Monday, November 10, 2014

The Piano

I’ve always said that the world is perfect.  Unfortunately, for whatever reason, we then give it to human beings to run, and things get a little mucked up.

The following story is taken from the annals of my career.  Some things you just can’t make up.

My buyers were young and excited, this being the first home they were buying.  They loved the open feeling of this Leave-It-To-Beaver style house.  As you walked through the double front doors, you stood in front of a huge staircase that led to a lofted area off to the left overlooking the living room on the main level.  It was beautiful.
 
That loft was home to a magnificent shiny black 11-foot Steinway piano.  The seller was a concert pianist, and I remember that when we first previewed the home, I’d even commented on the fact that the structure of the building had to be solid.  That piano must have weighed a ton.

The evening before we closed, I met my buyers at the home for a final walk through the property.  Traditionally, we meet at the home to verify that the seller has moved out, the home is still in good condition, the appliances that were expected to be there in fact are still there.  All was well.  The only thing left was the piano, and the special moving company that was hired specifically to move just the piano was wrapping it up for the trip down that staircase.  The seller was excited about her move and was very happy to meet the buyers and answer any questions.

The buyers and I were standing on the curb discussing in detail what would happen the following day at the closing table when it happened.  I've been told that a tornado sounds like a freight train roaring by, and with that description, I know what a tornado sounds like.

You know what happened.  That piano got away from those movers, and it sounded just like that tornado.  We hit the deck, and lay flat on the ground 30 feet away.  When the dust cleared, the piano lay upside down on the front lawn.  Under it were both front doors.  We could see the living room and staircase through the 14-foot swath of the front of the home that was strewn all over the front yard.  The seller was running around screaming at the top of her lungs, hands wrapped around her head like she was trying to keep it from falling off her shoulders.

No one was hurt; that was good.  I told the seller that I’d call the other broker and have him over to the home as quickly as I could, and went back to my buyers on the street.

They were amazingly calm.  I invited them to sit in my car for a bit to discuss our situation.

“Obviously, something very bad just happened,” I said.  “The listing broker is on his way over now to be with the seller, and we’ll have to make arrangements for inspecting and repairing the home.  But you now have a choice, and I have to ask you a simple question.  If we have this home inspected tonight by a structural engineer and contractor, and together they can verify that everything is solid and can be repaired at the seller’s expense within a couple or three weeks, do you still want to own this home?”

They looked at each other for a moment, and she smiled.  He turned to me and said, “Honestly, we hated those front doors.  We were going to have them replaced anyway.  Do we get to choose the new doors?”

I couldn’t believe it.  “I think we can make that happen,” I said.  “I’ll have an engineer out here tonight to verify that the structural integrity of the home is solid.  We’ll have two bids from good reputable contractors by noon tomorrow, a time line for the work, and I’ll be sure the bids include an allowance for the doors so that you can pick them out.  We’ll be dealing with the seller and her agent, insurance companies, the escrow company, your lender and anyone else involved.  I’ll be sure that the seller is required to hold in escrow 1-1/2 times the higher of the two bids to pay for it all to protect your interests, and I’ll call you before 10am to update you.”

All was good.

The buyers were wonderful, and got exactly what they wanted.  The seller’s insurance company negotiated with the movers’ bonding company to pay the bill, the contractors’ bids were ready and the work completed in two weeks.  We closed the transaction the following day as planned with the money escrowed in place.
 
Like I said, human beings running the world doesn’t guarantee a smooth ride.  We all expect and plan for a wonderful transaction and easy process, but unexpected things sometimes just happen.  When they do, be sure you have a solid and experienced real estate broker on your side of the table.

One last bit of free advice.  Keep the piano on the main level.  Those guys are heavy.

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

Enjoy the day,
303.541.1920 office
303.859.4467 mobile
mmoger@wkre.com
www.MikeMoger.com

Thursday, November 6, 2014

1% = 10%, or thereabouts

Anyone who wants to come in to visit with me about money or numbers can set a time anytime.  I love it.  I always encourage it, because clients can benefit greatly with some planning – if they know the numbers.

A few Rules of Thumb, though, will allow you to quickly understand those benefits without even running the calculations, because numbers move and change according to patterns. 

Here’s a good one that’s easy to remember:  1% = 10%, or in this marketplace, a little more than 10%.

