By now, you might have heard about the tax credit offered to first time home buyers.  The government is offering a $7500 (or 10% the value of the home, which ever is less) tax credit to first time home buyers that purchase a home between April 9, 2008 to June 30, 2009.   There are some income restrictions on the tax credit.

Obviously, this can be a significant tax incentive for a first time home buyer but I do have some mix emotions about this incentive.  According the house bill, 2 years after a person claims this tax credit they have to start re-paying the tax at 6.67% per year for the next 15 years.  If the individual decides to sell the property prior to paying the full the amount back, the remaining balance is due in that year.  So, what this credit amounts to is an interest free loan.

My concern is when a person goes to sell the home and have to pay back the remaining balance.  Most repeat buyers use the equity in their current home for the down payment on their next home.  Although I feel this tax incentive can be helpful in kick starting the current market, what damage are we doing to any future markets.  Are we creating situations where home owners will be stuck and are unable to sell in the future?

In short, I do feel first time home buyers should take advantage of this credit or interest free loan but I do believe that we as Real Estate Professionals need to make sure they understand the future effects so that they can plan accordingly.

There are a number of benefits of owning your own home and not all of them are tax breaks and building of equity.

Homeowners also enjoy many social benefits.  They tend to be more active in their community due to the greater financial stake they have in their neighborhoods.  Because home owners are more involved, they tend to form relationships with other home owners as well as business owners.

With homeownership also comes stability, according to the US Census from 2005 to 2006 only 7.1% of homeowners moved.  This is way less than the 30.2% of renters that move.   It only tends to reason that the longer you live in a community the more involved that you will become.

Topic: Monthly Costs

Renting

Advantage

More Fixed Costs for the term of lease.

Disadvantage

Although in the short run costs are more fixed, over several years rent payments can increase.

Buying

Advantage

Over the long term it is possible for the cost to be more fixed if you choose a fixed rate mortgage.  The actual mortgage payment will stay the same for the live of loan. (If you escrow taxes and insurance through you mortgage payment, it is possible for your payment to increase if these items increase.)

Disadvantage

There are more variable costs in the short term.

Topic: Equity

Renting

Advantage

You will not lose equity in a down market.

Disadvantage

No matter what happens with the value of the home, you will never gain equity.

Buying

Advantage

Over time, the mortgage balance decreases and equity builds, even if the value of the home does not increase.

Disadvantage

Equity may go up, down, or stay stagnant.  In the short term, this may cause problems if you need to move.

Topic: Work to maintain or improve the property

Renting

Advantage

There is generally less work in maintaining a home or apartment.

Disadvantage

There is usually limited or no ability to personalize your living quarters.

Buying

Advantage

You have the ability to remodel or decorate the home to match your needs/desires.

Disadvantage

Work needs to be done by you or paid for by you.

Topic: Other monetary considerations

Renting

Advantage

You need a smaller amount of cash up-front to rent.

Disadvantage

There are not tax advantages to renting.  Your landlord gets any and all tax breaks that are available.

Buying

Advantage

There can be tax advantages associated with home ownership.  Consult your tax professional to learn more.

Disadvantage

There is generally a larger initial investment in the down payment when purchasing the home.

The best way to organize your finances in order to spend your money wisely, save money for emergencies, and invest in your future is to create a personal budget plan. Your personal budget plan should show your total monthly income; list all your necessary monthly expenses; include enough money to pay your federal, state, and local taxes at the end of each year; and set aside some money for savings each month. Because life is unpredictable, financial experts recommend that you have at least six months' worth of necessary expenses maintained in a savings account to cover emergencies, as in the event of a job loss. Whatever money remains at the end of each month is called discretionary income, which is the money that should be used for investing in your future.

The next step is to research, study, and learn more about investment risks vs. potential rewards. Some investments are riskier than others and some offer more potential returns than others. There is no one single type of investment that is best for everybody. One traditional principle of investing is to start with small transactions to learn which kinds of investments works best for you, and then increase the amount of money you put into the types that bring you maximum returns. It is always a good idea to diversify your investments into different categories such as stocks, bonds, money market accounts, long-term certificates of deposit, or real estate so that potential losses will be offset by potential gains.

-         A place to raise your children and pets.

-         You can become part of community.

(2)   Tax Savings.

-         3 Major income tax deductions:

          1.      Interest on the home mortgage

          2.      Property Taxes

          3.      Points connected with the loan.

-         It is possible after figuring these factors that you may pay less to own a home than you would to rent.

(3)   Possible fixed monthly payments.

-         If you choose a fixed rate mortgage (a mortgage that stays the same for the life of loan) you'll pay the same mortgage payment each month for the entire life of the loan. (Caution: If your property taxes go up, your escrow will go up which would increase your monthly payment)

-         According to the National Association of Realtors most recent Commercial Real Estate Outlook report, the average rent is to rise 5.3% in 2008.  This is after an average increase of 3.1% in 2007.

