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Apache is functioning normally

Apache is functioning normally

Many people are lured into the world of real estate investing by stories of millionaires who started their journey with no money down or no steady employment. But the reality is that making money in real estate isn’t easy; a good credit score, investment capital and steady income can help in the beginning.

You’ll also need to grasp the nuances of the local real estate market and learn how to manage financial aspects such as cash flow and property taxes. While real estate buying, selling, and renting may not be much like a game of Monopoly, it is possible to earn steady side income, supplement your retirement, or even build a full-time real estate investment business with the right tools, knowledge, and patience.

Unlike mutual funds, the stock market, cryptocurrency or many other investments, real estate is tangible. Real estate is a concrete asset—one can see, touch, and even reside in. That gives investors a sense of security. However, it also creates unique challenges.

Managed well, the stability and passive income from rental properties can be a safety net against more volatile investments.

This guide is here to clarify the process for beginners. It aims to empower you to make informed decisions, reduce risks, and lay a strong foundation for your real estate investing journey.

Benefits of Investing in Real Estate

The allure of real estate goes beyond the mere ownership of tangible assets. It presents a robust suite of financial benefits that have the potential to amplify wealth and provide stability in uncertain times. As we navigate the advantages, it becomes evident why many seasoned investors prioritize real estate in their portfolios.

Steady and Passive Income

Real estate investing, especially in rental properties, stands out for its potential to provide a consistent revenue stream. When you own a rental property, the monthly or quarterly distributions from tenants contribute to steady income, which can safeguard your finances against unexpected events or economic downturns.

This consistency contrasts with the often erratic nature of the stock market, which can fluctuate daily based on global events, company performances, and other factors. Additionally, for those aiming to attain financial freedom, the passive income generated from real estate can be a step closer to achieving that goal. Over time, as the mortgage payment decreases or remains static, rental rates may rise, increasing your monthly cash flow.

Appreciation Potential

Every investor dreams of their assets appreciating, and real estate often doesn’t disappoint. While there can be periodic downturns in the real estate market, historical trends suggest that properties generally gain value over the long run.

This means that not only can investors benefit from rental income, but they can also potentially see substantial gains when they choose to sell the property.

Tax Benefits

Navigating the world of taxes can be intricate, but real estate investors often find several advantages here. The ability to deduct mortgage interest and property taxes from taxable income can be a significant financial boon.

Furthermore, strategies like depreciation allow real estate investors to offset rental income, reducing their tax burden. Consulting with a financial advisor can help investors maximize these benefits and understand other potential tax advantages, such as 1031 exchanges or deductions related to property management.

Diversification

The saying “don’t put all your eggs in one basket” is sound investment advice. Diversification is a fundamental strategy to mitigate risks. By adding real estate to an investment portfolio, investors introduce a separate asset class that doesn’t directly correlate with the stock market or mutual funds. This can provide a buffer, ensuring that a downturn in one sector doesn’t wholly derail an investor’s financial trajectory.

Leverage

Leverage, in the context of real estate investing, refers to the ability to use borrowed capital to increase the potential return on an investment. When you purchase property with a mortgage loan, you’re often putting down only a fraction of the property’s total cost, while still reaping the benefits of its entire value in terms of appreciation and rental income.

This magnifies the return on investment, as the gains and income generated are based on the property’s total value, not just the down payment. It’s a powerful tool but should be used wisely. Over-leveraging or not accounting for potential rental vacancies can turn leverage into a double-edged sword.

Types of Real Estate Investments

As one dives deeper into the world of real estate, it becomes evident that this asset class is multifaceted, with various avenues to explore and invest in. The right choice often depends on an investor’s goals, risk tolerance, budget, and expertise. Here’s a closer look at some prominent types of real estate investments:

Residential Properties

Residential properties cater to individuals or families. They range from single-family homes to duplexes, triplexes, high-rise buildings with apartments, and other multi-unit properties. You may encounter the term “MDU” or “MUD,” which stand for multi-dwelling unit or multi-unit dwelling, to describe anything more than a single family home, or SFR (single family real estate).

Investing in residential real estate, especially the SFR market, is often a beginner’s first step due to its familiarity and the perpetual demand for housing. While these properties can be a reliable source of rental income, investors should be prepared for the challenges tied to property management, tenant turnover, and ongoing maintenance.

