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These days, Americans are living longer than ever.

While this is generally a good thing, it’s real problem for retirement planning.

You’ll need to stretch your savings over a longer period of time which can be very hard to budget.

To make matters worse, very few workers have access to pensions or other plans that offer guaranteed payments for life. To make sure they don’t run out of money, many Americans are turning to longevity insurance.

What is Longevity Insurance?

Longevity insurance makes sure you always have some income during retirement. It’s insurance that protects you against you living too long and running out of money.

To buy this type of insurance, you need to deposit one lump sum payment with an insurance company. Then, once you reach a certain age, you will start receiving monthly payments from your insurance for the rest of your life.

It doesn’t matter how long you live; you’ll keep receiving your monthly payments.

If you die before reaching your payout age though, you won’t receive any money (unless you add a life insurance rider, which we’ll cover in a minute.)

One of the important features of longevity insurance is that it delays your payments until the future.

Before this product was launched, insurance companies only sold plans that started payments right away. By delaying payouts, you give more time for your money to grow so you’ll receive more later on.

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How does Longevity Insurance Compare to Life Insurance?

While longevity insurance is sold by life insurance companies, it is actually quite a different plan.

In fact, it has pretty well the opposite structure. With life insurance, you make a small payment to the insurance company each month. When you die, your heirs get the payout from the plan. With longevity insurance, you give the insurance company a large, one-time payment.

In exchange, you’ll receive many small payments sometime in the future. This is because longevity insurance isn’t life insurance; it’s a type of annuity, which is a long-term investment contract.

How Do I Set Up a Plan?

To set up longevity insurance, you need to transfer over a lump sum of money. Typically, investors transfer over money from a retirement plan like a 401(k) or IRA. You need to decide how much you want to put away for this long-term investment. To help you decide, the insurance company can give you an estimate of how much you’d receive per month in the future in exchange for your lump sum payment.

When you set up your plan, you’ll also have to decide on when you want to start receiving payments. When these plans first came out, you used to only be allowed to pick age 85 or later. Now, you can pick whatever age you want for payments. However, the earlier you start taking money, the less you’ll receive each month. Once again, your insurance agent will show you the difference.

Other Features

You can also customize your longevity insurance with a few other features. One decision is whether you want inflation protection or not. As time goes value, the purchasing power of the dollar goes down; $100 was worth a lot more 30 years ago than today. Inflation will also eat into your monthly income from these policies. If you add inflation protection to your insurance, your payments will get bigger over time to match inflation. The tradeoff is that you’ll receive less per month at the beginning.

If you are worried about dying early and wasting your contribution, you can also add a life insurance rider to your policy. If you died before receiving payments, your heirs would receive a lump sum of money. In exchange, your future income payments will be lower.

What are the Advantages of Longevity Insurance?

The big advantage of longevity insurance is that it guarantees your income for life.

Very few investments do this. If you kept all your money in stocks or in the bank, you could try budgeting but ultimately there’s a chance you would run out of money. With longevity insurance, this wouldn’t happen.

In addition, you don’t have to worry about investing with these products. The insurance company is completely responsible for your rate of return. If the market does badly, the insurance company still needs to come up with your payments. If you’re looking for a hands-off way to invest some money, this is an excellent way to do it. All you have to do is purchase the insurance plan, and that’s it.

In addition, you don’t have to worry about investing with these products. The insurance company is completely responsible for your rate of return. If the market does badly, the insurance company still needs to come up with your payments.

Longevity insurance also is good for taxes on your investment earnings. As long as your money is in the contract, you don’t pay taxes on your growth. You only need to pay income tax on your gains once you start taking out money.

What are the Disadvantages of Longevity Insurance?

Longevity insurance does have some problems. On average, these investments grow your savings by less per year than stocks or bonds. This is because insurance companies only will invest your money in very safe, guaranteed assets. You’ll potentially receive less money than if you invested yourself. Interest rates are also very low today so by buying into a contract, you’re locking in a low rate.

Longevity Insurance is a perfect example of the old adage, “No risk, no reward.” These investments have almost zero risk, but as an investment, there are plenty of other options that will net you more cash. You should not rely on a longevity insurance investment account to give you the money that you need, but it can be a nice additional source of income.

Another problem with longevity insurance is that you may not get any money. If you don’t live until your payment date, you won’t receive any income. Of course, you could add life insurance to your policy, but then you’d receive less income per month.

Suitability

Adding some longevity insurance to your retirement plan definitely makes sense, especially if you don’t have a pension. This way you know you’ll always have some money coming in no matter how long you live. It’s a good idea to put somewhere around 5 to 15 percent of your savings in one of these plans for long-term savings. Then, you can feel more comfortable investing the rest of your money because you know you’ll always have some guaranteed income in the future.

Longevity insurance is just one way that you can give you and your family the financial security that they need. We know that managing your finances can be a difficult task, and one important part of that is your life insurance.


Source: goodfinancialcents.com

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If your parents are retired or nearing retirement and concerned about their finances, they might float the idea of getting a reverse mortgage past you.

After all, in that commercial, that nice man from Law & Order says that it’s a great way to get supplemental income in retirement.

Unfortunately, there is a great deal that the commercial leaves out.

And these issues are something that the reverse mortgage holder’s family—that is, you—will likely have to deal with.

After all, your parents aren’t getting any younger.

Here is the breakdown of what those in the Sandwich Generation need to know about reverse mortgage disadvantages—before Mom and Dad sign on the dotted line:

How Reverse Mortgages Work

At its core, a reverse mortgage is a way to convert the equity in a home into cash. In order to qualify for a reverse mortgage, the homeowner must be at least 62 years old, must own and live in the home, and must have substantial equity in the home. While lenders do not require that the home be completely paid off, the homeowner must be close to the end of their mortgage term in order for the lender to agree to a reverse mortgage.

