With Terry Story, 29-year veteran Real Estate Agent with Keller Williams in Boca Raton, FL
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VA Home Loans
Steve kicks off Real Estate Round-Up by asking Terry Story to clear up common misunderstandings about Veterans Affairs (VA) home loans. VA home loans were established to allow veterans to purchase homes at affordable prices at low mortgage interest rates and without having to put down a down-payment. So VA home loans are very attractive.
When sellers receive offers from veterans, the contract shows 100% financing, which makes sellers wary of red-tape and the possibility that the loan might be denied after the home inspection and appraisal process. To avoid this uncertainty, sellers often pick all-cash or standard commercial loan offers.
In Terry’s experience, though, today’s VA home loans are very solid, and the fear of excessive red tape is just a misunderstanding from earlier days when VA home loans were not as straightforward.
So her advice to sellers is to seriously focus on the offer because the VA home loans process is no longer a cause for concern.
Mistakes Made by First Time Homeowners
In the Real Estate Survival Guide segment, Terry lists common mistakes made by first time home buyers.
Focus On Quality
When first-time buyers move into a home, they’ve often depleted their savings to make the down payment but are still keen on making a few changes, such as a new carpet, a paint job, or minor remodels to make their homes more comfortable. As a result, they may be tempted to go with the lowest bid, which would be a mistake because low bids involve cheaper material and less attention to detail. For instance, cheap paint the first time around would lower cost but may require a re-paint much sooner than if the first-time home buyer went with higher quality paint. Short-term savings could, thus, result in increased long-term costs.
Instead, Terry wants homeowners to focus on quality with better materials and good workmanship so they can reduce long-term costs.
Don’t Sweat Small Claims
A home is subject to all sorts of random damage from time to time, but most of it is minor stuff that isn’t very expensive to fix. So Terry advises against rushing off to file a home insurance claim each time, especially if it’s less than your deductible. Instead, homeowners should assess the damage, see if it’s close to their insurance deductible, and have it fixed using their own money, saving the insurance claim for bigger events such as severe storm damage or fires that run into the thousands or tens of thousands.
Terry’s rationale is that insurance companies maintain a history of claims and filing too many claims would flag your profile as a frequent claimant, which could lead to an increase in insurance premiums, in the best case, and a possible denial of insurance on your next home in the worst case. These higher premiums could add up to a lot more over time than the few hundreds you might save by filing a claim every time. Moreover, living in a home without insurance is like playing with fire.
She also recommends getting a higher $1,000 deductible on your policy and not the $250 or $500 deductible, so you don’t file for small claims.
Look For ROI Before You Pick Up A Hammer
Terry Story’s next recommendation is to consider return on investment (ROI) before you undertake a home remodeling project. Say you just purchased a new house for about $300,000, in a neighborhood where homes go for about that much. If you decide you want to add, say, 300 square feet to it, think of the ROI. Spending a lot to increase the home’s area will not make it a $500,000 house if neighborhood homes sell for $300,000. So skip the project if you hope to sell it for more and only add the area if it’s going to add value to your home experience for the next few decades.
On the flip side, kitchen and bathroom remodels typically add value to a home and make it more attractive when prospective buyers walk in the first time, so focus your remodeling dollars on where you’d get the most bang for your buck!
Save Your Receipts For Substantial Tax Savings
Over the course of a few years or a few decades of living in a home, you’ll probably spend a fair amount on repairs, remodels, and the like. Such expenses add up over time and increase your cost basis on the house. If you later sell the house for a price that’s more than what you bought it for, you’d have to pay capital gains tax on the sale.
But if you save all your receipts from remodeling jobs big and small, not counting routine wear and tear, you’d have evidence to add those costs to the price you bought the house for and get a new, higher cost basis, which will reduce your capital gains tax when you sell the house.
Steve notes that single filers do not have to pay capital gains on the first $250,000 of profit from the sale of a primary home and reiterates the value of saving receipts to lower capital gains.
Lastly, Terry cautions first time home buyers from ignoring or dismissing seemingly minor items in home inspection reports. She recommends reading the inspection report thoroughly and understanding the bigger cost and damage implications of defects or fixes listed in the report so you can negotiate the price down and not be caught by big-ticket expenses down the road.
