Tag Archive landlord

ByCurtis Watts

Home Ownership vs Renting As A Minimalist Lifestyle Decision

When it comes to buying a home or renting, there are many things to consider. While there are tons of resources on the financial implications of both options, I’d like to share my thoughts on buying versus renting from an intentional living and minimalist perspective. The decision to buy or rent is just as much a lifestyle decision as it is a financial one. Ultimately, if the decision to buy is made, a home affordability calculator is a great resource to get started.

Longevity and Flexibility

It’s important to consider how long you’re planning to be in a certain area and how much location flexibility you need when you’re making the decision to buy or rent. When renting, the leases are typically 12 months or less and there may be options to work out a more flexible move-out date with the landlord or management company. If you end up needing to move to a different area, you have more flexibility to do so.

It becomes a lot more complicated if you need to move away from a home you own. You’ll likely need to sell the house or rent it out—options that require more time and resources than if you were renting an apartment. With the amount of investment and time that a house requires, it’s probably best to stay in a location for at least a few years if you’re going to buy.

Personal Values

Think about how you want to spend your time. Similarly, it’s also important to consider how much responsibility you’re willing to take on. During the time I lived in an apartment, I barely changed a light bulb. There were no repairs, no additional investment and no worries.

For the past five years I’ve owned a home, it’s a whole different experience. I spend time cleaning the gutters, mowing the lawn, buying and fixing appliances and other maintenance activities that you never have to think about when you’re renting.   Regular or unexpected repairs can quickly add up to large sums when you own a home. Part of the benefit of renting is that you don’t have to deal with or budget for anything like that.

Customization

Another thing to think about is how much customization and control you’d like to have. A home you own can be customized to your exact liking, a rental on the other hand has more limitations. From painting the wall a different color to making bigger changes to your living space, you’ll have greater control if it’s your home. With a rental, any customizations would need to be approved by the owner.

Amenities

Amenities are another lifestyle consideration when it comes to buying or renting.

Most likely, an apartment will have more amenities than a typical home, such as a workout room, pool, large party room or even a concierge service. Of course, you may have the option of building or adding similar amenities to a home you buy, but it can be pricey and impractical investment. If you want a pool without the cost and maintenance that owning one would require, then renting an apartment with a community pool is the way to go.

From my perspective, whether you buy or rent has a significant impact on your lifestyle, particularly over the long-term. Thinking about what’s important to you and how you want to spend your time will help you determine what best fits your desired lifestyle.

The post Home Ownership vs Renting As A Minimalist Lifestyle Decision appeared first on MintLife Blog.

Source: mint.intuit.com

ByCurtis Watts

How Many Credit Cards Should You Have for Good Credit?

Have you ever wondered, "How many credit cards should I have? Is it wise to have a wallet full of them? Does having multiple credit cards hurt my credit score?"

If you’ve been following this blog or the Money Girl podcast, you know the fantastic benefits of having excellent credit. The higher your credit scores, the more money you save on various products and services such as credit cards, lines of credit, car loans, mortgages, and insurance (in most states).

Even if you never borrow money, your credit affects other areas of your financial life.

But even if you never borrow money, your credit affects other areas of your financial life. For instance, having poor credit may cause you to get turned down by a prospective employer or a landlord. It could also increase the security deposits you must pay on utilities such as power, cable, and mobile plans.

Credit cards are one of the best financial tools available to build or maintain excellent credit scores. Today, I'll help you understand how cards boost your credit and the how many credit cards you should have to improve your finances.

Before we answer the question of how many credit cards you should have in your wallet, it's important to talk about using them responsibly so you're increasing instead of tanking your credit score.

5 tips for using credit cards to build credit

  1. Make payments on time (even just the minimum)
  2. Don’t rely on being an authorized user
  3. Never max out cards
  4. Use multiple cards
  5. Keep credit cards active

A common misconception about credit is that if you have no debt you must have good credit. That’s utterly false because having no credit is the same as having bad credit. To have good credit, you must have credit accounts and use them responsibly.

Having no credit is the same as having bad credit.

Here are five tips for using credit cards to build and maintain excellent credit scores.

1. Make payments on time (even just the minimum)

Making timely payments on credit accounts is the most critical factor for your credit scores. Your payment history carries the most weight because it’s an excellent indicator of your financial responsibility and ability to pay what you owe.