With this loan, the lender will pay off whatever remains on the mortgage (if anything), and give the homeowner a payout in one of five ways: Tenure payments are monthly payments that will last for as long as at least one borrower still lives in the home. Term payments are monthly payments for a fixed period. A line of credit will allow the borrower to draw unscheduled payments for any amount whenever needed until the credit limit is maxed out. Finally, modified tenure and modified term payments combine the monthly payment option with the line of credit option.

Unlike a traditional loan, the borrower does not need to make regular payments in installments. Instead, the entire loan plus interest will come due when the borrower passes away, sells the house, or can no longer consider the home a primary residence.

For instance, if an elderly homeowner finds himself needing regular care, permanently moving to a nursing home will mean he has to pay back his reverse mortgage. However, the borrower has 12 months of living elsewhere before the home is no longer considered his primary residence. So a short time in a hospital or nursing home will not mean that the reverse mortgage is due.

One of the big benefits to a reverse mortgage is that the payments you receive from them are not considered taxable income. In addition, the payments will also generally not affect your Social Security or Medicare benefits. On those grounds, a reverse mortgage can seem like a good way for retirees to supplement their retirement income with their home equity without having to downsize or move.

The Fine Print

So far, so good. However, there are several aspects to reverse mortgages that can make them seem like less of a good deal.

First and foremost is the fact that you owe more money through a reverse mortgage as times goes on.

At the end of the loan term, either the borrower or his heirs will have to pay back the amount of the loan—which grows with each payment made to the borrower—plus interest.

As for that interest, while there are some fixed-rate reverse mortgages, the majority of these loans use variable rates. (It is important to note that the usual way of paying off the loan is by selling the house, meaning reverse mortgage holders and their heirs do not actually have to cough up the amount of the loan when it is due, unless they want to keep the house.)

In addition, the entire point of the reverse mortgage is to cash out the equity. That means that the old homestead will have no equity (or very little) left at the end of the loan term. So sale of the house will leave no cash for the heirs.

If the borrower’s heirs are interested in keeping the home, they will have to pay off the loan in order to do so. Most reverse mortgages offer something called a non-recourse clause, which means the borrower cannot owe the lender more than the value of the home when the loan is due and the home is sold. Basically, whatever the home sells for will satisfy the loan. However, heirs who want to keep the home will still have to pay back the loan in full, even if the amount owed is more than the home is worth.

It’s important to remember that reverse mortgages are not free. Just like any mortgage, there are closing costs, including loan origination fees and mortgage insurance premiums. Some lenders also charge servicing fees during the life of the reverse mortgage.

Also, the amount that can be borrowed is dependent on several factors, including the youngest borrower’s age, the interest rate, and the appraised value of the house. So even homes that are worth quite a lot may not provide the kind of reverse mortgage amounts that borrowers are counting on.

Finally—and this can be a real kicker for the adult children of reverse mortgage holders—the homeowner still maintains the title for the house, which means he is still on the hook for maintenance, property taxes, and homeowner’s insurance. In fact, failing to maintain the condition of the house or pay taxes or insurance on it can mean that the loan becomes due. If your parents are having trouble keeping up with their household chores—including home maintenance and bill paying—these sorts of jobs will fall on you.

What Are Reverse Mortgage Disadvantages?

The answer to that depends upon several factors. First of all, your family needs to decide how important it is to keep the house in the family. If your parents are talking about taking a reverse mortgage on the house where you and your siblings were born and where you’ve dreamed of seeing your own grandchildren play in the future, then a reverse mortgage might not be a great idea. Unless you know you will be able to pay back the loan, you should plan on having to sell the house once your parents have entered into a reverse mortgage.

If the home is meaningful to your family, an alternative to a reverse mortgage is for someone in the family to buy the home from your parents and allow them to continue living in it. This will provide them with the equity in their home in a lump sum, and if that equity is $500,000 or less, they can exclude the money from their taxable income. In many ways, this is a win-win, although it does depend on someone in the family having the ability to purchase the house.

Even if you have no particular attachment to your parents’ home, you may want to think carefully about whether or not to pursue a reverse mortgage. Depending on their ability to live independently and keep up with the important tasks of homeownership, a reverse mortgage may or may not be a good idea.

If you have reason to believe that Mom and Dad only have a few years before they will need some serious help, it might make more sense to access the equity in the home by selling it and getting them moved to retirement home or assisted living facility where they will be more comfortable.

If, on the other hand, you know your Dad still fixes the roof, strings the Christmas lights, and mows the lawn, while your Mom still cleans the house from top to bottom and weeds the flowerbed every day and nothing is going to stop them, thank you very much, then a reverse mortgage might work for them. They will get to stay in their home while still enjoying the equity they worked to build up.

Are Reverse Mortgages a Good Idea?

The real issue with reverse mortgages is why your folks might need one. If they did not save adequately for retirement because they were irresponsible with their money, or if they have trouble living on a budget or a fixed income, the problem may be one that a reverse mortgage cannot solve.

If your parents keep you in the loop on their financial issues, take the time to sit down with them and their financial advisor to determine the best course of action to keep them happily puttering and wondering why you never call through many years of retirement. A hard look at numbers will help you all determine if a reverse mortgage disadvantages outweigh the potential benefits.



Source: goodfinancialcents.com

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By Peter Anderson 15 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited August 28, 2017.

One thing my wife and I have been doing lately is to try spending less on entertainment and “fun money” than we have in the past.  We know if we want to get ahead we need to cut down on those miscellaneous entertainment dollars.

Cutting down on those dollars doesn’t mean we can’t have any fun, however. Here’s a few ways that we’re having fun, on a budget.

