Monday, April 17, 2017

It's Not How Much Money You Make. It's How Much You Keep.

Americans en mass are just this week finishing up their tax paperwork or picking up their returns from their accountants and tax preparers.  Many are happily waiting for their refund, while others are cutting the dreaded check and mailing it off to the IRS.  It’s a yearly ritual we all know well.

We should know it better.  Taxes to me are like healthcare.  We go to the hospital or visit our doctors commonly without having any idea what the actual cost is.  Why bother?  The insurance company pays the bill, so we never even look.  For our taxes, why bother?  We’ve been paying in increments through the year, so when we pick up the returns and send them off, it’s not as impactful as it would be if we had to cut that one big check to send off.  Some people don’t even believe they pay taxes because they get a refund every year. 

Huge mistake.  Huge.  If there is one place and time for an American citizen to sit down, learn something well and do it right, it’s all about the taxes.  Most people won’t even believe what I’m about to write in this next paragraph.

Simple question.  Take a guess.  What percentage of all the money you make during the course of your entire lifetime will you pay in taxes and fees to the government?  I’ve read many studies.  The numbers are all over the place, but if you include all taxes and fees, I’ve read as high as 54%.  More than half of all the money you make in your life is paid out in taxes and fees to the government.  Wow. 

Fact is, when it comes to financial security and your future retirement, it’s not how much money you make – It’s how much you keep.

Don’t think that’s a real number?  Think it through.

Income taxes of course are on everyone’s mind right now, given the time of year.  But that’s not all.  In addition to the federal income taxes, which for most people are in the 28% bracket, you have state taxes (Colorado is one of the lowest taxing states in the country at around 6%.).  While you’re at it, pay the FICA taxes for your future Social Security checks and Medicare benefits.  If you own a company or are an independent contractor, (real estate brokers, accountants, attorneys, babysitters and daycare workers, Uber and Lyft drivers, landscapers or anyone who makes money without being an employee of a company or person), you pay self-employment taxes.

If you own a home, you’re part of the population that pays for our police and fire departments, schools, street maintenance, parks and pools and the mayor’s salary – anything that you vote on during election years to pass a new or extended mil levy.  You pay those with your property taxes.  It might be hidden in your monthly mortgage payments, but it goes to the local government.

People who invest their money wisely (stocks, bonds, mutual funds, real estate, puts and calls, options, hedge funds, derivatives, etc.) knows that you want to buy at a low price and sell when the price is higher.  When you do, you pay capital gains taxes.

I sold my home in Washington state when I moved to Colorado many years ago.  In that sale was a state excise tax of 3.2% of the selling price of the home.  Thousands of dollars in a tax simply for the right to sell my property.  Washington isn’t the only state that does it. 

Those who don’t invest and live simply, just living from paycheck to paycheck without the hassle of investments, investment advisors and attorneys, keeping their emergency funds in a safe on the floor of the closet – end up paying a higher percentage than the more affluent.  Sales taxes on just about everything take up a real chunk of your income.  Wealthier people spend a lower percentage of their incomes on things they buy in stores.  Sales taxes are close to 10% in some communities.  When you buy a car, look at the contract calculations in the contract you sign.  The sales taxes on that car would have paid for a lot of gas, but off it goes to your government.

Let’s not forget estate taxes.  There are cases in the courts where people worth millions of dollars die, and their estates end up owing the government more than the total value of the asset base.  The highest tax bracket for estate taxes hovers around 55%.  If you try to leave your estates to your grandchildren, thinking to avoid paying taxes for at least this one transfer, the estate may end up paying an additional 55% in generation skipping taxes.  Last I read, 55% plus 55% is more than the whole bucket.

We won’t even mention the little things that add up, like driver’s licenses, hunting and fishing tags, fees for driving into a park or using the local swimming pool.  If you own a car, you buy the license tabs every year.  It all adds up.

