What Do Rising Interest Rates Mean For Home Buyers?

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Homebuyers have been enjoying incredibly low mortgage rates for many years now. In fact, the average annual rate on 30-year fixed-rate mortgages has only hit 4% once over the past five years. Low mortgage rates have certainly made it more affordable to buy and have sparked plenty of homeowners to refinance in an effort to take advantages of these low rates.

However, it looks as if 2017 will be bringing slightly higher mortgage rates, especially after the Federal Reserve recently increased the interest rate by 0.25% which can affect long-term mortgage rates.

The 30-year fixed mortgage rate already increased by approximately 0.5% between the presidential election and the December Fed meeting, and continued to increase after the federal agency’s decision. Rates are said to continue to climb higher into 2017, though at a slower pace compared to how quickly they climbed between the election to today.

So, what will this mean for homebuyers?

Obviously, it means that buyers will have to pay a little more for their home purchases. The higher the mortgage rate on your home loan, the more will have to be paid every month. For instance, if you take out a 30-year mortgage of $300,000 with a 4% rate, your monthly payments will be $1,578. If that rate goes up by just 0.25%, your monthly payments will increase to $1,619 – $41 more. While that might sound like pennies, it can really add up. By the end of the 30 years of the loan, that comes to an extra $14,760.

A small increase like this won’t likely scare off buyers, but if rates start to drastically increase, it could have an impact on the housing market.

What Does This Mean For First-Time Homebuyers?

As mortgage rates inch up, first-time buyers might need to reduce their target price. In order to ensure affordability, homebuyers might have to consider looking at smaller homes with fewer traits that they originally wished for, or consider homes that are further away from their desired location. Delaying the buying process is also an option in order to be able to have more time to save up for a more expensive property.

However, first-timers can take steps to get the best interest rates by improving their credit score, checking their credit reports for errors, reducing debt, and saving as much as possible for a down payment.

What Does This Mean For Repeat Buyers?

Current homeowners who plan on moving in the near future might be swapping a lower interest rate for a higher one on a new home. If prices continue on an upward trend at the same time that interest rates rise, housing affordability will be an even greater issue when it comes time to move.

There are, however, things that can be done to minimize the financial impact of such a move. Doing a lot of in-depth research on home values and comparing the cost of living among different communities is important. If there are plans to sell the current home and buy another, it might be worth considering getting the process started sooner rather than later in order to lock in at today’s low rates before they start to increase.

What Does This Mean For Current Homeowners?

For those who own property that they intend to live in for the long haul and have a variable-rate mortgage, refinancing to a fixed-rate mortgage right away before rates start to rise might be warranted. Refinancing makes sense if the amount that can be saved will cover any closing costs over a time period that’s shorter than the amount of time owners intend to stay in their homes.

The Bottom Line

It’s impossible to accurately predict exactly what will happen with mortgage rates in the near future, but based on the fact that the Federal Reserve has already increased the rate this past December, it’s anticipated that mortgage rates will continue to creep up into 2017. Be sure to have a close examination of your mortgage requirements, both for today and for the near future in order to prepare for what’s to come.

Do’s and Don’ts of Bathroom Remodeling

It’s a small, unassuming space, but it’s a crucial one nonetheless. Bathrooms are one of the more important rooms that can add a great deal of value to a home if they’re modernized and up-to-date, not to mention bring years of comfort and pleasure to those who use it.

If your bathroom is currently in need of a little TLC, a remodeling job is probably on the agenda. But before you start the demolition process, make sure you’ve done your homework on what you should – and shouldn’t – do to bring this space up to par.

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Here are some do’s and don’ts to bathroom remodeling to consider to make sure the final product is exactly what you want without breaking the bank.

DO’s

DO Choose Appropriate Finishes

A bathroom remodeling job can be pretty involved and expensive. The last thing you want to do is have to go through the process all over again in a few years because the materials and finishes you chose were too trendy and quickly became outdated. Try to stick with more classic, neutral finishes that are stylish yet will stand the test of time.