Having a credit card allows you to demonstrate your creditworthiness by merely making payments on time, even if you can only pay the minimum. If the card company receives your payment by the statement due date, that builds a history of positive data on your credit reports. 

I recommend paying more than your card’s minimum. Ideally, you should pay off your entire balance every month so you don’t accrue interest charges. If you tend to carry a balance from month-to-month, it’s wise to use a low-interest credit card to reduce the financing charge.

2. Don’t rely on being an authorized user

Many people start using a credit card by becoming an authorized user on someone else’s account, such as a parent’s card. That allows you to use a card without being legally responsible for the debt.

Some credit scoring models ignore data that doesn’t belong to a primary card owner.

Some card companies report a card owner’s transactions to an authorized user’s credit report. That could be an excellent first step for establishing credit … if the card owner makes payments on time. Even so, some credit scoring models ignore data that doesn’t belong to a primary card owner.

Therefore, don’t assume that being an authorized user is a rock-solid approach to building credit. I recommend that you get your own credit cards as soon as you earn income and get approved.

3. Never max out cards

A critical factor that affects your credit scores is how much debt you owe on revolving accounts (such as credit cards and lines of credit) compared to your total available credit limits. It's known as your credit utilization ratio, which gets calculated per account and on your accounts' aggregate total.

A good rule of thumb to improve your credit scores is to keep your utilization ratio below 20%.

Having a low utilization ratio shows that you use credit responsibly by not maxing out your account. A high ratio indicates that you use a lot of credit and could even be in danger of missing a payment soon. A good rule of thumb to improve your credit scores is to keep your utilization ratio below 20%. 

For example, if you have a $1,000 card balance and a $5,000 credit limit, you have a 20% credit utilization ratio. The formula is $1,000 balance / $5,000 credit limit = 0.2 = 20%.

There's a common misconception that it's okay to max out a credit card if you pay it off each month. While paying off your card in full is smart to avoid interest charges, it doesn't guarantee a low utilization ratio. The date your credit card account balance is reported to the nationwide credit agencies typically isn't the same as your statement due date. If your outstanding balance happens to be high on the date it's reported, you'll have a high utilization ratio that will drag down your credit scores.

4. Use multiple cards

If you need more available credit to cut your utilization ratio, there are some easy solutions. One is to apply for an additional credit card, so you spread out charges on multiple cards instead of consistently maxing out one card. That reduces your credit utilization and boosts your credit.

Having the same amount of debt compared to more available credit instantly reduces your utilization and improves your credit.

For example, if you have two credit cards with $500 balances and $5,000 credit limits, you have a 10% credit utilization ratio. The formula is $1,000 balance / $10,000 credit limit = 0.1 = 10%. That’s half the ratio of my previous example for one card.

Another strategy to cut your utilization ratio is to request credit limit increases on one or more of your cards. Having the same amount of debt compared to more available credit instantly reduces your utilization and improves your credit.

5. Keep credit cards active

Credit card companies are in business to make a profit. If you don't use a card for an extended period, they can close your account or cut your credit limit. You may not mind having a card canceled if you haven't been using it, but as I mentioned, a reduction in your credit limit means danger for your credit scores.

A reduction in your credit limit means danger for your credit scores.

No matter if you or a card company cancels one of your revolving credit accounts, it causes your total amount of available credit to shrink, which spikes your utilization ratio. When your utilization goes up, your credit scores can plummet.

Anytime your credit card balances become a higher percentage of your total credit limits, you appear riskier to creditors, even if you aren't. So, keep your cards open and active, especially if you're considering a big purchase, such as a home or car, in the next six months.

In general, I recommend that you charge something small and pay it off in full several times a year, such as once a quarter, to stay active and keep your available credit limit in place.

If you have a card that you don't like because it charges an annual fee or a high APR, don't be afraid to cancel it. Just replace it with another card, ideally before you cancel the first one. That allows you to swap out one credit limit for another and avoid a significant increase in your credit utilization ratio.

If you're determined to have fewer cards, space out your cancellations over time, such as six months or more. 

How many credit cards should you have to build good credit?

Now that you understand how credit cards help you build credit, let's consider how many you need. The optimal number for you depends on various factions, such as how much you charge each month, whether you use rewards, and how responsible you are with credit.