Commercial Real Estate

When one thinks of skyscrapers lining city horizons or sprawling office parks in suburban locales, that’s commercial real estate. These properties are tailored to businesses, and can include complete corporate headquarters or individual offices.

Commercial leases often run longer than residential ones, offering the potential for stable, long-term rental income. However, the entry point can be higher, with larger down payments and a more extensive due diligence process. Additionally, commercial real estate values can be closely tied to the business environment of the locality.

Industrial

Industrial real estate encompasses properties like warehouses, distribution centers, and manufacturing facilities. They’re integral to business operations, ensuring products move efficiently from manufacturers to consumers.

Investing in this sector can offer substantial rental yields, especially if the property is strategically located near transportation hubs. However, the nuances of industrial real estate, such as zoning laws and environmental concerns, necessitate a more in-depth understanding than residential or commercial sectors.

Retail

This sector includes shopping malls, strip malls, and standalone stores. What’s unique about retail real estate is that leases sometimes include a provision where the landlord gets a percentage of the store’s profits, termed as “percentage rent.”

In a thriving commercial area, retail properties can be quite profitable, with long-term leases and the potential for appreciating property values. However, investors should be mindful of shifts in consumer behavior and the evolving retail landscape, especially with the rise of e-commerce.

Multi-Purpose Commercial

A new breed of commercial real estate has emerged to compete with the growth of e-commerce. Multi-purpose commercial spaces blend housing units with office space and retail, often adding hospitality and entertainment venues.

Typically, these spaces are the domain of large real estate investment and property management firms. But if you invest in commercial office space or retail, you will be competing with these multi-purpose properties for tenants, so they are worth acknowledging.

Real Estate Investment Trusts (REITs)

For those not keen on direct property ownership, REITs present an attractive alternative. These are companies that own, operate, or finance income-producing real estate across various sectors. What makes REITs distinctive is that they’re traded on stock exchanges, similar to stocks.

By investing in a REIT, you’re buying shares of a company that manages a portfolio of properties, thus gaining exposure to real estate without the hassles of property management. Moreover, by law, REITs are required to distribute at least 90% of their taxable income to shareholders, leading to potentially attractive dividend yields. However, it’s essential to remember that like all publicly traded entities, REITs can be subject to market volatility.

9 Ways to Invest in Real Estate

Investing in real estate can seem tricky for beginners. But, with time and patience, anyone can master it. Focus on simple investment methods first to get to know your local property scene, meet experienced investors, and learn how to handle money wisely. As you learn and grow, you can dive into more complex investment options.

Here are some great ways for beginners to start in real estate:

1. Wholesaling

Acting as the bridge between property sellers and eager buyers, this method primarily focuses on securing properties at a rate below the prevailing market value. The secured contract is then transferred to an interested buyer, ensuring a margin for the wholesaler.

2. Prehabbing

Unlike intensive property renovations, prehabbing is about amplifying a property’s appeal through minimalistic enhancements. These properties, once given their facelift, usually attract investors with a keen eye for larger renovation projects.

3. Purchasing Rental Properties

An avenue promising consistent returns, this involves acquiring properties to lease them out. For those not inclined towards the intricacies of landlord duties, there’s always the option of hiring seasoned property management professionals.

4. House Flipping

A strategy that has garnered significant attention, house flipping involves a cycle of purchasing, upgrading, and promptly reselling properties, aiming for a profit. The emphasis is on swift transactions and keen market acumen.

5. Real Estate Syndication

Envision a collective where like-minded investors come together, pooling both resources and expertise. Such collectives venture into large-scale property acquisitions, and the ensuing profits or rental incomes are distributed among the participants.

6. Real Estate Investment Groups (REIG)

Primarily, these are conglomerates that steer their operations around real estate investments. By amassing capital from a plethora of investors, they dive into acquisitions of sizeable multi-unit residences or commercial holdings.

7. Investing in REITs

Real Estate Investment Trusts (REITs) revolve around the ownership and meticulous management of properties that yield income. However, investors don’t have to handle the management themselves. Instead, participants can relish the benefits of the real estate sector without the responsibilities of direct property ownership.

8. Online Real Estate Platforms

A fusion of technology with real estate, these platforms seamlessly connect potential investors with vetted property developers. This synergy enables backers to finance promising property ventures and, in exchange, enjoy periodic returns that encompass interest.

9. House Hacking

A blend of homeownership and investment, house hacking is about maximizing the potential of a multi-unit property or a single-family home. Investors live in one segment while leasing out the remaining portions. This dual approach can significantly reduce or even negate monthly housing expenses, serving as an excellent introduction to the world of property management for novice investors.