(4)   Building a Nest Egg.

-         For most individual owning a home and building equity is the single greatest source of financial security.

-         A Federal Reserve study has shown that the average homeowner's net worth is 46 times the net worth of the average renter.

Have you ever had a good idea and proceed to act on the idea and then run into resistance from your boss or co-worker because you didn't discuss it with them first?  Have you ever thought that the only reason these people were upset was because you thought of the idea first?  Have you ever noticed the more people are involved with a particular project or situation the less likely they are to complain? 

I used to be involved with coaching of youth soccer.  I used to watch many coaches that had problem parents try to keep them less and less involved with the team.  It almost never worked.  I did the opposite.  If I felt a parent was going to be a problem, I would give them a job to do for the team.  This didn't always work but in some cases it helped the situation greatly. 

People want to feel involved.  They want to have a say in the project or situation.  It gives them a feeling of control.  They are able see the big picture more clearly and understand the goals if they are involved.

Do you want a good example?  Since it's almost July 4^th, I will use the American Revolution.    

Many people believe that Taxes caused the American Revolution.  Although the taxes annoyed many of the American Colonists, I don't believe it was the cause of the Revolution.  If you do some research about the American Revolution, you will find that taxes were 5 times higher in 1698 than in 1773(The start of the American Revolution).  Furthermore in England, taxes were much higher than in the American Colonies.  What angered the American Colonies is that the taxes were imposed without consent from American's directly elected individuals.  So, grew the phrase "Taxation without Representation."

Again individuals want there opinion heard.  They want to feel involved with the out come.  They want a feeling of control.   

If you are planning a move, begin by researching allowable tax deductions for moving; you can deduct some moving expenses under certain circumstances if your move is related to a new job. Keep all receipts related to moving expenses in your tax file. Two months prior to moving, consider having valuable jewelry, antiques, and works of art appraised. If you have children, arrange to have school records transferred. Consult with your doctor and/or health care provider about recommendations for another provider in your new location, and arrange to have prescriptions, medical files, and dental records transferred. If you have pets, obtain copies of veterinary records. Make a list of friends, relatives, and business contacts who need to be notified. File a change-of-address form with your local post office.

One month prior to moving, contact utility companies and schedule disconnection of services for the day after you move. Schedule to begin utility services at your new home one day prior to your arrival. If you are moving yourself, reserve your rental truck and obtain packing boxes. Tune up and service your automobile.

Two weeks prior to moving, transfer or close bank accounts, clear out safety deposit boxes, and notify creditors of your move. Cancel newspaper delivery and change the address for magazine subscriptions. The day before moving, drain gas and oil from your lawnmower and other power motors. The last thing to do before you leave is check every room, closet, and cabinet to verify that everything has been taken.

I recently read an article about handling on-line leads.  The article was written by Michael Russer and was called "6 Best Practices for Online Leads".    I didn't agree with everything that he wrote but I did find it full of good ideas so I decide to share.  Below are the 6 Practices that he listed and a link to the article.

http://www.realtor.org/rmomag.NSF/pages/AskMrInternet200806?OpenDocument

In many ways today's Real Estate market conditions are favorable for 1^st time home buyers.  Below I have listed a few reasons 1^st time home buyers should consider making the jump to home ownership:

(1) More Choices- According to the National Association of Realtors current inventory levels of homes for sale are at 10 months in most markets, the normal inventory levels are 4 to 5 months.  This means more of a selection for home buyers.  Many sellers are getting frustrated with longer market times and should be much more willing to negotiate.  Plus with higher inventories, it means more competition for the seller.      

(2)Financing at historic low rates- Although we have noticed interest rates starting to inch up, they are still at historically low levels.  Interest rates obviously control our purchase power.  The lower the rate is the more that a potential buyer can afford. 

(3) They don't have to sell an existing home- Again this means more negotiating power for the first time home buyers.  Sellers have run up against interested buyers that need to sell a home to purchase the sellers property.  Sellers are going to be much more willing to negotiate with an individual that is ready to purchase and does not need a contingency on the sale of there existing home.

(4)Vacancy rates down- According to NAR most recent Commercial Real Estate Outlook report, vacancy rates are down from last year and average rent is to rise 5.3% in 2008.  This is after an average Rent increase of 3.1 % in 2007.   

       A woman by the name of Sonora Smart Dodd thought of the idea for Father's Day while listening to a Mother's Day sermon in 1909.

        Having been raised by her father after her mother died, Sonora wanted her father to know how special he was to her. Sonora's father was born in June, so she chose to hold the first Father's Day celebration in Spokane, Washington on the 19th of June, 1910.

        In 1926, a National Father's Day Committee was formed in New York City. Father's Day was recognized by a Joint Resolution of Congress in 1956. In 1972, President Richard Nixon established a permanent national observance of Father's Day to be held on the third Sunday of June..

Don't forget about your Dad this Fathers Day!