Game Night

We’ve started having game nights, both with each other, and with our friends. It makes for a fun night, and once you purchase some games, doesn’t cost anything additional! Here are a few of our favorite games that we’ve been playing lately. Most of these games can be bought for between $20-30 on Amazon, or slightly cheaper used on ebay or craigslist.

Settlers of Catan: Settlers of Catan was one of those games I wasn’t sure that I was going to enjoy. It seemed a little strange, something that only people who enjoy role playing games would enjoy. Boy was I wrong! This game is so much fun that I bought an arcade version for our Xbox as well! Plus, there are a ton of expansion packs that can keep this game fresh for years to come. From Amazon: The Settlers of Catan from Mayfair Games is an award-winning strategy game where players collect resources and use them to build roads, settlements and cities on their way to victory. The board itself is variable, making each game a little different from the next. Each round of The Settlers of Catan is intended to keep three or four players ages 10 and above engaged for up to 90 minutes.


Carcassonne: Carcassonne is another European style board game that has refreshingly different and never dull game play. From Amazon: The Carcassonne is a clever tile-laying game. The southern French city of Carcassonne is famous for its unique roman and medieval fortifications. The players develop the area around Carcassonne and deploy their followers on the roads, in the cities, in the cloisters, and in the fields. The skill of the players to develop the area will determine who is victorious. The game is for ages 8 and up and 2 to 5 players.

Blokus: We just bought Blokus over Christmas using gift cards we had received.  You can think of the game as a sort of the board game equivalent of Tetris.  You have 4 teams all trying to fit their differently shaped blocks into the board.  Whoever fits the most of their pieces into the board wins!  There’s a lot of strategy involved, and its surprisingly fun to play!  From Amazon: Fun for both kids and adults, Blokus is a strategy board game that challenges spatial thinking. Bright colors and simple rules make it ideal for ages five and up, but adults will certainly be engrossed by this unique and challenging game.

Ticket To Ride: Ticket to ride is another board game that really is quite a bit different from a lot of the board games we have become used to here in the U.S.  I’ve played this on the Xbox 360 as well, and it’s a lot of fun! From Amazon: Ticket to Ride is a cross-country train adventure where players collect cards of various types of train cars that enable them to claim railway routes connecting cities throughout North America.

Farkle: Farkel is a fun game for parties where you pass around a cup of dice, trying to score on different combinations of dice. It’s a fun, and sometimes frustrating game! From Amazon: Farkel is a fun, fast-paced, high-score game that takes just two minutes to learn. You roll six dice, remove only the dice you want to use for points, then re-roll the remaining dice. Some scoring dice must be removed after every roll. If you can eventually make all six dice count for score, pick them all up and keep going. If none of the dice you roll count for score, you lose your turn and any points you made during that turn. The first player to score more than 10,000 points, wins.

The Great Dalmuti: The Great Dalmuti is a fun fast paced card game where the whole goal is to become a part of the Dalmuti ruling class.  The game is easy to learn, and can quickly turn into an all night game.  From Amazon: The deck is dealt out to all players and the object is to get rid of your cards as fast as possible.  The person who first got rid of all his cards becomes The Great Dalmuti. Seat positions change and the cards are re-dealt. Quite a unique game in which no score is kept.

Movie Night

Have a movie night at home, instead of going out and spending $20+ on a first run movie!  Here are a few ways to make it cheap.

Rent a Redbox Movie: Head to your local McDonald’s, grocery store or gas station and rent a new release movie for $1! If you want to make it even cheaper, check out my article on getting free redbox rentals.

Netflix DVDs and Streaming: If you’ve got a Netflix.com account, plan ahead, and pick one of their movies to  be sent for movie night.  You’re paying for the account, you may as well use it, right?

Even better, if you have a Netflix account and an Xbox 360 you can now stream selected movies to your console, some even in high definition!  No waiting! The selection isn’t the greatest yet, but it is expanding every day.  Sign up for a free 2 week trial at Netflix here!

“Rent” a Movie from the Library:  Want to make it especially cheap tonight?  Stop by the library on the way home and get one of their movies for free!  You can usually keep it longer than a regular rental, and the price can’t be beat! Selection may vary depending upon your location.

What Are Your Cheap Entertainment Ideas?

So there are a couple of ideas for ways to have some fun, on a budget.  We’ve been doing it quite a bit lately, and we’re saving a lot of money!

What are some ideas that you’ve come up with for your family to have fun without spending a lot of dough?  Leave a comment and share your idea here!

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Source: biblemoneymatters.com

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Last Updated on March 29, 2023 by Mark Ferguson

I strongly believe that real estate is one of the best ways to achieve wealth. Rental properties, in particular, are an awesome way to build net worth and create passive income.

I own a real estate brokerage, have been an agent for 17 years, and flip houses as well. My strategy is to make as much money as I can by selling houses as an agent or flipping houses and investing that money into rentals. Real estate has made me quite a bit more than a millionaire and anyone with a work ethic can do it. If you become a millionaire, it may not mean what it once did thanks to inflation and the cost of living. However, being a millionaire is still a big deal, and only 5 percent of American households have a net worth of one million dollars or more.

Why is real estate a great way to become a millionaire?

Real estate is one of the best ways to build wealth with or without a lot of money. I am not saying you don’t need any money or that it is easy, but it is possible. One of the main reasons real estate is a great vehicle for wealth is the ability to use leverage. Leverage is basically using loans or other people’s money. You can get loans relatively easy on real estate because it is a hard asset. The more money you have the easier it is to make money in real estate. While it is possible to get started with nothing or next to nothing, it is much easier if you have money to invest.

While you can borrow money to invest in other businesses, it is usually not as easy as it is to borrow against real estate. Banks love to lend on houses and commercial properties because they have an asset backing the loan. If banks lend on stocks or businesses and they go under the bank has nothing. If they loan against a house and the borrower can’t make payments the bank can take the house.

