Having Enough Money During Retirement

According to a recent Bankrate.com survey, 36% of the people in U.S. have no money saved for retirement. Even if you are saving, unless you are in the stock market, you are earning nothing on those savings. And, some of us are just cheap. So, whether you have no money, or have some money but want to make it last, this is information to help you have enough.

Work –

Of course, the best solution may be to keep working. The longer you work; the less money you will take out of retirement accounts or social security. I have also noticed, if I am working, I do not have time to shop.

Financial –

Social Security – Deciding when to start taking social security can be complicated. For a healthy single person, with no dependents under 18; delaying the start of social security increases the lifetime benefits you will receive. If you are married, disabled, have life threatening health issues, or dependents under 18; the answer is more complicated, and you should consult your local social security office. Also, there is also a very high marginal tax rate on social security payments if one works and takes social security. So, if you plan to work, it may be best not to start social security.

Medicare – Even if you are not taking social security, you can get on Medicare at 65. You should start the sign in process 90 days before the 1st of the month in which you will turn 65. Again, broadly, unless you never need a doctor, most people will save money by also buying a Medicare supplement plan and drug coverage.

Debts – You should plan to pay off all debts by the time you retire, especially a mortgage. If you have not paid off your mortgage, plan to keep working.

Early Withdrawals – If you have a deferred compensation plan or savings bonds or CDs, there are penalties and sometimes taxes associated with early withdrawals. And, they reduce how much you will have when you retire. They should be avoided.

Meeting Neighbors

Meeting Neighbors

Longevity Annuities If you have enough money for now, but are worried about outliving your money, consider a longevity annuity. In a longevity annuity, if you buy it at say 65 and do not take any payments until you are say 85, and set it up where your only returns are the payments after 85; the payments after 85 could cushion you from running out of money. Besides earning some rate of interest on the money, you earn a return on the “gamble” by the insurance company you will not live until 85. If you die before 85, you will not need the money. If you die after 85, you can depend on a cash flow.

Reverse Mortgage – After you turn 62, you can do a reverse mortgage which allows you to get money out of the equity in your home or buy a different home, and you never have to make a payment. One negative is interest rates are higher than a standard mortgage. Your heirs can assume the mortgage at your death or decline to take the home and the mortgage.  This may be best used by those who are not worried about their heirs inheriting the maximum amount of money.

Housing –

Size matters – The size of your home obviously impacts the cost of your home. But, it also impacts utilities, insurance, property taxes, maintenance and many other costs. Moving to a smaller home, can free up capital from the sale of the home and reduce all those costs associated with home ownership. And, there is a deduction of up to $250,000 on the gain from the sale of a home when you downsize or move to a rental. In Houston, just reducing water, electricity and property taxes can offer substantial savings.

Location in the US – Living in small towns is cheaper than living in big cities. MSN Money and AARP have recently had articles listing the least expensive cities. Their lists include smaller cities and towns with no big cities. The suburbs are also cheaper than the inner city. The state in which you live also impacts your costs because of taxes and other living costs. Inman News recently calculated tax per person with the states on the coasts being higher than the states in the middle of the country. The National Association of Realtors recently listed the cheapest states relative to price of total home ownership cost as a percent of total income by state based on Census Data. All the least expensive states (lowest percentage) were in the Midwest and South.

International locations – Many people are opting to live overseas to lower costs. You can easily Google several lists of the best places for expatriates to live. Most of the lists which consider price and quality of life have Latin American, Asian and Central European countries. There are many of the countries that have a thriving expatriate community, with low costs and good healthcare.

Property Tax Deferral – In Texas, if you are 65 or over, you can request an indefinite property tax deferral (not pay property taxes until death or you sell the home.) In Harris County, you submit the request form to the Harris County Appraisal District. However, the interest rates are high (8%). So, this will reduce the amount you plan to leave your heirs.

Renting – It may be cheaper to rent than buy. Go ahead; add up all your costs of home ownership. In most places it is cheaper to rent, if you just look at cash flow.

Miscellaneous –

Go Carless – Once you retire, especially if you live in a smaller town or area conducive to walking, it may be easier for a couple to get by with one car.

Bargains – You have time now. So, travel, eat and buy when it is cheaper. Accumulate discount cards.

Good Luck.

 

 

Advertisements

All Those Fees

There are many payments, costs and fees associated with buying and selling a home. Some are paid by the buyer and some are paid by the seller.

Costs and Fees Generally Paid by Buyer:

While there are a number of categories of costs and payments, the most significant buyer fees are related to financing.

