PMI Tax Deductibility Extended to 2010

Earlier this year, congress passed H.R. 6111, the Tax Relief and Health Care Act of 2006 to allow homeowners who purchased or refinanced a home in 2007 to deduct the private mortgage insurance (PMI) premiums that they pay in their loan payments. PMI is required when a borrower puts less than 20% down on a home or has a loan amount greater than 80% of the home value.

Initially this provision would only apply to homes purchased or refinanced in 2007 and was set to expire on 12/31/2007. Congress passed new legislation that will extend this deduction to loans closed in 2007 through 2010.

Here are some of the requirements

• Households whose adjusted gross income is $100,000 or less can deduct 100% of their MI premiums. (The deduction is reduced by 10% for each additional $1,000 of adjusted gross income, phasing out after $109,000.)
• The deduction applies to "qualified residences," as defined in the Internal Revenue Code. Generally, that includes the borrower's primary residence and a non-rental second home. Investor properties are not eligible.
• Read more....

Borrowers should consult with a professional tax advisor for details about MI tax deductibility.

From the Cashflow Coach

Michigan: Guilt By Association

As a mortgage broker in the Lansing area for 14 years, I've seen the real estate industry go through various cycles along with the mortgage industry. Yes, I understand that the housing market across the country as a whole does not look very positive but we need to be careful to not generalize the negative aspects of this downturn to every state and county.

A prime example of this is here in the Great Lakes State of Michigan. Lately it seems like we're getting more press than Britney & Paris combined. An issue I'm dealing with on a regular basis is trying to convince the banks that I broker through that Mid-Michigan is not in the same boat as the rest of the state. We are not guilty by association.

Michigan's statewide unemployment rate as of Oct. 07 is 7.7% compared to the national average of 4.7%. But when you look at Michigan's unemployment numbers, you'll find that for the same time period, the Detroit Metro area was at 9.2%, Flint was at 8.1%, Grand Rapids was at 5.8% and the Lansing area was at 5.4%. (source: U.S. BLS) This has been a long term trend in this state.

What we have found to be true around the country is that there is a correlation between jobs and home values. Yes, we have experienced a downturn in home values in the Lansing area but not to the degree or severity that other parts of the state and country have. What do we attribute to that?

Business Expansion and Jobs

Lansing has benefitted from a diverse economy consisting of Government (state and local), Manufacturing (GM and its suppliers), Education (MSU, Cooley, LCC and more), Financial Services (Jackson National & Auto Owners) and Health Care (Sparrow and Ingham Hospitals). (Source: Lansing Chamber of Commerce)

More importantly, small businesses that work directly with or benefit indirectly from these industries continue to grow. Did you know that more than 58% of all the Lansing area businesses have less 5 employees?

An example of businesses that are expanding in the Lansing area is the Grand Traverse Pie Company. This company just recently opened a new location in East Lansing and plans on using this location as their franchise training center. For more information about this company click here.

Here's another article on business expansion in the Lansing suburb of Charlotte.

One of the advantages of not having double digit housing growth prior to this credit bubble bursting is that our declines are not as severe as other parts of the country. There are a lot of homes on the market which means there are a lot of great bargains if you're ready to take advantage of it.

If you would like to take advantage of these bargains but don't know how you'll swing it financially or don't know what you would qualify for. Contact me to schedule a Cashflow Optimization Analysis. You may be surprised by what you could do.

You have a choice in how you approach our current economy and housing situation. You can choose to live in fear with a scarcity mind set or you can choose to live with an abundance mentality.

Either way, you can be assured that you are not guilty by association. Lansing is a great place to grow your business.

Michigan: Top 5 in Foreclosures; One of the Best Real Estate Opportunities

If you spend any time listening to the various news outlets, it is very easy to become less than positive about Michigan; the slowing economy, declining home values, rising unemployment, etc. I want to share with you in Paul Harvey's famous words, "the rest of the story."

One of the keys to having perspective today is by looking back in history. Probably the closest similarity to what we are going through is the Houston, Texas market in the mid to late 1980's, click here to read more. The similarities between Texas & Michigan are strikingly familiar.

1. Texas' primary industry then was its Oil production, here in Michigan it's Auto manufacturing.

2. The Savings & Loan crisis of the 80's is similar to what is happening in the Sub-prime mortgage market although not quite to the same dollar volume, at least not yet.

3. Texas was in a recession then, and Michigan is currently the only state with a negative GDP.

What made the Texas time period worse than Michigan now was the passing of a few tax laws making tax credits available to investors which prompted huge over building and over supply of residential and commercial construction. We have not seen the same over building, especially in Lansing. For Texas, this led to a longer recovery time for housing values and inventories than we will need to prepare for.

