REThink Real Estate

Tara-Nicholle Nelson
Inman News®

Q: My wife and I plan to look for and hopefully purchase a house this spring. We have been preapproved for a decent amount (approximately $400,000). Although we are looking now, current inventory is lacking and we feel after the new realty season in our area (traditionally the week following Super Bowl Sunday) we should be able to find something we like and can afford. We are determined to find a house that we can easily live in for at least a decade.

In the meantime, we currently have two automobiles that eventually need to be replaced. We plan to replace them with newer used cars. My 1997 Mustang needs $1,200 worth of repairs to make it safe to drive. It would be a game of Russian roulette to continue navigating Chicago winters (read: snow) with my current set of tires. (I actually ended up putting in $400 in other repairs the other day.)

The question is: Do we repair the Mustang or use the $1,200 toward purchasing a newer used vehicle? If we invest the $1,200 into the car, we reduce our emergency fund or our down payment fund. However, if we take on even a small auto loan, our mortgage interest rate might be slightly higher than we could get otherwise, and over the life of the home loan, even a quarter percent higher equates to approximately $20,000 in extra interest.

What would you advise for people who are ready to buy a home in a couple of months but essentially need to replace their vehicles now? –Icarus

A: When I first saw your question, I suspected it might be more of an automotive question than a real estate one, but as I explored your concerns a bit more deeply, I saw the real estate nature of your ultimate question. I appreciate that you are being so thoughtful and deliberate about your money and trying to avoid making a misstep that will cost you later.

If this had been a few years ago, I might have advised you to try to gut it out with your cars, just making the minimal investment in them you can get away with to bring them to a basic level of safety, given that you expect to buy a home in the next month or so.

It is time-honored real estate wisdom that buying a car on credit right before you buy a home is one of the easiest ways to shoot yourself in the foot, because the additional debt can impact your debt-to-income ratio, can either or both reduce the dollar amount of mortgage dollars for which you qualify, or increase the interest rate you are charged.

So, generally speaking, the insider real estate advice would be to wait a couple of months, close the deal and then buy your car.

But I can tell you with zero hesitation that even the best-qualified buyers on today’s market who plan to buy as soon as the weather thaws and sellers start that spring listing flood are still seeing it take two, three, even four times as long to close the deal on their homes as they expected it would. Everything on today’s market takes longer than it used to.

Despite the flooded market, buyers often have elevated expectations for the value they want to receive, and often spend much longer hunting for a house in the condition and location they want, and which is also in the price range they want to spend. This is exacerbated by the vast numbers of foreclosed homes on the market that are notorious for having condition "challenges," so to speak.

In addition, another large chunk of the homes on the market is comprised of short sales, which can take as long as six to 12 months to close escrow on, after you get into contract, through no fault of either the buyer or the seller, depending solely upon the speed at which the seller’s bank moves.

In fact, the data shows that in your neck of the woods, it is not uncommon for short sales to comprise as much as 44 percent of the listings on the market — that’s quite a bit higher than the national average.

So, even if you are able to find your home in the next few months, there is a very real chance that it will be much later in the year before you actually close escrow on it and move in.

Additionally, the fact that you describe your car’s current condition as unsafe trumps the potential for paying a fraction of a percentage higher on your home loan because you deplete your down-payment funds by a tiny bit. And, actually, it doesn’t sound like you’ll be using that $1,200 toward your emergency or down-payment funds.

Rather, it sounds like the $1,200 will either need to go toward making auto repairs or putting something down on a used car in better condition than your current car is.

Ultimately, my first line of advice is to talk with your mortgage broker. If you are as fiscally conservative and responsible as your question implies, there is a real possibility that you are short-shrifting.

The rule of thumb about not buying a car before you buy a house might not be valid in the event that your credit, income and assets are so robust (vis-à-vis your planned homebuying spend) that you could put the $1,200 on a used car, trade in or sell your old one, and not impact your mortgage qualifying or interest rate at all!

Additionally, the $20,000 of additional interest you referenced in your question is (a) entirely tax deductible as mortgage interest, and (b) probably an overestimate, based on a 30-year loan life, which you’ve said your plans are to stay in the home closer to 10 years than 30.

The other flawed assumption is the idea that $1,200 is the sum total of what your current car will need for repairs between now and the time that you buy a home. What if, God forbid, you spent the $1,200 and did the repairs, only to have something else, potentially something more costly, break down on the vehicle? The fact that you just recently had to make $400 in unexpected repairs is proof that this is a very real possibility.

My sense is that, at the very least, it behooves you to make the investment in making your car safe to drive. And it’s even possible that it makes sense for both your auto and housing needs to actually buy a newer vehicle.

So sit down and talk over this issue with your mortgage broker, and get a definitive answer about whether buying a newer car will actually impact the terms of your mortgage, and by how much. Your mortgage broker could very well come back and say that you could bear an auto loan up to ‘X’ amount of dollars before impacting your mortgage situation. Only then will you be truly equipped to make the smartest decision about whether to repair your car or buy a newer one.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

                                                   

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Book Review: ‘Staying Put: Remodel Your House to Get the Home You Want’

Tara-Nicholle Nelson
Inman News®

Book Review
Title: "Staying Put: Remodel Your House to Get the Home You Want"
Author: Duo Dickinson
Publisher: The Taunton Press, 2011; 272 pages; $24.95

The other day, I said the phrase "doggie bag" and my teenage son looked at me like I was nuts. He had no idea what I meant! These days, in restaurants, we’re offered a box to take our food home in.

