicious cycle of destruction and cleanup for those living along the coast. Smart homeowners in New Brunswick are installing storm or hurricane shutters on their homes.

Impact-resistant windows and doors offer protection from flying debris and high winds, but are a lot more expensive: They cost up to three times more than storm shutters. Storm shutters also offer protection from debris during a hurricane, but they also protect against water infiltration and keep pressure changes during a storm from destroying your home.

You can use a combination of shutter systems to meet your needs. Each product has its own unique benefits, and may be tailored to fit your home and aesthetics.

Different Types of shutters you may use on your home:

Bahama Shutters – attach at the top of windows and provide shade when not closed and protecting your home.
Roll-down shutters – most conveniently close at the touch of a button and when not in use are practically unnoticeable.
Accordion shutters – attach at the sides and fold out accordion-style when you need to make your home storm ready.
Colonial shutters – very old-world type of shutter, popular in the Southern United States. A two-part shutter attached in the middle.

No matter what type of hurricane shutter that you choose, if you live in New Brunswick you should have them on your home. Hurricane shutters not only offer protection from debris thrown by the storm, they protect your home from water damage and pressure changes that happen during hurricanes and tropical storms.

Taxes When You Sell Your Home

What’s the difference between death and taxes?

Death doesn’t change every time Congress meets. But taxes certainly did in 1997, and the Taxpayer Relief Act of that year made a dramatic difference in the tax liability of those who sell their own homes. As it stands today, almost no one will owe any federal tax on profit made from the sale of a principal residence (defined by the IRS simply as the place you live most of the time.). To qualify, you must have owned and occupied the house as your main home for at least two of the five years before you sell.

And that’s about it..

It won’t matter how old you are when you sell.

It won’t matter if you once used the old one-time $125,000 over-55 exclusion.

It won’t matter whether you buy a replacement home or not.

It won’t even matter if you’ve used this new exclusion on another main home in the past, as long as it was more than two years before the current sale.
A single owner can take up to $250,000 gain free of any federal tax ever.

A married couple filing jointly can take up to $500,000. Even if only one of them owns the property, the full $500,000 is available if the non-owner spouse occupied the property for the required two years.

The exclusion can include postponed profit on previous homes, rolled over under the old pre-1997 rules. This new tax break can be used over again on the sale of another principal residence, as often as every two years.

You can even use part of the exclusion if you were in the house less than the full two years, if your move is required by one of three reasons: job transfer, health reasons, or some other unforeseen circumstance acceptable to the IRS.

So few home sales will require federal tax payments these days that in most cases your sale won’t even be reported to the IRS by the person in charge of the closing.

The Smart Home Buyer

Put a proven plan into action that will allow you to buy a home now – and:

1. Upgrade to a bigger home in record time while building a large investment account, or

2. Have the ability to pay your home off very quickly, without making extra payments.

The keys to this plan are simple. You just need to know how to manage your income, interest, and equity.

You also need to buy “less house” than you are qualified for the first time out.

During my many years of working in the real estate industry, I have observed that there are two kinds of home buyers. We’ll call them Type A and Type B.

Type A Home Buyers

Type A Home Buyers are conservative. They fight the urge to bite off more than they can chew. The first home that they buy costs less than they can afford.

They don’t rush out to buy new furniture on credit. They don’t buy new cars or insist on owning all of the latest high ticket items.
As a result, their budgets aren’t stretched, they have extra money to invest and save, and they are not forced to use high interest credit cards to pay for any emergencies that come up in their life.

For the most part, they live on a cash basis. If they don’t have the cash to spare; they don’t buy it.

This lifestyle may sound familiar to you. This is the way our parents, grandparents, and every generation before them lived. This is the way of life that built America.

Type B Home Buyers

Type B Home Buyers do things differently when buying their first home. They buy a home for the maximum amount that they are approved for and then they spend all of their extra cash on new furnishings.

They probably will take advantage of some of the “12 months same as cash” offers to buy even more new furnishings and they might decide that they need a new car to go in the garage.

At this point, the budget is stretched to the limit. Every paycheck goes to pay bills. There is no extra money to invest and save.

It gets worse. The refrigerator conks out and they are forced to buy a new one on a high interest credit card. The “12 months same as cash” has expired and more payments hit the already over taxed budget.

Then, one of our Type B Home Buyers gets laid off. There are no reserves to fall back on. You can imagine what happens next.

o Late Bills

o Late Mortgage Payments

o Sometimes, even bankruptcy

It didn’t have to be that way………

If you haven’t already figured it out, Type A is the Smart Home Buyer.

You can be too!

Follow these simple principals and you will;

o Live with less stress

o Have reserves to fall back on

o Build wealth faster

o Make interest work for you

You will also have the option of buying or building the home of your dreams – without stretching your budget – sooner than you think!

