“How much does it cost you to own a mutual fund? Probably a lot more than you think.

“In selecting mutual funds, most investors know to check the expense ratio, the standard measure of how costly a fund is to own. U.S.-stock funds pay an average of 1.31% of assets each year to the portfolio manager and for other operating expenses, according to Morningstar Inc.

“But that’s not the real bottom line. There are other costs, not reported in the expense ratio, related to the buying and selling of securities in the portfolio, and those expenses can make a fund two or three times as costly as advertised.”

The Hidden Costs Of Mutual Funds

I have been told that to buy rentals and make money you should not pay more than 5 times the annual rent for a property. In this case the house would be worth about 90,000 dollars as is.

I abhor the ‘rules of thumb’ as they are always formulated for generic situations, and that WILL (not “can”) cost you dearly when the rubber hits the road.

Time to fire up Excel (or other,) and figure actual numbers…

Low-reality comparable monthly rental revenues,
Times 11 for realistic annual gross revenues,
(You’ll lose an average of a month per year (or 2 per each other year) in vacancies,)
Subtract annual taxes,
Subtract annual insurance,
Subtract association dues (if any,)
Subtract 10% for maintenance (short & longterm,)
Subtract 5-10% for management (even if you intend to DIY,)
Subtract your carry costs of down payment*
(Longterm Market rate on your investable safe cash elsewhere… I use 8% for my figuring.)

What’s left? That’s what there is to cover amortization burdens & interest on your mortgage.

Take this final number, plug it as your payment into a mortgage calculator at 30 years, with your investor-level interest rate (again, I currently use 8% to be conservative.) Solve for loan amount.

THIS is your loan which is 80% of your purchase price. (Divide your result by 80% for your breakeven cashflow purchase price.)
***********************

THEN… back to CraigsList (and local free access to MLS, perhaps,) and search out comps for sales. See if the purchase comps are in any similar universe to the fundamental cashflow value of owning.

Hope that helps!

Dave Donhoff
Leverage Planner

First, I am aware of the fact that “preapproval” is a stronger status than “prequalification” as far as demonstrating that you can purchase a property. If we are looking to buy/sell in June or July, is now the time to get a preapproval or is it too soon? Also, is there any advantage to getting preapproved by more than one lender?

A) Its not to soon at all to get pre-approved, since you still need to get out & hunt… but far more importantly, its not too soon to get started interviewing & shopping for a quality loan officer (which is far more important in your results than shopping institutions… let alone imaginary futuristic rate/fees.)

B) I could see advantages of having your chosen loan pro work up pre-approvals based on 2 or more loan scenarios (perhaps from different providers with different underwriting guidelines.) I see no functional advantage to having two different loan officers (blind of each others’ efforts) working up pre-approvals independently.

Next, I’m a bit concerned about how we are going to time the buy/sell in terms of financing. Ideally we would buy slightly before we sell so that we have a chance to move our belongings to the new home. However, I would like to have access to my current equity in order to boost my down payment on the purchased home. Are bridge loans a good idea?

Bridge loans are next to extinct at current. Your better bet is to have your loan officer create a HELOC at the maxium allowable loan-to-value on your existing home *NOW*…. *BEFORE* you even legitimately begin shopping a new home. Why the urgency? Because you’ll be certifying your *INTENT* to occupy as your primary residence in order to close on the HELOC… and if your old/current home is listed for sale, you’re dead in the water.

Is it still possible in this credit-constrained environment to buy a house with a jumbo loan and only put down 5% or 10%? My wife and I both have excellent credit scores (~800).

the answer is “it depends” and “possibly, yes.” Your location is going to determine whether your jumbo loan amounts are buyable by the government, or whether your loans must be held by private institutions. The government is willing to take far more risks (thank your taxpaying friends & neighbors for their support ;~) so if you are in a region where your jumbo loans can be sold to Fannie or Freddie you can get away with less down payment (and reserve more of your liquidity.)

Finally, will it cause any problems if my wife’s job, which will be the larger income, has not yet started. She has an offer letter in hand with salary specified, but will likely not start until September. It is a stable field (she is a doctor).

Again, it depends on how solid her employment commitments verify to be. In the current environment, many lenders are requiring closings to wait until an initial work-day has occured (but not all.)

