Real Estate Investing

So arson is not really your thing and you don’t feel like reading over hundreds of essay entries. How else are you going to unload that house? One option is joining the thousands of people looking into house swaps. We’ve discussed temporary house swaps for vacation purposes, but a growing number of people are choosing to make those swaps permanent.

The Wall Street Journal recently published an article outlining just how popular this has become. We’re talking 16,000 listings as a combined total between house swap sites like GoSwap.org, OnlineHouseTrading.com, DaytonaHomeTrader.com and DomuSwap.com. Popular free online classified ads site Craigslist saw a 56-percent increase in “home swap” ads during 2007 with 7,392 such ads listed, according to WSJ.

These house swaps are working over short or long distances, usually with realtors or some type of transaction manager involved. It is recommended that a clause be included in the terms and agreements of each contract that final sale is pending on the same-day closing of both houses. This prevents either homeowner from getting snowed and coming up short-handed.

GoSwap.org has a fairly comprehensive Frequently Asked Questions section that briefly outlines some of the tax implications of swapping houses. If ineligible for a tax-deferred 1031 exchange, the homeowners may want to reasonably adjust the home’s asking price - say, by relying on the lowest of several home appraisers’ reports - and thus reducing their capital gains tax obligation. Obviously, the “asking price” of the home can be tweaked (within reason) because it is of little consequence in a housing swap.

The benefits of swapping houses are many. In addition to tax benefits, it can allow homeowners to skirt around broker’s fees - typically 4% to 7%. Still, roughly 13% of the listings on DomuSwap.com were listed and handled by brokers. Housing swaps also make it more possible for people to move up to bigger living quarters, provided they can find someone with a bigger house who is wanting to downsize. Under current market conditions, it may not be terribly difficult to find someone who meets that criteria but has been unable to find a buyer. House swapping is an innovative new trend that seems to provide a win-win scenario for all involved.

There seems to be a common social stigma attached to renters, one of financial instability and ignorance. This may be true for some, but certainly not all renters. The simple fact remains that some people are simply not at the right point in their lives to buy a house. The right time differs for everyone, as it can certainly be affected by personal matters. However, there are some key signs to watch for that signal it might be the right time to make the leap into homeownership.

Your mortgage payment would be close to your current monthly rent. If you are managing to get by with a fairly hefty rent payment, you could have a comparable home for the same amount or even less per month. This is especially true when it’s a buyer’s market or that house you’ve had your eye on is still available after several months. Seller desperation works to your advantage.

Your debt is getting smaller. When you are paying off debt, your credit is improving. This helps you secure a loan with a better interest rate. Plus, the last thing anyone wants is to be knee-deep in debt when trying to meet all the unexpected financial obligations of moving and settling into a new home.

Your income is going up. Pay increases, promotions, or more sales accounts and bonuses are always a good sign that a major life change like buying a house is within reach. However, ensure that you are putting the sudden increase in “disposable income” to good use, which leads us to our next point.

Your spending habits are coming under control. Financial discipline is a sure sign of maturity and readiness to take on the responsibility of homeownership. Far too many people buy a house before they’re ready. They lack financial discipline to manage the balancing act of home, living and other expenses. They may begin using their home mortgage as an ATM machine, taking out home equity loans. Or else they may consolidate all their revolving credit loans, like credit cards, into the home loan. None of this addresses the behavior of undisciplined spending. Financial discipline is a must - that means the resolve to make a plan for your money and the determination to see that plan to completion.

You have saved, saved and saved some more. This is another area where far too many people buy before they’re ready. Their home’s maintenance needs fall by the wayside as the money must go to other areas. Eventually, their home may be in such disrepair that their home equity is nil. You must save enough money to handle the necessary upkeep. Then there are closing costs, and a significant downpayment of 20 percent or more will help you pay off your house faster, increase your home equity, and help you escape private mortgage insurance.

Buying a house is a huge commitment. Before proceeding, consider CNN Money’s “Four Questions Homebuyers Should Ask” and MSN’s “Three Worst Reasons to Buy a Home.” Run the numbers honestly and even with an exaggerated financial cushion that will provide for unexpected “uh-ohs”. Follow your gut instinct and decide whether this is the right step for you before you begin touring homes, lest your opinion be swayed by emotion.

CNN had a great story recently about saving money when buying a house. Guess what the number one tip was! Go Prefab! Seriously, there are some impressive offerings in the prefab housing market nowadays. It is worth getting excited about. Even as these homes move discretely from the rural landscape into metropolitan areas, and out of impoverished areas into trendy, upscale areas of town, there are still many stubbornly held misconceptions about their appearance.

Take, for instance, a recent conversation I witnessed.

Person A: Strong winds would just sweep those houses away.

Person B: Well actually, they’re built with 30 percent more materials on average to be able to withstand the stress of transport and crane lifting. They’re actually a lot more durable.

Person A: Well do they all have siding or can they do brick?

Person B: They do brick! They do fireplaces! They look just like traditional houses!

Person A: Two stories?

Person B: YES!!

Pre-fab can be built for at least $20 less per square foot than a traditional stick-built home, especially if you do most of the extra work yourself. You might also have friends who can do that work for you at a discount rate. The workload for prefab home buyers includes things like grading, excavation and overall site prep, as well as plumbing and electrical. However, CNN points out that financing prefab homes might be difficult. True, they are the talk of the housing industry lately, but lenders are still leery.

“Keep in mind that it can be difficult to convince bankers to issue mortgages for prefab homes. Look for advice from the companies designing and building these homes, many of whom have developed special arrangements with lenders.”

CNN also recommended buying a fixer-upper, and recommends Fannie Mae’s Homestyle loan program as a means of funding the home purchase and the improvements. This is a good idea as long as the house has “good bones,” meaning it is structurally sound with reliable HVAC, electrical and plumbing. Other things like kitchen, bath, and even roof or siding, can be fixed up. As About.com points out, the location and layout of the home are also very important in boosting appeal upon resale time.

Money 101 blog also offers some great information on places to watch to know when it is a buyer’s market and the time is right. Of course, this depends on the individual’s situation as well. Just because interest rates are down and you’ve found a great deal on a house and the stars seem to be aligned in your favor, it doesn’t necessarily mean you should move forward.

Try to eliminate as much debt as possible first and save up a sizeable down payment. Double and triple check your monthly payments, including homeowner’s insurance, property taxes and private mortgage insurance, if applicable. Can you really afford this property? Your mortgage payment should ideally be about 1/4 of your monthly take-home pay, and even that is too much for some homebuyers. Bottom line: Be wise, be savvy, be open-minded and be patient. Chances are good you’ll wind up being happy.