The full out meaning is that for every one percent the mortgage interest rates increase, a buyer will lose about 10% of his buying ability, or the monthly payment will increase the same.

Let’s go to the numbers.  Assume that you can find a 30-year amortizing mortgage (after 30 years of making the same payment every month, your mortgage is entirely paid off) with an interest rate of 4.00%.  For every $100,000 you borrow, your monthly payment will be $477.42.  So what if the interest rate increases to 5.00%, or more?

Let's assume that you want that 30-year loan.  90% of my clients who borrow money for a home or investment have 30-year loans, by far the most common mortgage in America today.  

Here’s how it all happens:


Note that the monthly payment increases in a pattern.  Your payment at 5.00% increases about 12.5% over the payment at 4.00%.  Your payment at 6.00% is about 11.5% higher than the payment at 5.00%.  The 7.00% payment is about 11% higher than that at 6.00%.
                
Obviously, as the interest rate increases, so does the monthly payment.  The lower the interest rate, the higher the difference by just a little.  But it’s more than a 10% difference.  Not until you’re well above an 8% interest rate is it less than a 10% difference.  In this marketplace, you can count on 1% being equal to about 10%.
                
But what if you can’t or don’t want to pay that much?  You were fine with the $477.42 payment, but that’s it. 

Not a problem.  You just  borrow less money.

Follow the same chart, this time keeping the monthly payment the same as interest rates increase:


 Again, the monthly payment stayed the same, so the loan amount had to come down. 
                
Note that the loan amount from 4.00% to 5.00% went down about 12.5%.  The 6.00% amount came down about another 11.5%, and the 7.00% yet again, this time at about 11%.
                
Same numbers.  Same pattern.
                
The long and short of it is that the 1% = 10% rule (approximately) works very well at the current interest rates.  For every 1.00% the mortgage interest rates increase, you have a choice.  Either increase your monthly payment a bit more than 10%, or decrease the amount you borrow a bit more than 10%. 
                
Or something in between.  Borrow a little less, and pay monthly a little more.
                
Know that everything here was based on a $100,000 loan amount.  But try any other amount, and you find the same pattern.  It works for car loans, student and installment bank loans.  Anytime you borrow money for any reason, 1% = about 10%, maybe a bit more at the lower rates.
                
Numbers are fun.  Rules of Thumb are useful.  If you want to really dig into them, I’m available.
                
Call me anytime.  I’m always here for you.

Enjoy the day,
                    
303.541.1920 office
303.859.4467 mobile

www.MikeMoger.com

Monday, October 27, 2014

Jerry Buys a House

This is a funny story, along with a valuable lesson about buying a home.

Jerry flew through the door at our real estate office one day with more energy than anyone I know.  He was a body builder, huge man, about 6 foot 5 or 6 inches.  He very loudly announced to our petite receptionist that he was buying a house, and could he talk with someone.

I happened to be the agent on floor, so Sarah led him to my office.  He towered above her, looking like he could have picked her up and snapped her in half.  Her eyes looked like saucer plates.

He quickly told me that his mom had told him that at 35 years old it was time to buy his own home and move out.  He was like a kid at his Birthday Party.

We talked for a couple of hours, went over the process, discussed what he could afford and what he wanted.  At the end of the meeting, he promised to be at my office Thursday at 5:05pm (He got off work at the gym at 5:00) and we’d look at the three or four best homes on the market.

Promptly at 5:05 Thursday, he barged through the door.  I could hear him from down the hall.  “I’m here to buy a house.  Where’s that Mike Moger?”

Sarah scurried down the hall with her saucer plate eyes to my office, Jerry towering behind.

He loved the third house.  He needed no time at all to make the decision.  This was it.  What do we do now?  “Mom is going to love this house.  This is so exciting.”  We were still on Birthday Party energy levels.

As I wrote the offer at my desk, he asked if we could negotiate a bit.  “This is so exciting,” he kept saying.  I told him that we could, that the home had been on the market for a month with no offers, so we could risk a bit if he wanted to.  The asking price was $68,000.  “Can we try for $65,000?  I’ll pay $67,000, but I’d like to try.”

We wrote the offer, he signed it all, and I told him I’d call him at the gym the following day.

I was so happy when the listing broker called me the next day to tell me that the sellers wouldn’t do $65,000, but countered at $66,500.  Looked like Jerry was going to get his house.