There's no limit to the number of cards you can or should have if you manage all of them responsibly.

According to Experian, 61% of Americans have at least one credit card, and the average person owns four. Having more open revolving credit accounts makes you more likely to have higher credit scores, but only when you manage them responsibly. 

As I mentioned, having more available credit compared to your balances on revolving accounts is a crucial factor in your credit scores. If you continually bump up against a 20% utilization ratio, you likely need an additional card.

You can keep an eye on your credit utilization and other important credit factors with free credit reporting tools such as Credit Karma or Experian.

Also, consider how different credit cards can help you achieve financial goals, such as saving money on everyday purchases you're already making. Many retailers, big box stores, and brands have cards that reward your loyalty with discounts, promotions, and additional services.

If you continually bump up against a 20% utilization ratio, you likely need an additional card.

I use multiple cards based on their benefits and rewards. For instance, I only use my Amazon card to get 5% cashback on Amazon purchases. I have a card with no foreign transaction fees that I use when traveling overseas. And I have a low-interest card that I only use if I plan to carry a balance on a large purchase for a short period.

There's no limit to the number of cards you can or should have. Theoretically, you could have 50 credit cards and still have excellent credit if you manage all of them responsibly.

My recommendation is to have a minimum of two cards so you have a backup if something goes wrong with one of them. Beyond that, have as many as you're comfortable managing and that you believe will benefit your financial life.

Source: quickanddirtytips.com

ByCurtis Watts

7 Big Insurance Mistakes to Avoid During the COVID Crisis

The coronavirus has upset lives and livelihoods all over the globe. While insurance can’t keep you from getting COVIID-19, having the right types of insurance can reduce your financial risk as the virus spreads.

There’s never been a better time to protect your health, life, property, and business with the right insurance. Let's take a look at seven insurance mistakes you might be making during the pandemic. You’ll learn how to face new risks and challenges with the help of different types of affordable insurance.

Coronavirus insurance mistakes

Here’s the detail on each mistake you should avoid to make sure you and your family stay safe during the pandemic.

1. Skipping health insurance

The coronavirus has changed the health insurance landscape in drastic ways. If you’ve become unemployed or have your work hours cut and lost employer-sponsored health insurance, don’t go without coverage when you may need it most.

Here are several ways to get health insurance:

Medicaid and Children’s Health Insurance Program (CHIP) may be options for free or low-cost coverage if you can’t afford health insurance. These programs allow you to get coverage at any time of year, depending on your income, family size, and where you live. You can learn more at the Medicaid website at Medicaid.gov.

Your parent’s health plan may be an option if they have coverage, you’re under age 26, and they’re willing to insure you. Even if you’re married, not living with a parent, and not financially dependent on them, they can cover you until your 26th birthday.

COBRA coverage is typically available when you leave a job with group health insurance. Whether you quit, are laid-off, or get fired, COBRA is a federal regulation that gives you the option to continue your employer-sponsored health, dental, and vision insurance for a certain period, such as 18 months. However, if you have funds in a health savings account or HSA, you can use them to pay your COBRA premiums.

Affordable Care Act (ACA) coverage is available through federal or state health online marketplaces, insurance brokers, and insurance websites. If your income is below certain limits based on your family size, you qualify for a federal subsidy, which reduces your healthcare premiums. No matter where you live, you can begin shopping at the federal exchange at Healthcare.gov.

2. Not using telehealth services

If you have a high-deductible health plan (HDHP), it typically only covers certain preventive care costs, such as an annual physical or vaccinations, before you meet the yearly deductible.

The CARES Act makes it easier to use telehealth services because your plan must cover it cost-free before your HDHP deductible is satisfied.

However, the CARES Act makes it easier to use telehealth services because your plan must also cover it cost-free before your deductible is satisfied. For other types of health plans, such as HMOs and PPOs, they must also waive any cost-sharing or co-pays for remote health services.

The telehealth relief is only temporary for 2020 and 2021. However, it can give you significant savings if you have a non-emergency or medical question that you want to address with a doctor online.

3. Only getting minimum car insurance coverage

During tough financial times, it can be tempting to cut your auto insurance coverage or drive uninsured. Remember that it’s against the law to drive without having the minimum liability coverage for your home state.

