What a Year for Real Estate!

Posted on February 27, 2017 by Trevor Hammond

what-a-year-for-real-estate

According to Zillow.com, the median house price in Portland, Oregon is $406,200. Home values rose 12.9% over the past year!

Imagine buying your very first home a year ago for $300,000. While you’ve enjoyed all of the personal rewards that come along with homeownership, your investment in real estate grew $38,700! (12.9% of $300,000).

Let’s really break this amazing opportunity down for you. I will simplify for the sake of keeping this lesson easy to follow for those of you a bit more mathematically-challenged:

  • Imagine you put 5% down when you bought the house. That would be $15,000.
  • Your initial $15,000 investment resulted in a $38,700 return…or 258%!

Yes, I know there are many other factors. Your monthly payment may be a bit more than what you could have paid in rent. Property taxes came into play. Homeowners insurance most likely cost you a few bucks more per month than your renter’s insurance. Perhaps you even put some money into fixing up the place, though that alone may have increased your future value of the house.

The lesson here to truly take away and understand is this:

Your return on investment is on the value of the house, NOT on the money you invested.

This leverage is why real estate can be the leading wealth building tool for so many people across the country. Where else can you go invest $15,000 and get a $38,700 return a year later? If there is, or someone says they can do this, I’d run.

I will say this…I don’t believe 12.9% appreciation is sustainable. And you shouldn’t want it to be. I liken it to a rubber band, as we saw in 2006. The further you stretch the rubber band, the harder it snaps back when you let go. This is why Zillow’s prediction of 5.5% appreciation for the year ahead is a relief to me and should be to you as well. This kind of growth is very sustainable, especially with the lack of housing inventory, the growth in the job market, and many people moving to Oregon every year. These factors play a big role in strong housing ahead for Portland.

Going back to our original example of a $300,000 house, you would enjoy a $16,500 increase in value a year from now (5.5% of $300,000)!

But what about those people who bought a house in 2006, at the peak of the market, right before everything crashed? Well, if they stuck it out, most have recovered all of their value and then some. Here is a great interactive website that tracks the top 20 cities (https://fred.stlouisfed.org/series/SPCS20RSA#0), and you can use the “edit graph” feature to add in Portland, OR. You’ll see for yourself we’ve more than recovered from the losses from 2008-2011.

For the average family across the country, owning real estate is a powerful wealth building tool if done right. Common sense rules…do not overspend, stay within your budget, and understand that the market is what creates the return for you, NOT your down payment or paying the mortgage down extra fast.

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Five Reasons You Might Want to Consider Refinancing

Posted on February 20, 2017 by Trevor Hammond

refinance-home

Owning a home and building equity opens up many opportunities. As a homeowner, there will be times you wonder if refinancing your mortgage makes sense. Rightly so, as there are quite a few reasons getting a new mortgage can improve your financial future if done right. Here are some of the most common (and less common) reasons you might want to consider refinancing your mortgage at some point.

Word of Caution from the author: Always remember, there are costs involved when refinancing, and it is a big financial decision. So don’t rush into it, and be sure you work with an expert who can educate you and talk you through the pros AND the cons of refinancing. Don’t make short-term decisions that negatively impact your long-term goals. And do NOT waste your savings after you do refinance! Ok, back to the five reasons:

1. Take advantage of lower interest rates:

  • This is the most obvious, and the most common, reason homeowners look to refinance their existing mortgage. If interest rates have dropped since you first bought your house, you may be able to take advantage and lower your monthly payment by refinancing and getting a new mortgage. This can provide a quick boost to the ability to save or pay off other debts faster. Just be careful you don’t simply spend your savings.

2. Get cash out:

  • If you are considering a remodel, or perhaps would like to consolidate some higher interest debt, or need cash for an opportunity that has come along, you may consider looking into a cash-out refinance. There are limitations, but simply put, you may be able to access some of the equity in your home to achieve the above goals. Often borrowing against your home is less expensive than other options. Your house is NOT an ATM machine, but done strategically, safely, and within an overall plan, your house can be a valuable financial tool.

