24
Sep
By First Rate Financial Group
Mortgage

Expanding Opportunities For Home-Buying In ‘Opportunity Zones’

Expanding Opportunities For Home-Buying In 'Opportunity Zones'Opportunity Zones were created by the 2017 Tax Cuts and Jobs Act to encourage investors with capital gains on other investments to invest that money in low-income and undercapitalized communities. They get a reward of deferring capital gains tax. They avoid a portion of it altogether if they keep the investment for five years or longer. 

What started with a trickle of a few Opportunity Zones scattered around the country is now a deluge with over 3,000 approved Opportunity Zones approved in just about every part of America. 4,700 more areas may also qualify.

Opportunity Zones Expanded Dramatically

The very generous definition of Opportunity Zones not only includes poorer areas but it also includes wealthy areas within larger poor areas. Some are wealthier areas adjacent to poor areas. For example, there are Opportunity Zones in Manhattan, which is an area not typically thought of as low-income or undercapitalized.

Opportunities In Opportunity Zones

The tax incentives along with the current easy financing from real estate lenders are stimulating development projects in Opportunity Zones. Investors may increase returns on real-estate investments by up to 50% for projects in these areas. 

The highest returns, based on the tax savings, are for those that invest before the end of 2019 and hold the investment for seven years until 2026. They get a capital gains step-up of 15%. After that, the tax benefits go down to a capital gains step-up of 10%.

Homes In Opportunity Zones

Another attractive characteristic is that the price of single-family homes in many Opportunity Zones is a bargain. The median price of homes in almost half of the Opportunity Zones is less than $150,000. This compares favorably to the national median home price of $266,000. 

Moreover, homes in many Opportunity Zones are less than half the price of an adjacent area. The median rents in the Opportunity Zones are not as depressed as the home prices.

For real estate investors looking for cash-flow positive rental properties to acquire for a portfolio, these homes may rent for enough to pay the carrying costs.

For home buyers, these bargain prices may mean it pays to buy a home on the edge of an Opportunity Zone. If the home is adjacent to a nicer neighborhood, the upside potential for appreciation in home value may be enhanced.

Opportunities for low-cost homes exist in the Midwest, which has 73% of its Opportunity Zones with homes that cost below $150,000. The portion in the South is 57% and in the North East, it is 53%. Florida has over 300 Opportunity Zones. Pennsylvania has over 150. Tennessee has about 140. Those are states worth considering.

Summary

Looking for home-buying opportunities in newly-designated Opportunity Zones is attractive for real estate investors building up a portfolio of rental properties and for homebuyers who are looking for a bargained-price home.

If you are in the market for a new home or investment opportunity, be sure to contact your trusted mortgage professional to discuss current financing options.

20
Sep
By First Rate Financial Group
Mortgage

How To Crowdfund A Renovation Project

How To Crowdfund A Renovation ProjectCrowdfunding came into prominence with the Jumpstart Our Business Startups (JOBS) Act that President Obama signed into law during 2012 and subsequent enhancements. The JOBS Act made it easier for startups to raise money and for the first time allowed the legal ability to advertise the investments and accept small investors.

Innovate And Renovate

Crowdfunding is useful for many projects. The method raises money to create new products, make documentary films, and for many kinds of fashion items. Crowdfunding successfully raises money for real estate transactions. 

Smaller investors participate in real estate projects that they would otherwise not have enough investment money to create on their own. They may invest a few hundred or a few thousand dollars. When their smaller investment money combines with all the others, the project raises enough money.

One thing that makes crowdfunding projects work is their popularity. Affinity groups who have a special interest in certain things invest money in projects related to something that they like.

One application of this motivational factor is to raise money using crowdfunding to renovate buildings with a historical value or that otherwise attract the interest of the public. The process does not have to start with money. It can start with crowd sourcing ideas.

The CLUE® Mansion

A fun example is the Hasbro Company teamed up with Houzz to get innovative ideas from interior designers about how to renovate the CLUE® Mansion. The mansion is a backdrop for the popular board game.