Since many drivers are uninsured, you should never go without uninsured motorist coverage.

However, since many drivers are uninsured, you should never go without uninsured motorist coverage. This insurance protects you from a driver who hits-and-runs or is uninsured or underinsured for the damage they cause you, your passengers, and your car.

According to the Insurance Information Institute (III), 13 percent of drivers are uninsured nationwide. My home state, Florida, has the highest number—almost 27 percent! This data from 2015 is the most recent. Due to coronavirus-related financial hardships, I’d bet those numbers are much higher now.

If you drop any auto insurance coverage, make it collision or comprehensive, which repair or replace your vehicle if it’s damaged or stolen (after paying your deductible). Reducing or eliminating these coverages could make sense if your car isn’t worth much, such as less than $1,000. A good rule of thumb is to drop these coverages if their annual cost is 10% or more of your car’s cash value.

Another way to save on auto insurance is to increase your deductibles or bundle it with other coverage, such as your home or renters policy.

4. Not purchasing a non-owners auto insurance policy

If you’ve sold your car or you tend to borrow or rent cars when needed, don’t forget that you still need the protection of a non-owner auto insurance policy. This coverage gives you liability protection when you drive a car you don’t own or are a passenger in someone else’s car.

Here are some situations when you need non-owner car insurance:

  • You rent a car and don’t already have insurance on a vehicle you own.
  • You use ride-sharing services, such as Uber and Lyft.
  • You borrow cars from family, friends, or neighbors for short or long trips.

5. Overlooking a renters insurance policy

According to the III, a surprisingly low number of renters, 35 percent have renters insurance. Whether you mistakenly believe that your landlord is responsible for your personal belongings (they’re not) or that you don’t have enough to insure (you probably do), you should have a policy.

Landlords only have insurance to protect the structure of a home or apartment you rent, not for a tenant’s personal property. Nor do they protect your liability if someone gets injured accidentally injured in your rental place.

Landlords only have insurance to protect the structure of a home or apartment you rent, not for a tenant’s personal property. Nor do they protect your liability if someone gets injured accidentally injured in your rental place.

Standard renters insurance offers a lot more protection than many people think. It covers your possessions if they’re stolen or damaged from a covered event, such as a water leak, fire, or natural disaster. A renters policy also pays living expenses if you have to move out while repairs get made after an insured disaster, such as a tornado or fire.

Even more important is the liability protection I mentioned. If you get involved in a lawsuit related to property damage or medical injuries, you’ll be covered up to your policy limit.

Renters insurance gives you a lot of protection for the money. It’s probably more affordable than you might think, costing only an average of $188 per year across the nation. Bundling it with your auto insurance could even reduce the cost.

6. Working from home without commercial coverage

Due to stay-at-home mandates during the pandemic, most people who can work from home are doing so. If you’re self-employed as a solopreneur or operate a small business from home, be aware that your home or renters insurance excludes most home-based business activities.

For instance, if you keep inventory at home or have special business equipment, they aren’t covered under a standard homeowner or renter policy. Make sure your business assets and liability are protected by having a separate commercial policy or adding a home-business rider or endorsement to your existing insurance.

The type of business coverage you need varies depending on your industry, whether you drive for business purposes, if you see clients at your home, the value of your business assets, and how much potential risk you have. But it could cost as little as $150 per year. Check with your existing insurance company or a trade association for your industry about getting coverage.

RELATED: How to Qualify for the Coronavirus Economic Relief Package

7. Thinking you can’t get life insurance

It’s not fun to think about death or what would happen to your family if you weren’t alive. If your surviving spouse, partner, children, parents, other dependents, or business partners would be hurt financially after your death, you need life insurance to protect them.

Think about how your survivors would care for your children and meet financial obligations without additional income. Consider how your children would survive if you and your spouse or partner died at the same time. If you’re procrastinating getting life insurance or increasing your current coverage, think about the legacy you want to leave.

The good news is that term life insurance is affordable and still readily available during the pandemic. For example, a $500,000 payout for your family could cost about $200 a year if you’re middle-aged and reasonably good health. Bankrate.com is a good site to learn more and get free life insurance quotes.