Inspection fees – In the Houston area, these are generally mechanical, structural, foundation, termites and pool.

The warranty deed and deed of trust, if applicable, will be recorded with the County.

Escrow Fees are paid by both the buyer and seller to the title company for the services the title company is providing.

Survey cost is generally paid by the buyer. However, the seller may have an existing survey, which may be acceptable. Or, the seller could pay if that is negotiated.

Having Fun at Home

Having Fun at Home

Homeowners’ Association Dues and Fees are generally paid at the beginning of the year. As a result, the buyer will reimburse the seller for that remaining portion of the year for which the buyer will own the home.

Property taxes are paid at the end of the year. As a result, the seller will owe the buyer for that portion of the year for which the seller owned the house.

Optional Owner’s Title Policy additional coverage for discrepancies and shortages is negotiable but generally paid by the buyer, if purchased.

Homeowner’s Insurance and Flood Insurance may be paid directly to the insurance company if there is a cash transaction. If a loan is set up with an escrow account (meaning the bank pays these costs on behalf of the buyer), they are paid by the bank.

If financing is involved, there will be Lender Fees and Charges:

  • Lenders typically set up an escrow account to directly pay the buyers property taxes, homeowner’s insurance and flood insurance (if applicable). To set up the initial funding for that account, the bank will generally require a payment for three months’ insurance and at least a year of the estimated annual property tax amount.
  • Other lender fees and charges are loan origination, appraisal, document preparation, credit report, and mortgage insurance premium, if applicable. Mortgage insurance is paid if the down payment does not meet specific levels or on some government supported loans.
  • Interest for the period from closing to the date of the first payment.
  • Although not paid to the bank, the buyer will pay Title Insurance covering the bank for the amount of the initial loan.

Miscellaneous fees like courier fees are also charged.

Costs and Fees Generally Paid by Seller:

While there are a number of categories of costs and payments, other than debt payoff, most sellers’ payments, fees and costs are related to transaction commission to the broker, title insurance premium paid on behalf of the buyer, and property tax credit to the buyer.

Basic Title Policy for buyer – Although negotiable, this is almost always paid by seller.

Proration of Property Taxes – Property taxes are due at the end of the year. As a result, the sellers are charged for the portion of the year they owned the home. This amount is credited to the buyer who will be responsible for paying the tax at the end of the year (or their bank if there is an escrow account.)

Home Warranty –Typically, the seller pays an agreed amount for a substantial portion of a one year warranty on mechanical items in the home such as sprinkler systems, heaters and air conditioners.

Homeowners’ Association Dues and Fees are generally paid at the beginning of the year. As a result, the seller will be credited for the portion of the year related to the period of the year in which the buyer will own the home.

All commissions are the responsibility of the seller.

The payoff of all loans and liens will be charged to the seller.

Escrow Fees are paid by both the buyer and seller to the title company for the services the title company is providing.

Miscellaneous other fees and costs are related to recording the release of liens, document preparation fees, and homeowner’s transfer fees.

Websites for Home Buyers and Sellers

Once you decide you want to buy or sell a home, there are many great resources available on the internet. Among my favorites are:

Freddie Mac is involved in supporting the mortgage market. Their website has many useful resources, especially for home buyers and those that want to refinance their home. The site can help you determine whether to rent or buy, how much you can afford to pay for a home, how much you can borrow, what type of mortgage to get, and has many more useful tips. My favorite page provides links to various calculators to help you with some of these decisions.

Although, your insurance agent can provide accurate information about whether a home is in the flood plain (and is the only resource on which to rely), while you are researching areas, a great resource is the Harris County Flood Education Mapping Tool. Once you are at the website, enter the address you want to search in the upper left.

While you are researching crime, Trulia provides a heat map showing high and low crime areas on a map of your area. Again, just enter the address you want to research in the upper left corner.

While searching for what schools to attend in Houston ISD, there is useful information about magnet schools, charter schools and other options at the Select A School tab and a school finder at the Find a School tab. Private schools can be found at Houston Private Schools among others. Children at Risk has a listing of school ratings for the Houston area.

Current valuations placed on homes in Harris County can be found at the Appraisal District website.

Search sites to consider while searching for a home or to list a home include Trulia.com, Zillow.com, Realtor.com and HAR.com. In the Harris County area, HAR.com will have the most accurate, and up-to-date listing information. One caution is that Texas is a non-disclosure state (meaning sales prices are not public information), so none of the national web sites have completely accurate valuation information. Consider the valuation information provided by those websites as you would the valuations provided by the appraisal district (not an accurate indicator of market price for a property.) However, each of those sites provides useful information about the home buying and selling process.