When I told him over the phone, he shouted so loud, I had to move the phone away from my ear.  “Ya!  I’m buying a house!”  I could hear the cheers in the gym.  “What do I do now?”

I told him that all he had to do was write his initials next to the change on the contract form, and we could start the move toward closing.  He told me he’d be in my office at 5:05 that afternoon.

I warned Sarah that he was coming.

Sure enough, at 5:05pm, Sarah and Jerry were coming down the hallway.

“I’m buying a house!  What do I have to do?  I’d have paid $67,000.  Mom’s so happy!”

I have never seen anyone so excited about buying a home.  With no warning at all, he marched around my desk and picked me up in a big bear hug.  It being Jerry, he wrapped me in his arms, my hands dangling at my hips, feet hanging off the floor.  I wasn’t sure if I was dying or going right to heaven without the formality of suffering an earthly demise.

When I finally landed back on the floor, I sat at my desk and told him again that all he had to do was write his initials next to the change in the selling price on the contract, turned it toward him and pointed out the line.  I laid the pen on the desk next to it.

His eyes were alive with energy.  He kept talking about the house, his mom, what his favorite rooms were.

Six o’clock, he still hadn’t signed the contract.  Sweating a bit, he called his mom and told her again about it all.  She told him to just do what Mike says and sign the contract.

At seven, he called a couple of friends, who came over to the office to cheer him on.  “Jer-REE, Jer-REE, Jer-REE”.  They were all from the gym.  I felt like a kindergartner at a junior high party.  They left for dinner and told him to report back.

We walked around the block a few times.  We talked about lifting weights, vacations he’d taken with his mom to New York, what colors he’d paint his house when it needed it.

At 10pm, sitting at my desk, I told him it was time to call it a day.  Maybe this wasn’t the right house after all.  I told him that we’d meet again at 5:05 tomorrow and review our options.

“NO!” he yelled, pushed the chair back and threw himself on the floor and furiously started pumping out pushups.  After a quick 25, he jumped up, grabbed the pen and signed his initials.  “I DID IT!”    My feet flew up off the ground in another bear hug, and as I was dangling in his arms, I wondered at the stack of papers we was going to have to sign at the closing.

I write this story not because it’s a very entertaining story about a past client, but simply to let you in on something that’s very real.  Buying a home is not a little thing.  It’s a huge thing.  I know that, and different people do this in different ways.  Not everyone is like Jerry, but at varying levels of energy and fear, excitement and joy, the process is sometimes not an easy thing to do.                

When it’s your time to move, know that working with someone who honors your energy and concerns, who takes the time you need, makes this whole thing much easier and more comfortable.

And yes, Jerry signed the closing documents without incident.  Just as much energy and excitement, but without a moment of hesitation.  I got another bear hug when it was over.

Call me.  I’m always here for you.

Enjoy the day,
303.541.1920 office
303.859.4467 mobile
mmoger@wkre.com

Tuesday, October 21, 2014

A Free Gift

I have a gift for you.  It’s fun and useful and easy to use.

Most people now have Smart Phones, and we seem to be using them all the time.  Hopefully not at all while we’re driving, operating heavy machinery or trying to get some sleep, but the rest of the day, they’re with us.  We budget and bank with them, buy about anything we need, and are in constant communication with any number of people and news stories.  We search, post, tweet, pin, schedule, ask questions about anything that comes up and on occasion even talk to someone.  They seem to be the newest lifestyle choice in our existence.  Most importantly, they’re always within reach.

So why not easily and quickly find out how much your neighbors down the block are asking for their house?

You’ve been there.  A sign goes up three doors north and your first impulse is to wonder how much the asking price might be.  In the past, perhaps you walked over and took a brochure (assuming there were brochures, and assuming the asking price was listed somewhere on it).  If not, you may have called the listing company.  As a last resort, you asked a neighbor or the actual owner of the home.

Why is it so important to know the asking price?  Knowing what’s happening in your neighborhood is important.  It determines the value of your home, one of the most significant investments you’ll make in your lifetime.  You may know someone who might want to buy into the area, a relative moving to town, parents who are getting older and may need some help at times, or a best friend. 

Or honestly, you’re a naturally curious and snoopy human being.  Nothing wrong with that.  It’s how we’re wired.