But when I was a kid, waitstaff would proffer a doggie bag, the implication being that the leftovers would make for a special treat of a meal for your family’s four-legged friends.

Fast-forward a couple of decades, and two realizations — that restaurant portions are at least double what a human should eat at a sitting, and that human food is terrible for dogs — have put the phrase out of business.

Similarly, the subprime mortgage meltdown and the resulting housing and job market recessions have put the kibosh on that life cycle of American homeownership that went like this: Buy a house, sell it for goo-gobs of cash, buy a bigger house, sell it for even more, etc., and so forth.

Many a homeowner these days is either upside down or averse to selling at the bottom of the market and, as a result, has decided to stay put for the duration.

But many folks falling into these buckets still have dreams about their homes.

Architect Duo Dickinson makes a very vivid case in his new book, "Staying Put: Remodel Your House to Get the Home You Want," that committed homeowners can and should remodel their existing home into their dream home.

Dickinson doesn’t restrict himself to the potentially dry, if multitudinous, iterations on what a house can become through the wonders of remodeling.

He touched on values, too, emphasizing our national value of homes — beyond their monetary value — as the "backbone to the arc of a family’s history and identity," decrying the "intellectually lazy … economically unsustainable mass delusion of an ever-expanding American housing market."

Dickinson goes on to applaud today’s era of "more nimble, nuanced and resourceful" homeowners, millions of whom also happen to be, to use his phrase, "house-bound" in properties lacking 21st-century functionality.

Dickinson then moves into the nuts and bolts of what he acknowledges can be a very difficult task: taking an existing home, warts and all, and attempting to transform it into the home of your dreams.

He starts out exhorting readers to get their acts together, dealing with some common mindset-based pitfalls and setups for disaster (e.g., "if your family is dysfunctional, a new home will not pull it together"), pre-project planning and education musts, and some considerations to weigh when deciding whether your home is worth renovating or is a money pit in the making.

Let me say this: This lengthy first chapter, on its own, makes "Staying Put" an essential resource for every homeowner contemplating a remodel, upside down, house-bound or not.

Dickinson puts his years of experience to very effective use, creating decision tools for homeowners to understand the properties of their home and their visions vis-à-vis the most common remodeling disasters, which can involve spiraling costs and unsatisfactory outcomes. He empowers readers to make informed decisions about which projects to take on and whether to remodel at all.

From there, Dickinson covers all the most common remodeling dreams of homeowners, from opening up kitchens, to making living rooms more social, to creating spaces that connect to the outdoors, and reconfiguring bedrooms, bathrooms, entryways, mudrooms and workspaces in the home.

The decision-guiding chapters for each type of project are riddled with concrete examples and color before-and-after pictures with detailed descriptions and diagrams; the projects were clearly selected to provide a range of scale (small projects to vast), locales (rural to urban) and budgets (Dickinson says they range from $100 to $1,000 per square foot).

And if the dozens and dozens of images in the book are not enough, the companion site StayingPut.com offers many more for your inspiration.

If you’re a home-improvement television buff or are seeking inspiration for your own home, you’ll get hours of enjoyment and education out of "Staying Put" and its extensive before-and-after project inventory.

But every homeowner (or homebuyer, for that matter) considering whether to take on a major remodel should invest in the book for the first chapter’s guidelines on whether it’s worth it, and how to pick projects that set you up for success at converting your home into the home of your dreams.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

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Mood of the Market

Tara-Nicholle Nelson
Inman News®

Last week, I ran into a few friends I hadn’t seen for awhile. One was all atwitter about a home she was in the process of buying, which caused another to wax reminiscent of her own homebuying odyssey a couple of years back. The latter blurted out, "I love my house, but I have to be honest: I wish I’d never bought it. Too much of a commitment."

Mind you, this came from a woman with a husband, two kids and a highly visible executive role at a large company. When I pointed out what seemed to me to be her inconsistent logic regarding her approaches to long-term commitments, she elaborated: "Because of the house, I can’t just pack up and move when I want to anymore. I can’t just strap my kids on and take them with me wherever I go."

I pressed her about how much her tax situation must have improved, and she brushed it off, saying, "I don’t pay attention to that sort of thing."

Now, I suspect she has a case of "grass is greener" syndrome, as I recall very clearly the days when she wanted nothing more than to stop renting and buy her home. I also think she’s a grumbly type, who wanted to fill the conversation gap with something, and a complaint about homeownership was right on topic at the time.

It’s much more politically correct to complain about the commitment posed by your home than that created by your marriage or your children, although the latter are much more grave, so that’s what she picked as her contribution to the chat.