Similarly, you want to make sure the materials and finishes you choose are right for a bathroom. For instance, porcelain tile is an ideal material for any bathroom floor, as it’s a lot harder than ceramic tile and comes in a variety of sizes, colors, patterns, and shapes.

For the walls, you’ll have your pick of the litter when it comes to materials, including ceramic, natural stone, and glass. As far as the countertop goes, popular materials include granite, quartz, and marble, which can easily ward off the effects of water and moisture, and are extremely durable.

DO Maximize Storage

Storage is often elected in a bathroom remodel. While your home might have a linen closet nearby that’s big enough to house all of your towels and face cloths, you might want to have ample storage right in the bathroom itself for toiletries such as toilet paper, soap bars, tissue boxes, cleaning solutions, makeup, shampoo, and so forth. Consider adding a full vanity or built-in shelving.

DO Update the Ventilation System

Built-up moisture can wreak havoc in a small space like a bathroom. Having an adequate ventilation system can easily and quickly expel any steam and foul odors, and is a critical component of this space.

During the remodeling process, consider updating your ventilation system at the same time by installing a ceiling-mounted vent fan or a combination fan/light fixture that does double duty. Just make sure not to allow the fan to exhaust into the attic or crawl space, as this will allow moisture to cause mold and mildew build up in these enclosed spaces.

DO Install Water-Efficient Products

Any effort you can make to cut back on water usage can save you money and can help ease the water shortage crisis that the state of California continues to be plagued with. During a bathroom remodel, consider swapping your old fixtures with water-saving models that cut back on the amount of water used. From toilets, to shower heads, to faucets, you can ensure your water usage is a minimum of 20% more efficient.

DON’Ts

DON’T Take on a Job Out of Your Scope

You might be handy, but there are likely certain jobs that you aren’t skilled enough for. Taking on a job in an effort to save money that would otherwise be spent paying a professional can wind up in disaster if you don’t know what you’re doing.

The skill and expertise needed to design and remodel a bathroom is typically beyond the scope of the majority of DIYers and should be left to the experts, especially when dealing with the plumbing and ventilation. Stick to simpler jobs like ripping out tiles, painting, and decorating.

DON’T Forget About the Design Plan

The layout of your new bathroom should be designed with the people who will be using it most in mind. For instance, a master en suite might include more high-end finishes and components, such as the addition of a heated floor, glass-enclosed walk-in shower, and lots of fancy light fixtures.

On the other hand, a shared kids bathroom might include a double sink, no-slip tile, and a bathtub. A guest bathroom might include extra shelving and storage to provide enough space to store their things.

DON’T Forget to Budget For Unexpected Surprises

Just like any other type of remodeling job, it’s always important to budget accordingly and allocate enough money to cover unexpected problems and costs. You might discover major water damage after ripping out the drywall and flooring, which will cost money to rectify.

You may even come across a vent stack or plumbing lines inside a wall that you assumed could be ripped down. While an experienced contractor will be able to pinpoint most issues beforehand, you just never know what you’re going to find when the demolition starts, which is why it’s helpful to add another 10% to 15% on top of your budget to accommodate for these issues.

The Bottom Line

You can add tremendous value and enjoyment to your home by remodeling your bathroom if the job is done right. Be sure to heed the above tips so you don’t wind up disappointed with the end result or stuck making major alterations after the job is done.

5 Renovations You Probably Shouldn’t Make Before You Sell Your Home

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When it comes to selling your home, you want it to be in pristine condition to impress the slew of buyers who will come across it. Many home sellers will often invest in professional home staging services in order to showcase their homes in the best light and attract as many buyers as possible, which in turn will help bring more sizeable offers to the table and get the property sold in a relatively short amount of time. Oftentimes some repairs and even certain remodeling jobs may be in order to bring a home up to par and demand high offers.

However, not every renovation is necessarily a good idea prior to selling. The idea is to reap the highest return on investment upon the sale of the property. Yet certain jobs simply aren’t worth the cost, as money spent likely won’t be recouped come sale time.   

If you’re getting ready to sell, consider scratching the following renovation jobs off your list.