The Plan

The plan that makes up The Smart Home Buyer Report is pretty simple. It is based on 4 easy-to-follow parts.

1. Buy less than you are approved for

2. Keep your principal

3. Invest the difference

4. Invest windfalls

Buy Less Than You Are Approved For

When you visit a loan officer to find out how much you can get approved for, you will probably be offered the maximum. Many of the programs that will be offered to you will allow you to spend up to 55% of your gross income on mortgage and debt payments.
(Gross income is before taxes)

If 15% of your total paycheck goes to income taxes and you buy the maximum that you are approved for, you would actually be spending 70% of your income!

Gross Income 100% $5,000

Taxes -15% -750

Payments -55% -2,750

Money Left Over 30% $1,500

Suppose that you have 5% deducted from your pay each month for a 401K plan. Now you only have 25% of your income for living expenses.

What do you spend monthly on the following items?
o Utilities

o Insurance

o Groceries

o Gasoline and auto maintenance

o Health insurance and medical related expenses

o Entertainment

o Tithing and charitable donations

Are you putting 10% of your income into savings each month?

You can easily see that spending the maximum that you are approved for doesn’t leave much to work with. If you are in a higher tax bracket, it gets much worse!

In my opinion, you are just asking for trouble if you go this route!

Reduce Your Stress

Why not buy a home that is less than you are approved for?
Let’s say………….35% of your gross income.

Instead of trying to pay living expenses, save, and invest on only 30% or less of your income, you now have 50% to work with!

o Which plan of action would result in less stress?

o Which plan would allow you to plan more effectively for the future?

Keep Your Principal

Once you have made the decision to buy less than you are approved for, you may want to do what many of my clients have done. They purchased their home with an interest only 30 year fixed mortgage, and invested the difference.

In other words, they have invested the portion that would have gone to pay principal. Most mortgage loans include principal (the money that you have borrowed) and interest in your monthly payment.

I know what you are thinking: “Did he say interest only? I’ll never pay my house off on an interest only mortgage. I heard that those are bad”

If you are using an interest only mortgage to buy a bigger house than you can afford or to get lower payments without any other plan of action, they are bad!

Let me tell you a little bit about “the proper use of interest only loans.”

Banks borrow money at a discount, on an interest only basis, then they loan it to you at a premium. They make their interest payments and invest the rest.

Traditional mortgage companies make a big profit on the interest you pay for the use of their money. Additionally, they make a huge profit investing the principal dollars you are paying each month.

When you take out a mortgage, the mortgage company doesn’t lend its own money to you. They use “Other People’s Money” (OPM). Using OPM is one of the secrets of wealth.

Large and small businesses borrow money (OPM) on an interest only basis in order to keep more of their income. Why? If they keep more of their income, they can use it to make more money!

This is how the wealthy people become wealthy!

Borrow at the lowest payment; invest the difference. Invest more of your income.

o For the first several years, the majority of your payment goes to interest anyway.

On a traditional 30 year mortgage, you don’t start making a significant dent on the principal until you have been paying for over 15 years!

Why not keep your principal and make it work for you instead?

Important note: I am NOT a proponent of many interest only, adjustable rate mortgages. For the purposes of The Smart Home Buyer Report, a 30 year fixed mortgage, with a 10 or 15 year interest only period, is the most conservative and effective way to go.

Invest the Difference

You must be disciplined to this. Treat your investment payment just like any other bill. It MUST be paid!

o If you save $300 per month by paying interest only (I/O) on a $200,000 mortgage, you would invest that $300 every month.

o By averaging a 10% annual return, (I’m doing it; you can too) your investment account would be worth $62,778 at the end of ten years!

o During this same period of time, you would have paid only $30,449 in principal, on a traditional 30 year mortgage!

The following chart shows:

The principal paid on a traditional 30 year mortgage

VS

The value of your investment account, funded by your monthly interest only savings

These numbers are based on:

$200,000, 30 year fixed mortgage with a note rate of 6.5%.

Interest only saves you $300 per month.

You invest that $300 per month into an account that pays 10% annual interest.

Years Principal Paid Investment Value
5 $12,778.00 $23,918.00

10 $30,449.00 $62,778.00

15 $54,285.00 $126,713.00

20 $88,671.00 $231,907.00

Rather astounding, isn’t it?

You have amassed this fortune while making the exact same payment that you would have on a “traditional” 30 year mortgage!

o By the end of 5 years, you have only paid $12,778 in principal on a traditional mortgage.

o If you are on an I/O mortgage and you invested the $300 monthly savings, you would have $23,918. That is almost double the amount of principal that would have been paid!

o Notice that 20 years into the traditional loan, you have not even paid half of the principal back on a traditional loan, but on the I/O, you could pay off your home and still have cash left over!