So pause as your money moves out of your wallet and into the marketplace.  Listen carefully for that quiet sucking sound.  A lot of that is taxes and fees that go to your government.  Learning to structure your money and assets, along with your ability to keep accurate records for your accountant or tax preparer, could make a significant difference in your retirement plans. 

I’ll be sure to include some of those strategies and structures in future communications.  Meanwhile, if you’re looking to move soon, or thinking about real estate as an investment, call me.  We should talk.

Enjoy the day,
303.541.1920 office
303.859.4467 mobile

Monday, April 10, 2017

Retirement. Sounds Great. Where Do I Start?

There is a day for each of us when we suddenly wonder about how one retires.  Most people assume that everybody works for a long time, until we notice that we have all this money available to us that we’ve slowly saved up over the years and we decide to give the bosses our notices.  Perhaps we get tired of owning our businesses and begin to ask around about who might want to buy them?  But until our financial planners ask us the fateful question (What does your retirement plan look like?), we don’t usually have a choreographed plan.

Having a choreographed plan is wonderful and helpful, but wow, it seems like a lot of work.  In setting it up with a professional on the other side of a desk in an office setting, we have no idea what the correct answers are.  How much money will you need on a monthly or yearly basis?  Will any of your children continue to need money for support?  When do you plan to leave the work force?  Has your estate planning attorney made any recommendations?

Might as well ask what the weather will be like on your birthday next year.

Know, though, that this is not a little thing.  It’s a huge thing.  The more we do to actively move toward that time, the better.  So let’s start with just one thing.  The first step.

We assume that we will need some money.  Forget calculating out how much, based on what we think we would need if we retired today, and then guess at what the inflation rate might be over the coming few decades.  Let’s just assume for now that you will need a certain amount of money.

Our initial plan then is to accumulate that money.  How do you do that in an organized plan-like kind of way?

Each person or couple is different in his or her needs and expectations.  Some people are starting from scratch, some have a few hundred thousand dollars, and some don’t know.  But we have something, along with an income.  It’s that income that we can use for now to begin.

Choose what percentage of that income you will save and invest.  That’s it.  Look at all of the money that comes in over the coming years, in whatever forms (wages or salaries on a monthly basis, profits from selling whatever you’re selling, commissions, bonuses, inheritances, the duffle bag full of cash that you found behind the shed, or anything else that presents itself).  Every time a sum of money, large or small, lands on your plate, multiply by that percentage and throw it into your retirement account.  Period. 

Your next question, I’m guessing, has to do with how you decide on what that percentage number will be.  That’s up to you, but there is some common sense thinking you might use.

If you are a newly graduated student with an MS Degree, 25 years old and happy with a job offer, perhaps 10% is fine.  You have plenty of time to work and accumulate, and with time on your side, you’ll be making a considerable amount of interest or capital gain on those investments over the coming decades.  If you make a big mistake and lose a formidable sum of that money, you have time to recover.

If on the other hand, you are 60 years old and recovering from a huge financial hit, you may be realizing that you need to start over without the luxury of time.  Maybe 50-60% of your future money needs land in that account. 

It’s also possible that you will be more successful and accumulate more money than you expected.  Know that you are allowed to retire at the age of 40.  There is literally no one monitoring this thing.

Rule of Thumb:  Have some fun in life, but when it comes to savings from your income, make it hurt at least a little.  Again, this is important.  More faster is better than I-wish-I-had-realized-sooner.

All you need right now is that number.  What percentage of my income, in whatever form that comes, will I shave off the top and put towards my retirement.  That’s a great start.

And maybe you should put that duffel bag full of cash back behind the shed.  That might not be yours.

If you’re thinking about buying a home soon, or moving for any reason out of the home you own, call me.  I’m always here for you.

Enjoy the day,
303.541.1920 office
303.859.4467 mobile

Wednesday, April 5, 2017

Fiduciary Duty. What's That Mean?