Luxury Kitchen Remodels

The kitchen is perhaps the most important room in a home and plays an instrumental role in how much your house is valued at according to current market conditions. Modernizing your kitchen can bring you a decent return on your investment, but you’d be better off avoiding extremely expensive, extravagant upgrades that will cost you a lot more than the perceived value added to the property. 

High-End Bathroom Renovations

Bathrooms might be small, but they are very important spaces in a home. If they are up-to-date and in newer condition, they can add tremendous value to a home and appease buyers. If your bathroom is in need of a little TLC, there’s nothing wrong with sprucing it up and updating it.

However, you will likely see very little money recouped upon the sale of the home of you dump too much money in a luxurious renovation, especially if the neighborhood doesn’t call for such opulence. Not only that, you still might not suit the buyer’s tastes once the job is complete. As such, you’ll be limiting your buyer pool. Stick to simpler, more affordable updates, such as new faucets, new light fixtures, and a new vanity.

Combining Bedrooms

Cutting back on the number of bedrooms can hurt the marketability of your home, since buyers are usually looking for more bedrooms. For instance, a 4-bedroom home is typically worth more than a 3-bedroom home, especially when looking at similar homes that have sold in the area in the recent past. Also, if the typical home in the neighborhood has 3-bedrooms – which is what buyers in the area expect – you’d be doing your home a disservice by converting it into a 2-bedroom.

Room Addition

Working with what you’ve already got is one thing, but adding additional square footage comes at a high price tag. You might want to increase the living space of your home, but the cost to add another room to a home is more often than not a bad investment if you’re just planning to sell the home soon after.

There may be certain circumstances where an addition makes sense, but these circumstances are typically reserved for complete fixer-uppers that need to be brought up to comparable square footage as dictated by other homes on the block. Otherwise, you’ll barely recoup even half of your initial costs when you sell.

Large projects like room additions are not worth doing because these jobs usually take a long time to complete, from the planning stages, to obtaining permits, to completion. Not only that, an addition might actually increase the value of the other homes on the street, but they likely won’t do much for your home except make it harder to sell at the price point you want.

Adding Unconventional Features

Unique features, such as a wine cellar, indoor hot tub, or off-the-wall kitchen tile might sound like amazing features to include in your home, but you might not necessarily find many buyers who will appreciate the money spent to make such changes. You probably won’t get too much of a price increase for such unconventional features if prospective buyers are looking at them as things they probably wouldn’t use or may even tear out.

If you are thinking about adding a unique touch to your home, it should be to satisfy your tastes and wants if you plan on staying put for a while longer. But if you’re going to be selling shortly, those personal touches could make it even harder to sell your home because some buyers may not be too keen on them.

The Bottom Line

The lower the price and simpler the project, the better when it comes to how much you can recoup compared to how much you spend. Even though they will probably boost your home’s appeal and resale value, you probably won’t get 100% back on major renovation investments.

Some markets may allow a 100% recoup of your costs regardless of the project, but these markets are typically extremely hot ones. In San Francisco, for instance, the addition of a whole new deck can bring as much as an astounding 147% ROI.

Make sure you understand exactly what your market is like and what types of returns you can get for specific renovations in your area before taking on major renovations.

8 Things Renters Should Do Before Signing on the Dotted Line

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It can be a real challenge to find the perfect rental unit in the location your desire, in a complex you love, and at a price point you can afford. When you finally do land one, you might be a little over eager to sign the lease. But before you do, there are a few things you need to do first. After all, you’ll be stuck upholding your end of the bargain for at least 12 months, or however long the lease is in effect.

Take the following details into consideration before signing your lease to make sure you’ll be a happy tenant.

1. Read the Fine Print

A lease can be pretty lengthy, but it’s worth your time to read through all of it before you sign on the dotted line. A lot of the fine print might be boring legal terminology, but you just might find some details that are questionable. Many rental issues often result from tenants not understanding all the contents of the lease. Luckily, if you’re working with a real estate agent, you’ll have some professional help going through the fine print to make sure you’re not signing anything that could compromise your enjoyment of the property.