3. Get rid of mortgage insurance:

  • If you bought your house with less than 20% down payment, it’s likely you have monthly mortgage insurance included in your payment. As you pay your mortgage balance down, and your house appreciates in value to the point you have 20% or more equity, you may have the opportunity to refinance and get a new mortgage without mortgage insurance. Keep in mind you MIGHT be able to accomplish this goal directly through your mortgage servicing company, but if not, refinancing can be a good option.

4. Consolidate a 1st and 2nd mortgage:

  • Another strategic way you may have financed your house with less than 20% down was by doing the first mortgage to 80% loan-to-value, and then borrowing the difference between this and your down payment in the form of a second mortgage or home equity loan. This is often done as an alternative to dealing with mortgage insurance (see #3). Or perhaps you took out a home equity loan or line of credit to remodel your house. If interest rates are favorable, and you have sufficient equity for it to make sense, refinancing to consolidate your first and second mortgages into one new mortgage can make good financial sense.

5. Change your mortgage terms:

  • Perhaps you were overly aggressive or just had a fear of debt, leading you to finance your house using a 15-year mortgage. If you find that these higher than normal monthly payments are impeding your ability to save elsewhere, avoid using credit cards for vacations, or even worse, not allowing you to maximize your retirement contributions, you may want to consider refinancing to a longer-term mortgage. Even if a 30-year fixed-rate mortgage comes with a slightly higher interest rate, the lower required payments can free up cash flow to achieve other important financial goals. On the other hand, maybe you hope to retire in ten years, yet you have 22 years left on your current mortgage. If cash flow is good, and your other debts are all paid off, refinancing to a shorter-term mortgage might make sense. Again, this assumes all of your other financial “ducks” are in a row.

 

 

 

 

 

 

 

 

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The Surprising Reasons People Refinance their Mortgages

Posted on February 13, 2017 by Trevor Hammond

refi

With mortgage interests at all-time lows and home prices continuing to rise at a nice, steady rate, refinancing is a hot topic. So let’s look at why most people choose to refinance.

A recent study of homeowners who have refinanced their mortgages shed some fascinating results:

  • 78% of those who have refinanced in the past did it for “Life Cycle Factors”.
  • 22% refinanced in order to take advantage of low-interest rates.

“Life Cycle Factors” are things such as getting married, helping children pay for their college education, or planning to stay in a home longer than originally anticipated.

What does this mean? Well, a couple of things. Homeowners think they want to refinance for one reason (lower rates; lower payments), but in reality, they do it for other reasons.

Another key take away from this study is that, whether they know it or not, homeowners are utilizing their house and home equity strategically as part of their overall financial plan.

Looking ahead, homeowners who say they intend to refinance in the future:

  • 50% say they intend to refinance to better manage risk. This means they are stressed about their ability to make their debt payments, or have tried refinancing in the past but have been unsuccessful, and a refinance can help them until their financial situation to gets better.
  • Only 22% claim to plan on refinancing because they think it has gotten easier to get a new mortgage after the recent tightening of lending institutions.

How you manage the financing on your house, over time, impacts virtually every other aspect of your financial life. For most of us, the mortgage payment is the biggest monthly obligation on our budget. The mortgage itself typically represents the single largest amount of debt. Our house, for most of us, is the largest asset we own…and if managed properly, a key to achieving our financial goals.

Remember, refinancing just to lower your interest rate is not what’s most important. Ask yourself, “What will lowering my rate and payment do for me or allow me to do?” Save more money each month? Pay off consumer debt faster and easier? Save and pay cash for family vacations? Super-charge my retirement savings? Be mortgage-free before retirement?

Secondly, for many homeowners, the increase in home values opens up new opportunities for getting rid of mortgage insurance, consolidating a 2nd mortgage, or even shortening their mortgage.