Because banks like to lend on real estate you can get some of the best loan terms available. Real estate also has amazing tax advantages that are not available with other investments. You can buy and sell a primary house, make $200,000 and pay zero taxes on that profit in certain scenarios. Not tax-deferred, no tax at all, ever. You can also force appreciation with real estate; you do not have wait for it to go up in value. I flipped 26 houses last year and all of them I bought for much less than they were actually worth. You can also make improvements to a property to increase the value. All of this can occur while you are making money on it every month after paying expenses including the mortgage.

It is also possible to take money out of your real estate investments by refinancing properties. You can use that money to buy more and more properties. This is what I have done in my career and one of my only regrets is that I did not start sooner!

Is a primary house an investment?

I want to start with the question of whether a primary residence is an investment. Many people talk about how it is dumb to buy a house and smart investors rent. I disagree. I think a primary residence can build a lot of wealth. I have increased my net worth buying and selling houses that I lived in over and over.

I bought my first house when I was 22 years old. I paid $190,000 for the house, which was full retail value for it. I lived there for 7 years and spent at least $10,000 on materials to remodel the home. That money does not count the time I personally spent updating bathrooms, painting, installing fixtures and fixing many other small things. I sold the house for $180,000 after doing all that work! It did not help that the market dropped, but I could have done much better if I would have been patient and waited for an awesome deal. Not every personal house is a great investment but I also did not have to pay rent, I was not forced to move when the landlord decided he wanted to sell, I could have pets, and I could change the houses however I saw fit. I did much better financially with my second house.

I bought my second house from the foreclosure sale for $215,000 in 2009, put less money into it for repairs, and sold it for $343,000 three years later. I bought the house with money I borrowed from my sister and father in law because I had to pay cash at the foreclosure sale. I was able to refinance all of that money out with a conventional bank a couple of months later. The awesome part about making so much money on that house was that it was tax-free. When you live in a house for 2 out of the last 5 years the money you make is usually tax-free! I sold the house to my friend so I had no real estate commissions to pay. We spent less than $10,000 on the house while we owned it and we did not even have to change the carpet.

I took the money I made from that house and used it for a down payment on a house I purchased for $560,000 in 2013. I have owned that house since and it is worth more than $850,000 now. I was lucky that our market has taken off, but I also focus on getting great deals on all the houses I buy. My loan on my personal house is less than $400,000, which means I have created $450,000 in net worth through my personal residences. that money is tax-free if I ever decide to sell the house I am in now. They limit your tax-free gain to $250,000 for an individual or $500,000 for a couple. I can also get a line of credit or refinance the house to pull money out tax-free and use it to invest.

I have not become a millionaire through these houses, but they have definitely helped to grow my net worth. When you buy a house as an owner occupant you can put very little money down. Because you are putting little money into the deal, the returns can huge if you got a great deal or values increase. If you do not have a lot of money to invest in rental properties, buying a personal residence is a great way to start. When you gain equity in the house or buy below market value, you can get a line of credit, pull any money you invested out plus some and use that money to invest. I bought my first rental property by refinancing the second primary house I had.

Why are rentals a great source of wealth?

The biggest increase to my net worth came from rental properties. I always buy properties below market value, which creates instant equity. When I buy a rental property for $120,000, it may be worth $160,000 or more after spending $15,000 to fix it up. When I buy that property and fix it up, I add $25,000 to my net worth. I have 20 rental properties now and all of them have added money to my net worth in multiple ways:

Buy below market value

You can buy below market value in many different ways. You do not have to be a professional investor to do it. There are deals on the MLS, on auctions, and even on Facebook! Buying below market value allows investors to use the BRRRR strategy which in turn can get you into rentals with very little money. Every house I buy adds $20,000 to $50,000 to my net worth because of the great deals I get.

Appreciation

I never count on appreciation but it is a nice bonus. I buy rentals that will make money today without prices increasing. However, my rentals have seen huge increases in prices. I started buying rentals in 2010 and spent about $1.3 million on 13 residential properties ( I also have commercial). Those rentals are worth over $3 million dollars today. Part of that is appreciation and part of it buying below market. The cool part is I spent very little money buying them after refinancing a few.

Cash flow

My rentals make me about $12,000 a month in passive income every month. I have property management who takes care of them for me and it takes very little work once I buy and renovate the property if needed. That money will keep coming in as long as I own the properties and will increase over time as rents go up with inflation. I love rentals because of the steady money they bring in.

Equity pay down

I have mortgages on all of my properties and my tenants are slowly paying them off for me. Every month my net worth increases because the mortgage balances on my properties decrease. This is on top of the cash flow I make every month.

All of these factors have increased my net worth directly or given me more cash, which allowed me to invest in more properties and add to my net worth. Rentals did not make me a millionaire overnight, but they have been an awesome investment and made me a millionaire a few years after I started buying them. Making a lot of income is great, but people can make hundreds of thousands of dollars a year with nothing to show for it if they spend it all.

How can you make money flipping houses?

One way I make a high income is by flipping houses. I flipped 93 houses in the last five years but started doing one or two a year with my father many years ago. Flipping houses is not as glamorous as they make it out to be on TV, but it can be a lot of fun as well as lucrative. I typically buy a house for $150,000 to $250,000, spend $20,000 to $50,000 fixing it up, spend another $20,000 to $30,000 on other costs, and sell for $250,000 to $350,000. We try to make $30,000 on each flip we do. Sometimes we do and sometimes we don’t.

I have used the money I make from flipping to buy more rentals and buy more and more flips every year. I would love to have more rentals but it is actually harder to find good rentals than good flips!

Below is a video of one of my flips.

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How much money can you make being a real estate agent?

