Americans Sold on Real Estate as Best Long-Term Investment

by Gerri Willis

You don’t have to look far to find negative news on the housing market. Just this week there were headlines proclaiming that millennials had abandoned the market and may never come back. Another lamented the rising unaffordability of housing. And, yet, most Americans are ignoring the constant drumbeat of negative news about the housing market. According to a recent Gallup poll, Americans believe that real estate is the best long-term investment, even better than stocks, bonds or gold.

Frankly, having spent a lot of time writing and researching real estate, I’m not all that surprised people feel that way. That’s because housing is an arena where the individual investor really can become the expert. Unlike stocks or bonds, you can walk around a neighborhood, touch and feel the properties and really get to know your investment first hand.

Founder of the Real Deal, Amir Korangy says that if you want to invest in real estate, choosing a market you already know is critical. Korangy, who has bought and sold dozens of properties, in addition to founding the monthly real estate publication, advises getting started with a property you live in as the “safest and best investment.”

Investing in a property you intend to rent out, however, is a little more complicated. One metric professional investors use to compare deals when shopping for an investment  is the “cap rate,” or capitalization rate, which is simply the net annual operating income divided by the sale price. “As a general rule of thumb, the lower the cap rate, the better the deal for seller. The higher the cap rate, the better the deal for the buyer,” Korangy says.

Don’t stop your research there. He says investors need to investigate the property’s condition, income trends, and the neighborhood’s condition. As with any investment, it’s important to do your due diligence.

 

Don’t miss our User’s Guide to Spring Real Estate 5pmET on FOX Business

How to Choose a Home Renovation

by Gerri Willis

Flipping homes is back! After a long hiatus, it is again popular in some markets to buy homes, spruce them up and sell for a profit, a topic we are covering in today's User's Guide to Spring Real Estate. Flippers know something home owners may not -- renovations can boost property values. But it can't be just any remodel.

Remodeling Magazine's annual cost versus value survey, is a great way to figure out which remodel projects have the best return on investment and what the average price is that you'll pay to get the work done.

And, there are some surprises this year. The highest return on investment for a mid-range project is switching out your entry door for a steel replacement. That job returned 97 percent of consumers' average investment of $1,162. No. 2 was the wood deck addition, which returned 87 percent of the $9,539 investment. Also scoring high on the mid-range list were attic bedrooms, garage door replacements and minor kitchen remodels.

If you're willing to pony up more dough for a luxury project, the best ROI replacing old-fashioned wood siding with fiber-cement siding. Cost is estimated at $13,378, and the return on investment is 87 percent. A foam-backed siding replacement gets less, 78 percent on the $14,236 investment. Also big on the luxury list: garage door and window replacements.

Some investments just don't pay for themselves. High on the ‘Don't Do’ list are big projects like a master suite or sunroom addition.

You can check out Remodeling's lists yourself at www.remodeling.hw.net. Drill down to your region of the country, and even your city, for more precise data. 

 

Don’t miss our User’s Guide to Spring Real Estate starting 5pmET on FOX Business

Millennials Face Homebuying Hurdles

by Gerri Willis

First off, let me just put my cards on the table: I am in favor of home ownership. To be clear, I don’t believe in investing in a home to the exclusion of everything else, but I do believe it’s part of the equation if you want to set yourself up for financial success. Millennials, however, appear to be unconvinced about the value of owning a home.

It’s hard to read the business pages and not see a story or two about how younger potential buyers have decided that the ownership society is not for them. They are happy enough, according to these reports, with their smartphone and maybe a set of Beats wireless headphones. It’s cool to travel light, so the thinking goes.

But that attitude is masking a deeper issue:  Millennials are having a tough time affording a home. A punk job market isn’t just making it difficult to find work, but even those who do may find it’s difficult to find a job that pays enough to sustain a mortgage. Possibly even more important is the burden of student loan debt. According to the Federal Reserve, the number of 25-year-olds with student debt is rising, and the amount of debt they have has doubled in the last decade from $10,649 in 2003 to $20,926 in 2013.  As if that were not enough, housing prices are up 11 percent year to year, mortgage rates are higher and bank lending requirements are still tight.