Here’s another scenario.  You’re in a new area driving to a social event and pass through a very interesting neighborhood.  Wow.  You might like to live in a place like this one day.  You wonder what that might cost, so you pull out your phone, open the WKRE app, and it immediately shows you a map of where you are, along with an icon for every home currently on the market in that immediate vicinity.  If you’d like, it will show you what homes have sold over the past two years, and where the Open Houses are this weekend.  You can tap on any of those icons to preview photos, find out the square footage, number of bedrooms and baths, schools, homeowners’ association and dues, property taxes, and so many other things that I can’t list them all here.  Listing and selling prices are included, and whether or not they’re under contract.  If you see a home you really like with a For Sale sign in the yard, you point your phone at it and take a photo.  All of the information appears on your screen.  No walking over for a brochure or calling the listing company.  You have it all on your phone.

If you’re at home or on your lunch in a cafĂ©, and you want to search different neighborhoods, pull out your phone or tablet and move the map around to check out what values are in any area you choose.  Make a big map or keep it down to one specific block.  You can search for all 3-bedroom homes in the $400,000-500,000 price range in a specific city, or draw a map of where you want to look.  It has all the searching functionality of my website, and is available for you with the convenience of picking up your device.

If you’re curious about a specific home, look up that one address.  You can use the map as drawn, or by zooming in a bit, you can see the aerial photography, including the rooftops, trees, streets and whether or not there’s a big toy play structure in the park down the block.  The map will show you the location of schools, parks, rivers and creeks and railroad tracks.

Depending on how easy you navigate and use these new devices, you may choose to walk through a short tutorial that shows you all you can do with it.

When you first open the application, you’ll be asked to register and choose a favorite agent.  Don’t worry.  I won’t call you or bother you about selling your home.  It simply allows me to put my photo and name in the corner, so that you remember who gave you this entertaining and valuable tool.

I’ve always believed that knowing what’s going on around us is important, sometimes very much so.  The more information you have about the most significant purchase you’ve ever made – your home – is not only for the curious, but the smart.  Download it.  Use it.  Plan and dream with it.  Pass it on to others.  Wright Kingdom did this for you.

To begin, search in your iPhone or Android apps page and type in WKRE (Wright Kingdom Real Estate).  The icon is green with a big WK in the middle of a white border.  Click Download.  Again, it’s free.  There’s no enticing additional feature that asks you to pay extra.

When you need me, call.  I’m always here for you.

Enjoy the day,
303.541.1920 office
303.859.4467 mobile
mmoger@wkre.com

Monday, August 4, 2014

The Rule of 72

Every field of endeavor has a certain number of rules or guidelines, formulas, or just things about which the real experts know.  Accountants know the benefits of a 1031 Tax Deferred Exchange.  Joiners and carpenters know the formulas for building staircases.  Every estate planning attorney knows what is meant by durable powers of attorney and life estates, and should be able to explain them simply to his or her clients.

As a person who sells homes and real estate investments for a living, my humble opinion is that everyone who deals with money on any level should know the Rule of 72.  Ask around.  Nobody knows the Rule of 72.

When you are just thinking in broad terms about investments, retirement planning, home values or savings accounts, this one comes in handy.  It’s certainly not a precision instrument, and everyone should always seek the advice of a competent professional in any investment or financial planning situation, but for brainstorming and big picture thinking, it comes in handy.

Ask yourself this question:  How long will it take to double my money?  If I put $1000 in a savings account and just leave it alone, how long will I wait for it to become $2000?  If I buy a $500,000 real estate investment and maintain it respectfully, when will it be worth $1,000,000?  If I set aside $5000 every year for my retirement, how many years go by before each of those $5000 inputs will be worth twice that?

When you ask those kinds of questions, you put yourself on the path to planning your financial future.  Conversations with yourself that ask these kinds of questions are important.  Have these conversations with yourself privately, so as not to worry those around you, but have them.

The Rule of 72 gives you the answers.  Here’s how it works.

Multiply any two numbers to get 72, or even very close to 72.  1 x 72.  2 x 36.  3 x 24.  4 x 18.  5 x a bit less than 14-1/2.  6 x 12.  7 x a little more than 10, etc., etc.