2. Inquire About Modifications to the Unit

After you move into your new unit, you’ll likely want to make some changes to it and personalize it to suit your tastes and lifestyle. Painting, hanging art work on the walls, or installing shelving units might go against what your landlord permits. Different landlords have different rules about making modifications, so you’d be well advised to find out exactly what you can do to the place before you sign the lease.

3. Find Out What’s Included, and What Isn’t

The monthly rent is one thing you’ll obviously be responsible for paying, but are there any other costs you’ll need to take care of? While many rentals are inclusive of utilities, gas, water, and even cable, other rentals are not. Make sure you find out what other charges you’re obligated to cover, and roughly how much you can expect to pay each month for them so you can accurately organize your budget.

4. Get Your Documents Prepared

Before a landlord agrees to rent you a unit, you’ll need to submit certain documents to make sure you’ll be a good tenant who will take care of the property, be a good neighbor, and pay on time and in full each month with no issues. In order to get a good idea of what you will be like as a tenant, your landlord will likely ask for paperwork such as a letter of employment, a pay stub,  acopy of your driver’s license, a tax return, a bank statement, and a letter of reference from previous landlords along with their contact information.

This can take a while to collect, so you’d be better off doing all that leg work before you find a unit you want to rent out, especially if the market is a competitive one where many qualified people have their eye on the same place.

5. Visit the Place at Various Times of the Day

What the place looks like at various times of the day will differ, which is why you might want to visit the place more than once. For instance, the bedroom might get wonderful light during the early afternoon, but could be annoyingly illuminated and loud all night if it’s directly in front of an all-night eatery. You’ll also get a sense of what the neighbors are like in the evening versus the morning. Visiting at different times of the day will give you a better sense of what life will be like as a tenant in that unit.

6. Take Note of Any Damage

You don’t want to be blamed for any damage to the apartment that you’re not responsible for. Look carefully for any issues with the unit, such as stains on the carpet, scratches on the walls, scuff marks on the hardwood flooring, or ill-functioning appliances. If you find anything, make sure to take note of these issues and bring them to the attention of the landlord before you sign the lease and move in.

7. Find Out About Any Rules About Subletting

Perhaps you enjoy taking month-long summer vacations, or are away on business a few weeks out of the year. If that’s the case, you might consider subletting the unit while you’re gone so you can recoup any money that you’re spending in rent when you’re not even there. Before you do that, you’ll need to find out if subletting is even allowed. If it isn’t, you could be slapped with a big fine or even face eviction if you do sublet when it’s against the regulations stipulated in the lease. 

8. Scope Out the Landlord

Your landlord can play a key role in how much you’ll be able to enjoy your rental unit. Check to see what the landlord’s policies are on making visits, dealing with issues with neighbors or the property itself, or where he or she is based out of. You will also want to find out how easy it will be to get a hold of your landlord, especially during emergency situations where immediate communication is necessary.

The Bottom Line

Use this checklist to make sure the decision you make about signing a lease on a specific property is the best one for you. Failing to do your homework and ask the right questions could put you in a precarious situation for a few months until your lease is up. Instead, a little due diligence can ensure that you get full enjoyment out of your rental.

Which Mortgage is Right For You?

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When it comes to mortgages, there’s no one-size-fits-all scenario. Every home buyer is different and has a unique set of financial circumstances that will dictate what type of home loan makes the right choice. Luckily, there are plenty of options as far as mortgages are concerned. Which option is right for you?

Conventional Mortgages

This is the most common type of mortgage and isn’t guaranteed by the federal government. Instead, it conforms to the guidelines set by Freddie Mac and Fannie Mae, and may either have a fixed or adjustable rate.

  • Down payment: 5% minimum (20% needed to avoid private mortgage insurance).
  • Qualifications: Minimum credit score of 620, and maximum 43% debt-to-income ratio.
  • Best suited for: Those with excellent credit to get most competitive interest rate.

FHA Mortgages

Unlike conventional mortgages, government-insured mortgages are backed by specific federal agencies. FHA mortgages (guaranteed by the Federal Housing Administration) make it easier for buyers to secure a mortgage with a lower down payment. 