People buying homes and real estate investments today are just plain lucky, and there’s a very easy reason for it.  The law has moved dramatically to the buyer’s side.

I don’t consider myself elderly (older, maybe, not elderly), but I will write that I’ve been in this business of selling real estate for well over 30 years.  During that time, the way the professional community around me is expected and required to conduct itself, by law, has changed dramatically.  The most significant part of that evolution has everything to do with the word “fiduciary”.

So what is that?  And what does it matter to you as a home buyer or seller?

Back in 1984 when I began, sellers would call us when they wanted to sell their homes.  We would of course help to value the property, sign the listing contracts and put the information in the MLS for other brokers to find.

The MLS (Multiple Listing Service, where all the listings from all the brokers are available for all the brokers to see) consisted of a big, fat book that looked like the old phone books we all used.  It was printed and distributed every two weeks, and when it arrived, brokers all over town took the time to pour over it, noting what was new and what was no longer available.  We didn’t have the updated-by-the-minute computer tools we have today.  The book was everything – the entire market, current to the moment that book came off the press.

In that book was one black and white photo of the front of the house for every listing, situated at the top of a 3-inch square of information about the home.  At the bottom of that square was the seller’s name and phone number, which we called to make appointments to show homes.

Wow.  I just wrote that real estate brokers working with buyers were expected to call the sellers directly and talk with them to make appointments to show the sellers’ homes.  If I called a seller directly today, I’d be in front of a state Real Estate Commission hearing panel defending my license to work in Colorado.  I’d lose, because pleading mental incompetence is not an option.

Here’s the reasoning behind it all.  At that time, the law read that all real estate brokers were agents of the sellers.  There was no buyer agency at all.  No buyer had a real estate agent representing or negotiating for him or her.  Every agent was on the side of the seller.  When I picked up that phone and called the seller to make an appointment to show the home, I was talking with the person I represented, for whom I negotiated.  In short, I had a “fiduciary duty” to the seller, not the buyer.

Almost all of my time was spent with the buyer, finding out what kind of home she might like or love, whether or not financing was available and under what conditions, whether or not he qualified for that mortgage, driving around showing homes, getting to know each other sometimes over weeks or months.  It might be a friend of mine, or someone who had bought a number of properties through me over the years, perhaps even a relative. 

But I did not represent the interests of that buyer.  If my mother worked with me to buy a home, I negotiated against her interests, and for the seller.  That was the law.

If that buyer fell in love with a home and told me to write an offer, and said something like, “Wow, I love this home.  But let’s see if I can get it for less.  Let’s offer five thousand dollars less.  If the seller insists, I’ll pay full price because I love this house, but let’s try this first”, I had to tell the seller that the buyer would pay full price.  Just counter the offer and I’ll have him sign it.  It was the law.

That was a long time ago.  Since then, we’ve gone through many iterations of agency.  As an agent of the seller today, I work for and negotiate for that seller, adversarious to the interests of the buyer.  I am his “agent”.  If I work for the buyer, I am an “agent” of the buyer, adversarious to the interests of the seller.  I have a “fiduciary duty” to one party, either the buyer or seller.  It’s the same as an attorney or accountant.  My duty is to the benefit of one party. 

What it comes down to is this.  As a seller or as a buyer, you have a choice.  Do you want a professional to advocate for you, to negotiate for you, to represent your interests in the transaction?  If so, you must legally hire that broker to represent you, at which time he or she becomes your agent.  You do that by signing an Agency Contract (Listing Contract or Buyer Agency Contract).  If you don’t, that broker must act as a transaction broker, meaning he or she cannot more zealously represent either side.  She cannot negotiate more energetically for one party over the other.  He must not advocate for one side, to the detriment of the other.  Perfectly legal and acceptable, as long as the broker has disclosed it to the parties.

I very much prefer being a seller’s or buyer’s agent.  I want to work for you.  I want you to win.  I want you to think that working with me was a very good decision on your part.