Now use these numbers to answer your questions.  If I put $1000 into a savings account at 1% interest, and leave it alone for 72 years, I’ll have $2000, because 1 x 72 = 72..  If I buy a $500,000 home and maintain it, and the real estate market shows an average yearly increase of 4% in value, the property will be worth $1,000,000 in about 18 years, because 4 x 18 = 72.  If you invest $5000 today in a solid mutual fund portfolio for your retirement, and you are able to manage a consistent 6% return, you’ll double that money in about 12 years, because 6 x 12 = 72.  If you pay $5000 for Iraqi dinars on the low, and the Iraqi economy turns around dramatically, and over 7 years increases yearly in value on an average of 10-11%, you’ll have about $10,000 when you sell them at that time, because 7 x 10 or 11 = about 72.

When two numbers multiplied together equal 72, and one of those two numbers represents your return on your investment each year, the other is your time in number of years to doubling your value.

How much money do your need to retire?  How much of a return can you get on your investments?  Use the Rule of 72, and on the off chance that you actually do make the return consistently that you expect, you can realize the fruits of your planning.

And if you’re wondering, you can buy about $100,000 in Iraqi dinars for about $100 today.  Financial advisors will tell you that for most people, buying a home is a better bet.

For your real estate needs, call me as you need.   I’m always here for you.

Enjoy the day,
  
303.541.1920 office

                 

Tuesday, July 29, 2014

Why are my Property Taxes so low?

I had a wonderful thing happen this past year with a client.  He found out that a home in Colorado was going to cost him much less than he expected.

We were talking about property taxes.  Moving from New Jersey, where property taxes are very high, he wanted to know what the cost was going to be when he bought a home here.  It’s always nice to know what you’ll pay for a property before you sign the documents.

The price point he was looking at was around $500,000 and he was ready to pay all cash.  The monthly costs of owning a home outside of paying a mortgage was concerning him.  After all, he would still pay for homeowner’s insurance, HOA fees, upkeep and property taxes.

I looked up a number of homes in the areas he was looking and showed him on my computer that the taxes would be about $4000, maybe $4500, depending on exactly which community he was buying. 

“So about $50K a year,” he said.  “That’s higher than I thought, but I guess it is what it is.”

I had the pleasure of telling him that he misunderstood.  The $4500 tax amount I gave him was for the year, not one month.  You should have seen his face.  I could sell that picture on eBay.

His taxes on his $350,000 home in Jew Jersey were $28,000 a year.

Property taxes in Colorado are lower than many places in the country for a reason.  It all goes back to 1982 with the passing of the Gallagher Amendment to the State Constitution.

Combined with the Tabor Amendment, here’s how it all works today.

Governments have to budget.  They need a certain amount of money to do what governments do.  If there isn’t enough money, they have to cut costs, because the public has to approve new expenditures.  It’s  why we vote during the election cycles to increase the number of mils for education, capital expenditures like building new buildings, etc., fire department expenses, transportation issues and road maintenance costs.  Cities get some money, counties get some money, and the list goes on.

Property taxes in great part pay for those costs.  If you didn’t pay property taxes, firemen and teachers wouldn’t get paid.  New schools would never get built.  It’s important, and we all want them to have money.  Just not unlimited amounts of money.  We as citizens can support the bonds that raise that money -- which we have to pay back over time -- or vote them down.

The County Assessor is tasked with deciding the market value of the real property in the county according to the rules set down by Gallagher.  The market value may be determined in a limited number of ways, again only according to the rules in Gallagher.  Each property of the same zoning designation is assessed by the same rules, with the goal of determining the fair market value.  Those values are then handed off to the County Treasurer.

At this point, the county is divided into three separate worlds – residential, agricultural and commercial.  Residential is where people live.  Commercial covers retail stores, industrial and office properties.  Every property is zoned in one of the three.  Agriculture is mostly the rural areas of actively producing farm properties.  Most important are the former two.   I’ll ignore ag for now.

The intent of Gallagher was to maintain and eventually reduce the tax burden of residential property owners.  Following is the tax collection structure that was created.

Commercial property is taxed on 28% of the actual property value.  If a building is assessed at $1,000,000, the owner is taxed on $280,000 of that value.  Multiply the number of mils that the voters have approved, and you have the yearly taxes that will be billed the property owner by the Treasurer.

Residential simply pays for the remainder of what’s needed to meet the budgets.  If 1/3 of the tax monies are covered by commercial, residential needs only cover the remaining 2/3.  Whatever commercial covers, residential must cover the remainder.