  • Down payment: 3.5% minimum (borrower needs a credit score of at least 580).
  • Qualifications: Those who cannot come up with a 5% minimum down payment or have less-than-perfect credit.
  • Best suited for: First-time buyers or those who are don’t meet the qualifications for a conventional mortgage.

VA Mortgages

VA home loans are also guaranteed by the federal government and are backed by the Department of Veterans Affairs.

  • Down payment: No minimum required.
  • Qualifications: No minimum credit score required.
  • Bets suited for: Military veterans or family of military veterans.

USDA/RHS Mortgages

The United States Department of Agriculture (USDA) extends a mortgage program for suburban and rural borrowers who meet specific income requirements, and is managed by the Rural Housing Service (RHS).

  • Down payment: No minimum required
  • Qualifications: Income cannot be more than 115% of the adjusted area median income (AMI) which varies by county. 
  • Best suited for: Rural borrowers who have a steady yet modest income who are unable to secure a conventional mortgage.

Fixed-Rate Mortgages

These loans have the same interest rate over the whole repayment term, which means the amount of each monthly payment stays the same and will never change over the term of your mortgage.

  • Down payment: 5% minimum (for conventional mortgages).
  • Qualifications: Minimum credit score of 620, and maximum 43% debt-to-income ratio (for conventional mortgages).
  • Best suited for: First-time homebuyers; those who plan to stay in the home for the long-term; those who appreciate steady payments to make managing budgets easier.

Adjustable-Rate Mortgages

  • Down payment: 5% minimum (for conventional mortgages).
  • Qualifications: Minimum credit score of 620, and maximum 43% debt-to-income ratio (for conventional mortgages).
  • Best suited for: Those who plan to move or refinance in the short-term and want to take advantage of current low interest rates.

What Real Estate Agents Really Do Behind the Scenes

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Many people might assume that being a real estate agent requires nothing more than making a few phone calls a day, putting up a couple of images online, and quickly negotiating a deal. These professionals might make the job look easy and glamorous, but there’s a ton of work that also goes on behind the scenes to ensure a successful transaction.

Here are just a handful of tasks that your real estate agent is doing that you may not be aware of.

They Prospect Tons of Properties

Real estate agents who represent buyer clients will work with a wish list of traits that their clients want in their future homes. After searching countless listings online, they’ll hit the pavement visiting various properties to see which ones their clients might be interested in seeing. All of these visits take a lot of time, especially if they’re covering a lot of distance.

They Hold Public Open Houses

Agents who represent sellers will often hold open houses on behalf of their clients in order to generate traffic to the home and hopefully find the right buyer. Often these open houses are held within the first week of a listing going live, and can often be repeated as necessary. Holding open houses takes up plenty of their weekends. 

They Attend/Hold Broker Open Houses

While typical open houses are open to the public, ‘broker open houses’ involve inviting only local real estate agents to attend. Seller brokers will often add a broker open house to their marketing strategy as another way to advertise the property they have listed to get more eyes on it.

They Take Calls For Showings

The phone can ring off the hook for agents, especially if they’ve got particularly hot properties that may buyers want to see. Seller agents will take calls from fellow agents to schedule showings on their listings.

They Market Their Properties Relentlessly

Marketing is a critical component to the home selling process, and takes up a great deal of time, effort, and resources. Seller agents will take all sorts of avenues to attract as many buyers as possible, whether it’s advertising in the newspaper or on their website, blogging, posting about the properties on their social media profiles, or networking with other industry professionals out there to get the word out.

They Analyze Comparables

One of the most important parts of the selling process is coming up with the right listing price. A home priced too high will scare off buyers and cause a listing to drag on and become stale, while a home that is priced too low leaves a lot of money on the table.

Priced just right, a home will sell in a relatively short amount of time for a fair price as dictated by the local market. The best way to come up with an accurate listing price is to study all the similar properties in the area that have recently sold – known as ‘comparables’ – which can be time-consuming and labor-intensive.

They Negotiate

Whether it’s on the buyer or the seller side – or both in certain circumstances – real estate agents put their negotiating skills to work to get the best price for their clients. For their buyer clients, real estate professionals will get the final sale price down as far as possible within a fair range, while seller agents do the opposite.