If you’re a first-time home buyer, keep Terry’s advice in mind, spend a few minutes to put together a file folder for your home, and be sure to file everything diligently. This small exercise could deliver big savings over time.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s time for Real Estate Round-up. This is the time every single week we get together with noted real estate agent, Terry Story. Terry’s a 29-year veteran with Keller Williams located in Boca Raton, Florida. Hey, welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: So, there seems to be some misunderstanding about VA loans with regards to actually the brokers that are working with clients, and sellers as well. Tell us about your experiences there.
Terry Story: You know, just recently I had an opportunity to work with the VA person that was eligible for the benefits, and, basically, what happens, Steve, is a VA loan is an opportunity for a veteran to purchase a home with no downpayment money. They actually get lower interest rates, so it’s a very attractive program. The idea behind it was from World War II, let the GI guys be able to afford a home, affordable housing, et cetera.
Steve Pomeranz: Right.
Terry Story: So, anyway, the program is still out there. It’s a benefit for those who qualify for it, and what happens is you receive an offer from a veteran, and you’ll see the contract that shows 100% finance.
Steve Pomeranz: Yeah.
Terry Story: And that’s where everybody goes into ahhh-
Steve Pomeranz: Panic mode.
Terry Story: Panic mode. Oh, they can’t do that.
Steve Pomeranz: Well, also these buyers who are putting zero down are competing against people who have a lot of cash, and so there’s a difficulty for them to actually buy these homes.
Terry Story: Correct, and that’s where the problem lies because, honestly, I just went through this with someone. He’s been shopping for two years, kept losing out to somebody else that had more money down, but I just want people to realize these loans, they’re very solid loans. They’re good loans. There’s a misunderstanding that there’s a lot of red tape that you have to jump through, and that’s really not the case.
Steve Pomeranz: That wasn’t the case?
Terry Story: Not anymore. Maybe it was years ago, but today it’s pretty straightforward. So, if you do receive an offer from a veteran, and it’s a good offer, don’t be afraid to accept it.
Steve Pomeranz: Okay, well that’s really good advice.
Terry Story: Just make sure you’re educated on it, but there’s nothing that should freak anybody out.
Steve Pomeranz: Yeah, you know, I’m glad that you brought it up because these are areas of the marketplace that don’t get really talked about all that much, but you’re on the ground every single day, so you see all different kinds of transactions, and this is one that came to your attention that you brought it to my attention.
Terry Story: Yeah, absolutely.
Steve Pomeranz: That’s very cool. Alright, so let’s … I don’t know, let’s go into some of your real estate Survival Guide stuff. You know I love this stuff.
Terry Story: Yeah.
Steve Pomeranz: And you put down some ideas about the first year mistakes that new owners make. Take us through that.
Terry Story: You know, when you buy a house the first thing … You’ve now closed on your house, and you want to put in new carpet, paint, do some maybe contracting work, and so you’ll go out and get a couple of bids from different people, but the lowest bid is not always the best bid, so my advice would be to make sure you’re comparing all facets of the bids to make sure that the quality of the windows is all the same. So, know what you’re getting into, just shop and make sure you understand what the three bids are-
Steve Pomeranz: I think that’s a good lesson financially in life for really anything. I mean, it’s nice to have the lowest bid, but you may get shoddy materials. Let’s say you’re buying paint.
Terry Story: Right.
Steve Pomeranz: So they can use the cheapest paint, and if so, if you’re not really watching and comparing apples to apples all along the way, then you’re really going to get what you pay for.
Terry Story: That’s right. You’re going to be painting the house-
Steve Pomeranz: More frequently.
Terry Story: More frequently, so you’re going to cost … So sometimes buying a better quality paint makes more sense.
Steve Pomeranz: Yeah.
Terry Story: You know, the other crazy thing is you have now insurance, and some people believe, oh wow, I need to file a claim because something happened to the house.
Steve Pomeranz: Yeah.