Now for the rest of the story-- Michigan for many reasons will remain in the top 10 for foreclosed single family homes in the next 12 to 18 months - maybe a little bit longer than that. This fact will produce two main realities for us.

1. We will have many opportunities to buy homes from banks at very low prices.

2. There will be an increasing number of families and individuals in our market that need a place to live and cannot get an affordable mortgage due to lower credit scores and tightening lending standards.

Add these two things together and you are at the cross roads of opportunity - if you're prepared. It's been said that Luck is where opportunity and preparedness meet. This is a great time to add real estate to your portfolio, whether you buy and hold the property for 2 to 5 years or flip it, now is the perfect time to buy - prices are low.

We are helping clients evaluate whether this strategy makes sense - it's not for everyone. By doing a cashflow analysis, we can help quantify the numbers in your scenario to determine what the best and worst case outcomes could be. Here is just one case study, but we are working with more and more clients to achieve similar results.

This couple purchased land and built a home just outside of town 3 years ago. When they completed their home, they had it appraised for $50,000 more than they paid to build it. Today it appraises for about $5,000 less than they paid to build it. This was not very exciting news.

Then, this summer, a home in their neighborhood came on the market and they soon found out that the home was listed well under what it had sold for a few years before. It had sold then for $100,000, and the bank was asking for $65,000. They offered $60,000 and their offer was accepted. They plan to put $10,000 into it as improvements - in this case, a roof and carpet and a few other minor repairs. They will likely not do any of the work themselves as they are very busy with life right now.

We will do a loan for $70,000 and the value of the home on an appraisal is around $90,000. To make a long story short, in 5 years, the value will likely be around $130,000 while the mortgage balance will be around $65,000. They plan on renting the home for the same amount as their monthly payment.

The will end up with nearly $60,000 in equity in the home - WITH NO INVESTMENT OF THEIR OWN MONEY. They could sell it in five years, or they could hold it for 15 years and then sell it. In 5 years, they will likely turn a $60,000 profit without a dollar of their own money (remember their loan paid them back their initial investment.) Do you know what kind of return that is? It's an infinite rate of return - how does that sound? In 15 years, the home will likely be worth over $150,000 and be close to being paid off. Lemonade from Lemons.

I will be sharing some of these strategies and case studies at our next Wealth Workshop. Recent attendees give their comments below. Don't miss this opportunity to evaluate a strategy that can boost your financial net worth. If you are a builder, come learn how a "Trade" can help you retain the value of your neighborhood and provide a win - win to everyone involved.

I am committed to you, my client. In a market like this, it is less likely that you will make a mistake and lose money. It certainly isn't guaranteed, nothing valuable is, but with the right professionals involved, you have a great chance of doing well. I look forward to seeing you at the Kellogg Center on the 27^th!

Anyone CAN do something positive in THIS market - will YOU?

Using Technology to Accelerate Your Business

Technology can cause giddyness in some people, like an 8 year old waiting to open presents on Christmas morning or it can cause paralysis of analysis because you don't know where to start. It can be a tool that helps you maintain some efficiency throughout your day or it can be a time waster. In any case, it's important to remember that technology in and of itself is not good or bad, in fact it's amoral. It is a tool. How we use it determines if it's good technology or not.

One of my favorite business books is Good to Great by Jim Collins. In his book, he has a chapter on Technology and interestingly enough, the research team for the book "ferociously debated whether this topic merited its own chapter." (Good to Great, pg. 159) The point of the chapter is not about technology itself because "no technology... can [make a] good company great...can make you Level 5...can turn the wrong people into the right people...can instill the discipline to confront the brutal facts of reality nor can it instill unwavering faith." (Ibid, pg. 161)

You first need to know your Hedgehog Concept, which is the intersection of 3 circles. The 3 circles are: 1. What are you deeply passionate about? 2. What can you be the best in the world at? and 3. What drives your economic engine? According to Collins, "a Hedgehog Concept is not a goal to be the best, a strategy to be the best, an intention to be the best, a plan to be the best. It is an understanding of what you can be the best at." (Ibid, pg. 98)

Once you understand what your Hedgehog Concept is, then you can ask the question, "Does the technology [you're considering to implement] fit directly with your Hedgehog Concept? If yes, then you need to become a pioneer in the application of that technology." (emphasis mine, Ibid, pg. 162) "The good-to-great companies used technology as an accelerator of momentum, not a creator of it." (Ibid, pg. 162)

What does all of this mean to you as a sales professional or business owner? It means that you first need to know what is it that you can be the best at and then find the technology to help you do more of "that." Before you go out and spend your commission check on the next greatest mobile phone, the latest and greatest software or spend time on your website or blog, you need to know what are you most passionate about, can you become the best at it and will you be _____ (fairly, highly or overly - you decide) compensated for it?