If you haven’t already, I encourage you to take a few minutes to review your current mortgage. Contact your preferred mortgage partner, or reach out to me and my team for a complimentary review. You’ll either have peace-of-mind that you are in the best position possible already and can ignore all of the refinance solicitations, or you will find an opportunity to improve your financial future!

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Helping Your Child Set Up a Budget

Posted on February 6, 2017 by Trevor Hammond

children-money

Nobody really likes the big “B” word…budget. Budgeting isn’t typically fun, and many adults struggle with budgeting. Unfortunately, our children will learn a lot about money from us, so if we aren’t good at budgeting and handling our personal finances successfully, it will be extremely hard for our children to learn how to do so. By learning how to teach your kids how to budget successfully, you will probably realize some ways to improve your own at the same time!

Previously we discussed why budgets typically fail, why having a budget is so important, and how to begin setting financial goals. Now let’s dive deeper on how to set up a real budget with your child.

Reminder: If you are just getting started on paying your child an allowance and wondering how much to pay, a simple plan to start is making their weekly allowance equal to their age. Thus, a 5-year old has the chance to earn $5 per week, and a 9-year old can earn $9 per week. Click here for some other past FAQ’s we’ve covered.

The Three Parts of a Budget

  1. Savings
  2. Giving
  3. Spending

With your child, take a piece of paper and draw two vertical lines to create three equal columns. At the top of the first column write “SAVINGS”, then write “GIVING” at the top of the middle column, and “SPENDING” at the top of the right-hand column on the paper.

spending-diagramTogether, decide how much money will go into each column from their weekly allowance. If it’s easier to start by explaining how the percentages work, do so. For example, you might help them decide that 20% of their money will go into the SAVINGS bucket, 10% into the GIVING bucket and the remaining 70% will be available for spending.

Then, show them in real dollars how this will work. Let’s assume you have a 9-year old daughter (like me!). (HINT: Be sure to get change next time you’re at the store to make this easier.)

On the piece of paper, calculate out with your child the actual dollar amounts from their allowance that will go into each column. Taking my 9-year old daughter, for example, would mean we would write $1.80 to go into SAVINGS each week. Then, 90 cents would go into GIVING, and the remaining $6.30 would be available for SPENDING.

Then, on your pre-established PAY DAY, help them divvy up the amounts into three separate piggy-banks, or clear plastic baggies, or clear jars. It’s great when they can see their money grow.

Keep in mind that even though they only put 90 cents into GIVING, the ultimate goal is to establish a life-long habit of giving to others and feeling great about being involved in charitable activities.

Don’t get too caught up yet in short-term versus long-term savings, as well as the various types of “spending” money. That will come later once you’ve established this fun and simple way to help them learn how to successfully budget!

 

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Wealth & The House

Posted on January 30, 2017 by Trevor Hammond

“Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth.”  – Theodore Roosevelt

house-of-money1

Real estate appreciation has played the greatest role in shaping most American’s net worth.  The most recent Federal Reserve Data shows roughly $19.0 trillion in house values across the country.  Compare this to the estimated $9.4 trillion of mortgage debt outstanding against those houses.  This means there is approximately $9.6 trillion dollars of home equity, or what we call, House Wealth, in existence.

Your House Wealth

How is wealth determined for an individual house owner?  The wealth in a house is its current value minus any liabilities against the house:

House Value – House Liabilities = House Wealth

For most Americans, your house-related wealth may now be your largest single asset.   But think about this:  do you manage your house wealth as carefully as you manage your other investments?

At its core, a house is meant to meet our physical needs for safety and shelter, as well as our social needs of family and community.  But if it stopped there, most of us would live in a very simple rectangular structure with a roof, or possibly even rent a house without the long-term commitment that comes with owning.

Yet, housing surveys by Fannie Mae and the National Association of Realtors continue to show that American’s number one reason for buying a home is the long-term financial investment.