Source: quickanddirtytips.com

ByCurtis Watts

Skipping Renters Insurance? Why That’s a Bigger Risk Than You’d Think

As a finance writer, I am surrounded by people who know a lot about managing money. But even those with the most money know-how can still miss financial must-haves.

For instance, in a recent conversation, a few of my coworkers stated they didn’t have renters insurance. This puts them among the 59% of renters who don’t have renters insurance, according to a poll from the Insurance Information Institute. On the other hand, 95% of homeowners carry homeowners insurance.

Granted, renting comes with fewer property responsibilities than owning. But don’t assume you can skip insurance for your home simply because you’re leasing it. Go without it and you’ll expose yourself to some major risks.

See why opting for a policy is protection you can’t live without, and learn how renters insurance can help smooth over the following five major renting crises.

1. Damaged Belongings

If you’re asking yourself whether you need insurance as a renter, a better question might be, Can you afford not to have it?

If the relatively small cost of a renters insurance premium—typically between $15 and $25 per month—seems too expensive, consider the alternative, suggests John Espenschied, agency principal of Insurance Brokers Group.

“Imagine replacing all your clothes, furniture, electronics, food, personal items, and priceless personal memorabilia,” he says. With renters insurance, the insurer will cover most or part of the value of damaged items. Without this coverage, you’re completely on the hook for all those costs.

Espenschied tells a story of one of his clients, a young woman to whom he recommended rental insurance multiple times. She declined the coverage.

Months later, there was an electrical surge in the building. “It took out everything she owned that was plugged in, including the TV, computer, and several other items,” Espenschied explains. These items were permanently damaged and unusable.

Had she opted for renters insurance, Espenschied could have helped her submit a claim and get the money to replace those belongings. Unfortunately, without the policy there was nothing he could do.

Don’t put yourself in the same position—get a renters insurance policy. On top of that, take steps to document all belongings and valuables so you can prove ownership in a renters insurance claim.

2. The Temporary Loss of a Habitable Home

Some disasters—such as fires, flooding, and electrical issues—can require extensive repairs and render your rental uninhabitable. Your landlord will usually handle these repairs, but if you lose the use of your home, your landlord might only be required to refund a prorated rent for the days you can’t live in your rental.

But if you’re out of a place to live, your daily rent rate might not cover any decent hotels or other temporary housing options.

But there’s good news: “Most renters insurance policies can help you in the event something happens to your apartment or house and you have to live elsewhere while it’s repaired,” says Jennifer Fitzgerald, CEO and cofounder of insurance comparison site PolicyGenius.

Typically, you can find a hotel nearby and your renters insurance will cover the costs of your stay until you can resume habitation of your home.

3. Stolen Belongings

Renters insurance typically includes coverage for theft and burglary too. If your home is broken into or burglarized, you can file a claim with your renters insurance provider to replace any stolen or damaged items.

“It even covers your belongings when they’re not physically in your home,” Fitzgerald says. “So if you take your laptop with you to the local coffee shop or on vacation and it’s stolen, your policy could help cover the costs of getting it repaired or replaced.” Renters insurance will usually be the policy that covers theft of personal items from your car too.

If your home is broken into or your purse is stolen from your car, promptly notifying authorities is an important step—filing a renters insurance loss claim will usually require a police report of the theft.

4. Personal Liability for Legal Damages

The most important protection your renters insurance provides, however, might be personal liability protection.

“If your dog bites someone or a food delivery person slips and falls, you’re covered,” says Stacey A. Giulianti, chief legal officer for Florida Peninsula Insurance. Instead of being held personally responsible for those damages, your insurer will step in and help. “The carrier will even hire and pay for an attorney to defend any resulting lawsuit.”

This can be especially important if you are found responsible for damage to adjacent properties as well, Espenschied says. For example, renters insurance will cover you if your toilet or tub “overflows and leaks into the neighbor’s unit below, causing damage to their personal property and cost to repair the building.” You may also be covered if a kitchen fire in your apartment causes damage to the unit above you.

The damage and loss can easily add up to tens of thousands of dollars. In cases like these, renters insurance can be the difference between smooth recovery and huge financial loss or even bankruptcy.

Make sure you understand your coverage. “Every policy is different, so talk to an agent and read your policy terms,” Giulianti warns.