This promotion celebrates the game’s 70th anniversary. The mansion’s style in the game stayed the same since the game debuted in 1949. The winning room designs, selected by fans, will be part of a new version of the game.

There is no reason to stop there. A real mansion can be renovated to match the game. This could be a CLUE® museum and could offer escape rooms as a money-making enterprise. This is just an idea at this moment. Perhaps, someone will take this up and run with it.

Crowdfunding Renovations

The point is, historic buildings that are of interest may need renovation funds that can be raised using crowdfunding. Those who have an interest in the building from the local community and elsewhere can support the project by investing in the renovation with a small comfortable amount.

Summary

Renovation projects are not easy to finance using traditional lenders. However, if a thousand people invest $100 each that is $100,000 for a renovation project in your community. Paying back the loan can come from a portion of the entrance fees.

Hopefully, this will spark continued interest in preserving and restoring historic homes, which are a terrific part of the American heritage.

If you are interested in learning more about current financing options, be sure to consult with your trusted home mortgage professional.

26
Jun
By First Rate Financial Group
Mortgage

Simple Tips To Pay Off A Home Mortgage Loan Faster

It is a major life decision to buy a home and yet many do not consider how much they will pay on the interest over the life of the loan. All they usually think about is if they can afford to pay the monthly mortgage payments.

It is helpful to learn how different loan structures impact the amount of money wasted on the interest paid for a home loan. Here is a comparison of different loan lengths and payment options to show some helpful ways to reduce the total interest paid.

Standard 30-Year Fixed Mortgage

For a buyer who has a good credit history, purchasing a median-priced home with a significant down payment usually helps get the best mortgage financing. A standard 30-year mortgage on a home requires 360 monthly payments to pay off the loan.

The total cost of the loan includes paying back the principal amount borrowed and all the interest. Over 30 years, the total interest paid can be as much as one-third or more of the principal amount borrowed, depending on the loan interest rate.

Standard 15-Year Fixed Mortgage

Comparing a standard 30-year fixed mortgage with a standard 15-year mortgage shows a surprising result. The differences are that the length of the loan term is less and the monthly mortgage payments are higher. A standard 15-year mortgage on a home requires 180 monthly payments to pay off the loan.

The shorter loan period may reduce the total interest paid to less than one-half of a 30-year mortgage, depending on the loan interest rate. The savings can be in the tens of thousands of dollars.

Payment Techniques That Save Money

Simple Tips To Pay Off A Home Mortgage Loan FasterA simple way to save money is to pay an extra monthly payment each year and ask the lender to apply the extra payment to reduce the principal amount owed. On a 30-year mortgage, the loan pay-off date is more than two and one-half years sooner, reducing the total interest paid by about 10% percent.

A smaller savings amount is possible without even needing to pay more, just by paying more frequently. Instead of paying a mortgage once per month, make arrangements with the lender to pay half the monthly mortgage payment twice per month. The amount the lender receives monthly, in the two payments, totals the same amount that the lender would receive in one payment.

This technique works because there is a daily calculation of mortgage interest. By making payments more frequently, there are fewer days of use for some of the loaned funds. This tiny change in periodic repayments can be a nice way to save a few thousand extra dollars over the life of a loan.

In addition, since there are 26 two-week periods in one year, you’re getting an extra payment in over the longer months in the year. So you’re paying the equivalent of 13 monthly payments instead of 12. You might not feel it as much since you’re likely making more money in the longer months as well.

If you’d like to do this strategy and the lender won’t accept bi-weekly payments, then just divide the principal and interest portion of your mortgage payment by 12 and add that amount to each regular monthly payment. You’ll save a ton of interest over the life of the loan!

Summary

Think about interest paid as money that could have a better purpose. Choosing a shorter loan period for a home mortgage and increasing the mortgage payment frequency are important things to consider for the savings that they can produce.

Be sure to consult with your trusted home mortgage professional for answers to all of your financing related questions.