The House as a Wealth Creation Tool

Increasingly, the house is a key building block for wealth creation.  Many people cite “buying a first house” as the reason they began saving for the first time.  But if owning a house can play such a vital role in a person’s ability to achieve financial freedom, what should a new buyer know?  Or for that matter, how should an existing homeowner learn to better manage the wealth already inside their house?

Critical questions should be asked, and researched, to ensure maximum return-on-investment when it comes to buying and owning real estate.

  • How much of a down payment should I make to optimize my investment?
  • What role does the interest rate really play in obtaining a home loan?
  • Should I pay “points” to get a lower interest rate, or keep my fees lower and choose a slightly higher rate?
  • Should I wait to save up more money to make a larger down payment or buy as soon as I am financially able to?

We will answer these, and many more questions for you.  Do keep in mind that only the top mortgage advisors in the nation are thoroughly trained and prepared with the right planning tools to help you make the right decisions and achieve your goals of building House Wealth.  Choose carefully, since how you borrow and repay the mortgage on your home will have a far-reaching impact on virtually every other aspect of your personal finances.

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How to Set SMART Goals for 2017

Posted on January 23, 2017 by Trevor Hammond

“If you don’t know where you are going, you will probably end up somewhere else.” – Lawrence J. Peter

In the spirit of the New Year, our focus is to help you set goals in a way that gives you the best chance to achieve them.

Often people “wish” for things, or set goals that are too vague. This leads to failure and frustration. Others at least take the all-important step of writing goals down. It is said that the odds of achieving your goals go up dramatically when you write them down and tell others what you plan to achieve!

Following the SMART goal setting system will help you set goals on a whole new level that you and your family can get excited about!

  • S = Specific: Make your goals very specific. The more specific, the better your chances of achieving them. Rather than say, “I want to save more money,” transform this into, “I will save $200 more per month.”
  • M = Measurable: Set goals that provide a way to measure whether you succeed or not. “I want to lose weight this year” is not measurable. Deciding to lose 25 pounds this year is!
  • A = Achievable: There is a definite art to goal setting. Creating goals that are too easily achievable do not energize you enough. Setting your goals too high might cause you to give up before you have even started. Push yourself while making sure your goal can be achieved.
  • R = Realistic: How realistic is your goal? Losing 50 pounds this year may be specific, measurable, and achievable. But do you have the knowledge, discipline, and skills to achieve this goal? If not, revise your goals to be more realistic as you learn the necessary exercise and eating habits.
  • T = Time: Give every goal a deadline! A deadline will provide the pressure you need to actively work towards achieving your goal. Make the timeframe realistic while also pushing you to get it completed sooner than later!

If you are already setting goals, congratulations! There are so many theories and strategies on how best to set and achieve what is most important to you. The key is simply doing it. By following the SMART system, your goals can be refined to ensure the most success.

Action Plan: If you have already set goals for 2017, review them now and refine them to make sure they are SMART! If you have not taken the time to think about what you want to achieve this year, either financially or personally, schedule time now. Choose a day and time that you can have some quiet time to think. Just remember, that setting goals are the fun and easy part…execution is the key!

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First Step – Stop Digging

Posted on January 16, 2017 by Trevor Hammond

digging

Famous investment guru and billionaire Warren Buffett once said that if you find yourself in a hole, the first thing you must do is “stop digging”.

While this sounds basic, people every day are digging themselves deeper and deeper into debt. They are spending more money each month than they bring home from their paychecks.

If you are serious about changing your financial future and getting on the right track to enjoy more freedom with your money, then you must stop negative spending habits! You must commit to ending this bad habit now. Debt and overspending have an incredibly negative impact on your financial future as well as your relationships and marriage.

If you have consumer debt now, what is your PLAN to pay it off? Do you have a PLAN? Do you know WHEN your debt will be completely paid off at your current rate of repayment?

How about your cash flow? Do you know to the dollar how much money you bring home each month? Do you know exactly how much is going out?

Which scenario sounds better?