However, I’ve noticed an uptick in conversations about real estate that come up in casual conversation with both friends and strangers, outside of the now-ubiquitous conversations about how "bad" the market is supposed to be. Increasingly, those conversations actually center around people wanting to buy and explaining why to their friends who disagree. Here are a few I’ve heard lately:

1. I just want to own the place I live. This is probably the No. 1 all-time motivation underlying homebuying: the desire to be a homeowner. It may bundle up a bunch of motivations, like tax considerations, the ability to gain equity over time and eventually own your place free and clear, and even the power to customize the place you live exactly as you see fit.

I’ve also heard this lately from someone who has fallen in love with her neighborhood and wanted to cement her role in the community for the long term.

The fact that this is such a popular utterance among homebuyers-to-be, even after the market mess of the last few years, may demonstrate that in the debate about whether a home is an investment or a place to live, the emotions around owning the place you live trump investment considerations (though this is probably exaggerated in markets like today’s, where prices and rates are bottoming out so the investment piece is less of a worry).

2. I want to buy now and move later. Warren Buffet’s assistant just famously bought a retirement home, years in advance, publicly stating that she did so on her boss’s advice to buy now and move later. This is a partially market-based sentiment, of course, as the rationale for buying right now is that prices and interest rates are low.

But it’s also partially lifestyle-based, as this is a motive for buying that you’re much more likely to hear from those who have diligently saved and are currently well-employed, but look forward to moving to a locale with a lower cost of living in the years to come, when they change career paths or retire.

3. I don’t want to have to move anymore. A close friend of mine who bought her last home at the top of the market and was forced to sell at the bottom when her husband changed jobs recently said this.

Despite paying beaucoup bucks for a rental in a very upscale, recession-proof neighborhood, she’s troubled at the prospect of having to move (house and her kids’ schools) when her landlord opts to move back into the rental home, which he’s indicated he might very well do, and soon.

Another contact of mine has been informed that his landlord plans to list the upside-down home he lives in as a short sale later this year. On the flip side, I know several investment property owners also making plans to divest of their rental properties this year (some by short sale, others have given up on waiting for a market rebound and are OK now with locking in their losses on a "regular" equity sale).

The quintessential truth that living in a home you don’t own may mean moving when you don’t want to is a big emotional driver for homebuying these days. It helps that rates and prices are low, and that many of these renters have been saving aggressively over the past few years.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

                                                   

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REThink Real Estate

Tara-Nicholle Nelson
Inman News®

Q: I am on a mission to buy a home. I’ve wanted to own a home my entire life, and thought I would miss the opportunity to buy while the market was down, because I had no real savings when the market crashed. I think I’m ready, though, and prices still seem low. What should I be doing now to make this happen in 2012?

A: Let me count the ways — I mean, the things — you can and should be doing now if you want to buy this year. The recession has done lots of favors for buyers-to-be, including dropping prices and interest rates to bargain levels. But it has also created a lending and housing market climate in which loans are tough to get, tensions about buying into a down market run high, and transactions are harder and longer to close than they have ever been.

If I were talking to a friend who wanted to throw a New Year’s 2013 party in her new home, here are the things I’d tell her to do, stat:

1. Fix credit problems. More deals than ever are dying on the vine, and credit problems are a top reason home-sale transactions fall out of escrow. Detect and correct errors on your credit report now by reviewing the federally mandated free reports you can get at AnnualCreditReport.com.

2. Study up. Do some research, both online and offline, into things like:

Areas: Start your online research into decision points like tax rates, school districts, neighborhood character and even prices in various areas. Check out NabeWise.com for some local insight into neighborhood flavor and personality.

When you start connecting with local agents, ask them to brief you on neighborhood market dynamics. They can give you a deeper view into need-to-knows like how long homes typically stay on the market and whether they generally go for more or less than the asking price, so you can be smart about how you search vis-à-vis what you have to spend.

Agents: This is the perfect time to ask your family and friends for a referral to an agent they know, have used and love. Then, follow up by doing an online search for the agent’s name and seeing what sort of online reviews and activities you find. When you’ve narrowed the field down to a few, call them up and set up a meeting to find out if you’re a good fit.

Distressed properties: In some areas, more than 40 percent of the homes on the market are short sales and foreclosures, and they involve a very different timeline and set of facts than traditional home sales. Read up and talk with the agent candidates you interview about what you should expect from these types of listings, to minimize surprise and manage your expectations way in advance.

3. Save even more. Sounds like you’ve worked hard for a number of years to save enough cash that you think you’re in the clear when it comes to funding your down payment and closing costs. Studies show that after months of saving, people often let up and relax into a spending season. Even at your early stage in the process, it’s easy to start noticing and buying the furnishings and touches you want to install in your new home.

While I don’t want you to feel deprived or forgo amazing and affordable deals on things you know you’re going to need, I assure you that no matter what amount of cash you have on hand, when you start house hunting, making offers, closing your transaction or moving in, the time will definitely come when you’ll wish you had more.

You might want to ratchet up your offer a bit to best another buyer, or you might just end up with a place that needs a little sprucing up. It might be months before you know exactly what you’ll need extra cash for, but now is not the time to press the gas pedal when it comes to your monthly spending.

4. Purge. Now’s the time to sell, donate or give away as much of your junk or, excuse me, precious personal possessions as you can. Use the proceeds to pad your cash cushion, or tuck the donation receipts away for your tax records next year.