All of those hurdles mean that many younger potential buyers are on the sidelines at a time when the opportunity in housing is huge. Prices may be up 11 percent year to year, but in many markets, prices still haven’t rebounded to the 2006 high water mark. What’s more, mortgage rates are still at multi-year lows. In other words, the stars are aligned for people who can afford to buy.

My advice: Don’t delay homeownership forever. Once you own, you’ll be able to take advantage of tax breaks like the mortgage deduction. And, even more important: Wouldn’t you rather pay yourself than pay a landlord? Overtime, when you buy a house, you build up equity, that’s an asset. Paying rent buys you nothing.

For millennials, the good news is this: The housing market isn’t going away. What’s more, inventories are constrained right now, and despite projections that interest rates are poised to go through the roof, it hasn’t happened yet. By the time this age group gets a down payment together, they may well find more choices on the market, and banks easing down payment and other lending restrictions.

Look, home ownership rates over the last decade may have slipped seven percent for those 35 years and younger, but they could rebound just as quickly. Millennials who want to invest for their future will save for a house. 

Don’t miss our User’s Guide to Spring Real Estate 5pmET on FOX Business

User’s Guide to Spring Real Estate

by Gerri Willis

Every month economists pour through a handful of real estate reports weighing the health of the housing market. Two weeks ago, for example, we learned that March home sales were down from the previous month. Then a week ago, we learned that the Case-Shiller 20-city home price index was showing that home prices were cooling for the third month in a row. Pending home sales, however, jumped.

What does this all mean for you? Probably precious little. The truth is all real estate is local. Local markets vary, taking their cues from the strength of the local employment market, affordability relative to renting and a number of other factors. And, all of that could be pointing in a very different direction than the national averages.

The good news is that you can do your own research to determine if now is a good time to buy or sell. In this blog, I’ll break down some of the metrics the pros use to evaluate a market and some common sense ideas as well.

In many communities, the local and state national association of realtors has a website where they post their reports on how many homes are selling and at what price. This can be a great reservoir of information. If there is not one available to you, it makes sense to contact a realtor active in your neighborhood or the neighborhood you want to buy in for information. Two numbers are critical: Price per square foot and days on market.

To get a sense of either how much you should charge for the home you want to sell or what you should be prepared to pay, divide the sales price of home sales from the last six to nine months by the square footage. This will give you a sense how to price a home or what to offer. This isn’t the last word on price, by the way, because the terms of a housing deal are set three months before they are made public, typically.

It’s also important to get a sense of the health of the community and what the common home attributes might be. Communities are like people, sometimes they are healthy and thriving, sometimes not so much. Check out whether local employers are hiring by talking to neighbors or reading newspapers. If you’re thinking about selling, make sure your home has all the attributes that the majority of homes have. Is central air common? You should have it too. Renovated kitchen? Better figure out how your kitchen stacks up before you put it on the market.

Days-on-market is a figure that you can get from a local realtor and gives you a sense of just how hot a market is. And, as you might expect, it’s simply the number of days it takes the average home to sell. Nationally, that time frame is going up, up, up. The National Association of Realtors reports that the average number of days it takes to sell a home in this country is 102. But there are big variations across the country. Homes in Denver sell in just 25 days, while homes in Santa Fe, NM, sell in 180 days. The longer a home is on the market, the more likely it is to get discounted. And, keep in mind, sometimes agents will let an aging listing expire so that they can re-list it and make it look fresh again.

Understanding the market is critical whether you are buying or selling. But it’s not the only thing that matters. This week we’ll be talking about a variety of other topics you’ll want to consider, such as whether now is the time to buy and flip a home. Is a primary home a good investment? Plus, we’ll dig into a variety of individual markets to find out the low down in Miami, Phoenix and others. Join us at 5p.m. ET each weekday starting Monday, May 12, for our special coverage of the real estate market. 

Taking Advantage of Tax Deductions

by Gerri Willis

If ever there was a year to look for deductions to your tax bill, this is it. The reason? Millions of Americans will be paying more because of higher tax levels imposed by Obamacare and the ironically named American Taxpayer Relief Act of 2012. But even if you aren't subject to the higher rates, it still pays to get all the breaks you can.