Once you buy a home, Utility Connect can help you hook up all your utilities and cable company in one stop.

Of course, my website can help you with search and information for buyers and sellers.

And, obviously Google can help you find many more sites and blogs providing information about the home buying and selling process. Please email me if you have a favorite site to pass along or leave a comment. Thank you.

Getting Your Home Ready to Sell

In our current market, where we keep reading about how fast houses are selling and how prices are still rising, one could easily decide to list a home without doing anything to get it ready. However, the home’s appearance can significantly impact both the total time it takes to sell a home and the amount for which the home will sell. It only makes sense to spend a little time and a little money to maximize your return.

The exterior is important because of curb appeal and first impressions. The most obvious first step is to ensure the address is clear and can easily be seen from the street. I cannot tell you how difficult it is to figure out addresses for some homes. Other suggestions include:

  • Buy a new front door mat
  • Keep grass freshly cut and edged
  • Remove all yard clutter and pet waste
  • Weed and mulch flower beds
  • Clean windows
  • Pressure wash exterior, driveway and sidewalks
  • Tighten and clean all hardware
  • Clean gutters and downspouts and ensure they are attached
  • Store garbage cans, hoses, toys, etc.
  • Replace burned out bulbs
  • Caulk around windows, etc.
  • Clear out and clean garage
Inspecting the Home

Inspecting the Home

In thinking about all storage areas (garage, closets, pantry, cabinets, etc.), go ahead and get ready for the move. You should throw away anything that will not be moved, organize the space, and make enough room that someone could easily see storing more in that location. The hall closet should only have a couple of coats. It should not have all your winter clothes. The two car garage should have room for two cars and additional room to see where items could be stored. Obviously, this may also require renting temporary storage.

Actually, the garage example is a good way to think about the interior as well. Every room and closet should show there is plenty of room and be organized. If a room is crowded, remove furniture until it is not. And, de-clutter. You should put away toys, clothing, dishes, towels, etc. If you have children or pets determine how you will have a 10 minute de-clutter process for showings. For the adults, this 10 minute de-clutter process probably applies to all bathroom and kitchen counters. Shoe boxes to be put under the cabinet will probably work for the bathroom. A toaster oven can go in a kitchen cabinet. Other interior items include:

  • Clean ceiling fans and light fixtures
  • Repair grout issues
  • Replace bedding
  • Consider buying new shower curtains
  • Add or replace accent pillows (a good way to add color)
  • Add a throw in the living room
  • Replace rugs for updating or to add color
  • Hide trash cans
  • Repair all plumbing leaks and drips
  • Keep toilet seats and lids down
  • Add light by keeping curtains open and, subject to fixture limitations, increase bulb wattage
  • Clean walls and shampoo carpet
  • Paint should be taken to a neutral color
  • Remove items from the front of the refrigerator
  • Consider adding fresh flowers to add color

In my experience, the key issues which negatively affect first impressions are:

  • Inadequate lighting (natural and interior)
  • Clutter and disorganization
  • Cleanliness
  • Too much furniture, knickknacks, personal items (the accumulations of our life)

Texas Realtor magazine recently published a list of the mistakes sellers make during the process of selling their home. The ones most applicable to this discussion are not making cosmetic repairs, failing to remove pets, leaving personal items and decor in place, not maximizing natural light, and letting emotions get in the way. We get attached to our homes. The longer we have been there, the more memories and attachment we have to the home. However, to the extent possible, you need to start thinking of your home as an investment in a building and land. It is going to be somebody else’s home. They need to see themselves in the home and not you.  You will need to de-personalize the home. Your knickknacks may be somebody else’s clutter. You should consider removing family photos, especially those of younger children. And, religious symbols may be inappropriate for the buyer who may be from India or Asia.

With respect to cosmetic repairs that may cost some money, key items would be:

  • Painting the exterior or interior
  • Replacing damaged siding
  • Replacing wallpaper
  • Eliminating popcorn-style ceilings
  • Replacing light fixtures
  • Painting cabinets
  • Replacing hardware in kitchen and bathrooms (handles and faucets)
  • Taking out half-walls or turning them into bookshelves or storage

A professional stager can help you in suggesting additional steps which will get your home ready to be viewed by the public, including changes in color, de-cluttering and room arrangements. In my experience, stagers are worth the money.