  1. You and your spouse are always bickering over money and you constantly feel the stress of living paycheck to paycheck.
  2. Or…you live within your means; have money in savings, and you and your spouse’s money arguments have ceased.

Action Plans:

Here are some critical first steps to help you STOP DIGGING and START PLANNING.

  • Set goals. Set aside one evening with your spouse and write down your short, mid-, and long-term goals. These can be directly about money or not…but just about every goal seems to involve money in one way or another.
  • Identify your total take-home pay. You should know this automatically, but if you do not, locate your last couple of pay stubs and see how much comes home each month, after taxes and retirement contributions at work.
  • Identify how much you spend each month. To be as accurate as possible, you should track your expenses every month. Many expenses vary month-to-month.
  • Identify your POSITIVE or NEGATIVE monthly cash flow. Do you spend more than you make? If not, how much is left over?

Commit to yourself, your family, and your future, to follow these steps over the next TWO WEEKS and develop a PLAN to STOP DIGGING!

 

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How to Prioritize Your Cash Flow

Posted on January 9, 2017 by Trevor Hammond

cash-flow-priorityOver the past several weeks, I have been discussing the need to save more and commit to a better financial future for you and your family.  This week I thought I would get a bit more tactical since the last couple of articles on this have been more on the emotional level or perhaps even a “kick in the pants” for some.

Imagine you are fortunate and have $500 left at the end of your month.  Your bills are paid, groceries are purchased, your cars are filled up with gas, and you enjoyed the extra-curricular activities such as dinner out and kid’s activities.  How do you decide what to do with the $500?

First, know that there are three things you can typically do with money:

  1. Spend it (duh!)
  2. Save it
  3. Prepay debt with it

So here is a very simple, but powerful four-step framework I have been empowering homeowners and soon-to-be homeowners with for over a decade.

Step 1:  Establish or fill up your Cash Reserves

  • This is the foundation of financial security and is typically money in your savings accounts at your bank. I don’t care what rate of return it is getting you.  It is for emergencies or the unexpected and is all about being safe and readily available when you need it.  Set a goal that will help you sleep well at night knowing you are safe and put your extra money here first until your goal is reached.

Step 2:  Pay off consumer debt or “bad” debt

  • This means pretty much any debt outside of your mortgages. Put another way, think of any debt that is not leveraging an asset that goes up in value over time, as “bad” debt.  Once your Cash Reserves goal is met, hammer away at those credit cards, auto loans, student loans and any other debt that is taking up your hard-earned paycheck each month.

Step 3:  Build liquidity

  • Now it gets fun, but unfortunately too few American’s are at this stage. With your Cash Reserves in place, and consumer debt paid off, it is time to fill up your nest egg.  I explain this as the money in between your Cash Reserves and your retirement accounts.  A goal I like to set for people that get them excited is one year of their salary.  Imagine having one year of your income saved somewhere, earning you interest.  Imagine the confidence you would have and the opportunities you could take advantage of when they come your way.

Step 4:  Pay off your mortgage(s)

  • Yes, I believe people should pay off their mortgages…someday. The problem is, people make the mistake of attacking their mortgage before the first three steps are in place.  This is typically done out of emotion.  Often it is because homeowners are falsely equating financial safety and security with no mortgage.  This could not be further from the truth.

Yes, I’ve watched people for years pay extra on their mortgage, year after year, only to then decide to sell that house and buy another.  This is done blindly without seeing the bigger impact it plays on their long-term financial plan and goals.  Someday you WILL be in the house you want to retire in and have no mortgage on.  That is the house to pay off the mortgage and enjoy the freedom that comes along with it.  But until then, build liquidity and safety and keep your money somewhere you can control, with YOUR financial advisor, rather than giving extra money to the bank each month that is servicing your loan.  They don’t need it, and they definitely won’t give it back to you when you most need it.

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How to Start Off 2017 Financially Clear and Confident

Posted on January 3, 2017 by Trevor Hammond

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Welcome to 2017! If you are like many, you have come up with some New Year’s Resolutions, or goals, for the New Year. For most, money is at the heart of these annual goals, since they involve either spending money, saving money, or paying down debt. So where should you start?