  • PRIVATE MORTGAGE INSURANCE. The home mortgage interest deduction is a perennial favorite of homeowners and while that deduction is now on a phase out schedule for high earners, others may benefit from the private mortgage interest deduction. PMI is an insurance policy that lenders require if you can't make a 20 percent downpayment on a home. And, 2013 is the last year you'll be able to claim the deduction unless Congress changes its mind.

You'll find the amount of PMI you paid on your bank's mortgage interest form 1098. The break is available to homeowners who took out their mortgage after Jan. 1, 2007.

And, like a lot of deductions, this one has income phase outs too. The sweet spot for this break is an adjusted gross income below $109,000.

  • CARING FOR A DEPENDENT PARENT. This is more complicated than it sounds, but if you can claim a parent as a dependent, you can save on taxes. Your parent must live with you and get more than half of his or her support from you. Keep in mind the parent's earnings must be less than the tax exemption level. The devil is in the details with this one, and you should consult a tax professional. But if you meet the requirements, you'll be able to claim an added personal exemption on your income tax return.

An added plus, any medical expenses you pay for that parent can contribute to the threshold for deducting medical costs. To meet that threshold, you have to spend 10 percent or more of your adjusted gross income on medical expenses. (That threshold increased from 7.5 percent last year.

  • COLLEGE LOAN INTEREST. Parents struggling with the high cost of education will find they can deduct up to $2,500 of annual interest on loans to pay for college. Income phase outs exist, naturally, so high earners might want to consider taking out a home-equity loan instead, which in most cases, will allow you to deduct interest.
  • HOME EQUITY LOAN INTEREST. You probably know that mortgage interest is deductible. Interest on mortgage debt up to $1 million is deductible, but phases out at higher income levels. Interest on home-equity loans totaling up to $100,000 also is deductible, no matter what you do with the money.
  • JOB SEARCH. If you were looking for a job last year as millions of Americans were, the costs of that job search is deductible. File them under miscellaneous expenses. You don't have to be successful to claim the deductions. If you do land a new gig, you can also claim relocation expenses for the new job. Consult a pro to determine exactly what you can deduct. 

There are more deductions -- many more -- but you should be aware that some of them are IRS audit bait. Here are a few of the deductions that might get you a second look, if not an audit:

  • Home office deductions. This one draws attention especially if you claim a salaried income.
  • Non-cash charitable donations, especially if you donate a car to a charity.
  • Earned income tax credit. This benefit for low-wage earners is often abused and the IRS will take a close look.

When it comes to deductions, one of the things IRS auditors keep in mind is just how you stack up with other taxpayers. CCH Inc. recently calculated average deductions, and while you shouldn't use these as a hard and fast guide to your own tax return, it makes sense to have a general idea of what people in your income bracket pay. For example, folks with an income range of $50,000 to $100,000, claim medical expenses of $7,312 interest of $9,320 and charitable contributions of $2,815. These households pay federal taxes of $6,111.

So the point, here, isn't to discourage you from the taking all the breaks that are due to you. In fact, I say take absolutely everything you are eligible for. The IRS expects nothing less. 

 

Don’t miss The Willis Report starting 5pmET on FOX Business

Tax Returns: Do Them Yourself or Hire Help?

by Gerri Willis

Tonight on The Willis Report at 5pm ET we’ll be talking about the best tax software for filers. But that’s not the only way to get the work done. There are times it makes sense to actually hire a tax pro. Tax software is great and for millions of Americans, it’s a good solution, but there are times you need professional help.

It’s best to use a professional when you own your own business, you’ve gone through a major life change like marriage or divorce, you’ve bought or sold a home in the previous year, you own rental property or have a large investment portfolio. In other words, if your taxes are complicated for any reason, it pays to hire a professional. If you manage to pick an experienced accountant, you’ll find that he or she has probably prepared a return for someone in your exact situation. What’s more, if the IRS has issues with the filing, such as wanting more information, your professional will handle the exchange.