In 1984, I legally couldn’t do that for a buyer.  Not even for my own mom.

If you’re thinking about a move, or that real estate might be a good investment for you, call me.  We should talk.

Enjoy the day,
303.541.1920 office
303.859.4467 mobile

Monday, March 27, 2017

To Buy This Home, I Need a Lot of Money. Where can I get it?

People buy homes and real estate investments through me all the time, and a bit more than 80% of my clients need or choose to secure mortgages.  When they’re looking to spend hundreds of thousands of dollars (and at times even more), it’s hard for most people to find that kind of whoop-out money to pay cash.

That means that most buyers are in the position to have to ask someone to give them a lot of money.  We don’t think of it that way, but that’s what it is.  You walk up to a stranger and you ask for a great deal of money so that you can buy something you don’t right now have the money to buy.  In that situation, choosing that person carefully is very important.

So who lends that kind of money?  You have at least two sources, maybe three.

Firstly, the family or very good friend option.   You may have a rich Uncle Jim.  If you do, that’s wonderful, I hope.  Understand, of course, that I’m going to need to talk with him to set this whole thing up, because the real estate broker representing the seller of your next home will want to know that this guy is real.  If he is, we can make this happen.  No rules.  The money is either there or not.  He’s either willing to give it to you or not.  You either agree to repay him or not, and on what terms is for you guys to discuss.  I’m happy to talk everyone through it.

If you don’t have that option, you have two others -- mortgage brokers and mortgage bankers.  There’s a difference.  In one way.  Then again maybe the difference isn’t so important.

Mortgage bankers work for the lender – not for you.  The lender may be a huge bank, but as easily a smaller local credit union.  The point is, that person behind the desk is not working for you, but for the company that hired him.  He’s an employee.  He gets paid by the company for improving its bottom line by selling you a mortgage.

That sounds bad, but keep in mind that that person’s paycheck doesn’t land on that desk until you buy that loan.  That person has a real interest in doing right by you, by finding the right loan in the right amount, and on terms that make sense for your financial situation.  If he’s a good person who’s good at his job, you’ll get a good mortgage.

Some of those banks are able to offer wonderful opportunities for specific groups of people.  Some have very beneficial features in loans to military people, or union members, or first-time buyers, and especially to people who have a lot of money invested in that particular bank.  The rates are competitive, and they get the job done.  It’s well worth the look.

A mortgage broker on the other hand does not work for the lender.  She works for you, and has a fiduciary duty to represent you in the greater marketplace.  She’s like me in that I don’t own all the properties I show you.  I’m brokering the sale for you in a transaction with a person who does own that home.   The mortgage broker and her company don’t have a vault full of all that money to lend you, but negotiate with the financial institution that does have it.  She has the ability to negotiate with any number of lenders in the marketplace, and is tasked with finding and negotiating for you the best mortgage out there.

That sounds wonderful.  Why would you not want someone working specifically for you?

Answer:  If your neighbor’s kid just graduated from somewhere and became a mortgage broker, would you run in to see him about negotiating your next multi-hundreds of thousands of dollars of debt?

The point is that these two options (I’m passing on Uncle Jim for now) are significantly structurally different, but not that much different in a very practical way.  Most important is that you always hire the best person.  Always work with the person who honestly and ethically wants you to come out strong and secure.  Always the person who has the experience to make it happen for you, who knows what challenges need be addressed and how to deal with them.  Always the person who can meet the goal.

The good news is that I know many of them.  I’ve worked with them on transactions with other buyers and sellers.  I know who has performed, and who hasn’t.  I’ve seen the mortgages they’ve negotiated or provided.  I can pass those names and all of that information on to you.

In the alternative, you can always ask your relatives if there’s a rich Uncle Jim in the family.

Call me as you need.  I’m always here for you.