I have also made very good money being a real estate agent. I use to be an REO and HUD broker which meant I sold foreclosures for banks. I had multiple years that I made well over $100,000 a year after expenses from being an agent. I now own my own real estate brokerage but focus on the flips more than selling houses.

Not only is being an agent a great way to earn income that you can invest, but it is a game changer for my flipping and rental property businesses. I am able to find more deals and pay less in commissions because I am an agent.

How long did it take me to accumulate one million dollars in net worth?

I bought my first rental property at the end of 2010 when I figure my net worth was about $180,000. I had been a real estate agent for 8 years, and flipping houses with my father for many years, but had not accumulated a huge amount of money. I invested money in the stock market, but most of my net worth was in my personal house.

I hit one million dollars in net worth in 2013. At the time I had seven rental properties, which had contributed greatly to my net worth. Not only did buying below market value, and appreciation increase my net worth, but I was saving as much money as I could to buy rentals. I put 20 or 25 percent down on each property and made repairs to most of them. Here is what a typical rental looked like:

  • Buy for $100,000
  • Put down $20,000
  • Spend $15,000 on repairs
  • When I was done the house was worth $150,000 to $160,000

After buying and fixing up the rental I had a house that was worth $160,000 with a loan that was $80,000. After a couple of years that house increased to $180,000 in value and my loan balance decreased to about $77,000. For each of my rentals, I gained $100,000 or more of net worth after a few years of ownership. On some of my houses, I built much more net worth because I got really great deals on the property. That does not count the cash flow I earned each month, which was about $500 per month, per property.

Some of my net worth was from my personal residence and other investments, but most of it was from rentals. It took me about four years to accumulate a net worth of one million dollars from just rentals. While it took cash to buy those properties, it forced me to save money as well. I know I would not have saved as much had I not been buying rentals.

What if you don’t make a lot of money?

My story may not be relative to many people. I have a successful real estate sales team, a successful fix and flipping business, and a blog that makes money as well. I have had extra money to invest in rentals to increase my net worth. Even if you don’t have a lot of cash to invest, you can buy real estate. You can buy houses with little money down as an owner occupant, and with many other strategies. You could turn owner-occupied houses into rentals or sell them, collect tax-free profits, and re-invest it into more properties.

You may not be able to buy as many rentals as I did as fast, but you can definitely start building wealth. How fast it takes you to reach one million dollars in net worth depends on many factors like:

  • How much cash you have to invest
  • How good of a deal you get
  • How many houses you buy
  • How fast your market appreciates or possibly depreciates
  • What strategies you use you to accelerate growth like refinancing, house hacking, or the BRRRR method.

Conclusion

It is possible to build a net worth of one million dollars in a couple of years with real estate. It also may take five years, ten years, or even fifteen years. Only five percent of households are millionaires so even if it takes a while you will be ahead of the pack. It may be tough to get your first property, but the more you buy the easier it gets and the more money you will make.

Build a Rental Property Empire

Categories Real Estate

Source: investfourmore.com

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Last Updated on March 29, 2023 by Mark Ferguson

I have been involved in many multiple offer situations as a buyer, seller and listing agent. I just made an offer on a short sale late last week where they received multiple offers and they have asked for highest and best. There are many different strategies you can use when trying to win a highest and best situation. It is tough to decide how to revise your offer and how much to raise your offer in a highest and best situation. The biggest problem in any multiple offer situation is you don’t know what other buyers will offer. All you can do is analyze the situation as best you can, and make the best offer you can based on your own numbers and needs.

What does highest and best mean?

Highest and best has become more popular in the last few years due to decreasing inventory and increased buyer demand. I am a HUD and REO listing broker as well as a real estate investor, and I am in highest and best situations all the time on my listings and as a buyer. Highest and best is when a seller receives more than one offer on a property, and they decide to give everyone a chance to submit there best offer. In the seller’s formal request, the seller gives each buyer a chance to raise their offer and a date and time all offers must be received by the seller. The seller will review all offers at the same time and pick the offer they like best.

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I used to list a lot of bank foreclosures, and banks use highest and best in almost every situation when they receive multiple offers. Banks can take a long time to respond to offers, and some banks have policies that they will not review offers until a home has been on the market for a certain amount of time. Because of these policies, banks end up with multiple offers on many of their properties. The banks started asking for highest and best to give every buyer a fair chance to revise their offers. In a highest and best situation, the bank notifies every buyer they have multiple offers, and to submit their highest and best by a certain date and time.

Many traditional sellers (not banks) using highest and best as well. In the past, most traditional sellers may let all buyers know they received other offers, but not officially ask for highest and best. Even if a seller does not formally ask for highest and best, I would treat any situation where a seller gets multiple offers as highest and best.

Do not be scared off by multiple offers

Many buyers do not like it when a seller asks for highest and best. I hear buyers say; “I don’t want to get in a bidding war” and they withdraw their offer. If you want to get the best deals you have to take part in highest and best bidding wars. The worst thing that can happen is you get beat out, so why not try? Why not leave your offer the same as your original offer and if you get it great, if not move on. For more detailed tips on getting your offer accepted here is a great article on how to make an offer that will be accepted.

Why do sellers ask for highest and best?

Highest and best situations can make buyers mad, but the sellers have a good reason to use it. The biggest reason is they want to formally give every buyer notice of multiple offers and give them a chance to raise their offer. Banks, in particular, have been sued a lot and they want to do everything by the book, with paperwork to prove it. Highest and best is usually the fairest way to handle multiple offers.

Banks and traditional sellers also use highest and best to try to get the most money they can for their house. They are the owner of the house and they have every right to try to maximize their profit or cut their losses.

Can you get information from the listing agent about other offers?