One last item to consider is to ensure the safety of expensive or personal items in your home. Checkbooks, bank statements, tax returns, etc. should be stored in a safe place. Prescription drugs, jewelry and other valuables should be stored in a locking cabinet.

 

HOMEOWNERS ASSOCIATIONS

In Southeast Texas, Homeowners Associations perform many important functions. Depending on the city and county, the most important roles of the Association may vary. For instance, in Houston, which has no zoning, the most important role is defining what can be built and the appearance of homes within the Association’s area. In many subdivisions, additional security patrols are also provided through the Associations. Outside Houston, but within Harris County and in other counties, substituting for city services may be the most important role. For instance, trash pickup and maintenance of common areas may be the role of the Association.

Besides these functions, the Association may be responsible for common costs, such as water in a condo or town home community, and amenities such as tennis courts or gym memberships. Perhaps the trickiest role for the Association is the architectural committee or equivalent. In many communities, changes to a home, including colors chosen, additions to the home, variances in setbacks, and other “quality of life” and appearance issues are ruled on by this committee of the Association. Clearly maintaining certain standards benefit the long-term health of the subdivision. However, many people are not happy with the limitations imposed on their private property.

The Association is generally led by a board elected from the homeowners within the related area. As a minimum, homeowners may want to attend the annual meeting of the Homeowners Association. At the meeting, the homeowners will vote on new board members and may approve the annual budget. Whether you are happy with the Board or unhappy with the Board, you may want to volunteer for one of the committees or the Board itself. Most issues with the Association arise because someone believes the Board is spending too much money in some area (e.g., landscaping), the Board is not spending enough in some area (e.g., security), their neighbors are doing something the homeowner believes is inappropriate (e.g., operating a business out of the home) or not doing something the homeowners believes should be done (e.g., not mowing the yard.) Your involvement helps ensure your opinion on these matters is heard.

Meeting Neighbors

Meeting Neighbors

Depending on the size, responsibility, and budget of the Association, it may hire a management company and delegate certain responsibilities to the management company (e.g., contract negotiations, handling complaints, preparing a budget, collecting dues, doing the accounting, etc.)

A standard addendum to the contract to purchase a home in Texas alerts the buyer a home is subject to mandatory membership in a property owners association. Beside notification, the form allows for the production of subdivision information which will, depending on negotiations, be paid for by the buyer or seller and produced within a negotiated period of time. Although the form allows for the buyers to decide not to receive the documents, the buyers should obtain and read the documents. The most important documents include bylaws, covenants, conditions, rules and restrictions which let the home buyer know exactly what rules to which the buyers and other owners are obligated. Additionally financial information is important. One does not want to buy into a neighborhood with an insolvent Association as those obligations may become the obligation of the buyer or preclude an appropriately functioning Association. And, the buyer will want to understand the budget and know the annual dues amount payable to the Association. Once, the buyers become the homeowners, they will want to also ensure the Association maintains adequate insurance.

The Association can place a lien on your property for non-payment of dues, just as a city or county can. And, the Association can foreclose against the lien. However, recent changes to Texas law have made foreclosure much more difficult. And, the Association does not really want to own your home.

In summary, a Homeowners Association provides governance for your subdivision with respect to common services, amenities and needs; manages the costs for these services; and provides a framework for the community’s appearance and quality of life. You as an owner, have the right and privilege to participate in how that is implemented.

ANNUAL PROPERTY TAX APPRAISAL

Your property taxes may go up significantly this year. If your only home is your homestead and you made no improvements, the increase in the taxable value of your home is limited by law to 10% per year. However, the taxable value on second homes and investment properties which is based on market value may have increased by 20% or more in Harris County from 2013 to 2014.

Whether your homestead makes the 10% limitation applicable, your market value is determined in area counties by appraisal districts who must perform an appraisal annually. The Harris County Appraisal District (HCAD) has almost completed the process for 2014. They have created several interactive maps which identify the average percent change in market value by area, new construction by area, and million dollar homes by area. See http://www.hcad.org/2014Values/

Houston SkylineThe biggest increases in Harris County were in the western half of the county with the areas inside the West Loop and just south of I-10 showing the most change.

You may protest your valuation through June 2nd this year. This is an HCAD document that explains the process http://hcad.org/pdf/forms/GTA-IAD-001.pdf. And, this is the form that must be filed to protest your valuation http://hcad.org/pdf/forms/2014//41-44.pdf.

