How Central New Jersey Real Estate Investors Use Their IRA

March 3, 2013 By Leave a Comment
 

In case you missed it, there is at least one widely overlooked local real estate investment possibility that can be available to active IRA holders. Especially if you are among those who look at the current Central New Jersey real estate market and find numerous investment possibilities with significant long-term upsides, the Self-Directed IRA option can be worth looking into. Some of the broad outlines of how it works:

1. The right IRA custodian

Custodians are trustees who hold self-directed IRA assets and file documents with the IRS. Central New Jersey real estate purchases are considered ‘non-traded’ assets — and not every IRA custodian allows for them. You may need to find one who does.

2. Use only IRA funds 

All costs associated with your real estate investment must be paid using funds from the self-directed IRA. These can include property management expenses (if you use the property as a rental), taxes, repairs, and insurance. Using IRA funds for any personal expenses or personal benefit will lead to penalties.

3. Guard your interests

Be careful to play by the rules. For instance, you cannot involve a spouse, family member, or company in which you have a 50%+ interest; nor may you reimburse yourself for work you do on the property (including the reporting and other administrative requirements).

According to Fox Business News, many people are using self-directed IRAs to purchase non-traded assets like real estate. Since there are significant limitations as well as advantages, it is all but mandatory to consult a qualified accountant or legal professional before proceeding. If it looks as if the advantages predominate, it will be time to go about finding the right Central New Jersey property for your investment…time to contact me!

The DoorPath Team is the most comprehensive online source for Central New Jersey real estate information and services. Whether you are looking for the latest sales, trends or homes for sale in Somerset, Middlesex Union or Hunterdon Counties in New Jersey, The DoorPath Team at Coldwell Banker Residential Brokerage has it all at your fingertips. Browse information regarding short sales, foreclosures, new construction, investment property, land sales or commercial locations throughout Central New Jersey plus much more at  www.DoorPath.com or call us at 908-658-9000 x 159 or cell at 732-302-1771.

 

 
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What is in a Short Sale Information Packet?

July 10, 2012 By Leave a Comment
 

 

What is in a Short Sale Information Packet?

 

A Short Sale is the agreed upon sale of your home with the ending sales price being less than the amount you owe on the mortgage.

If you are a homeowner in distress, if you have lapsed on your mortgage payments, or cannot afford to make your payments then it is important to contact or your lender immediately. It is essential to work with a local licensed real estate professional and an attorney who can protect your rights and help you find the right options during the process. If you are in Central New Jersey, I can provide you with guidance and refer you to the best lawyers.

My negotiating success in short sales comes from preparation. That is why it is so important to have a complete Short Sale Package.

Each lender has their own specific package of documents, below are the preliminary documents you should be prepared to provide:

Hardship letter. A hardship letter is a written statement as to what consequence has caused you to fall behind on your mortgage. Examples of hardship are:

a)    Unemployment

b)    Divorce

c)    Medical emergency / sudden illness Bankruptcy

d)    Death

A signed Authorization to represent form(s) for each lender (Lenders typically do not want to disclose any of your personal information without written authorization to do so.)

Copies of all legal notices you have received from your lender and copies of Mortgage Statements

A completed Income and Expense Form or Lender Specific Financial Statement (Lenders will want to know if you have savings accounts, money market accounts, stocks or bonds, negotiable instruments, cash or other real estate or anything of tangible value.) 

Last 2 years of your Tax Returns

Bank statements for the last two months

Your last two paycheck stubs

Verification of any other source of income

An Accepted offer on your home (provided there is one)

If the lender discovers assets, the lender may not grant the short sale because the lender will feel that the seller has the ability to pay the shorted difference.

Keep in mind that all banks have different guidelines/timelines when it comes to the short sale process.

Let the DoorPath Team provide you with the best service.

 
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New Jersey Mortgage Escrow Account Clarifications

April 24, 2012 By 1 Comment
 

Two things that influence a mortgage escrow account the most:

  1. Property tax on the home-Most lenders requires this in escrow because if the taxes are not paid, your municipality could place a lien on the property that would have a higher priority than the mortgage lender’s lien.
  2. Homeowner’s insurance policy – All lenders require home insurance because of the investment they are making in your home.