Either way, the negotiating process requires full knowledge of the local market and surrounding properties, not to mention cool nerves. The home buying process can be an emotionally-charged game, so having a third-party professional wheeling and dealing on behalf of the buyer/seller can help keep emotions in check while all the nitty gritty is ironed out on the table.

They Draft Up Legal Contracts

Offers on homes are drafted up on contracts that become legally binding when both parties come to an agreement and sign on the dotted line. Once the signatures are on the agreement, it’s a sealed deal.

As such, you want to be sure that the contract includes everything it needs to protect you, and avoids any clauses that might put you in a precarious position. Real estate professionals will generate these agreements and ensure that all pertinent clauses are inserted that will protect the best interests of clients.

They Show Up For Home Inspections

One of the more common clauses that are inserted into purchase agreements is a home inspection, which provides buyers with the opportunity to have a property checked out by a professional home inspector to uncover any potential issues with the home before the deal is firm. Buyer agents are typically present during these inspections, which can take anywhere from a couple of hours to half a day to complete.

They Get All Documents Delivered and Signed

Once a contract is signed, real estate agents will deliver the documents to the other party to look over and sign, or to make changes and counter. Whatever the case may be, real estate agents are tasked with the responsibility of delivering these documents to the appropriate party until an agreement has been made and a contract is sealed.

They Recommend Other Industry Professionals

Real estate agents typically have a network of professionals that they deal with from time to time. From contractors, to home stagers, to mortgage specialists and beyond, many buyers and sellers often rely on the recommendation of their agents to provide them the appropriate professionals that will offer them the services they require.

They Undergo Ongoing Education

Just because a real estate agent passes their initial courses and becomes licensed doesn’t mean the training stops there. Real estate professionals are required to undergo occasional training to ensure they remain up-to-date with the local real estate market and the tactics and tools needed to continue to be successful.

The Bottom Line

Being a real estate agent involves a lot more than just bringing a client to a home, planting a For Sale sign in the front yard, and drafting up a purchase agreement. There is a ton of work that goes on behind the scenes that clients are often not aware of. The reality is, real estate agents work hard to satisfy their clients, and are often working around the clock to make a deal happen.

6 Signs Your Home Has a Drainage Problem

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It’s no secret that any water that’s pooled in any part of your home will cause nothing but problems. And if there are drainage issues in your home, you’ll likely experience these problems pretty quickly. That’s why it’s critical that any drainage issues be nipped in the bud before they turn into total catastrophe. Yet while some issues are obvious, other’s aren’t.

To save yourself the headache and the money trying to fix major problems that arise as a result of poor drainage in your home, keep an eye out for any one of the following 6 red flags.

1. Water Stains

One of the most telling signs that there’s an issue with the drainage in your home is water stains. Whether they’re on the walls, ceilings, or floors, any water stains are surface signs that something awry is lurking where you can’t see.

The location of the water stain will also be an indication of whether or not the problem is the result of surface water, or water moving underground, the latter of which is typically a much bigger problem. If the stain creates a line around the basement, it’s more likely the result of a moving water table. In this case, inquiring about basement waterproofing might be warranted after the issue has been rectified.

2. Spewing Gutters

If you notice that your gutters are running like a raging river, there’s probably something obstructing the free flow along the gutters. Even if you don’t actually see the water gushing out of the gutters, you can still tell this is happening if the grass or dirt at the opening of the gutters seems like it’s been dug out by powerful flows of water, or if you notice mud splatter marks on the exterior walls near the gutters. If this problem persists, you could be dealing with rotted exterior siding or even structural damage.

3.  Downspouts That Dump Too Much Water Near the Foundation

The basement of your home can become flooded with water if your downspouts are dumping hoards of rainwater too close to the foundation. As such, the water will make its way into the basement and wreak havoc on the basement walls, floors, and any items you have in the water’s way.