If you are dealing with multiple offers, you most likely have a real estate agent, and the seller has their own listing agent. You can’t exactly talk directly to the listing agent, but you need your agent to get as much information as possible. Here are some great questions to ask:

1.  How many offers are there?

2.  Are any of the offers cash?

3.  When is highest and best due?

4.  What is the highest offer you have now?

5.  Is there anything special the seller is looking for? Closing date, financing, rent back?

If you have any experience with highest and best, you know the listing agent will not answer most of these questions. It doesn’t hurt to ask and see if they will answer. As a listing agent myself I won’t answer any of them, except how many offers there are.

How much should you offer?

There is very little chance the listing agent will tell you how much the other offers are and even if they do, the other buyers could raise their offers. It helps to know how many offers there are, but It only takes one offer to beat you. Whenever I am in a highest and best situation I make the highest offer I can based off my buying criteria and profit potential.

I don’t try to guess what the other offers are in a highest and best situation. My theory is that I would rather pay a little more, and get a great deal than try to save money and get beat out. Having said that, don’t pay more than your numbers say you should. Most of this advice applies to investor offers if you are an owner occupant you have many factors to consider. You need to look at supply and demand, how much you love the house, and what neighborhood prices are. Emotion will come into play much more with an owner occupant offer than with an investor offer.

Remember that the list price is not the only thing you should base your offer on in a highest and best situation. Some buyers will think of the list price as the most they will offer, but this may be a huge mistake. I try to think of a multiple offer situation in this way: What is the most I would pay for the home if the house did not have a list price. If someone is willing to pay more, then I am confident I made my best offer and gave it my best shot. I won’t regret trying to save a few bucks by offering less than I was ultimately willing to pay.

How does your loan affect the chances of getting the house?

For myself, I have the option of offering with a loan or cash on most properties. On my long-term rentals, I like to use financing, but I may use a cash offer to give myself a better chance. On fix and flips, I will always offer cash, even though I have bank financing on them. The reason I do this is that I can pay cash if needed and my bank doesn’t require appraisals on most of my loans. If you can offer cash, it almost always looks better than a financed offer. Just make sure you can produce a proof of funds letter showing you have the cash. In some situations like with HUD, financing does not matter. HUD only cares about the net price to them.

How else can you get your offer accepted?

  • I always explain my financing if I submit a financed offer in a highest and best situation. My portfolio lender does not require an appraisal or repairs on most of my properties. I make sure I tell this to the seller so they know I will close quickly without having any appraisal issues.
  • Sometimes I will ask for the seller to pay closing costs in my offer to save cash. In highest and best I usually remove the closing costs, because it increases the net to the seller and makes my offer stronger.
  • I will remove my inspection contingency on some properties. Usually, I only remove my inspection contingency on newer homes that I have a very good idea about the repairs needed. If a home has had a few offers fall apart because of inspection issues this can be a great way to get the seller to accept your offer. Only remove your inspection contingency if you are experienced with repairs and evaluating a home.
  • An increase in earnest money can also get the sellers attention in a highest and best offer situation. If you raise the earnest money and remove the inspection contingency, this can really increase the chances of your offer being accepted.

What if the seller does not ask for highest and best?

Many times traditional sellers will receive multiple offers, but not ask for highest and best. In many states, the listing agent is required to tell all buyers when the seller receives other offers. When you are informed that there are multiple offers, don’t wait around to see if they will ask for highest and best. There is a chance they will never ask for highest and best, but you can still revise your offer.

If I am notified a seller has multiple offers, I immediately ask if they are asking for highest and best. If they don’t know or say no, I will revise my offer right away. If you revise your offer right away, they may accept your offer without asking for highest and best and giving other buyers a chance to raise their offers. Another tip is to always ask the listing agent to notify you if they receive other offers after you have submitted your offer. I hate it when I find out I lost out on a house, and I was never notified they had other offers!

Should you use an escalation clause?

An escalation clause is when a contract states the price will be this unless a higher offer is received, then the price will rise this much over the next highest offer. For example:

Contract price:     $100,000

Escalator clause: If the seller receives any offers higher than $100,000, this offer price shall increase to $1,000 more than any higher offer up to $110,000. Any other higher offers must be given to buyers agent to confirm the higher price.

Many buyers feel this is a great way to get the lowest price on a home in a highest and best situation. However, there are many problems with an escalator clause and it may actually cause the buyer to pay more than they would have otherwise.

  1.  The seller is not obligated to show any other offers to the buyer or their agent. Yes, it can be asked for in the offer, but the offer is not signed by the seller and they are not bound to it.
  2.  The buyer has stated in writing they are willing to pay $110,000. A smart seller will simply counter the buyer at $110,000 and does not have to show any other offers to the buyer or their agent, because they did not accept the original offer with those terms. I also do not know how legal it is to show a confidential offer from one buyer to another buyer without their permission.
  3.  Some offers may ask the seller to pay for closing costs and this will change the net price to the seller. Even though this offer is $100,000, another buyer could offer $105,000 with the seller paying $6,000 in closing costs. The second offer is actually lower than the $100,000 offer, but because of the escalator clause, the first offer would raise to $106,000.
  4.  Most banks simply will not accept an escalator clause. It may actually hurt your chances of getting the house and if your agent argues that they have to accept the escalator clause, it could make the banks and listing agent mad, hurting your chances even more.

Conclusion

It is tricky to know how much to offer in a highest and best situation, but stick to your numbers and do not let emotion get involved. It is better to lose out on a home than pay so much that it stops becoming a great deal. Another tip is to always ask the listing agent to notify you if they receive other offers after you have submitted your offer. I hate it when I find out I lost out on a house and I was never notified that they had other offers.