As you shop your new home, having a finance pro (and flexible Realtor®) who can advise & help you structure early-occupancy deals with the sellers may be required. You may need to offer a 3 month or 6 month lease-purchase (as opposed to lease-option) contract to the seller that binds you to buy, where the seller effectively acts as the interrim bridge lender on the new home, but allows you to occupy 3-6 months prior to the bank loan closing (when your wife eventually punches the work clock.)

You, even more than the average joe, are going to be far better off spending your effort & time in finding & engaging the RIGHT support professionals (finance & realtor®.) Your eventual structure will make a far bigger deal in whether you over-pay (or save & secure a great deal) than trying to shop the face numbers.

Hope that’s helpful!
Dave Donhoff
Leverage Planner

STRICTLY on a financial cost consideration, it depends on the loan size(s) or remaining balances, versus the minimum real costs to refinance.

You may very likely qualify for 30 FRM money on your personal residence in the 4.5% to 4.75% range. You could potentially qualify for that rate all the way up to 75% or 80% of your personal residence value, if your income is sufficiently documentable.

THUS, the advice I’d have (given assumptions that you can qualify) would be to roll your personal home mortgage, and as much of your [other debt] as you can fit under the 80% value of your 1st home, into a single new loan at a 4.5% interest rate.

You’ll be saving annually on every dollar you roll over. That annual savings will (at some relatively soon point) overcome the financing closing costs you will have incured in order to do the rollover refi and from that breakeven day forward you will be accelerating your impending “mortgage freedom” day every day going forward.

ABOVE ALL ELSE, however…. *ALWAYS* keep sufficient liquid reserves! NEVER throw safety money (6-12 months total living costs) into mortgage reduction, until you can afford to do so in one single check (and still have 6-12 months living costs left in cash.)

Luck!
Dave Donhoff
Leverage Planner

Read Thread

A Pre-Qualification is merely a verbal interaction… i.e. you tell me blahblahblah, and I tell you “ok, I verbally annoint you to borrow X.”

A Pre-Approval Certification is generally only accepted by sellers and their agents when they state in writing that the borrower’s documentation has been reviewed and credit-approved, leaving only the collateral remaining to be approved. It doesn’t have to take more than an hour (maybe even 15-30 mins) once the borrower gets their relevant documentation in… but for many folks that can take from hours to weeks.

Rayy’s right about one thing, you *CAN* always go out & hit the bricks hoping for the best. If you are shopping strictly among FSBOs you *may* have a bit more luck as well. Anymore, however, listing agents screen buyers pretty hard to prevent timewasters.

David Donhoff
Senior Leverage Planner

Phone 425-223-4520
Email David@NoBullFinancial.com
Web www.NoBullFinancial.com
WA MB# 510-MB-26336

Our sole focus is on YOUR best results, for LIFE!

Read Thread

The answer is no, yes, and maybe…

The pre-approval itself is dependent on a snapshot in time of a list of variables. If none of the variables change over time, then the pre-approval remains in good standing. If (as) variables change, the pre-approval may no longer apply.

Some of the variables in play;
Your credit profile & scores,
Your income & employment history & status,
Your asset positions,
The terms currently offered on the financing applied for,
The program offered,
The firm ofering the program,
The market interest rates (and their effect on your debt-ratios,)
The regulatory situation of the moment.

ALL the “non-you” variables above have become huge rapidly shifting question marks over the last 18 months or so. No small number of assumed-approvable loans have fallen out of qualifiability (at zero fault of the borrower) due to the shifting grounds.

If you take the time to shop a quality professional (as you already figured you’ll need,) they’ll navigate these uncertainties and build “plan-B’s” to make sure you’re not shooting blanks when its most important to have real firepower.

David Donhoff
Senior Leverage Planner

Phone 425-223-4520
Email David@NoBullFinancial.com
Web www.NoBullFinancial.com
WA MB# 510-MB-26336

Our sole focus is on YOUR best results, for LIFE!

Read Thread

Given that virtually 100 out of 100 people who take a 30 FRM believe they are going to actually financially benefit enough to overcome the premium they pay… yet 19 out of 20 fail to do so… the numbers suggest the lion’s share do, in fact, believe they’ll be in the house for the long term.

Can’t win the lottery if you don’t give away your money to the teller ;~)

ALL THAT SAID… there definitely *ARE* people who have statistics on their side for outlasting the premium breakeven hurdle on a 30 FRM;
A) Those planning to hold the property as a rental,
B) Those who can already afford to pay off the loan,
C) Those who are at (or nearing) career retirement and have no need or desire to downsize.