Start here, and chances are good that your house hunt — and purchase — will be in full swing by spring, if not sooner.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

                                                   

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Book Review: ‘The Prosperous Heart: Creating a Life of “Enough” ‘

Tara-Nicholle Nelson
Inman News®

Book Review
Title: "The Prosperous Heart: Creating a Life of ‘Enough’ "
Author: Julia Cameron and Emma Lively
Publisher: Tarcher/Penguin, 2012; 240 pages; $25.95

I read a lot of books — over 200 just in the last three years. I bring up that number by way of pointing out the scope and significance of this statement: one of my top 10 favorite books of my entire lifetime is "The Artist’s Way."

It might sound artsy-you-know-whatsy, but since its 1992 publication this masterwork has served over 3 million artists and others who need to be — or simply want to be — creative, with its powerful tools and insights for getting and staying unblocked.

While it has served that role in my own life in my work as a writer and creator of digital content, "The Artist’s Way" has been at least equally as impactful in my entrepreneurial, personal, financial, and career endeavors. The ability to think flexibly and innovatively in crafting original solutions to problems has been of great, great value (and has probably saved my bacon more than a few times).

But I have long thought of my personal non-artistic uses of the book as rogue, or off-label, specifically when it comes to matters of finance and business. "The Artist’s Way" was intended for artists, after all — it’s not called the "Businesswoman’s Way" or the "Money Maven’s Way."

So imagine my delight and surprise to learn that the creator of "The Artists’ Way," Julia Cameron, was releasing a title on that topic nearest and dearest to my heart: prosperity. In her new book, "The Prosperous Heart: Creating a Life of ‘Enough’ " (Tarcher Penguin, 2011),Cameron and co-author Emma Lively aim to first reset readers’ understanding of prosperity as a spiritual matter, not a monetary one.

They carve out a new definition of prosperity as having faith, satisfaction and "enough" — "having a life beyond need and worry." Financial healing, they make sure to point out, is included, but is only one element of true prosperity.

After dealing with definitions, Cameron and Lively provide a set of five tools to help readers generate this expanded sense of prosperity. The first two, dubbed "Morning Pages" (three pages written longhand, stream of consciousness, first thing every morning) and "Walking" (literally, taking a 20-minute walk two or more times a week) are tools used in "The Artist’s Way" to unleash creative flow.

In "The Prosperous Heart," Cameron slightly repositions them as tools for cultivating emotional and financial clarity, especially when it comes to understanding where your values and your actions are not in alignment, and healing that disconnect.

The next two tools are much more financial in nature, but are still uber-simple: "Counting" (tracking every dollar and cent that flows in or out of your hands and accounts) and "Abstinence" (refraining from creating new debt, with exceptions for car and home loans that are affordable vis-a-vis your monthly income).

The last tool, "Time-Outs," are like micro-meditations —  5-minute a.m. and p.m. quiet times that we can use as check-ins with ourselves, our feelings and our choices (about finances or otherwise) or to pray, meditate, or otherwise get "in touch with a deeper, kinder, wiser part of ourselves."

Beyond their utility for their intended purposes, all the tools can also be used to help detect where the bulk of your own personal challenges in the prosperity realm may lie. The more resistance you feel to the idea of practicing any given tool, the authors say, the more valuable that tool will be in creating the prosperity you seek.

(This mirrors precisely the lesson I learned long ago from an old yogi from India, who brusquely overruled my protests that I’d been too tired to come to class one evening by declaring that the times when I most feel like staying at home are the times I stand to gain the most by coming to class and practicing, anyway. How true that has proven to be in the years since. When I’m too tired to worry about whether I’ll be able to balance on one foot, I’ve found that it is much easier to do so.)

After introducing readers to these tools and making the case for incorporating them into our daily routines, Cameron and Lively provide a 12-week course in prosperity, touching on everything from:

• inventorying and examining your spending habits, money fears, relationships and past losses;
• trusting in a higher power and in yourself to provide for your wants and needs; and
• practicing kindness, forgiveness and velocity: the authors’ term for not too little and not too much action.

If spiritual matters or references, of even a nonspecific, nondenominational nature, tend to frustrate or offend you, "The Prosperous Heart" might not be for you. One of its core premises is that a higher power exists that wants to and will provide for you.

While the authors carve out an extremely broad realm of how individual readers might conceive of that spiritual force, some might find that to be a turnoff.

If, on the other hand, you do believe that some sort of higher power does exist in the universe, and you have been plagued by money problems or worries, have experienced hard times, or simply crave to feel at ease and abundant in the financial realm of your life, it would be a serious strategic error to omit "The Prosperous Heart" from your library.

It should sit side by side on your bookshelf or in your e-book reader with other authoritative titles about organizing, saving and investing your money.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

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Mood of the Market

Tara-Nicholle Nelson

I recently bought a couple of spa treatment packages for a friend’s birthday (as much as a gift to myself as to her, to be sure). The package included a pedicure and a massage for the price of the massage, but had a bizarro restriction that required I pick the gift cards up at least one day prior to spa day.

The problem: The spa was across a bridge from my town. Despite my very best calculations, I hit unexpected traffic and it took me an hour’s drive just to pick them up.