Enjoy the day,
Mike Moger
WK Real Estate
303.541.1920 office
303.859.4467 mobile

Friday, March 17, 2017

The Fed Raised Interest Rates. What Really Happened?

Breaking News:  The Federal Reserve Board today (15 March 2017) raised interest rates .25%, the second time in three months.  Further, it hinted that it would raise rates twice more in this calendar year.

Great.  What just happened?

Most people, not being wonky economists, think that the Board of Governors (of the Federal Reserve Board, not your state government) voted to raise interest rates on all loans that banks give, and that they decided on what those interest rates will be.  The overnight rate has been at .50% for a few short months, and the Fed raised it to .75%.
That would be wrong.  It’s so much more entertaining.  Our economy is a Keynesian economy. What that means mostly is that it’s a free market enterprise.  The market conditions will determine what costs are.

Think about it.  If you own your home and now want to sell, your broker will show you market conditions and past sales to help you determine for how much you can sell that home.  You can’t just throw a price out there and expect buyers to pay you what you want.  That would be foolish.

The Fed has to follow the same rules.  It cannot just decide what interest rates will be, change the number on it’s website, and that’s what people now have to pay.  Those people will pay what they are willing, and en mass, their actions will determine what that rate will be.

When the Fed “raises interest rates”, it simply means that it will change the way it’s done business in the immediate past.  The Fed decides how much money it will sell each month, and it does that in an auction.  If it floods the market with a massive amount of money, banks (the buyers of that money) will be able to buy it at a better (lower) price.  If it offers less money than usual, the buyers will have to bid higher or lose to another bidder.  It’s no different than a farm auction, except that the bankers are all wearing suits and it all happens with computers now.

In short, the Fed doesn’t “raise interest rates”.  It decides how much money it will sell in the coming weeks, and in so doing, will help guide the market to what it thinks the value of that money might be.

Having done this for a very long time, the Fed knows approximately how much less money it needs to offer in the auction in order to move prices up approximately .25%.  In reality, it has to wait and see what it gets.  The real overnight rate will probably end up somewhere between .75% and 1.00%.

The overnight rate is the lowest rate in the country.  Every night after the banks close, bank computers borrow and lend to each other in order to be certain that no bank is out of line with federal regulations, that they all have enough money to conduct business the following day, etc.  Some banks will have more than they need, so they lend to others until the next night, when it all happens again.  That .75% is the interest rate that one bank pays another for that overnight money.

Other interest rates (car loans, mortgages, business loans, etc.) will be determined by what the market is doing, along with what the banks had to pay for the money it will lend.  Mortgage interest rates will probably go up over time, but mortgages are some of the longest term debt in the country.  Rates won’t automatically increase .25% tomorrow morning.

Other shorter term money will.  Look to the interest banks will charge you on your credit cards to increase pretty quickly, along with 60-90 day loans.  Interest on auto loans will increase right behind them, as most are 3-5 year terms, but far short of the average mortgage.

I picture the Federal Reserve as a choreographer.  And everyone knows that the most beautiful choreography will be upstaged every time by a single dancer falling headlong into the orchestra pit.  It has to make the decision, and watch it all play out, just like the general public.

If you’re looking to sell your home or investment property, now might be a good time, before those interest rates start moving up.  Call me anytime.  I’m always here for you.

Enjoy the day,
303.541.1920 office
303.859.4467 mobile

Wednesday, March 8, 2017

Money is important. Learn it all. I'll help.

A receptionist at the office many years ago asked for a favor.  One of her professors at CU had told her that her generation was the most ignorant when it came to general knowledge, and she was mad about it.  She asked me to ask her a question every day when I came in, so that over an extended period of time, she’d know more than others in her age group.

All of our receptionists took advantage of our exercise and had some fun with it.  I was quite surprised when not one of them could name all four Beatles (first and last names), and disturbed when half couldn’t name the last two vice presidents of the United States.