Here is a step-by-step money planning process that will give you clarity, confidence, and direction in the New Year.

1. First, grab a blank piece of paper and write at the top, “Imagine it is December 2017…” Project yourself mentally into the future and imagine looking back over 2017. As you reflect back over the previous 11 months, describe what HAS to have happened for you to be happy with your progress – personally, professionally, and financially. Just write, in free form, anything that comes to mind. This written document becomes your VISION for a successful 2017!

2. Next, come back to present time and make a list of 7-10 goals you wrote down that involve money or finances. These might include, “Increase Savings”, “Pay Down Debt” or “Purchase a New Car”. They don’t have to be completely specific yet, just get them all written down, big and small.

3. Armed with your list, now decide what your #1 is.  This can be difficult since all probably seem important. What this means is, out of all of your money goals, there should be one that stands out. That one that trumps all others, and if accomplished, would make all the others easier or no longer necessary. For example, “Increase Savings” would allow you to “Purchase a New Car” faster and easier, or start a child’s college savings account, or save up for a vacation you want to take.

4. With your #1 goal now identified, choose two numbers you will measure your success or failure by.  If your goals aren’t specific and measurable, you will most likely fail. That’s just how goal setting and achievement works. For example, if your #1 money goal is paying off debt, your first number to measure your success by might be: “Zero balance on the Alaska Visa”. There’s no longer any ambiguity to your goal. When 12/31/2017 arrives, you either have a zero balance or you don’t, right? Your second number, or metric used, might be: “Only $5,000 left on auto loan”. Having at least two ways to measure your progress around your top goal is key to your ability to achieve it.

5. Finally, write down two key activities or habits that you will implement to achieve the above results.  This is where the rubber meets the road. New habits might be, “Pay $500 extra on the Alaska Visa each month,” or “Limiting weekly grocery budget to $200.” Both of these are action items you can control, and push you towards your goal.

We love hearing your goals and successes! Please share any goals, your progress, and any questions that come along the way as you work toward a bigger, better, safer financial future.

 

 

 

 

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What Do You Have to Show For It?

Posted on December 19, 2016 by Trevor Hammond

savings-goals1Last week I shared a recent article that shed a light on just how little most American’s have saved for their future.

I also shared an exercise I had attendees of a financial independence class I used to teach in which they would discover their lifetime earnings via the social security website. If you have not done this, I truly urge you to. It takes about five minutes to set up your secure account and see your lifetime earnings.

Next, I had everyone complete a Net Worth worksheet to really identify what they had to show for all the money they’d earned throughout their working life.

Once the initial shock wore off at the disparity between what they’ve earned and what they now have to show for it in the form of their net worth, it was time to get to work on creating better money habits and building a more secure financial future.

This week, I want you to calculate your Net Worth. Open up an Excel spreadsheet, or a Word document, or heck, just grab a piece of paper.

On one side, list all of your assets. These include the value of your home(s), your cars, money invested and in the bank, your retirement accounts, and so on.

On the other side, list all of your debts. These typically include your mortgage(s), student loans, credit cards, home equity lines of credit, auto loans, etc.

Once everything is listed, subtract your total debts from your total liabilities, and you have your Net Worth.

Is it a positive number? Is it a number you are proud of, or discouraged by? Is it better or worse than you thought it would be?

Regardless, this is just a starting point. Now it is time to let go of the past. No shame, no blame. Pretend that everything leading up to today was practice, and the real money game starts TODAY!

  • Where will you commit to spending a little less?
  • How much will you commit to saving EVERY single month, whether it’s $10 or $1,000 BEFORE you spend anything or pay your bills?
  • What are your savings goals? Get emotionally committed to making a change.

It is simple, but not easy. As I said in last week’s article, the first step is committing to a bigger, better financial future. The second step is having the courage to make necessary changes.

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