It’s a good thing for the spa that I was literally stuck on that bridge, unable to turn around; otherwise, that would have been an undone deal. I was very clear that the value of my hour far exceeded the value of those two "pedis."

In the end, the conditions I had to surmount to take advantage of the bargain negated the value of the deal — and then some.

And that happens much more frequently than you’d think in the world of real estate. Today’s ridiculously low prices and interest rates, combined, seem like the perfect storm for finding a great deal.

But some buyers run into — or even unwittingly create — circumstances in an effort to cash in on the bargain that deactivate or diminish the full value they otherwise stand to gain from buying at the bottom of the market, for both home prices and interest rates.

Here are three ways homebuyers are defeating their own deals in today’s market:

1. House hunting too long. As many as 60 percent of the homes for sale in some markets are short sales. Many other listings are bank-owned (also known as real estate owned or REO) properties, and those homes tend toward two extremes: terrible condition, or so nice at such a low price they receive multiple offers.

Even the nicer, nondistressed homes on the market can end up in and out of contract over and over again due to appraisal or other lending-related issues.

As a result, it is not at all bizarre to hear homebuyers today say they’ve been house hunting for a year, 18 months, even two or three years. When you house hunt that long, you become susceptible to house hunt fatigue, which causes irrationally extreme overbidding out of sheer exhaustion.

Alternatively, it can cause you to settle for whatever house you can get, even if it doesn’t actually meet your needs — then spend the next 10 years obsessively spending to upgrade, improve, repair and furnish the place to try to make it more like the home you actually wanted.

Both of these outcomes negate and deactivate the bargain you stood to score.

To avoid house hunting too long, it’s uber-important to get and stay clear on the differences between what you want and what you need, and to work with a local real estate professional you trust.

Look to your agent to get and keep your expectations centered in reality, so you can make more strategic decisions throughout your entire house hunt, like house hunting in a price range where you’re likely to both find homes that will work for your life and be successful in your efforts to obtain one.

2. Making lowball offers way too low. Overbidding seems like an obvious way to cancel out the bargain potential of your deal. But making excessively low offers — offers sellers couldn’t afford to take if they wanted to — can have the very same result.

Buyers who think they can operate strictly on the basis of buyer’s market dynamics — without realizing that most sellers will need to make enough to pay off their mortgage or at least receive the fair market value for their home — are cutting off their own noses to spite their faces, all in the name of trying to score an amazing deal.

Note to "lowballers": If you don’t actually secure the home, the superlow price you offered is no deal at all.

3. Freak-outs, stress, drama and mayhem. Once was, it was mostly the buyers uneducated about the homebuying process who tended to freak out and stress the most, especially at the top of the market. These were the folks who found themselves defeated at every turn by buyers who knew what they were up against and were prepared to make their best offer on their first offer.

Fast forward, and now the norm is for buyers to spend much more time reading up on what to expect, but the inundation of information can create brand new mindset management challenges.

Almost every buyer is stressed about whether they can qualify for a loan, and about buying into a down market. Some buyers try to apply national headlines about home prices being depressed to the superlocal dynamics of their neighborhood market.

This is unwise if you happen to be, for example, trying to buy a home in the boomtown real estate markets of Silicon Valley. Others go the opposite direction and deny that the basic truths about, say, buying a short-sale listing will actually apply to them (attention homebuyers: buying a short sale usually takes a long, long time).

The emotional freak-outs that result from having your expectations shattered, sometimes brutally, in the course of buying a home often lead to panic-based and fear-based decisions, which can be costly in the short and long term. Additionally, the stress itself can take a toll on your ability to be productive at work, and can even impair your relationship with your mate, neither of which are worth any deal you think you stand to strike.

Again, managing your expectations by working with a trusted broker or agent you feel comfortable relying on to understand the market in your neck of the woods and the type of transaction you want to pull off is essential to downgrading the role emotion plays in your real estate decision-making.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

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REThink Real Estate

Tara-Nicholle Nelson
Inman News®

Editor’s note: This is the second of a two-part series. Read Part 1: "When it makes sense to keep an underwater home."

Q: At the top of the market, I owned three properties: my first home (in a marginal neighborhood, now about 100 percent upside down), my own residence (a big fixer in a great neighborhood), and a triplex I bought as an investment (an OK neighborhood, needed some work, fully rented, but now upside down by about 30 percent).

When the market turned, I had a couple of bad tenants in my first home and the triplex that set me way back financially, and I was unable to borrow the money I needed to fix the house I lived in. I did a short sale on the fixer and got temporary loan mods on the other two, and moved back into my first home.

The problem is, they’re both so upside-down and don’t seem likely to come back up anything soon … should I just sell everything and start over?

A: Last week, we covered the preliminary step I want you to take with respect to your personal residence, of examining whether the home still works for you, for the most part, as a personal residence, notwithstanding the fact that it’s upside-down.

Many a homeowner makes the wise decision of staying put in an underwater home on the grounds that the home is functioning well as a home for their family, is affordable and looks like it will remain functional on those counts for the foreseeable future.

I’m aware, though, that your situation is complicated by your perception of both of the properties at issue, at least in part, as investments that now seem likely to have outlived the purpose for which you bought them.