Lots of Options

At the end of the first ten year period you could pay $30,449 to principal, be in the same position that you would have been on the traditional loan and walk away with more than $32,000 of your investment money.

Or………..

You can sell your home; roll the equity over into a larger or smaller home, depending on your needs and/or desires, without increasing your monthly payment. If you decided on this option, you would use an I/O mortgage for your new home and continue to grow your investment account.

Or…………

You could refinance into a new mortgage that gives you another 10 years of I/O. Lets imagine that the refinance costs $5000 to accomplish. You now owe $205,000 on your home. Look at the magic of the second 10 year investment period.

Continuing to invest just $300 per month @ 10% annually, you will have $231,907 at the end of this 10 year period! Subtract the $5000 that it cost to refinance and you net out at $226,907.

Invest Windfalls

Consider this:

The average tax payer receives a $3000 refund each year. What happens if you invest this amount as well as your monthly payment?

You would have $425,164 at the end of 10 years! WOW!

Imagine how much you can amass by adding a little more here and there!

Some of my clients really get into this and they squirrel away every extra dollar that they can. They don’t run out to buy the latest, greatest, newest, gadgets when they hit the market. They aren’t caught up in “keeping up with the Jones.”

They have a vision of a future that includes many options. It really boils down to how bad you want it!

It doesn’t end there either! During this time, your home has been appreciating. Let’s assume an ultra-conservative rate of only 3%. (The national average is 6%)

At only 3%, your home is now worth $361,000.

Let’s recap. Twenty years have gone by:

Home Value $361,222

Mortgage $205,000

Investments $425,164

Net Worth $581,386

Here are some other benefits to think about:

1. During the period that you are following this plan, you are very liquid. If you have an emergency or are unable to work for a span of time, you have the cash reserves to fall back on.

2. Paying extra to your mortgage instead of investing will increase equity, but if you are not qualified to borrow against this equity during a time of emergency, (Credit issues, no income, etc) the equity is worthless unless you sell your home.

3. There is nothing to stop you from paying extra to principal. However, after looking at these numbers, I don’t know why you would want to do that!

You should ALWAYS consult with a local licensed financial adviser before investing.
The examples are not intended to represent any actual investment or savings vehicle. The availability of an account meeting the criteria is theoretical. Such an account would be necessary to make the process function as described.

A good growth account is one that will maximize your money’s growth and security. Even more important than the “rate of return,” the use of tax and accounting rules can increase the security and wealth potential of your growth account.

Where you put your interest savings and some of your principal payments, so that they can grow, is crucial to the success of your plan.

Not all growth accounts are the same. Ideally, a growth account should provide four essential characteristics in order to make the most of your wealth potential and security.

Your growth account should provide:

o Tax deferred growth of the money placed into it

o Some minimum guarantee of interest or return on the money

o No cost access to the money

o Tax free access to the money and growth on the money

All of these characteristics can make a huge difference in the potential of your growth account. You can use whatever you choose for a growth account. For most growth account options, you will use your local professional.

Rolling Hills Home Sales in 2009

The private, gated community of Rolling Hills consistently ranks as one of the most expensive sub-areas of the South Bay. In fact, when using median sales prices as a metric of value, this area more often than not is at the top of the list. The number of homes sold last year jumped from 12 in 2008 to 17. To put this into perspective, this is half of what the number of sales were at the peak in 2000, but the number is on the rise. The median sales price of $2,500,000 represents an increase from $2,200,000 the prior year as well. So by these two metrics, the market conditions have improved here from what appears to be the depths of a challenging 2008.

It also remains the only sub-area of the South Bay to have had the median sales price for a given year exceed the $3,000,000 mark. This occurred back in 2007, the year that most areas in the South Bay reached their peak values. Rolling Hills homes sit in a city that “maintains a ranch style/equestrian environment with an enduring respect for native wildlife and natural surroundings” according to the city’s website. Given how well home vales have themselves endured here, it appears this thinking is paying off for the residents as well. In 2000, the median sales price for a single family home was $1,625,000.

This year’s sales are off to a solid start. There has already been a closed escrow and there are currently six active escrows. Of the active escrows, half were opened in 2009. It should be noted that the average price of these homes is under $2,000,000, so it appears the sales are of the lower priced offerings here. On the other hand, there is plenty of inventory, almost a year’s worth, on the market. The median list price of these homes exceeds $3,400,000. Four of the homes are priced at over $10,000,000. It will be interesting to see if the high end of the market of Rolling Hills homes catches up as we move forward in 2010.