What’s happened in Colorado since 1982?  Cities have grown in numbers not seen in our history.  There are so many, many more homes out there now that all together help share the burden of that remainder, that the obligation of each homeowner has been reduced significantly.

The result today is that a $1,000,000 home is taxed on only about $75,000 of its market value.

True.  The owner of that $1,000,000 office building pays taxes on $280,000 of its value.  An owner of a $1,000,000 apartment building next door pays taxes only on $75,000 of its value.

As you drive around town through the commercial areas, you might think to quietly thank the owners of those buildings.  They’re tax bills are almost four times what you pay on your home, dollar for dollar in value.  Thanks to Gallagher, that’s tax money you as a homeowner don’t have to pay.

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

Enjoy the day,
   
303.541.1920 office
www.MikeMoger.com

Thursday, July 17, 2014

Compounding Interest -- Not a Bad Idea

Simple question:  Why is it that I make my mortgage payments for months and years, and my balance only decreases a very little bit?

You could as simply ask why banks consistently make so much money.

One correct answer is that they’re the ones who are willing to give you hundreds of thousands of dollars on the hope that you’ll make your payments over 30 years on time.  Not only do they have the money to give you, they’re taking the big time risk in giving it to you so that you can buy a home or investment.  Fact is, they deserve to make a profit.

Another very good answer is that they’re on the right side of a very simple arithmetic formula.  Some good news.  When you understand this and are willing to pull out a calculator and make some numbers happen, you can save thousands upon thousands of dollars very easily by doing one or a few very simple things.  I’ll get to that in a moment.

First, let’s look at an average mortgage.  Let’s say that you borrow $300,000 to buy a home.  Doesn’t matter how much you put down, or what your property taxes are.  Let’s just look at the monthly payment of principal and interest.  The principal part of your payment is the money that goes to reduce your balance.  The interest is the bank’s pay check.

If your interest rate is 4.50% (pretty easy to find as I write this), and you are paying your mortgage over 30 years (most people have a 30 year amortization), your monthly payment will be $1520.06.  That means that if you make 360 payments (that’s 30 years), your loan of $300,000 will be paid off, and assuming you don’t have any other mortgages on your home, you will own it free and clear.  What a wonderful feeling.

But do the math.  360 payments x $1520.06 per payment = $547,221.60.  You borrowed $300,000 and you paid the bank back $ $247,221.60 more.  That’s a good pay check for the bank.  It’s almost like buying two properties instead of the one.

So let’s go back to the original question.  Why does my mortgage balance decrease so slowly?

More arithmetic.  If you know that you are paying the bank 4.50% interest per anum (that means per year), you can calculate out how much comes off your balance every month.  At the very beginning with your very first payment, you owe $300,000.  Multiply that times the interest rate (4.50% or 0.045), and you get $13,500.00.  Remember that that’s the bank’s pay check, but on a yearly basis, so divide by the 12 months of the year.  Your first month’s interest charge is $1125.00.

So after paying your first payment of $1520.06, and subtracting out the bank’s profit of $1125.00, you figured out that you reduced your mortgage balance $395.06.  Congratulations.  You have moved the proverbial ball down the field.

You’ll continue to make the same monthly payment of $1520.06, but not as much goes to the bank.  The reason is that you no longer owe the bank $300,000.  After making your first payment, you now only owe it $299,604.94.   To calculate your balance after making your second payment, you multiply the 0.045 interest times the new lower balance.  When you do that, and divide that number again by 12 because of the 12 months of the year, you come up with an interest charge of a bit less at $1123.52.

OK, that’s not much less, but I’d take it if I were you, because if you keep doing that month after month, you eventually end up paying about half to interest and half to principal balance reduction.   At that point, you’re really cutting down your loan balance significantly.

Problem is that, because of the arithmetic reality of compounding interest, which is what we’re talking about here, it will take you until payment #164 (that’s the 8th payment in the 14th year) before you are paying as much principal each month as interest for the bank.  At that time, your loan balance will be $201,772.72.  You will not have paid even 1/3 of your mortgage.

To reach the point where you have paid ½ of your mortgage, you will have to have made payment #225 (9th month of your 19th year).

So other than being kind of depressing, how can this information help you?

Use the formula to work for you rather than against you.  Put time on your side.