If the downspouts are too short, they can literally dump gallons of water around the foundation walls of your home. As the water is soaked in by the soil, it puts pressure on the walls, and eventually causes them to crack. Adding gutter extensions that help carry the water a minimum of 5 feet away from your foundation walls can really help.

4. Mold in the Attic

The presence of mold in your attic is a sure sign that there’s a drainage problem with your home. It may sound odd that drainage issues can actually show signs of trouble way up in that part of the house, but moisture from the water in the basement can rise up through your home. The bathroom fans and vents will then blow hot, damp air right into the attic space, which can cause mold and mildew when it condenses on the colder side of the roof. Failure to deal with this issue early on can lead to rotted roof sheathing and shingles, which would then need to be replaced.

5. Crusting on Basement Walls

Any flaking or crusting on your basement walls could very well be a sign that your home’s drainage is inadequate. This crusting is caused by the mineral deposit residue that is left behind after water has evaporated and condenses. This might not necessarily be a huge problem if these deposits go no deeper than half an inch. Any more than that, however, could spell real trouble that may involve a compromised foundational structure.

6. Cracks on the Foundation Wall

It’s normal for foundation walls to experience cracks over the years as the house settles after being built. However, any cracks that are very wide – over 1/8 of an inch – or that are uneven might need a closer look into what could be causing them. It might very well be a drainage problem behind these cracks. If that’s the case, you’ll need to find out what exactly is behind the inadequate drainage and fix it.

The Bottom Line

If you notice any one of the above signs, you should deal with them immediately. A qualified plumber or structural engineer will be able to suggest the best course of action to fix the problem before it gets any worse. Identifying drainage problems when they’re not as serious and are easier to rectify can save you a lot of hassle and thousands of dollars over the long haul.

Calculating Depreciation on Your Investment Property

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Real estate has long been one of the most concrete and profitable investment vehicles, and can certainly be a solid financial move when done right. The rent collected each month can provide a regular stream of income while building equity and reaping the rewards of appreciation in the property. If the numbers are crunched properly before making a purchase, the rent collected can cover all expenses related to the investment property, with money left over to reinvest in other properties or to simply cash in on.

There are plenty of tax benefits that come along with an investment property, namely the deductions that can be made. Rental expenses can be deducted from the rental income that is earned, which effectively lowers the amount of money you need to pay Uncle Sam every year. The majority of expenses are deducted in the year that money is spent.

Depreciation, on the other hand, works a little differently. Instead of taking one big deduction in the year the property was bought or renovated, deductions are spread out over the useful life of the property. Depreciation involves deducting the costs of purchasing and/or improving a rental property. There are very detailed and specific regulations in regards to depreciation as far as the IRS is concerned, so it’s important to understand how depreciation works and how it is calculated.

What is Classified as a “Useful Life”?

Expenses and tax deductions relating to the purchase or improvement of a rental property are distributed over many years that span the property’s “useful life.” But exactly how many years does this mean? At the end of the day, the IRS will determine what that number is and will vary by expense item. For instance, the IRS may have determined that the useful life of a specific property is 20 years, but a new air conditioning unit that has been recently purchased for it may only have useful life of about 10 years.

How Depreciation is Calculated

Every year you can write off expenses where the cost is a one-year expense, like landscaping, painting, roof repair, and so forth. But things can get a little confusing when you’re talking about the types of improvements that have a useful life that is longer than one year, such as adding a bathroom or renovating the kitchen. Since these costs have a useful life that goes beyond one year, you need to “capitalize” and depreciate these costs.

As such, the entire cost of the improvement will need to be divided by its useful life. The answer you come up with is what you will be able to deduct per year. For example, if you spent $8,000 to add a bathroom with a 20-year useful life, you can write off $400 every year ($8,000 ÷ 20 years).

Determining Your Basis in the Property

Of course, the largest capital asset of a property is the actual purchase price. You can depreciate the cost of the actual structure when you buy it and own it for longer than one year, but not the cost of the land that the building sits on. These calculations are a little more complex than depreciating improvements made to the property.

The purchase price of the property needs divided between the land and the structure itself, and only the building can be depreciated because the land component of the purchase price isn’t actually being used up.