5. An Eviction for Violating Your Lease Agreement

Many lease agreements include a clause in which the tenant agrees to purchase a renters insurance policy. These common clauses usually clarify that the landlord’s property insurance coverage does not extend to your personal belongings.

If you sign a lease with such a clause, you are agreeing to maintain this insurance coverage throughout your residency there. If you fail to get a policy or allow it to lapse, your landlord is within their rights to serve you with a “comply or quit” notice and possibly begin eviction proceedings.

If you don’t currently have a policy, reconsider getting renters insurance. Alongside a healthy emergency fund, having the right insurance can bring vital financial security to your life. For the cost, renters insurance provides protection and peace of mind.

“Most renters can get a policy for around $20 per month,” Fitzgerald says. “That’s a small price to pay when you think about the fact that if you don’t have renters insurance, you’ll be forced to cover the cost of replacing any and all items damaged.”

Procuring a renters insurance policy is a smart step toward financial security. With the right policy, you can avoid debt in an emergency and protect your possessions and your home. If you’re ready to buy a home, learn more about the ins and outs of home mortgages in Credit.com’s Mortgage Loan Learning Center. And to be financially prepared for anything, it’s also a good idea to build your credit score so you can qualify for loans and other credit when necessary. See where you stand with a free credit score from Credit.com.

Image: istock 

The post Skipping Renters Insurance? Why That’s a Bigger Risk Than You’d Think appeared first on Credit.com.

Source: credit.com

ByCurtis Watts

Buying A Second Home? 8 Things To Consider

Buying a second home is a major expense. You might have several reasons for wanting to buy a second house. Perhaps, you’re buying a second home for vacations or weekend getaways. Or, it might be that you want to use it as a rental property for rental income. However, there are things to consider before buying a second home.

The benefits of buying a second home

If you’re buying a second home for rental income, you’ll benefit from many perks, especially tax advantages.

For example, you will be able to deduct interest, property taxes, homeowners insurance and other expenses against the property’s income.

Even if the value of the property declines, you will still be able to deduct depreciation from your taxes.

While these benefits are great, the mortgage requirements for a second home are much stricter than for a mortgage on your primary residence. So, make sure you can afford it.

8 Things To Consider When Buying A Second Home

1. Financing options: When you bought your first home, you had available to you what’s called an FHA loan – a government loan program.

FHA loans are an appealing and favorite choice among first time home buyers due to their relatively low down payment requirement.

FHA loans require a 3.5% down payment and a relatively low credit score of 580. However, FHA loans are not available to second home buyers.

That is because FHA requires the home to be the borrower’s primary residence. So, if you’re thinking of buying a second home, you will need to either use a conventional loan or financing it with your own cash.

2. A larger down payment: If you’re using a conventional loan for your second home, you will need to come up with a larger down payment.

Lenders for a conventional loan usually requires a 20% down payment of the home purchase price.

But for a second home which will be used as a rental property or vacation home, expect lenders to ask for 30% or even 35%.

3. A higher credit score. For an FHA loan, you only need a credit score of 580 to qualify. But for a conventional loan on a second home, you will need much higher credit score — usually 750 or higher.

4. Expect a Higher Interest Rate: Lenders will likely charge you a higher interest rate on your second home than your primary residence.

The reason is because they see a second home — be it a vacation home or a rental property — as riskier. They feel that you are more likely to default on a mortgage on your second home than on your primary residence.

5. Do your research: Just as you did your homework when you bought your place to live in, buying a second home is no different.

In fact, you’ll need to spend more time researching rental property. That means researching the neighborhood you will want to invest in, knowing the zoning laws for a particular area, the sales price for the homes in the area.

You will need to know if the area has adequate public transportation, schools, grocery shopping, etc,– things that potential tenants will need.

6. Be prepared to be a landlord: if you’re buying a second home to rent, be prepared to be a landlord.

And be prepared to deal with all of the headaches that come with being a landlord. Do you have sufficient time? Can you deal with problems?

Owning a rental property and being a landlord is time consuming. It is also hard hard work and you have to do your due diligence.

You can hire a property manager to run the property for you. But if that is not feasible, you’ll have to do it yourself.

That means, screening new tenants, collecting rent, dealing with delinquent tenants, fixing problems in the property, such as a broken pipe.

So before buying a second home, make sure you have sufficient time and make sure you can deal with the day-to-day headaches that come with being a landlord.