Picking a professional is a whole other kettle of fish. Certified public accountants are the gold standard having completed a four-part accounting exam. What’s more, they can represent you in front of the IRS (if it comes to that.) However, there are less expensive ways to get help. Enrolled agents who have passed a tax exam and/or actually worked at the IRS and are licensed to file taxes. You can find an enrolled agent at www.naea.org.   Some certified financial planners also offer tax services. At a minimum, you want your CFP to be talking to whoever prepares your taxes. There are also accredited tax accountants and tax planning services. (I did say it was a whole kettle of fish, right?) Getting a preparer who is recommended by someone you know and trust is a good idea, too. Keep in mind, though, if there is an accountant that everybody in the office uses because he gets incredible refunds, I’d stay away. When a pro gets in trouble, the feds typically audit everyone he did a return for.

Truth is, tax software isn’t nearly as scary as you might think. You don’t do math. The software makes calculations for you. And, the way the packages work is that they have you fill out the form by asking you questions and prompting you for a response. Better yet, if you make a mistake using a software program, like entering the wrong Social Security number, the IRS will ask you to fix the issue, instead of sending you a bill.

For some of us, it comes down to a comfort level – do you want to handle it on your own, or do you want a pro to do it for you. Just make sure that however you get it done that you file electronically. Filing online is the most secure way of filing your taxes, and guarantees the quickest processing.

What Changes to Expect on Your 2013 Tax Return

by Gerri Willis

The countdown is on with just five weeks to go to April 15! Tax season is upon us, and if you are wealthy or simply well-to-do, steel yourself, you are about to get soaked. Tax changes for the 2013 tax year are huge and the nation's top earners are likely to see their tax rates rise above a whopping 50 percent.

At risk for the biggest changes, are Americans earning over $200,000, says Melissa Labant, director of tax advocacy for the American Institute of Certified Public Accountants.  To be sure, though, earners above $400,000 for single filers and $450,000 for married filers filing jointly will get the biggest bite. And, it’s not just wages that will get more heavily taxed; investment income taxes are rising, and tax benefits that you might have taken for granted like personal exemptions and itemized deductions are under assault too. These changes come thanks to Obamacare and the American Taxpayer Relief Act of 2012.

“I think high earners may be surprised that multiple increases are hitting them,” says Rich Coppa, of Wealth Health LLC. “If they didn't pay attention to these changes from last year they are going to find a bigger bill to Uncle Sam.”

Here’s what you can expect: You likely already know about the increase in the Medicare payroll tax. In 2012, the tax was 2.9 percent and employee’s share of the tax, 1.45 percent, was automatically deducted from your paycheck. Effective this calendar year, however, high-wage earners owed an additional 0.9 percent tax on earned income above $200,000 for single filers and $250,000 for those married and filing jointly. This year also starts a new income tax bracket for people earning $400,000 for single filers and $450,000 for joint filers – a top tax rate of 39.6 percent up from 35 percent last year. That’s the easy stuff to understand. Some of the other changes are more complicated.

Your personal exemption of $3,900 last year is phased out. The amount of the reduction is 2 percent for each $2,500 in excess of adjusted gross income amounts of $250,000 for single filers and $250,000 for those married, filing jointly. The result is a complete elimination of the exemption for single filers with an adjusted gross income above $372,501, and for couples filing jointly over $422,501. What’s more, itemized deductions, such as mortgage interest, state income and sales tax and home office deductions will be on phase-out schedules as well. (These are sometimes Pease deductions). This change will reduce the value of itemized deductions by 3 percent of adjusted gross income above $300,000 for couples and $250,000 for single filers to a maximum reduction of 80 percent of its value.

Even more pernicious are higher taxes on investment income. If your income is greater than $200,000 as a single filer or $250,000 married and filing jointly, a 3.8 percent Medicare surtax on investment income will be due. (The tax applies to the lesser of your net investment income for the year or the amount by which your modified adjusted gross income exceeds the income thresholds). Note that a taxpayer could be subject to both the additional 0.9 percent tax on earned income and the 3.8 percent tax.

In addition, Obamacare makes it more difficult to deduct unreimbursed medical expenses. Before the Affordable Care Act was passed, unreimbursed medical expenses could be deducted after they exceed 7.5 percent of adjusted gross income. The threshold is now 10 percent.