The day you close on your new home, your lender will usually require you to open an escrow account to cover property taxes and homeowner’s insurance. You make the initial escrow deposit, followed by payments to the account every month. The monthly escrow payment is calculated by taking the total of all projected tax and insurance payments for the coming year, and dividing that number by 12.

When making your mortgage payment, you may have the option to pay extra into the escrow account, which is a very smart choice since property taxes or insurance premiums may rise. This helps to avoid the increase to be paid all at once. The benefit of this to borrowers is that this plan helps to stretch insurance and tax expenses evenly over 12 payments. For example, assume your yearly property taxes are two payments of $1,000 each, and your insurance is $400 annually. If you paid these directly, it would mean three large payments a year; your escrow costs, however, would be a manageable $200 a month. When the tax or insurance payment is due, the lender pays the bill using the funds accumulated in the mortgage escrow account.

If you have a Conventional Loan and you do not have PMI (Private Mortgage Insurance), you have the option to close your escrow account and make your own tax and insurance payments. If you have a VA or FHA loan, the lender may be required to continue to keep an escrow account for the life of the loan making this a provision in order to receive the funds for your government-insured loan.

This strategy protects the lender by making sure you pay your taxes and insurance on time. If you default on your property tax, for example, your municipality can put a lien on the house, which would make it difficult to sell.  If your house burns down and you have neglected to pay your homeowner’s insurance, the lender is going to be without collateral.

Here is a little mortgage lingo for you. Since mortgage escrow payments are applied to taxes and insurance, you may hear it addressed as T & I, while the mortgage payment consisting of principal and interest is called P & I. They both equal PITI for Principal, Interest, Tax, and Insurance. Occasionally you will hear these terms from your lender.

By RESPA (Real Estate Settlement Procedures Act) guidelines, escrow payments will be evaluated at least once every 12 months to account for any increases in property taxes or insurance. This is known as Escrow Analysis.

Any overpayment of $50 or more will be refunded to the borrower or your lender will send you a bill at the end of the year to make up for any shortage in your escrow account based on the tax and insurance bills.

 
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Reality Check for Real Estate Investing

April 21, 2012 By 3 Comments
 

Reality Check for Rental Real Estate Investing

You can’t judge a book by its cover.  When considering whether or not to become a real estate investor, you always need to look deeper than the surface and you always need to look at dollars as the motivating factor.  Don’t let the media or your emotions lead you down a path of mistakes.

To help you avoid these mistakes here are four rules to follow:

1. Rule one is always know who your target market is.  You may not want to live in the property you are considering but renters may think it is a great home for them.  Ask a real estate agent what types of properties are in demand for the areas you are considering.  In the Bridgewater area we are seeing places that offer two bedrooms and two baths being snapped up almost immediately.  Studios and one bedroom places tend to stay on the market a little longer.

2. Rule number two is never get emotionally involved with a property.  When it comes time to negotiate a contract on a new purchase you should always feel like you can walk away from the deal emotionally.  If you feel as though you cannot walk away from the deal, you need to take a step back and review all the terms! When your emotions take over you cannot make rational decisions and will almost never make a good business decision.

3. Rule number three is a little tricky.  Are the numbers actually true?  No matter how good the numbers look a simple reality check can save you time and money.  Will the rent cover expenses such as a mortgage, taxes, association fees, utilities, etc.? Check the numbers on leases and get copies so you can verify what current tenants are paying.  Call around to check on market rates for rents.  If the rents are high on the places you are considering your tenants may not renew with you and your potential income will drop.

4. Rule number four is ugly can be pretty in the pocketbook.  Many places are overlooked due to a negative first impression.  Often the ugliest place can be rehabbed easily and turn a profit quickly.

When investing in real estate always consult with a REALTOR.  Their job is to know the market, recognize value and assist in closing the deal you are seeking.  A professional real estate agent will know of short sales, foreclosures and in some case special circumstances which may allow you to get a bargain on your next investment property.

 
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MOTHER/DAUGHTER HOMES

April 14, 2012 By 1 Comment
 

Mother/daughter homes are HOT right now. Many of my buyers here in Central New Jersey are couples selling mom and dad’s home along with theirs to save money on taxes and home maintenance by buying and sharing a home that has an in-law suite.