LASTLY; It is not WRONG to make a major financial decision with emotional reasoning rather than cold numbers… just be honest with yourself about it. Its far more powerful that way.

David Donhoff
Senior Leverage Planner

Phone 425-223-4520
Email David@NoBullFinancial.com
Web www.NoBullFinancial.com
WA MB# 510-MB-26336

Our sole focus is on YOUR best results, for LIFE!

Read Thread

IF I have a 30 yr jumbo loan at 7% and can refi at 5.5% but only with an ARM is it worth the risk?

What are you trying to accomplish?
Why are you thinking you can only refi into a 5.5% rate on a 5 yr ARM?
Which “risks” are you most concerned about?
What are your liquidity, reserves & insured positions?
Where is the property? What type of property is it?
When was it last financed? (Bought or refied?)
At what amount? What equity position?

You have a world of variables that apply, and trying to focus through a drinking straw (which is the essence of the question as posed) is dangerous.

REMEMBER; a mortgage is just one piece of your complete financial machine, and the rate & period terms of a particular mortgage are only PART of the picture of the mortgage structure. How MUCH mortgage you place has an effect on how much net worth you keep in your REAL ESTATE (and the risks & exposures therein…) and how much you keep in residential real estate (relative to the market realities) has an effect on how much you have in OTHER important areas of your portfolio. ALL of the above has tax & risk exposure consequences as well (far more than just the “mortgage interest deduction” conversations.)

Make sure you consider all angles… take the time & get it all down on paper so you can review & carefully weigh the issues as the cross each other.

Luck!
Dave Donhoff
Leverage Planner

Read Thread

Here area some more real-world facts (contrary to the Freddie FAQs);

While new lenders *can* accept appraisals transferred from another lender… they are not compelled to, and now virtually never do *UNLESS* the previous lender agrees to certify that they are enitirely HVCC compliant… which the initial lenders are refusing to do as it ties THEM into liability issues on a loan done at another lender they aren’t even getting paid for.

There is no requirement of cooperation between lenders to support the consumer’s best interest. the consumer is the whipping child now, paying for the “protections” the goverment has put in place.

THUS,
If a consumer begins their loan process, prepaying (as they are now required to do) for their appraisal… regardless that they use a wholesale broker with many lender resources… if they then wish to have their loan moved to a different lender (either another available to the broker or any other retail lender) they must pay, in full, in advance, AGAIN, for yet another full appraisal.

FURTHER… given the painfully sluggish footdragging process as it stands right now, a NEW appraisal performed weeks (or even months) later can very easily reflect an even lower appraised value due to new sales comparables closing at lower prices.

EVEN FURTHER… if you wish to avoid PMI by taking a piggyback 2nd lien behind your 80% 1st lien mortgage, you are VERY likely (almost always, with rare exception) now going to have to pay for an ADDITIONAL full appraisal, seperate from the 1st, to be seperately packaged in the 2nd lender’s name… since the 1st lender will refuse to certify their compliance, and the appraiser themself is forbidden to transfer the appraisal without the original lender’s authorization.

THE MOST LUDICROUS THING ABOUT ALL OF THIS IS… it was created by the New York Attorney General to stop a problem whereby appraisers were being manipulated by Washington Mutual retail lending loan officers and realtors (NOT WHOLESALE BROKERS, who had NOTHING TO DO with the WaMu problems!)

The COMPLETE GOVERNMENT SCREW UP? They wrote the code exempting retail loan officers (just brilliant, I’d say ;~P

The Unintended Consequences? The consumers’ competitive advantage of using a broker as a ‘fiduciary financial agent’ has been decimated by additional costs and delays and incompetencies of providers-required.

*IF* this persists, it will have a very negative effect on the normal real estate markets… in essence exacerbating, deepening and extending the natural regression we would have (and currently are) already been experiencing.

Cheers,
Dave Donhoff
Leverage Planner

Recognize; This is NOT so much a testament to the status of either real estate on its own, nor gold on its own… but rather a comparison of two HARD ASSET classes.

One (Gold) is easily acquired, easily transported, universally accepted/converted, easily kept private/secret, easily hidden & defended, and very difficult to tax….
The downside, of course, it is extremely difficult to leverage (let alone to leverage with depreciating currency,) and difficult to put to work generating a yield/income.