I can’t give you a black or white answer in terms of whether you should sell or hold either or both of your properties. But I can give you a set of considerations to factor into your decision. After you evaluate the life-property fit of the home you currently live in, consider these three things:

1. Your options. One of the biggest, most stressful mistakes we make, as humans, is to agonize over decisions without a complete understanding of the full spectrum of options that are available to us. So, educate yourself!

Get online and do your reading, talk with your own lenders to see what options they might have available, and then also talk with local professionals you trust — at the very least, include a real estate broker, a mortgage pro, an attorney and a tax expert on this list. They might know of options you don’t, and they might be able to help you understand the timelines and feasibility associated with each option.

For example, banks seem to be granting short sales at higher rates than before, but they still take a long time, and the exemption from federal income taxation on the debt forgiven via a short sale is currently set to expire at the end of 2012. That might suggest you should list your properties for sale and apply for short-sale approval, stat.

On the other hand, there have been a number of governmental foreclosure relief program developments that might offer help for you, some of which are available only in the hardest-hit states.

The pros can also help you get a deep understanding for all of the tax, credit, financial and even legal implications of all the options available to you. Get the information and professional input you need to fuel a clear, complete understanding of your options before you move forward with your decision-making process.

2. Your values. The decision whether to hold or sell your properties is a hybrid business/personal decision that will impact the overall "after" picture of your life. While you can and should factor in input from professionals and even personal advisers whom you trust are knowledgeable and have your best interests at heart, only you can decide what’s really important to you in a way that drives the ultimate decisions you make.

(And decision really should be decisions, plural, because you could very well create an action plan that involves putting the place on the market as a short-sale listing while you apply for a loan modification, or some other set or sequence of actions.)

So, when I say to factor in your values, I’m simply encouraging you to get clear on what is important to you. Owning the place you live? Tax advantages? Reducing your expenses? Saving up to secure your retirement?

This phase of the process will help you get out of the very common real estate decision trap of doing things for their own sake: owning because ownership is good, or getting out of the market because that’s the supposedly smart thing to do.

Whether you decide to hold, sell, or try to make some other changes to your situation then sell as a backup plan, it’s important that each action step you build into your plan be set in service of some higher life aim, goal or value.

3. Your priorities. Once you do a deep dive into your values and even list them out in writing, one essential truth will quickly become very evident: You can’t (likely) have them all. Early on in this decision process, you’ll need to rank your values and objectives in order of importance, and communicate that to the professionals you look to for advice.

There are trade-offs involved in virtually every real estate decision. For example, you might have to give up some tax benefits of property ownership to cut your costs and save your financial acorns for the winter of retirement.

You might have to sacrifice free time and get a side job to make your real estate obligations if you decide to keep the triplex after the mortgage adjusts (if you’re currently paying only interest, a mortgage adjustment that happens in January might involve a decrease in interest rate but still increase the overall payment if you have to begin paying toward principal).

Only you can know what’s important to you, in your finances and your life, to make the critical decisions you now face. So get clear on your full range of options and the implications thereof, build out a strong sense of your own values and life vision, then prioritize and rank the things that are important to you. Once you have these inputs, your action plan should soon become clear.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

                                                   

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Book Review: ‘The Smartest Money Book You’ll Ever Read: Everything You Need to Know About Growing, Spending and Enjoying Your Money’

Tara-Nicholle Nelson
Inman News®

Book Review
Title: "The Smartest Money Book You’ll Ever Read: Everything You Need to Know About Growing, Spending and Enjoying Your Money"
Author: Daniel R. Solin
Publisher: Perigee, 2011; 304 pages; $25

Today’s post-recession, pro-consumer, anti-bank zeitgeist reflects a dramatic sea change in the world of personal finance advice. Gone are the days when the cable TV pundits whose eyes bulge as they holler hysterics about what, when and whether to buy, sell or hold are taken seriously as anything but entertainment.

All the rules of thumb (e.g., owning a home is good) have been revised and nuanced (e.g., owning a home is good if X, Y and Z, but renting makes more sense if A, B and C).

And there’s also been a sea change in how this advice is delivered. Instead of a once-weekly column in the local paper by a financial writer, these days there is a steady stream — flood, even — of advice-blog posts written by actual financial advisers and delivered in short, simple chunks right-sized for today’s shrunken attention spans.

Daniel R. Solin is one such expert/blogger, and uses the same pithy style, linking to complementary online resources as he does in his advice columns on HuffingtonPost.com and USNews.com in his new book, "The Smartest Money Book You’ll Ever Read: Everything You Need to Know About Growing, Spending and Enjoying Your Money."

Here are four of Solin’s smartest financial do’s and don’ts:

1. Don’t try to play the market. Solin practically pleads with readers not to base their housing or stock market investment decisions on their guesses as to whether the market will rise or fall, and when.

On real estate, Solin says to get aggressive about building equity by making conservative mortgage decisions and extra payments, when possible, rather than trying to sell at the top of the market and buy at the bottom.

And when it comes to the stock market, Solin exhorts readers: "Don’t just do something — stand there!" Solin repeatedly cites historical evidence that simply getting and staying in the market yields better results in the long term than what he calls "hyperactive" investing.