Build a Rental Property Empire

Categories Real Estate

Source: investfourmore.com

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Home Sweet Moneymaker

Got a basement, shed, lawn or garage with some extra space screaming “RENT ME?” Now there’s a way to turn that extra storage space into a monthly payment with Neighbor’s peer-to-peer marketplace.

Neighbor matches up homeowners who have extra space with people who need storage. How does peer-to-peer space rental work? Basically, you decide on the space in and around your home that you want to rent out, (it can be almost anything—a portion of your basement, your driveway, the spare bedroom, a closet). Then you list the space online through www.neighbor.com. During any month that someone rents it, you earn cash.

“It’s like Airbnb, except there’s no one in your kitchen when you wake up,” says Preston Alder, one of the company’s founders. “You sign up, open your garage or your gate, they put their stuff in. You set your own price. And you may not even see that person for six months.”

Alder said that he and co-founder Colton Gardner want these untraditional rental spaces to feel like the renter is storing stuff in a neighbor’s home. And for the homeowner—or a buyer who’s choosing between a 3-bedroom condo and a 4-bedroom single-family home on Homie.com—the prospect of earning a little extra cash for doing next to nothing can represent the freedom to upgrade.

“You set your own price and specify the amount of access you want to give the renter,” says Alder, who indicates that first-time homebuyers and young millennials were the first to jump on board, although they’re seeing hosts of all ages and life stages now on Neiybor.com.

Neighbor works for commitment-phobes, too: homeowners can offer long-term rental spaces or something short-term, even just a couple of weeks. Renters and hosts have their IDs verified by Neighbor. And if pricing the space seems like a hassle, Neighbor can offer suggestions.

Renters find a home for their stuff at about one-half the cost of a commercial rental unit. Homeowner hosts earn cash at the end of the rental period or at the end of each month the space is rented, whichever comes first.

If it seems like a win-win for everyone, it is. “These are people in your community, people you can trust because they’re your neighbor,” say Alder. “And, if you’re looking at upgrading to a larger home, it may help you justify a larger buy and turn the extra space into a money-earning asset.”

Homie buyers and sellers can learn more about renting their extra space through Neiybor.com in the Homie Marketplace.

Source: homie.com

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If you rent an apartment in Los Angeles, you may think that your landlord’s insurance will cover you in the event of a fire, storm or another disaster. And you’d be partly right: it would cover the actual building, including your unit. But your landlord’s policy won’t cover your personal belongings or liability if someone is injured in your apartment. For that, you need renters insurance.

America’s top-rated renters insurance

  • Policies starting at just $5/month
  • Sign up in seconds, claims paid in minutes
  • Zero hassle, zero paperwork
In this article

The good news? Renters insurance is fairly cheap. In California, the average annual cost for a renters policy is only $182. We’ve taken a hard look at the companies offering renters insurance in Los Angeles and, using our evidence-based SimpleScore methodology, have selected the best renters insurance companies in Los Angeles.

The best renters insurance in Los Angeles 

Best coverage options – Allstate

A major player on the national insurance stage, Allstate’s size benefits you through expanded coverage options and maximum financial stability.

J.D. Power Rating

2/5

AM Best Rating

A+

Standard & Poor’s

AA-

SimpleScore

4.2 / 5.0

SimpleScore Allstate 4.2

Discounts 5

Coverage Options 5

Customer Satisfaction 2

Customer Satisfaction 5

Allstate is the second-largest writer of homeowners and renters policies in the U.S. and has the chops to offer a variety of coverage options that allow you to customize your policy. Coverage such as scheduled personal property — which covers your high-priced belongings beyond the limits of your personal property coverage — make it a good choice if you have expensive electronics, art or other valuables. Allstate can also cover you with additional umbrella insurance or if your apartment is in a flood zone, supplemental flood insurance.

Best customer service – Lemonade

Although Lemonade is the new kids on the block, it has quickly earned a reputation for quality service and customer satisfaction.

J.D. Power Rating

5/5

AM Best Rating

N/A

Standard & Poor’s

N/A

SimpleScore

3.6 / 5.0

SimpleScore Lemonade 3.6

Discounts 1

Coverage Options 3

Customer Satisfaction 5

Accessibility 5

Lemonade has become popular very quickly, thanks to its low rates and easy-to-manage website. Getting a quote or filing a claim takes just seconds, and the company says you may have your check almost instantly if the claim is approved. All that user-friendly management has made Lemonade the top choice in J.D. Power’s 2020 Overall Customer Satisfaction Ranking for renters, rating it above perennial favorites such as Erie Insurance and Allstate.

Best for military families – USAA

Low prices, excellent customer service and rock-solid financial stability all make USAA a top choice for military families.

J.D. Power Rating

5/5

AM Best Rating

A++

Standard & Poor’s

N/A

SimpleScore

3.8 / 5.0

SimpleScore USAA 3.8

Discounts 2

Coverage Options 5

Customer Satisfaction 5

Accessibility 4

USAA may be the best insurance company you’ve never heard of — unless you’re in the military, in which case you know the company has a reputation for quality service and coverage. USAA’s rental insurance is only available to active and retired military members and their families, but if you fit that demographic, it should be your first stop when looking for the best renters insurance in Los Angeles.

Best claims management – Stillwater

Expect friendly service and quick claims management for renters insurance claims to Stillwater.

J.D. Power Rating

N/A

AM Best Rating

A-

Standard & Poor’s

N/A

SimpleScore

4 / 5.0

SimpleScore Stillwater 4

Disconts 3

Coverage Options 5

Customer Satisfaction N/A

Accessibility 4

Stillwater offers competitive rates for renters insurance in Los Angeles, which comes with a reputation for solid claims management. The Better Business Bureau gives the company an A+ rating, with customer reviews averaging 3.8 out of 5 — reviewers note the friendliness and professionalism of their agents and claim representatives. Stillwater offers a nice range of discounts for policyholders, including one for those aged 60 and over.