As an example, maybe it was a mutual decision that grandma should move in because she loves watching the young kids, saves on expenses and since she doesn’t get around as well as she used to, her support group is right down the hall.

As a REALTOR, I am often asked what is the difference between a two family home and a mother/daughter home.

  • Multi family or two family homes are legally two different residences in which you could live in one and rent out the other(s).
  • Mother / Daughter homes have a separate apartment (either with or without a private entrance) and legally cannot be leased.

These are usually larger homes with specific rooms or apartments designed for accommodating elderly parents. In-law apartments may have a separate entrance from the main entrance and could be entirely self-sufficient having a smaller kitchen and utility/laundry room. Other plans may include a privately located first floor bedroom and bath designed to accommodate other family members, or live in help.

A mother/daughter would be the same price to buy a single family home with comparable square footage. Most of these suites are approximately 500 square feet or larger. If you own one, please make sure you have the proper permits through you town’s zoning department. This makes it easier when you go to sell your home.  If you are looking to purchase a home with a full in-law suite, have your REALTOR or a Real Estate Lawyer check to make sure it has all the necessary permits before you buy, that is if you are planning to leave it as it is.

If you need assistance in finding a home with an in-law suite or have questions, feel free to contact me at dawn@dawnruete.com.

 
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Easy Explanation of Private Mortgage Insurance

April 8, 2012 By 9 Comments
 

Since I became a Central New Jersey REALTOR, I have been asked many times to explain what Private Mortgage Insurance is. It sounds a little more complicated than it really is. This is how I explain it to my clients. I think it is simple enough even for my first time home buyers.

Exactly what is Private Mortgage Insurance? What are the main reasons why you would really need to have it?

If you decide to purchase a home in Bridgewater, New Jersey and have less than 20% down  you will then be required to purchase Private Mortgage Insurance (PMI). This applies to conventional and FHA Mortgages.  If the purchase price of the home is $500,000, your estimated monthly PMI will approximately be $260 in addition to your regular monthly mortgage payment. Private home loan insurance is always added to your monthly mortgage loan payment until you reach 20% equity value in your home.

While this is a substantial insurance plan, it is mandatory in getting a loan. This protects the mortgage lender from delinquency, or whenever their investment becomes lower than 80 percent then what the home is worth.

What is the best way a consumer can get the maximum benefits of PMI?

Buyers who may have a less than 20% deposit for any conventional or FHA home loan or cannot match the earnings needs but want an opportunity to become homeowners, have the chance, by opting to pay for PMI. A buyer will then be approved to get a house, and at the same time build equity. Additionally they will have the advantage of getting tax breaks on the mortgage interest and property taxes. PMI helps prospective homeowners to have the opportunity to purchase home, years before they could save the 20% lower payment needed by mortgage loan companies.

The Home Entrepreneurs Protection Act states the customer can request the PMI be stopped as soon as they reach equity within their home. It is very important that the homeowner know when they have achieved the 20% equity level to be capable of save 2 percent of PMI.

PMI policy is in not to be confused with Life Insurance. When the borrower becomes disabled or dies, his family will have no assistance. PMI needs to be paid up until the home reaches 20% of equity.

What is easiest method to decide if there is 20% equity within your house?

Having to pay back 20 % within the loan and achieving 20% equity on your house is not the identical factor. Equity is dependent upon the value of your house and may increase because market values have elevated or due to home enhancements. The homeowner must first determine the worth of his home utilizing a licensed evaluation.

Contact your local real estate agency, such as Coldwell Banker Residential Brokerage to come visit your home. This way the agent can make detailed notes on the number of rooms, remodeling or updates on the property to give the best comparative market analysis (CMA) is an assessment of similar, recently sold homes that are near a home that you want to sell.

 
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HOW TO BECOME ELIGIBLE FOR THE NEW JERSEY 2011 SENIOR FREEZE EXEMPTION?

April 1, 2012 By Leave a Comment
 

As a REALTOR in Central New Jersey, my team works with many seniors who face the question of whether or not to sell their current home. Their big concern in many cases, is can they afford to stay in the current home since property taxes always seem to be rising  and property taxes can take up a large part of their budgets. Quite often this is the best part of my job; being able to tell them they do not need to sell because of the New Jersey Senior Freeze Program.