7. Do you have a stable income? Dealing with a second mortgage on your second home is doable.

While you may be able to afford upfront costs, if you don’t have a stable income, you may have to think twice about whether it is a good idea.

Plus, you still have to consider the additional expenses of owning a second home such as insurance, property taxes, maintenance, repairs, property management fees, etc.

8. Are you out of credit card debt? If you have paid off outstanding and high interest credit card debts, then purchasing a second home may make sense.

But if you’re still struggling to pay your debt, you may need to put buying a second home on hold. 

The bottom line

If you’re thinking about buying a second home, whether it is for investment or vacation, be prepared to save some money, budget for expenses, and come up with a bigger down payment.

More importantly, spend as much time, if not more, researching for the home just as you did when your purchased your primary home.

Speak with the Right Financial Advisor

  • If you have questions about your finances, you can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc).
  • Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

The post Buying A Second Home? 8 Things To Consider appeared first on GrowthRapidly.

Source: growthrapidly.com

ByCurtis Watts

Should You Obtain Building Permits When Flipping Houses?

I have done many rehabs in my career as a house flipper, landlord, and even overseeing rehabs for banks as an REO agent. We have worked with many cities and counties pulling permits for remodeling jobs, but when is a permit needed? Depending on the quantity and type of work you do, you may or … Read more

Source: investfourmore.com

ByCurtis Watts

2020 Could Be an Unprofitable Year for Rental Properties. Here’s How to Handle the Taxes

beach house Darwin Brandis/Getty Images

Economic fallout from the COVID-19 crisis and civil unrest could cause many rental real estate properties to run up tax losses in 2020 and maybe beyond. This column covers the most important federal income tax questions and answers for rental property owners. Here goes.

What can I write off?

Nothing new here. You can deduct mortgage interest and real estate taxes on rental properties. You can also write off all standard operating expenses that go along with owning rental property: utilities, insurance, repairs and maintenance, care and maintenance of outdoor areas, and so forth.

What about depreciation write-offs?

For many rental property owners, the tax-saving bonus is the fact that you can depreciate the cost of residential buildings over 27.5 years, even while they are (you hope) increasing in value. You can generally depreciate the cost of commercial buildings over 39 years.

Example: You own a small apartment building that cost $1.5 million not including the land. The annual depreciation deduction is $54,545 ($1.5 million/27.5). The deduction can shelter that much annual positive cashflow from income taxes. So, depreciation write-offs are nice tax-savers, especially if you own an expensive property or several properties.

Variation: As stated earlier, commercial buildings must be depreciated over a much-longer 39-year period. Even so, the annual depreciation write-off for a $1.5 million commercial building is $38,462. The deduction can shelter that much annual cash flow from income taxes.

Can I claim 100% first-year bonus depreciation?

Yes, for qualified improvement property (QIP) expenditures on a nonresidential building. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) included a retroactive correction to the statutory language of the Tax Cuts and Jobs Act (TCJA). The correction allows much faster depreciation for commercial real estate qualified improvement property (QIP) that’s placed in service in 2018-2022. QIP is defined as an improvement to an interior portion of a nonresidential building that’s placed in service after the building was placed in service. However, QIP doesn’t include any expenditures attributable to: (1) enlarging the building, (2) any elevator or escalator, or (3) the internal structural framework of the building. Thanks to the CARES Act correction, you can write off the entire cost of QIP in Year 1, because it qualifies for 100% first-year bonus depreciation.

Alternatively, you can choose to depreciate QIP over 15 years using the straight-line method. That alternative might make sense if you expect higher tax rates in future years. Discuss your QIP depreciation options with your tax pro.

What else do I need to know about depreciation write-offs?

You ask such good questions. There’s more. The TCJA increased the maximum Section 179 first-year depreciation deduction for qualifying real property expenditures to $1 million, with annual inflation adjustments. The inflation-adjusted maximum for tax years beginning in 2020 is $1.04 million. The Section 179 deduction privilege potentially allows you to deduct the entire cost of qualifying real property expenditures in Year 1. I say potentially, because Section 179 deductions are subject to several limitations. Ask your tax pro for details.

The TCJA also expanded the definition of qualifying property to include expenditures for nonresidential building roofs, HVAC equipment, fire protection and alarm systems, and security systems.