Fact is, knowledge is a good thing.  Everyone should have the basics.  You can get by without knowing who is in what rock group, but the VP of the US is actually important.  

Critically important, though, is money.  How does it work?  What's the difference between a stock and a bond?  What's an annuity?  Is the value of your home increasing, decreasing or not moving at all?  What affects that value?  What’s happening in your neighborhood that might affect that value?  If I add a family room to my home, will I get my money back when I sell?  How about a pool?  What does it cost to sell?  Where are interest rates today, and why is that important?  Are insurance costs stable?  Will my lender suddenly require flood insurance for my neighborhood?  What’s a FICO score, and what happens to it if I buy a car?  How did that huge recession mess happen back in 2008?  Why is it true that lower income people actually pay more (quite a lot more) for goods and services in this country than their wealthier neighbors for the same stuff?

I asked someone recently how much additional money someone would have to make to pay off a $30,000 debt in one year.  The answer is not $30,000.  It’s not even $30,000 plus the interest you have to pay for that year.  It’s much higher.  Because we pay income taxes (both federal and state income taxes in most states), you actually have to make enough to pay all of the taxes on that additional income first, and have the $30,000 plus interest left over.  Unless all of that debt and interest is tax deductible, you have to budget a much higher income – somewhere in the $35,000 to $40,000 range for most people -- in order to have enough.

Money is important.  We need it to buy homes and everything else, and how you manage your money matters.  General knowledge about money is Step One.  So I’m making a commitment to you.

In the coming weeks and months, I’m going to send you tidbits of information – important information -- about money, business, your home, taxes, investments, retirement and a host of things that will directly affect you.  No Beatles questions.  I’ll even skip the one about the VP.  Only the actually important ones that have to do with your money.

I’ll also give you the answers.

I used to be certified as a CFP (Certified Financial Planner).  I know the difference between a stock and a bond, and what makes them increase or decrease in value.  Academically, it fascinates me.  But practically, I benefit from it all.  As a REALTOR, I know that you will benefit also from the common sense common knowledge that I’ll give you in the business world.  Nothing confusing or complicated.   Entertainingly written.   Just the facts.  I’ll have a graph or two.  Nothing political for one side or the other.

And if you’re planning a move in the coming year, we should talk.   If you know people planning to move in the coming year, I’d love to talk to them as well.

Call me.  I’m always here for you.

Enjoy the day,

303.541.1920 office
303.859.4467 mobile

Monday, December 12, 2016

Colorado is the state to beat -- again!!

Everybody loves a winner.  It's even better when we get paid for it.

One of the significant data reports that I follow is the quarterly home price index that's put out by (Federal Housing Finance Administration).  It has the housing price stats for all of the country back to 1991 and this agency puts out a wonderful report four times every year.

One of the data streams is how much average housing costs have increased or decreased on average in each state -- for the quarter, for the year, for the past five years, and all the way back to 1991.  I know, I'm a data geek, but when the numbers are this good, it's a lot of fun.

Colorado once again this quarter (2016 3Q) showed in the top four of the fifty-one states (FHFA considers Washington, DC as a 51st state).  The highest increase in the country over the past year has been Florida, followed by Washington state, Oregon and Colorado in that order.  All of them increased between 10-11% over the past twelve months.

But there's more.  Not only does Colorado consistently perform well in home appreciation on the yearly front, but in the long term.  (This is so much fun.)

Since 1991, only one "state" has outperformed Colorado.  Our home values on average have increased 296.37% over that 25 years, better than almost everyone.  Only DC is better at 376.18%.

If you own a home in Colorado -- and especially if you've owned a home for a long time in Colorado -- you've done well on the investment side.  Nicely planned and executed.  You're a winner living amongst winners.

If you're thinking about a move sometime this year, call me.  It's time we should talk.

Enjoy the day,
Mike Moger
WK Real Estate
303.859.4467 mobile
303.541.1920 office