When you have an answer to that, then technology can become the accelerator and create momentum to accomplish more.

What is a Builder Trade?

We seldom talk about Builders and Realtors offering home trades. In markets like this one however, the technique is making a comeback in order to move real estate. In a real estate market where properties are selling in under 60 days and at list price or higher, builder trades are not valuable to most people because Builders know that their buyers will be able to sell their home if it has not already sold.

But, in a real estate market that holds on to its inventory like my 18 month holds onto his eight ounces of slightly warmed vitamin D milk, we are all compelled to take another look. My belief though, is that Trades should not be looked at as temporary, necessary evils, rather, as a profit center and net worth builder that did not exist 24 months ago.

We all believe in the investor Mantra: “Buy Low and Sell High”. Why is it then; that so few of us are interested in finding ways to employ that right now? We will have to do things differently in this market that’s for sure – and action in this market has the potential to yield returns even greater than traditional markets where supply and demand are in a more normal balance.

Strike while the iron is hot! In a nutshell, a Builder trade is the offer of a builder to purchase the home of an interested buyer who’s home has not yet sold. Traditionally the Builder will price his home to sell at or near its asking price and the buyer’s home price is the negotiated number. The Builder and buyer work closely with the lender and essentially ask “What will it take to make this deal work – and are we willing to do it?” If the answer is “yes,” the deal can be structured to work well, cash flow wise.

Here is a simple scenario to explain how a Builder Trade happens. A homeowner wants to buy a builder’s new spec home but cannot unless his home sells. The homeowner has had his home listed with a listing Agent, for the last 8 months with no buyers. The builder’s listing agent is going to go crazy if another interested party comes through their completed spec home with a home sale contingency.

Because the Realtors are usually not paid on the acquisition of the buyer’s home by the Builder, creative deals are struck to fairly compensate the agents involved. The homeowner’s agent is losing the commission on this home that he had listed. But, he understands that without the trade, it was unlikely he would have gotten paid at all.

The homeowner could not buy the Builder’s home unless his sold first – and this had not happened for over 8 months. The Builder’s agent would get paid upon the purchase/trade of the spec home. Because the Builder now owns the homeowner’s previous home the two agents could co-list it and share the commission or some type of arrangement could be worked out. Now the areas where decisions must be made are:

 How much does the builder pay the home buyer for his previous home?

 How much does the customer pay for Builder’s new build?

 How does the Builder dispose of the buyer’s previous home?

These questions have answers that are easily arrived at by parties that want to find them. Remember “Cash is king”. Don’t use a dollar more of your own money than you need to. And don’t borrower if you can’t make the payments. Work with a Cash Flow Coach that understands how this works and can give you good advice about whether you are positioned well for this type of transaction.

In the end, the Builder loves trades! Why?

1. He maintains the sales price in his neighborhood.

2. By charging full price for his new home he keeps his neighbors and/or previous clients happy.

3. Because lesser valued homes keep their value better than higher priced homes he will likely not have to discount the home he acquires in trade as much as he would have his spec home.

4. Buyers of lower priced homes are usually more concerned with monthly payment and cash up front than with the home value and price of home so the sale is more likely.

5. Buyers of homes of lower value are more prevalent because these buyers don’t necessarily have homes to sell.

6. Even if he has to take a price reduction to sell the home he acquired on trade, a 20% reduction on a $140,000 home is less than the same 20% reduction on a $275,000 home. If a market is down 20%, then which home would you like to discount, your spec or a lower priced home?

7. The Builder prefers the lower priced home. If you have to reduce the value of a home, he says: “make it a home I DIDN’T build that is next to homes I DON’T have past clients in and in a neighborhood I DON’T own more lots in”.

8. The Builder also has other options, he might decide to sell the home he acquired using a land contract or lease option. He may even just hold and rent it.

9. When the values come back in Lansing in five years, what would be wrong with Build More owning six or eight homes of his choosing that he purchased in a very low market.

10. Renters and land contract buyers are more prevalent when home prices are down especially in this particular market where the property value decline is in part due to foreclosures and other credit damaging events:

a. More families are dealing with challenged credit, they still need homes and are having trouble getting loans these days.

b. People moving to Lansing, Michigan for 2 to 4 years are choosing to rent more often than in the past because they are afraid of getting stuck with a home they can’t sell in a few years.