Finally, the TCJA further expanded the definition of qualifying property to include depreciable tangible personal property used predominantly to furnish lodging. Examples of such property include beds, other furniture, and appliances used in the living quarters of an apartment house.

Can I claim the qualified business income (QBI) deduction base on my net rental income?

Maybe. For 2018-2025, the TCJA established a new personal deduction based on qualified business income (QBI) passed through to your personal Form 1040 from a pass-through business entity (meaning a sole proprietorship, LLC treated as a sole proprietorship for tax purposes, partnership, LLC treated as a partnership for tax purposes, or S corporation). The deduction can be up to 20% of QBI, subject to restrictions that kick in at higher income levels. For a while, it was unclear if you could claim QBI deductions based on net rental income passed through to you from one of the aforementioned pass-through entities. The IRS eventually issued taxpayer-friendly guidance that allows QBI deductions in most such cases, but you must follow complicated rules to collect the tax-saving benefit. As your tax pro for details.

What about the passive loss rules?

Ugh. If your rental property throws off tax losses (most properties do, at least during the early years and during years when the economy is suffering — like now), things can get complicated. The so-called passive activity loss (PAL) rules may come into play. Losses from rental properties will usually be classified as passive losses.

In general, the PAL rules only allow you to currently deduct passive losses to the extent you have current passive income from other sources, like positive income from other rental properties or gains from selling them. Passive losses in excess of passive income are suspended until you either have enough passive income or you sell the property that produced the losses. Bottom line: the PAL rules can postpone any tax-saving benefit from rental property losses, sometimes for years. Fortunately, there are several exceptions to the PAL rules that can allow you to deduct rental property losses sooner rather than later. Your tax pro can explain the exceptions and help you plan to become eligible, if possible.

Is that the end of the bad news?

Not exactly. Say you manage to successfully clear the hurdles imposed by the PAL rules for your rental property losses. So far, so good. But the TCJA established another hurdle that you must also clear to currently deduct those losses. For tax years beginning in 2018-2025, you cannot deduct an excess business loss in the current year. An excess business loss is one that exceeds $250,000 or $500,000 for a married joint-filing couple. Any excess business loss is carried over to the following tax year and can be deducted under the rules for net operating loss (NOL) carry-forwards. This loss disallowance rule applies after applying the PAL rules. So, if the PAL rules disallow your rental losses, this rule is a nonfactor.

COVID-19 Relief: Thankfully, the CARES Act suspends the excess business loss disallowance rule for losses that arise in tax years beginning in 2018-2020. That’s good news.

What’s the deal with net operation losses (NOLs)?

Say you manage to successfully clear both of the preceding hurdles for your rental property losses. Now we are talking, because you can generally use those losses currently to offset taxable income from other sources. If losses for the year exceed income from other sources, you may have a net operating loss (NOL) for the year.

COVID-19 Relief: The CARES Act allows a five-year carryback privilege for an NOL that arises in a tax year beginning in 2018-2020. So, you can carry an NOL from one of those years back to an earlier year, deduct it, and recover some or all of the federal income tax paid for the carryback year. Because federal income tax rates were generally higher in years before the TCJA took effect, NOLs carried back to those years can be especially beneficial. The TCJA kicked in starting with tax years beginning in 2018.

What if I have positive taxable income?

Eventually your rental property should start throwing off positive taxable income instead of losses, because escalating rents will surpass your deductible expenses. Of course, you must pay income taxes on those profits. But if you piled up suspended passive losses in earlier years, you can now use them to offset your passive profits.

Another nice thing: positive taxable income from rental real estate is not hit with the dreaded self-employment (SE) tax, which applies to most other unincorporated profit-making ventures. The SE tax rate can be up to 15.3%. Something to avoid when possible.

One bad thing: positive passive income from rental real estate owned by a higher-income individual can get socked with the 3.8% net investment income tax (NIIT), and gains from selling properties can also get hit with the NIIT. Ask your tax pro for details.

The bottom line

There you have it: most of what you need to know about the federal income tax issues that can come into play for rental property owners. The economic fallout from the COVID-19 crisis and recent civil unrest increase the odds that rental properties will suffer losses in 2020, but tax relief provisions may soften the blow.

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Source: realtor.com