All this week, we will be discussing what you need to know about this year's tax bite and what you can do to reduce it.

 

Join us on The Willis Report at 5pm ET.

 

The High Cost of Having Kids

by Gerri Willis

It never ceases to amaze me what my friends spend to raise their children.  Between the child care, the private schools and clothing, it’s no wonder so many parents both work. The Department of Agriculture estimates the average cost of raising a child born in 2012 will be $241,080 or $301,970 if you adjust for expected inflation, And, this shockingly, does not even include the cost of a college education which currently is $22,826 for a public school or $44,750 for a private school – that’s before the 4 to 5 percent annual tuition inflation hikes kick in.

Of course, the real cost depends on where you live. In rural parts of the country, you might get away with spending just $143,600, but in the high-cost Northeast your costs might be $446,100, again according to the USDA. Trouble is some families spend even more, which raises the question: How can you cut your costs without sacrificing care for your child?

Let’s tackle child care – it’s one of the most expensive tabs parents face. According to the National Association of Child Care Resource and Referral Agencies, in 31 states and the District of Columbia, the average annual cost for infant care is MORE than a year’s tuition and fees at a four-year public college. In 2012, according to the same source, the average annual care cost for infants ranged from $4,863 in Mississippi to a high of $16,430 in Massachusetts. For a four year old, the average costs are similar ranging from $4,312 in Mississippi to $12,355 in New York.          

The best solution – getting a family member to care for your child, simply isn’t practical for many moms and dads. Given that, a good solution for some parents may be employer-provided child care which is typically run at a lower cost to employees. Peace of mind is higher when your child is down the hall or in the same building as mom or dad. If there is no onsite child care, your employer may provide you with referrals or even discounts to centers nearby. You may be able to pay for child care with pre-tax dollars through a flexible spending account, check your human resources office for details. Remember if you work in the public sector or for a company with more than 50 employees, you may be eligible for up to 12 weeks of leave to care for a sick child, under the Family and Medical Leave Act.

Another way to save is to share a nanny with other families and split up the costs of care. Other moms I know have set up a babysitting co-op, in which parents provide the care. You’ll need to work with families in which the parents have different schedules.

One word of caution for moms and dads: Don’t put your future at risk by putting every single penny into Junior’s education. Your son or daughter will be able to borrow for higher education, but you’ll have to foot your own tab for retirement.

 

Don’t miss The Willis Report starting 5pmET on FOX Business.

Getting Yourself Organized in 2014

by Gerri Willis

By Gerri Willis

 

Mea culpa. I am writing a blog about getting yourself organized, and as anyone who’s ever been to my office can attest, it’s not my long suit. It’s not even my short suit. I just struggle to keep things and ideas in their place. Everything seems too valuable to pitch. Having confessed to that, I decided to go on a search for the very best ideas for getting yourself together. Here we go:

 

  • First, there is Julie Morgenstern. She wrote the popular book, “Organizing from the Inside Out,” and has become a go-to expert on organization. She’s a great motivator and she doesn’t require that you buy a lot of hanging files or outboxes. She coaches you step by step. Here’s what she told me was key to getting organized: “Make a master list of all the organizing projects you would like to tackle, and then select an order of attack, starting with the smallest areas that will have the biggest impact on your daily life.  Don’t start with the most daunting project.  It’s fine to start with your sock drawer, cabinet of plastic containers in the kitchen, or toiletries in the medicine cabinet.  Getting one or two small projects done completely will fuel you with a sense of accomplishment and control that will create momentum and energy to keep going. Pretty smart stuff.

 

  • But let’s face it, you don’t get organized just to see pretty piles of paper on your desk or sweaters sorted by color in your closet. You want to get organized so you become more efficient in your personal and professional life. You want to be organized so that when your husband asks, “What’s your frequent flyer number for Delta?’ you don’t stare at him blankly. (Okay, maybe that’s a personal digression.) The reason you want to organized in so that you can more stuff done – maybe even attack that bucket list.