Now is the time for your business plan to involve some calculated creative strategies that will allow you to profit even in what may be called the worst of real estate markets. All of the above statements are true and are all a win-win-win.

1. You win as you are making money in a down market while moving homes.

2. Your clients win as you have solved their problem.

3. The person or family that ends up using or buying the homes you acquire win because they need a place to live and have limited options.

Do what makes sense, do it well and profit from it while adding a ton of value to a real estate market that desperately needs it!

Uncertain Times Require Creative Measures

Michigan has been in the news a lot recently when it comes to depreciating real estate, record foreclosures, unemployment, declining new home starts, etc., etc. You can choose to listen to all of the pessimism and sink back into your scarcity mode or you can choose to look for solutions and have an attitude of abundance.

I spoke to our local home builders association (www.glhba.org) last night and talked about creative solutions that builders can employ to move homes without dropping the sales price and still make a profit. These strategies are not new, i.e. Trades, Lease Options, Land Contracts, etc, but putting numbers to it and quantifying the end results does make a difference. When you have real numbers to work with, you can make better decisions.

In times like these, especially in Michigan, everyone needs to be open to new ideas or at least open to new solutions. One company that is capitalizing on the increasing foreclosure market and helping the seller, the Realtors, and the bank is EZ Home Ownership Realty, LLC (www.ezhomeownershiprealtyllc.com) They have become experts in negotiating short sales with mortgage banks.

The short sale benefits: 1. the seller because it prevents a foreclosure, 2. the bank because they may end up getting more money prior to foreclosure than at the sheriff's sale, 3. Buyer's Agent, if they bring a qualified buyer to the seller, they will receive a commission, 4. Listing Agent, they will receive a commission for finding a buyer. 5. the neighborhood because the value of the home doesn't drop as drastically as it would in a foreclosure sale. There are many more tangible and intangible benefits of a short sale but needless to say, this is a strategy that is being used and becoming more accepted by mortgage banks' loss mitigation departments.

These solutions may require a little more work to close and in some cases we may not realize the benefit immediately but some business is better than no business. If you structure these strategies correctly, you'll be in a better position when the market turns and you'll have established yourself as a trustworthy professional and that will go a long way.

FED Cuts Federal Funds Rate by .25%

Contrary to what you'll be hearing in some of the media outlets, this .25% cut in the funds rates does not equal a .25% cut in long term interest rates. Yes, it will affect short term rates like the Prime rate (this is the rate a lot of the Home Equity Lines of Credit - HELOC and credit cards are based on) and the LIBOR.

In fact, since the announcement was made, the Mortgage Bonds are actually showing signs that fixed rates will be rising tomorrow. Additionally, the expected non-farm jobs report to be released on Friday, 11/2/07 at 8:30 am EST is expected to be stronger than estimates and could trigger long term rates to rise even more.

Here's a good article explaining what the FED talked about during their 2 day meeting and what their projections are for the economoy and inflation.

Home Mortgage Accelerator Programs - Do They Work?

I've been getting a lot of inquiries into these Mortgage Accelerator programs where you open up a Home Equity Line of Credit (HELOC) and use this as your day to day checking account. Your payroll deposits becomes your mortgage payment and then you pay all of your monthly expenses as you incur them from the same HELOC. Some programs would have you payoff your current first mortgage so that your HELOC is the only mortgage against your home. There are other programs that allow you to keep your first mortgage intact and then add a HELOC. The concept is similar to a bi-weekly payment program in that the way you come out ahead is by making additional principal payments to your loan balance over time.

The idea is by direct depositing your paycheck into this home equity account you start saving on your daily interest cost because most mortgages collect interest payments at the end of the month (i.e. your Nov. 1 payment is for the interest accumulated in October.) By paying at the beginning and/or the middle of the month, you are able to start reducing your daily interest calculations which compounded over time can add up to some savings but the significant savings comes from the prepayment of principal.

There are some significant assumptions with these programs. First, that you spend less than you make. Second, that all "extra discretionary" money will be used to help reduce the principle balance and third, that you are disciplined in your budget or finances. There's one program that you'll be hearing more about called the "Money Merge Account." This is offered through a "registered sales rep." from First United Financial. This program costs $3,500 and it's primarily a software program that you use in conjunction with a HELOC or a "Money Merge Account." Be sure to understand how much discretionary income the software is assuming that you'll be using toward your early payoff date.