The other (real estate) is almost exactly the opposite; Permanently located, a complex purchase process, publically titled, uniquely valued relative to location & functionality, impossible to hide, difficult to defend against predatory litigation, and a “sitting duck” (literally) for predatory taxation.

The UPSIDE is that the overwhelming majority of the world’s “strong hands” control real estate and therefore the realistic taxation will always be minimized (and/or passed through to the non-owner consumers.) Real estate is leverageable with OPM (borrowing decaying money today to buy & keep non-decaying assets, then repaying later with the decimated cheaper currencies,) and can far more easily generate a yield/income via rental proceeds which dynamically tend to increase in proportion to the costs of the leverage, and any taxation burdens… thereby making real estate a “hard asset” that can not just figuratively BUT LITERALLY “pay for its own keep” while the owner sits back and accrues the appreciation.

Gold is a “pure speculation play” in that it is difficult (if not impossible) to acquire gold at much of a real discount below its actual realtime market price… conversely, when it comes time to sell gold, it is equally difficult (if not impossible) to sell it at any real premium above its then-current realtime market price.

Real estate, on the other hand, can be bought and sold at a WIDE RANGE of discounts and premiums, all relative to the hunger and motivation of the counter-party to each transaction. Of course, this is a double-edged sword… so if one is a principal to a real estate transaction, you would always want to be in the “strong hand” position with the greater of time and term flexibility.

QUITE INTERESTINGLY, the article’s author http://www.safehaven.com/article-14417.htm is quite clearly a “Gold bug” with a speculative gambler’s lust to the point of blindness (in my opinion.) He states that;
This means that there is an absolutely huge pent-up supply of homes that will need to be sold onto the market eventually. This supply will hit right as the psychology for “investing” in real estate turns seriously south. People will be looking to rent, not buy, and yet an absolute flood of homes will need to be brought to market in this environment. By the way, the ability of people to buy (due to worsening unemployment and and ever tightening lending standards) will have decreased further as this supply eventually makes its way to the market.

Oddly, he says this like it is a *BAD* thing for income/yield buyers and leveraging inflation hedgers (very telling of his “speculative/gambler” mindset…) but this is clearly “the Perfect Storm ADVANTAGE” to such savvy investors!

Many of these homes will be rented, forcing rents to decline as well (which in turn lowers the value of a home for a potential investor looking to buy a rental property).

He fails to realize that there ARE NO NEW HOMES COMING INTO INVENTORY… virtually all the new home builders have GONE BANKRUPT (or are hiding it out!) Instead, *ALL* the “for sale” inventory is coming from desperate OCCUPANTS and “Don’t-Wanna-Be-Landlords!” Once again… for patient, smart, liquid, savvy buyers; THE PERFECT STORM!!!

In order to UN-occupy the home that is sold, ANOTHER home must them be rented! There are NOT MORE HOMES in terms of absolute supply… it is simply a gigantic game of “musical chairs” with the endline losers being the default-swallowing bank/investors.

FURTHER, while rents will have a temporary flattening pressure from the current income and unemployment depression, the ensuing inevitable monetary price inflation will have no choice but to flow “downhill” to the lowest common denominator of consumption; the housing rents.

THE WAY I READ THIS CHART is that Gold is actually on a significant DECLINE in recognized advantage as a hard asset, in comparison to real estate. This is important to note as we approach the inflationary times ahead… once a new trend is obvious to all, it is generally too late to get on the most advantaged train. When (if) gold reaches its historical bottom, relative to real estate, it may be long past the times when the deepest “desperation discounts” have been available to real estate investors.

Trying to leap into Gold (versus Real Estate) at THIS POINT is tantamount to “trying to catch a falling knife.” Unless the FEATURES of gold (as expressed above) are more valuable than the yield and future inflation hedging power of leveraged real estate… then the latter is the forward-looking choice.

As Wayne Gretzky “The Great One” is often quoted as saying; “Do NOT skate to where the puck currently IS… instead, skate to where the puck is GOING!”

Senior Leverage Planner

Phone	425-223-4520
Fax	425-822-5305
Email	David@NoBullFinancial.com
Web	www.NoBullFinancial.com
WA MB#	510-MB-26336

Our sole focus is on YOUR best results, for LIFE!