Terry Story: Be aware that submitting small insurance claims is not a good idea, especially if it’s even less than your deductible, because you’re now creating yourself a history, and so later when you go to buy a house, try to get insurance, I don’t know, you’re going to be dinged for all of this-
Steve Pomeranz: Okay, wow, I never really thought of that.
Terry Story: Yeah, so just be aware-
Steve Pomeranz: I thought you were going to say that they were going to raise your premium.
Terry Story: Well, I don’t know if they do that or not, but I just know that it’s not a good idea to have a bunch of claims-
Steve Pomeranz: Interesting.
Terry Story: So, just understand-
Steve Pomeranz: That’s all the insurance companies kind of share that information to a degree, I guess.
Terry Story: Yeah, well, I’m in that industry, but I know that it’s just not a good idea to put in a bunch of claims for insurance. Just be aware that if something costs less than the cost of your deductible, just eat it, don’t be notifying your insurance company.
Steve Pomeranz: You know, my advice is get the bigger deductible. You know, the 1,000 dollar deductible, not the 250, not the 500, because like you said, you don’t really want to do the petty stuff-
Terry Story: Right.
Steve Pomeranz: And home insurance is for the big events.
Terry Story: That’s right.
Steve Pomeranz: You know, you have a major event-
Terry Story: The house burns.
Steve Pomeranz: Yeah, something like terrible, right? So yes, you’ll have to pay 1,000 dollars, but your premiums will be lower and the chances of those things happening are fairly remote, so you’ll save money in the long run.
Terry Story: A third item is failing to consider the return on investment for home remodeling. Here you just purchased a new house, and you want to do things to it. Make sure it makes sense that you’re putting this money into the house. For example, you buy a house, a 300,000 dollar house, and you want to add 300 square feet to it, and it would make it a 500,000 dollar house, but the neighborhood is a 300,000 dollar neighborhood. Probably not a good idea. So, make sure you understand what your rate of return is going to be when you’re considering remodeling.
Steve Pomeranz: We’re always talking about this, where you get your most money back, and I don’t really remember exactly, but I think kitchens-
Terry Story: Kitchens and bathrooms. They’re high rate of returns.
Steve Pomeranz: Yeah, yeah. So you walk into a house and it’s got a kitchen that needs remodeling, that’s going to depress the house price.
Terry Story: Right. I mean, there’s always other factors, but yes.
Steve Pomeranz: Yeah, I’m being very simplistic, but-
Terry Story: Right.
Steve Pomeranz: And for this discussion, but you have a brand new upgraded kitchen, you know, you’re going to get the price that you’re listing the house for. You could probably list it for a decent amount.
Terry Story: Right. You’ll definitely yield more from the updated kitchen.
Steve Pomeranz: Okay.
Terry Story: And then tossing out your receipts. It’s important to save all your big ticket item receipts because of tax consequences, and you may sell your house 20 years from now, but you could run yourself into a capital gains situation, and to lower your capital gains, you need to have your receipts to prove that you put X amount of dollars into the house.
Steve Pomeranz: Yeah, so for a single person, you get a 250,000-dollar exclusion when you sell, so the first 250,000 dollars of capital gains, you pay no taxes on, but let’s say it appreciates by 500, so then you’re going to have to pay taxes on the excess 250. Now, if you put money into the house, and you’ve got your receipts to prove it, then you add what you spent to the cost of your house, so that’s going to lower the capital gains.
Terry Story: That’s right, so save those receipts. Don’t toss them.
Steve Pomeranz: Okay. And finally…
Terry Story: And then, you know, ignoring seemingly minor items on the inspection report, just make sure when you purchase the house, you go through your inspection report and understand what one thing could lead to.
Steve Pomeranz: Very good. Well, those were some wonderful tips, and I want to thank you, and I know you can’t tell as a listener, but Terry is actually in the studio with us today. She just moved very close to our studio, so I welcome her here. This is a second episode that we’ve done, and maybe we’re going to do more. I like this.
Terry Story: Yeah, very good. Enjoyed it.
Steve Pomeranz: Terry is a 29-year veteran with Keller Williams located in Boca Raton, and she can be found at terrystory.com. Thanks, Terry.
Terry Story: Thanks for having me, Steve.