Please ask for a second opinion before paying someone $3,500 for a software program plus whatever closing costs are incurred in opening up the HELOC. I know they will tell you that you can pay your 30 year mortgage off in 7 or 8 years and all of the numbers they show in their presentation and their flash videos will tell you that you it'll work but let's look at the numbers and discover how realistic the assumptions are.

One downside to these programs is that you will lose your tax deduction on your mortgage interest at a time when you may need it most. Also, if you have other higher interest rate debt like a credit card, department store card, and other loans, it may not make sense to payoff your lower tax deductible mortgage interest first.

As in all cases, you need to evaluate your own situation and evaluate whether this makes sense or not. Before you sign up for any program, take a day or two to look at the numbers, get a second opinion and don't succumb to the high pressure sales tactics for a product "whose time has come."

The Cashflow Coach

Mid-Michigan is Growing Despite the Rest of the State

We have been saying for months, that the mortgage market meltdown happening across the country right now is not Michigan's biggest problem. Our biggest problem is the loss of about 5,000 Michigan residents last year and thousands of jobs.

Now for the rest of the story....

1. The Accident Fund Company announced yesterday that they are planning on converting the old Board of Water & Light Ottawa Station into their national corporate headquarters. The plan is part of a redevelopment agreement reached with the city and state.

This move will create over 500 jobs and revitalize a much needed downtown business district. With the help of the Michigan Economic Development Corp. and the 21st Century Jobs fund this will be one of many more moves to continue to grow the Lansing area.

2. Michigan State University received a $50 million grant for alternative fuel research which is estimated to create 100 or more jobs between Wisconsin and Mid-Michigan.

3. General Motors is at full speed at their new Delta Township Plant with three shifts running full time and the demand for the crossover vehicles is rising.

4. GM suppliers like Android Industries, Bridgewater Interiors and Magna Powertrain combined want to hire more than 300 people, according to Capital Area Michigan Works, which is helping some suppliers find workers. (Source: Lansing State Journal)

5. Despite all of the doom & gloom in the media, did you know that the unemployment rate in the Lansing area is only 5.7% as of August. Compare that to Grand Rapid's rate of 5.9% and the rest of the state at 7.4% (source: BLS).

6. Home values in mid-Michigan are faring better than the rest of the state. From Aug. '06 to Aug. '07 the home values in Detroit declined 31.8%, Flint declined 10.1%, Lansing declined 3.6% and Grand Rapids declined 4.2% (source: Michigan Assoc. of Realtors) compared to a statewide average of -6.4% and a nationwide average of -4.2%.

What does all of this have to do with Real Estate? We believe that this is the best time to consider moving up. Yes, you may need to lower the price of your current home or look at selling later but let's quantify the loss AND the gain and see if it makes sense. A lot of our recent clients have gained a lot more than they've lost.

I have been helping my clients evaluate land contracts and lease to purchase options along with traditional methods to sell their home in order to take advantage of a discounted purchase. I can help you take all of the complexity of this type of situation and simplify it. Contact me to discuss your situation, it could be better than you think.

500 to 1,000 Jobs in Lansing

Michigan's biggest problem is not the mortgage market meltdown happening across the country right now. Our biggest problem is the loss of about 5,000 Michigan residents last year and thousands of jobs.

Now for the rest of the story....

1. The Accident Fund Company announced yesterday that they are planning on converting the old Board of Water & Light Ottawa Station into their national corporate headquarters. The plan is part of a redevelopment agreement reached with the city and state.

This move will create over 500 jobs and revitalize a much needed downtown business district. With the help of the Michigan Economic Development Corp. and the 21st Century Jobs fund this will be one of many more moves to continue to grow the Lansing area.

2. MSU received a $50 million grant for alternative fuel research which is estimated to create 100 or more jobs between Wisconsin and Mid-Michigan.

3. Suppliers like Android Industries, Bridgewater Interiors and Magna Powertrain combined want to hire more than 300 people, according to Capital Area Michigan Works, which is helping some suppliers find workers. (Source: Lansing State Journal)

Despite all of the doom & gloom in the media, did you know that the unemployment rate in the Lansing area is only 5.7% as of August. Compare that to Grand Rapid's rate of 5.9% and the rest of the state at 7.4% (source: BLS).

What does all of this have to do with Real Estate? We believe that this is the best time to consider moving up. Yes, you may need to lower the price of your current home or look at selling later but let's quantify the loss AND the gain and see if it makes sense. A lot of our recent clients have gained a lot more than they've lost.

Call my office and schedule an appointment to review your situation, we can help you evaluate all of your options.