–          If you live in Montgomery County, your appraisal district can be found at http://www.mcad-tx.org/

–          If you live in Fort Bend County, your appraisal district can be found at http://www.fbcad.org/Appraisal/PublicAccess/

–          If you live in Brazoria County, your appraisal district can be found at http://www.brazoriacad.org/

And, if you just moved into your home in 2013, you have until April 30 to file for the homestead exemption, which, as you can tell, is even more important this year. For Harris County residents, it can be found at http://hcad.org/pdf/forms/2014/11-13.pdf.

Clearly, our good fortune to be in an area booming with the energy industry has downsides including the need for more roads, other infrastructure and services to accommodate the wonderful people moving here to help us develop and process our energy needs. This need for infrastructure and services will be paid by taxes on their new homes and additional taxes on the increases in value our housing market has seen. As you are grumbling about the new taxes, try to remember how lucky we are to live in the Houston area. If you have any questions about the property tax process, please let me know.

SELECTING A PRICE

The vast majority of homes sold in the Houston area go through the Houston Association of REALTORS’ MLS, which means a real estate agent was involved in the transaction. For each home listed, the REALTOR had proposed a price at which to list. When you list, how do you evaluate the REALTOR’s proposal?

You want to use Goldilocks pricing. Not too high because you will make the home sit longer, and possible buyers will start wondering what is wrong with the house. Not too low just to get a quick transaction. But, price it just right. Factors you may want to consider in evaluating the REALTOR’S proposed price are:

  1. The market sets the price. You and your REALTOR are not driving the process. The market is. So, what you paid for your house, how much you have spent on upgrades, or how much you need to net from the transaction have no impact on a possible selling price.
  2. Supply and demand will impact the price. A market equilibrium exists if there is a 6 or 7 months’ supply of homes on the market. The number is calculated using homes for sale divided by number of homes sold in the prior 12 months. If there are 50 homes on the market and 100 sold in the prior twelve months, there exists a 6 months’ supply. If there are fewer homes on the market, it is generally helpful to the seller in pricing the home. And, when there are more homes on the market, it is generally helpful to the buyer.
  3. Prices are very local. In calculating the months’ supply, one would want to use your neighborhood or subdivision. And, if there is a significant difference in size or pricing in the neighborhood, the calculation would need to be modified for relevant or comparable properties.
  4. Compare your home to the homes that are for sale. You can search homes for sale in your neighborhood and study how relevant the homes that are for sale are to your home. You can also visit open houses. The relevant homes you select are the competition, and your home will need to be priced in line with the competition. Relevancy can be determined by relative:
    • At Home

      At Home

      Size – For both the home and the lot. The larger the size, the larger the price.
    • Number of bathrooms –  The more bathrooms, the higher the price
    • Location – Are the homes on a corner (higher), busy street (lower), views (the better, the higher the price), near noise (freeway or a nearby entertainment area will reduce the price.)
    • Age – Many neighborhoods in Houston are mixed with older and newer homes. Your relevant homes should be from the same generation.
    • Condition – Well maintained homes will obviously improve the price comparison.
    • Flooding and foundation issues – In Houston, many homes have had water in the structure. A history of water will reduce the price. The status of the need to repair the foundation will impact the price.
    • Quality of remodeling – Poorly done remodeling or additions will reduce the asking price.
    • Uniqueness – A home that is different from others in the neighborhood (e.g., all bedrooms down and living area up, or a much larger home than others in the neighborhood) may make a home more difficult to sell, lengthen the selling process, or reduce the possible selling price.
  5. Staging can help. Having a professional stager or using a list of steps your REALTOR provides (e.g., plant fresh flowers and put mulch in the flower beds) can both speed the sale and improve pricing.
  6. Appraisals can be a limit on the price. Even in an excellent market for the seller, most homes will need to be financed. As a result, the appraisal for the bank may limit your ability to pursue a higher asking price.

When you select a price, there are three basic theories:

  1. Odd pricing – Pick a price like $236,475. It will make people curious and get a conversation started.
  2. Grocery or gasoline pricing – Price your home at $299,999 as it may sound less expensive than $300,000.
  3. Internet pricing – Many homebuyers or their agents use round prices to search for homes. If the round numbers are $290,000 to $320,000, they are going to miss your house priced at $289,900. With all the technology in use today, I prefer the round or internet pricing theory.

Although you can rely on your REALTOR to propose reasonable pricing, you will want to use these guidelines to evaluate their suggestion. Good luck.