Think about it. If so little principal balance comes off your mortgage in the first months of the loan, it’s very, very easy to make lots of extra principal payments.  Remember our calculations from before.  Your first payment only reduces your mortgage $395.06.  If you pay double that first $1520.06 payment, all of that second payment money goes to reduce your principal balance.  You will pay not only payment #1, but in addition the principal portion of almost four more.  The next payment then will be calculated off the balance that would have been payment #6.

In the practical world, by doubling that one payment, you just saved the interest off almost four payments.  That’s thousands of dollars.  And you’ll not be paying interest over the coming 29 years and 11 months on that principal reduction.  Furthermore, you can do it again next payment, or whenever you want.  I so love a good calculator.

Now you know what to do with that holiday bonus. 

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

Enjoy the day,
303.541.1920 office
303.859.4467 mobile

Monday, July 14, 2014

My commitment to you

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.

More important, though, is what affects you directly in our culture.  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?  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, 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.

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

Enjoy the day,

303.541.1920 office
303.859.4467 mobile

www.MikeMoger.comwww.MikeMoger.com

Friday, July 11, 2014

Colorado's Economy outpacing the Nation

This is not a surprise to the people -- and especially the business people -- of Colorado.  Some things you can just feel in your bones.



Our pocketbooks are showing it also.



This article in the Boulder Daily Camera details the outlook from one of the most respected economic minds in the state.  Richard Wobbekind does his research, and is one of the best big picture guys in the business.



Have a wonderful read.



Economy remains ‘shining star’ - Boulder Daily Camera



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



Enjoy the day,

Mike Moger

Wright Kingdom Real Estate

303.541.1920 office

mmoger@wkre.com

www.MikeMoger.com

Thursday, July 10, 2014

Notary Public -- Know your stuff

A client asked me this week why we need notary public signatures on real estate documents.  She considered it a bother that she couldn’t sign anything until this extra person was available.

If you’re expecting a simple two line answer, sit down.  The world is so much more complicated than that.  And entertaining.  Furthermore, if you know some simple absolute facts, you can potentially save a tremendous amount of anguish and stress when buying or selling a property.

Firstly, we don’t need notaries at all on almost anything we sign in a transaction until the very end.  Lenders and title officers generally enter the paperwork phase of the deal at the end, at the closing table.  That’s when you sign the most important documents, and where notaries enter the picture.

It’s also the time and place beyond which we can’t back it all up and start over.  There’s a good reason we call it a closing.

A notary public is a person who initially doesn’t know with whom she is dealing.  She’s an independent third party who will not benefit at all whether or not you buy or sell the home.  Her job is simple:  verify that this really is the person he says he is.  Show her your ID.  Pull out your Driver’s License or Passport, or any other official acceptable photo ID.  Show her the photo and some document that gives her your name.  No, a credit card won’t work.  Your Elks membership card won’t either.  When you can do that, you can sign the paperwork, and she’ll sign under you, telling the world that she checked you out, and she’s convinced by your documents that you’re not committing a fraud, or at least not a fraud involving your identity.

Think about it.  The lender is about to give a Buyer hundreds of thousands of dollars, if not more.  In return, that borrower will sign a document that says that he promises that he’ll pay it all back.  It will take him fifteen or thirty years, but he’ll pay it all back.

The Seller on the other hand is about to deed over a parcel of real property worth a bundle.  He says he owns it and has the right to do it.  When he does it, he potentially relieves himself of a great deal of debt.  If not, he gets a whole lot of money, with which he leaves the table and may never be seen again.

Surely, it’s reasonable that these people prove to the world that they are who they say they are.  When you look at the ramifications of finding out otherwise, it seems ridiculous that we wouldn’t do it.

So the first thing that happens when you sit at the closing table is universal.  The closer asks the Buyers and Sellers for their ID’s.  Rule #1:  No ID’s, no closing.

Other rules may seem silly and overbearing, but believe me, you won’t close if you violate them.

A past client was traveling in China when the closing of the sale of his home was scheduled.  He thought we could overnight the documents to him, and he could take them to a local bank, sign them in front of a notary, and send them back.  That seemed to him very reasonable.

We made the arrangements and let him know to find the nearest American Consulate or Embassy.  We would send the documents there for his signatures.  The reason is simple.  A notary signature is only valid if signed on American soil.  You can’t notarize something in a bank in China.  The land under a Consulate building or Embassy is considered American soil.  The land under that bank is not.

When he complained that the nearest Consulate was 200 miles away, we gave him another option.  He could sign it on a US naval vessel.  He chose the Consulate and made plans accordingly.