 

  • That’s where David Allen comes in. The author of the best seller, “Getting Things Done,” is a guru to professional workers. Companies hire him to present his theory of being productive and much of his philosophy has to do with clearing away the mental and real clutter that is constantly getting in the way of getting anything done well. For that reason, Allen recommends that your start by organizing everything in your life – from the need to stop at the grocery store to the bookcase overflowing in your office. Everything, according to Allen, has a place. This is harder than it sounds, but people who practice the message of “Getting Things Done”  are converts. Allen told me his philosophy boils down to this, “Your head is for having ideas, not holding them.” Clever, right?

 

  • I do have one trusted organizing tool – Evernote, an app that gives everything a place, automatically. Everywhere I go, I see segment and guest ideas for the Willis Report, all of them go into Evernote. The power of the tool is in tags. Every idea, every recipe, every contact can be tagged so that later you can sort by tags and find that information again. You’d be surprised just how useful this is. In Evernote, I keep just two give folders. The first is for items that have yet to be tagged and the second is for items that have already been tagged. The Evernote people save your stuff on the cloud, so that if your IPad gives up the ghost (as mine recently did), all your precious information is safe. Genius!

 

Ultimately, how you organize is a very personal thing. Some people like real world, hard files, while others like the ease of virtual ones. Either way, getting your stuff in its place will go a long way to making your life easier and I am all for that.

 

Don’t miss The Willis Report starting 6pmET on FOX Business

 

 

How to Land That New Job in 2014

by Gerri Willis

By Gerri Willis

 

People always ask me how I managed to make the leap from print journalist to TV journalist. Truth is I considered it more of a hop than a leap. So much was the same about my new job when I first moved to television. I was covering the same personal finance topics, even talking to the same personal finance sources. The biggest difference was that those interviews were conducted on air instead of over the phone. The move also eliminated all that pesky writing and crafting of sentences. (To be honest, I still like doing that). But my experience is similar to many people who transition into a new gig – they take something of their old life with them, preferably the part they liked the most. For me, it was talking to people about topics I found compelling.

More and more folks these days are asking themselves whether they could transition to a new career.  A new survey from Career Builder shows that one in five workers wants to get a new job this year. And, it’s easy to see why. Job satisfaction is on the wane. Forty-five percent of folks are dissatisfied with advancement opportunities in their current job, while 39 percent don’t like the work/life balance their job requires.

The good news is that many people are capable of transitioning to a new career. But the successful switcher will have to figure out whether they want to start from scratch, get more education and begin again on the wage scale or transition to something that is similar, but different. Consider: If you’re a successful salesperson, your Rolodex would be highly valuable to a not-for-profit looking for donors. Worked as an accountant for years in a big firm? You could simply put out your own shingle. Not every job switch requires a complete transformation.

Here are some ideas for making the change:

  • Unless you have already figured out what’s next, you need to do some soul searching. Robert Stephen Kaplan in his best-selling book, “What You’re Really Meant to Do,” advises readers to find a role that allows them to utilize their strengths instead of trying to hide their weaknesses in a job that isn’t right for them. By the way, Kaplan successfully transitioned from Goldman Sachs vice chairman to Harvard Business professor. According to Kaplan, if you don’t like what you’re doing now, you automatically limit your possibility for growth and advancement.
  • Making that transition may mean additional education but you may not have to go for a four-year degree. Some specialties can be learned by achieving a certification or training. That kind of work can be done at a community college or online. Remember in some fields getting a full-blown degree can be considered a bad thing, like computer programming. If you’re not sure what field your skills might translate best, check out careeronestop.org and onetcenter.org.
  • Learn the new rules of the job search. The traditional CV just isn’t as important as it used to be. According to Anita Attridge, a Five O’Clock Club career coach, 80 percent of new jobs come from networking and direct contact. Companies receive hundreds, if not thousands, of applications for the average professional job. Standing out in a pile that big is difficult. Worse, if you’re searching using one of the many online job sites, your resume may never be read by a human. Companies increasingly use computer programs to reduce sky-high resume piles, trolling for key words or phrases that they think the best candidates would include. Bottom line, expanding your network and talking to friends and family is key to landing a new gig.

 

Don’t miss The Willis Report starting 6pmET on FOX Business

 

 

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