2. Do consider other options to a reverse mortgage to access fast cash in retirement. "Smartest" offers loads of Solin’s advice for retirees whose portfolios, plans and bottom lines have been adversely affected by the recession.

Rather than seeing a costly, legacy-draining reverse mortgage as their first resort for access to large amounts of cash, Solin first cautions retirees to get serious about whether anything but health, food and shelter are truly needs vs. wants (note: helping your children is not a need, in his book) and lists a number of more attractive, but less commonly considered options for accessing cash, including a "regular" home refinance or loan against a 401(k) or cash value life insurance policy.

3. Don’t confuse salespeople for financial advisers. Calling the investment industry "friend and foe," Solin points out the sobering truth that 95 percent of actively managed funds fail to equal or beat their market indexes, yet the fees for investing in actively managed funds tend to be several times more expensive than for index funds, eroding whatever returns investors in active funds do attain.

Solin urges readers to be aware of the difference between an investment broker, who he says is more accurately described as a salesperson; and a financial adviser, who can take a look at your life and your money and help you set goals, pick low-fee investments, rebalance your portfolio, manage your tax exposure and manage your emotions.

Solin recommends that readers put together a trusted team including an estate planning attorney, a certified public accountant (CPA), and fee-only (i.e., not commission-based) investment and insurance advisers.

4. Do shop around. Solin likens our monthly income and expenses to our body’s metabolism. In the same way we gain weight over the years by consuming calories on autopilot, we can lose cash by having our insurance, investment and other expenses auto-debited, making it highly unlikely that we’ll notice when fees and bills rise.

Solin advises checking in on these items at regular intervals, and shopping around to see whether we can find a better deal.

"Smartest" makes a great effort to be comprehensive in terms of covering every area of financial life, but it doesn’t actually go deep enough to be the only book you need. Rather, it is a great start at giving you the rationale for getting motivated to grow up and get serious about your finances, and provides you with a primer and a road map for the work ahead of you.

With 40-plus chapters averaging a couple of pages in length each, "Smartest" feels rather like a collection of Solin’s blog posts; this will leave some readers hungry for more depth and detail, but will certainly appeal to many others who cringe at the density of a more traditional personal finance title.

To its credit, "Smartest" also does a good job of pointing out where you can find tools to execute Solin’s recommendations or learn more about a given subject online, mostly on the wildly popular and free, do-it-yourself money management platform Mint.com.

Generally, "Smartest" is written in plain English — though its approach is a tad bit imbalanced, getting a little bit in the weeds and detailed in the sections of his particular expertise and borderline vague and oversimplified in others.

However, if you are looking to start your proactive financial planning up again, after the trauma of the recession, or if you are just taking control of your finances for the first time, "Smartest" is a smart choice for the starter book you need to put your own personal money train in motion.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

                                                   

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REThink Real Estate

Tara-Nicholle Nelson
Inman News®

Editor’s note: This is the first of a two-part series.

Q: At the top of the market, I owned three properties: my first home (in a marginal neighborhood, now about 100 percent upside down), my own residence (a big fixer in a great neighborhood), and a triplex I bought as an investment (an OK neighborhood, needed some work, fully rented, but now upside-down by about 30 percent).

When the market turned, I had a couple of bad tenants in my first home and the triplex that set me way back financially, and I was unable to borrow the money I needed to fix the house I lived in. I did a short sale on the fixer, got temporary loan mods on the other two, and moved back into my first home.

Problem is, they’re both so upside-down and don’t seem likely to come back up anything soon. I’m 45 years old and have a great job, but I don’t like the neighborhood I live in now and I can barely ever save anything because these properties — which I thought would help fund my retirement — eat me alive.

Also, I just got word that my loan mod on the triplex is going to expire in January. Should I just sell everything and start over?

A: First, know this: You are not alone. More than 25 percent of home mortgages nationwide are upside-down.

While the majority of Americans have held onto homes with declining and stagnant values in the hopes that the market will recover to avoid locking in their losses, the data is clear on the fact that those who own homes worth less than they owe are the borrowers most likely to fold, short-selling, strategically defaulting or negotiating a "deed in lieu of foreclosure" with the bank.

I don’t think data exists on this point, but I suspect these are the borrowers most prone to give up on the excruciating and prolonged path of home retention efforts the most easily. "Why throw good money, time, energy and emotions after bad?" they wonder.

A few years ago, I would probably have fallen into the cheerleader camp, exhorting "Hang on! Hang in there!" Now, though, going into the fifth or sixth year of this real estate recession, depending on whom you talk to, I’m more jaded and realistic.

As I see it, you have two different scenarios that make up your dilemma, and there are a couple of different ways to think about them. First, let’s limit the scope of our conversation to the situation on the home you actually live in. Next week, we’ll look at the broader constellation of issues you have, including both your residence and the investment property.

My advice to people in your situation is to always go through the preliminary step of getting clear on whether their personal residence still works for their lives as a personal residence.

If you own a home that works well for your life, is affordable and seems like it will continue to be a good fit for your life and your finances in the foreseeable future, I’m generally inclined to advise homeowners to avoid making market-based decisions about whether to continue to hold on to it, whether or not it happens to be upside down.