Let’s say the purchase price of a rental property you bought is $300,000 and is valued at $295,000 according to the tax assessment office. Of that $295,000, the land value is worth $100,000 and the building value estimate is $195,000.

The basis of the property is the building value plus the land value. With these numbers in mind, you’ll be able to determine your basis in the property, or the amount that you can depreciate.

Using the example above, you would be able to allocate approximately 66% of the purchase price to the building (building value ÷ entire property value, or $195,000 ÷ $295,000), and the remaining 34% (land value ÷ entire property value, or $100,000 ÷ $295,000) of the purchase price to the land. The amount you can depreciate every year would therefore be 66% of the $300,000 purchase price, or $198,000.

The Bottom Line

The calculations and methods used in the above examples are rather straightforward and meant for illustration purposes. But the truth is, the calculations can be a lot more complicated than that, especially when you factor in any potential adjusted basis, for instance. Increases or decreases to the basis may happen for specific events that occur between the time you purchase the rental property and the time it’s ready to be rented out.

Since rental property tax laws are complex and tend to change from time to time, you’d be well advised to have a tax accountant who is experienced with investment property tax deductions handle your taxes to make sure you’re taking advantage of the current tax laws and are getting the most savings possible.

7 Fastest Growing Cities in California

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Getting into a city that’s growing at a faster pace compared to other areas in the state can be a good thing as far as increasing employment opportunities and a rise in property values are concerned. Many cities across California have been growing rapidly over the past few years, some faster than others.

There are various reasons for such population growth for the following cities, which are considered the fastest growing metropolises in the Golden State.

1. Lake Elsinore

This picturesque city is named after its 3,000-acre freshwater lake with the same name. While it started out as a small resort town in the late 1800s, Lake Elsinore’s booming tourist industry and its expanding infrastructure to meet future influxes of new residents into the city have led to a 16% growth rate over the last five years.

2. Beaumont

The name “Beaumont” comes from the French term, “Beautiful Mountain” given the location’s high 1/2-mile elevation. It spectacular elevations and landscapes have made it a popular destination for an increasing number of new residents, and the number of planned communities in and around the area has exploded over the recent past along with associated infrastructure improvements. Beaumont has experienced a 20.7% increase in population numbers over the past five years.

3. Lake Forest

Its two man-made lakes and forest of eucalyptus trees have created a highly attractive landscape for the city of Lake Forest. Thanks to its beauty, albeit not entirely natural, more and more real estate properties are springing up along it shores. It’s considered to be one of the safest cities in the entire country thanks to its well laid-out master-planned communities. According to Finance Department data, the population in Lake Forest has increased 3.7% since last year.

4. Irvine

With an improved economy and an uptick in new housing opportunities, Irvine has seen a boom in population over the recent past. In fact, it has spiked 18% since 2011. As more and more Californias come to find out about Irvine’s strong school system, new parks, and lower-priced homes, that number is expected to increase even more. 

5. Eastvale

During the 1990s, a trend started among Californians who started moving to once-rural regions, including Eastvale, to avoid the high price tag of homes in Los Angeles and Orange Counties. Eastvale is an up-and-coming city, with its first city council elected by residents very recently in June, 2010, which came just before its official incorporation. That can largely explain why Eastvale experienced an increase of 3.8% in its population over the last year.

6. Porterville

Porterville was established during the gold rush, but after the quick influx of residents to the area, people started to become more and more familiar with all of the opportunities that were available with the region’s arable land. Agriculture continues to remain an important sector of the local economy here, even to this day. Many large companies have established roots in Porterville, contributing greatly to the local economy. Over the past year, Porterville has realized a 5.3% increase in its population.

7. Dublin

Dublin has consistently been one of the fastest growing cities in Alameda County over the past few years. It is considered one of the best cities in which to do business in the state. Over the last year, the population has grown 5.5%.

With population growth occurring at such impressive rates in these cities, there’s little doubt that property values will continue to increase rapidly as well. If there was ever an ideal time to buy into any one of these cities, now would be it, as this will provide you with the opportunity to take advantage of today’s prices that will undoubtedly rise rather quickly going forward.