Again, hundreds of thousands of dollars.  Lenders and title insurers are not going to rely on a notary whom they don’t know is real.  If something goes wrong, even finding the person who signed as notary may be difficult.  If that person is on American soil, the chances improve dramatically.

One more detail.  Watch the dates.  Most important documents are dated, and the signatures are dated.  The notary signature of acknowledgement is also dated, as is the expiration of the notary’s commission and rights to sign as a notary.  Be sure on every document that the dates line up.  If the notary’s expiration was last week or last year, the document, and your having signed it, is not valid.  If the document or any signature is found to be post dated, you may have a problem.

Details.  Details.  I’ve always said, “Don’t get bogged down in the details, or you’ll never get anything done.”  Certainly in real estate matters, I’m kidding.

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

Enjoy the day,

303.541.1920 office
303.859.4467 mobile
mmoger@wkre.com

Tuesday, July 1, 2014

Your Choice of Lenders

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.  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.

And 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,

303.541.1920 office
303.859.4467 mobile

Thursday, June 19, 2014

Mortgage Rates Update

It's Thursday -- Freddie Mac Day in my world.  It's the day each week that Freddie Mac posts the results of its weekly survey on mortgage interest rates, showing us what kind of interest rate and fee the average American paid and received for new mortgage loans.

The results are as follows:


So what's it all mean?  Easy when you know how to calculate a monthly payment, and even more interesting when you look at the history.

The 30-year mortgage rate at 4.17% means that, for every $100,000 you borrow, your monthly payment will be $487.27.  For that money, you will pay a fee at closing of 0.6% of the amount you borrow, so for every $100,000 you borrow, that will be $600.

The less oftentimes used 15-year mortgage rate at 3.30% results in a monthly payment of $748.24 for every $100,000 borrowed.  The fee for those monies is less at 0.5%, only $500 for every $100,000 borrowed.

Not bad.  But know that it's not bad solely because we're used to this.  Take a look over the past year to where interest rates have been.


That top blue line shows the history over the past year of 30-year money.  The red line under it is 15-year rates.  Note what happened about this time one year ago.  Ouch.  The rates increased a solid 1/2 percent, and for the most part stayed there most of the year.  We're seeing mildly better rates in the past 2-3 months, but it's pretty flat.  We're used to it.

That's a far cry from when the Bank of the United States was created in 1791, with Alexander Hamilton at the helm.  Rates at that time were a bit worse than 7%.  

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

Enjoy the day,
303.541.1920 office
www.MikeMoger.com






Thursday, February 27, 2014

Mortgage Interest Rates Update

Since 1971 when Congress created it, our beloved Freddie Mac has not only offered a wonderful secondary mortgage market for banks and other lenders, but has also kept the statistics on how much we as consumers pay for mortgages.

Every Thursday morning, the weekly averages from around the country are released, so that we can see the trends.

Today is Thursday, so here are the numbers.

Over the past week, the interest rate on the average Freddie Mac approved  30-year mortgage loan was 4.37%.  For that loan, the average cost paid to the lender was 0.7% of the amount borrowed.

Let's make that easier to understand.  The average 30-year loan requires the average borrower to pay a principal and interest payment of $498.99 every month for every $100,000 borrowed.  For that loan, the consumer paid $700 for every $100,000.

15-year mortgages are less risky for the lenders, so don't cost as much.  This week, the average borrower was able to buy an interest rate of 3.39%.  That means monthly principal and interest payments of $709.49 for fifteen years for every $100,000 borrowed.  Consumers paid the same $700 for every $100,000 borrowed as a closing fee.

Comparing that to what you could have found one year ago, we get a little nostalgic.  30-year loans showed interest rates at 3.51%, while 15-year mortgages were at 2.76%.  For either loan, 0.8% fees -- a little higher -- meant that closing fees cost an average of $800 for every $100,000 borrowed.

What's the difference between the monthly payments then as opposed to now?  Monthly payments on 30-year loans last year, on average over the week, were $49.39 less.  15-year borrowers would have saved $30.39 on their monthly payments.  Take those savings over 15 or 30 years, and you have some real whoop-out money.

The following chart from Freddie Mac shows you how we've trended over the past year.


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

Enjoy the day,
303.541.1920 office
303.859.4467 mobile
mmoger@wkre.com