On the flip side, I’ve seen numerous situations in which families have expanded or shrunk or need to relocate, rendering the upside-down home a serious mismatch. In these cases, it makes sense to more seriously consider whether to divest.

I’d encourage you to ask yourself that question — "Does this home ‘fit’?" — regarding your personal residence. You mention the neighborhood weighs against that finding of fit; you might also be thinking that the neighborhood could prolong the "value recovery" timeline.

Take a more holistic viewpoint and make a decision about whether the home overall still works for your life or not — outside of the context of it being underwater. Whether it does or does not, this knowledge will get you started down the path of cultivating the clarity you’ll need to put a full action plan and decision-making process in place. We’ll discuss what the rest of that plan looks like next week.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

                                                   

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Book Review: ‘What’s a Homeowner to Do?’

Tara-Nicholle Nelson
Inman News®

Book Review
Title: "What’s a Homeowner to Do?"
Author: Stephen Fanuka and Edward Lewine
Publisher: Artisan, 2011; 432 pages; $17.95

Nearly every mother will attest that at some point in her parenting career, often while still pregnant, every worst-case scenario that could ever possibly happen to her progeny (or progeny-to-be) has run through her mind.

Laid-back moms take a deep breath and dismiss such fears as fanciful.

But many others take the Scout-inspired "be prepared" approach, taking serious measures against kidnapping by tagging their kids with GPS-enabled trackers; against school admission drama by sticking their toddlers in enrichment classes ranging from Kinder Kung Fu to Mandarin; and against the ills of being whatever the opposite of well-rounded is (ill-rounded? squared?) by enrolling them in hip-hop dance, golf, Latin and Hebrew school — all at the same time, all before they reach grade school.

This is yet one more way in which buying a home has parallels to birthing — and raising — children. Years before they ever buy, when they’ve barely begun padding their down-payment nest eggs, buyers-to-be report tossing and turning, waking up with night sweats, concerned about all the calamities that might befall their home.

What if a hurricane hits? An earthquake? What if they’ve been completely spoiled by apartment living, neglect to spend 10 hours every weekend working on their house and let the place fall into ruin?

What about all the more mundane, and more-likely-to-arise events that go along with homeownership: Will their effort to unstick a window send them to the hospital, or their do-it-yourself efforts to replace a single roof shingle spiral into a bigger leak than they had before?

These nightmarish concerns of homebuyers everywhere are precisely the issues addressed in the meaty little tome, "What’s a Homeowner to Do?" by DIY Network star/contractor Stephen Fanuka and co-author Edward Lewine.

If you’ve ever bought one of those little gift books that has a year’s worth of daily inspirational messages, this book will remind you of one of those — on steroids. It’s a small-format book filled with 442 tips, diagrams, and easy-to-use, bite-sized tutorials for do-it-yourself home improvement, maintenance and safety projects.

Fanuka, the star of the show "Million Dollar Contractor," teams up with Edward Lewine (who writes a couple of home improvement columns for The New York Times Magazine) to comprehensively catalog and address precisely the sorts of items that keep buyers and homeowners awake at night, offering their insomnia-soothing home improvement knowledge in a highly digestible format.

Throughout, they flag items that homeowners need to maintain on a regular basis to avoid disasters, parse out which items owners can do themselves (and which they should refer to the pros), empower them to ask the right questions and have the right conversations with those pros, and walk them through simple instructions for doing it themselves, where applicable.

The book starts out with a "green manifesto" that briefs readers on all the ways in which their homes impact the environment by offering them a long bullet point list of choices they can make to green their homes. It then moves on to cover the down-and-dirty, do-it-yourself tutorials with a chapter on how to assemble and use a basic toolkit, including what not to do (e.g., get "mesmerized by fasteners").

Then, the book proceeds to offer hundreds of mini-lessons categorized by area of a home, from the exterior, to windows, plumbing, electrical, HVAC, and such subjects as carpentry, doors and locks, walls, basements, garages, yards, and safety and security issues.

Many of these lessons, which run from how to locate a roof leak to how a door lock works, come complete with the authors’ "Tricks of the Trade," pithy one-liners with uber-handy suggestions, workarounds, troubleshooting, insider secrets for handling common issues and even warnings for avoiding common complications.

And the range of topics the authors cover maps directly to the range of concerns real homeowners have, from maintaining their roofs to installing baseboards, cabinet doors, landscape lighting and supports for adjustable shelves.

Often, these sorts of tips books can be tough to use for readers who have a high need for information — those who want to know why they should do things a particular way, or why they should trust the proffered advice.

But interspersed throughout the book’s tips on what to do to your home are highly interesting briefings on "how" things in your home work. In short-and-sweet plain English, Fanuka and Lewine answer questions like "What’s so important about rain gutters?" and "How are wooden stairs constructed?"

If you own a home and feel at loose ends when it comes to knowing what you should be doing to keep it in tip-top shape, "What’s a Homeowner to Do" is an accessible, yet smart, primer and reference guide you’ll turn to time and time again. If you’re still in house hunt mode, definitely put it on your housewarming registry — it’ll save you some sleepless nights, and maybe even some money!

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

                                                   

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