There are two different kinds property tax relief programs in New Jersey. The first is the Homestead Benefit Program, which I will talk about in my next blog. The second is the Senior Freeze Tax Reimbursement program for people 65 years and older or who are physically disabled.

Who is eligible?

Age 65 and up OR receive federal Social Security disability benefits, PLUS:

  • Meet the income limits for all years in the program, see link for eligibility http://www.state.nj.us/treasury/taxation/ptr/index.shtml
  • Lived in New Jersey for 10 straight years (either renting or owning) and lived in and owned their current home for the last three years
  • Are current on the full amount of property taxes or site fees for mobile home owners for all years in the program

Ineligible

  • People who live in and own buildings of more than four units, or buildings of four units or less with more than one commercial unit

Just to let you know that all income is taken into account to determine eligibility, which includes social security and pension benefits.

I have attached the application here: http://www.state.nj.us/treasury/taxation/pdf/current/ptr1.pdf

The deadline for sending in program applications is June 1, 2012

Many states, like New Jersey, have programs to help older residents with their property taxes so they can stay in their homes.

For any questions or concerns or the status of your reimbursement check you can call the Property Tax Reimbursement (Senior Freeze) Hotline – 1-800-882-6597  from  8:30a.m. – 4:30 p.m. Monday-Friday.   If you have any question about how to obtain eligibility forms, whom to contact to check on your eligibility status or any other question about the program, please feel free to contact me at dawn@dawnruete.com or 908-930-2408.

 

 

 
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Tax Deductions for New Jersey Residents

March 30, 2012 By 2 Comments
 

As April 15 approaches, many New Jersey Residents are taking advantage of a number of tax benefits

For homeowners, paying a mortgage, the bulk of that mortgage payment goes toward interest, and that interest is deductible. You have two options:

  1. Standard deduction or add up the deductible items and use that full amount. The amount of the standard deduction depends on your filing status. Deductible items include property tax, mortgage interest, state and local taxes
  2. Itemize deductions, which you would normally do when it exceeds the standard deduction. These are a few itemized deductions:
  •   Had large uninsured medical and dental expenses
  •   Paid interest or taxes on your home
  •   Had large unreimbursed employee business expense
  •   Had large uninsured casualty or theft losses, or
  •   Made large charitable contributions
  •   Deduct the cost of some energy efficiency improvements, for example, adding insulation or replacing old    windows might qualify for a tax credit

If you are 65 and older, The Senior Freeze Property Tax Program reimburses eligible New Jersey residents who are senior citizens or disabled persons for property tax increases on their home.

Now, if you rent, you’re probably better off taking the standard deduction. Itemizing doesn’t pay. However, 18% of the rent paid during the year is considered as property taxes paid. To be eligible:

  •  this must be your only residence
  •  building is subjected to local property taxes
  • Your apartment contains its own separate kitchen and bathroom that arenot shared with others in the building.

Always ask a Financial Professional for advice about your specific situation, but to me it doesn’t really matter how you explain it, home mortgages are a lot less, if you’re tired of throwing away money on rent, home ownership is more affordable today than in many years.

 

 
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Home ownership has a significant impact on the people of Bridgewater.

March 22, 2012 By 1 Comment
 

In Central New Jersey home ownership has a significant impact on people’s lives.  If changes their net worth financially, promotes educational achievement, encourages volunteerism locally, and increases the overall quality of life. Home ownership helps create jobs right here in Somerset County.

How does home ownership help job creation and the local economy and why should it matter?

According to the National Association of REALTORS.

  • For every two homes sold, one job is created in the U.S.
  • Each purchase generates as much as $60,000 in economic activity over time.

The rent or own question.

People who think home ownership is overrated as a way of creating jobs feel that renting is the way to go at least short term in this economy.

If you fall into that category, consider the effect of supply and demand on rental units.  The more people who rent, the lower the supply and the higher the rents get over time.  As rents increase more people look to purchase and housing starts increase.

Each new home being built requires people who supply lumber, roofing, plumbing, electrical, landscaping, etc. These are jobs which stimulate the local economy.

The more jobs the more taxes paid for schools, roads, local improvements and more.  People who own homes tend to put down roots in a community and be more involved in keeping the community nice for all the people in the area.

 

 

 
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