Best local insurer – Mercury

Like the Roman god the company is named for, Mercury provides fast and effective service for all your rental insurance needs.

J.D. Power Rating

N/A

AM Best Rating

A

Standard & Poor’s

AA-

SimpleScore

4.3 / 5.0

SimpleScore Mercury 4.3

Disconts 3

Coverage Options 4

Customer Satisfaction N/A

Accessibility 5

Mercury has been providing insurance for California residents since 1961. The company has an A rating with both Fitch and AM Best, indicating that it is financially stable and well-managed, and it was named one of America’s most trustworthy companies by Forbes magazine. You’ll find comprehensive coverage at Mercury, with a handful of discounts to lower your rate, and optional coverages that protect you from identity theft and more.

America’s top-rated renters insurance

  • Policies starting at just $5/month
  • Sign up in seconds, claims paid in minutes
  • Zero hassle, zero paperwork

Average annual premium, by company

Company Average annual premium
Allstate $162-210
Lemonade $202-285
USAA               $168-204
Stillwater $189-212
Mercury $175-218

Choosing your provider 

Whether you choose a large national insurer, like Allstate, or a smaller regional carrier, Like Mercury, you want the best possible insurance. How can you be sure to get it? A little research is all it takes to give you the info you need to choose wisely. You can start by asking your neighbors and friends who they like and visit the website for any company you’re interested in to see how easy they make it to do business with them.

[ Read: What Does Renters Insurance Cover? ]

Local carrier 

Pros 

  • They have the feet-on-the-ground knowledge of your local area.
  • They understand state insurance laws and regulations.
  • Generally, smaller companies offer high customer service from friendly, local employees.

Cons 

  • May not be able to offer the discounts or coverage options that are standard with larger companies.
  • Not rated by consumer agencies such as J.D. Powers or Consumer Reports.
  • Websites are often bare-bones, without the ability to get an online quote or file a claim.

National carrier 

Pros

  • Easy to evaluate them with national assessors like J.D. Powers and AM Best.
  • Tend to have good websites with tons of functionality and easy access.
  • Have the ability to offer extensive discounts as well as coverage extras that allow you to customize your policy.

Cons 

  • With tens of thousands of policyholders, you may not get the personalized attention you would with a smaller company.

[ Read: Best Renters Insurance Companies ]

Los Angeles minimum insurance requirements 

Unlike car insurance, renters insurance isn’t a legal requirement in California. You may find, however, that your landlord requires it. And even if they don’t, it’s a good idea to consider it seriously. Depending on where you live in the city, you may be at risk of theft, vandalism, or damage from natural sources like storms or earthquakes. Consider carefully how much money you would need if you had to start over again from scratch. That’s a good starting point when considering the amount of Los Angeles renters insurance to purchase.

Flood

Coverage for flooding isn’t included in most renters insurance policies. To find out if you’re at risk of flooding, the FEMA Flood Map Service Center lets you input your address and see if you’re in a flood zone. If you have any reason to believe your apartment might flood, ask your insurance agent about supplemental flood insurance, which can be purchased through the government’s National Flood Insurance Program.

Hurricane

Hurricanes rarely hit California’s coastal regions. In fact, a “California hurricane” is the name of a tropical cyclone that travels up the coast — and that’s happened only twice since 1900. If the remnants of a tropical storm impact your apartment, you would be covered for any damage that was caused by wind. Damage caused by the flooding that often accompanies hurricanes would not be covered by a policy unless you had supplemental flood insurance.

Earthquake

Standard renters insurance policies do not cover earthquake damage. But that doesn’t mean you need to stay unprotected. Most insurers feature an endorsement, or add-on, that will cover earthquakes. The California Earthquake Authority offers insurance for renters, and it’s easy to get an online quote at its website. Plan on spending roughly $150-250 for an earthquake policy — money that’s well spent if it buys you peace of mind.

[ Read: Best Cities to Buy Rental Property ]

How much does renters insurance cost in Los Angeles?

The rate you pay for renters insurance will be determined by a number of variables, including the amount of rent you’re paying, your deductible and the value of your belongings. The average cost of Los Angeles renters insurance is roughly $195 a year, though your rate will probably differ. This is more than the California average of $182 and considers the fact that Los Angeles real estate is on the pricey side.

Keep in mind that there are things you can do to lower your insurance rate. One major factor, for example, is your deductible. The lower your deductible, the higher your premium rate will be. If you can handle a higher deductible — say, $1,000 or even more — you will get the best rates for renters insurance in Los Angeles.

Los Angeles renters insurance FAQs

Although you are not required to have insurance by law, your landlord may want you to have a policy. Even if they don’t, it’s a good idea to ensure that your personal possessions can be replaced in the event of a fire or other disaster by having a policy in place.

Expect to pay a little more than the state average of $182 annually. Your own rate will be determined by multiple factors, including your apartment’s location, deductible, and the amount of coverage you’d like.

There’s no one best company for everyone — the company that gave your neighbor the lowest quote may not offer you the same. That said, the insurers we’ve discussed above are a good place to start. Or, if you prefer, head on over to our listing of the Best Renters Insurance Companie. 

Too long, didn’t read?

If you rent an apartment in Los Angeles, you’ll want to consider renters insurance to protect you and your belongings in the event of a disaster. There are a number of national insurers who sell policies in Los Angeles, including Allstate, Lemonade and USAA. There are also some smaller, regional companies like Mercury and Stillwater that offer competitive pricing along with top-notch customer service. Any of these companies will have comprehensive coverage available that is customizable for your own needs, at a good price point.

We welcome your feedback on this article and would love to hear about your experience with the insurers we recommend. Contact us at [email protected] with comments or questions.

Source: thesimpledollar.com