6 Steps to Get Started in Real Estate Investing

Starting on the path of real estate investing requires careful planning, due diligence, and a methodical approach to ensure that your investments are sound and have the potential for fruitful returns. Whether you’re dreaming of becoming a millionaire real estate investor or merely looking to diversify your investment portfolio, following a structured process can be the key to success. Here’s a step-by-step breakdown:

1. Assess Your Financial Health

Every investment journey should begin with introspection. As an aspiring real estate investor, it’s essential to have a clear understanding of your current financial standing. Ask yourself questions like:

  • How much capital am I willing to invest?
  • What are my short-term and long-term financial goals?
  • Do I have an emergency fund set aside?

Evaluating your risk tolerance is equally crucial. Some might be comfortable flipping houses, while others might prefer the steadiness of rental properties. Consulting a financial advisor at this stage can provide insights tailored to your financial health, enabling you to make informed decisions as you proceed.

2. Dive Deep into Market Research

Knowledge is power in the world of real estate. The local market can be significantly different from national or even statewide trends. Delve deep into understanding:

  • The demand for rental properties in your target area.
  • The average property values and rental rates.
  • The historical appreciation rates.
  • Any upcoming infrastructure projects or urban development initiatives.

Furthermore, familiarize yourself with real estate terminology. Phrases like “cap rate,” “loan-to-value,” and “operating expenses” will become a regular part of your vocabulary. The better informed you are, the more confidently you can navigate your investments.

3. Assemble Your Real Estate Team

No investor is an island. Success in the real estate business often hinges on the strength and expertise of your team. Look for professionals with a proven track record and positive reviews. Your team might include:

  • Real estate agents who understand the investor’s perspective.
  • Property managers to streamline tenant interactions and maintenance.
  • Lawyers specializing in real estate transactions.
  • Accountants familiar with the tax implications of real estate investments.

4. Explore Financing Options

The path to acquiring a property is paved with various financing methods. Traditional mortgages are common, but the real estate industry offers other mechanisms like:

  • Hard money loans.
  • Private money loans.
  • Real estate syndication where multiple investors pool resources.
  • Seller financing.

Each of these has different pros and cons, interest rates, and repayment terms. Understand each deeply to determine which aligns best with your financial strategy.

5. Analyze Potential Properties

The crux of real estate investing is ensuring that the numbers make sense. Before purchasing, assess the property’s potential for generating rental income. Break down:

  • Monthly mortgage payments
  • Property taxes
  • Maintenance costs
  • Potential vacancy rates

Your goal should be a positive cash flow, where the monthly income from the property (rent) exceeds all these expenses.

6. Negotiate and Close the Deal

Once you’ve zeroed in on a property, the negotiation phase begins. Here, understanding the property’s market value, any existing damages or repair needs, and the local real estate market dynamics can give you an edge.

When it comes to closing, be aware of all associated costs. These might include inspection fees, title insurance, and escrow fees. Being well-informed can help you negotiate these fees and ensure that you’re not overpaying.

Risks and How to Mitigate Them

Like any investment, real estate comes with its set of challenges and uncertainties. The difference between successful real estate investors and those who falter is often the ability to anticipate risks and prepare for them. Here’s an exploration of some prevalent risks in real estate and actionable steps to manage them:

1. Market Fluctuations

Real estate markets can be volatile, with property values rising and falling based on a myriad of factors.

Mitigation: To protect against market downturns, it’s essential to buy properties below their market value. Conducting comprehensive research and seeking expert investment advice can help investors make informed decisions. Remember, real estate is often a long-term game, so a short-term dip can be offset by long-term appreciation.

2. Unexpected Repairs and Maintenance

Properties can often come with surprises, from plumbing issues to roof repairs.

Mitigation: Regular property inspections can catch potential problems before they become major expenses. Setting aside a buffer fund specifically for maintenance can also cushion the financial blow of unforeseen repairs.

3. Vacancy Periods

There might be periods where your property remains unoccupied, leading to loss of rental income.

Mitigation: Properly vetting and building a good relationship with tenants can lead to longer lease periods. Diversifying your investment properties across different areas can also help, as vacancy rates might vary from one location to another.

4. Legal and Tax Implications

Real estate investors can sometimes find themselves entangled in legal disputes or facing unexpected tax bills.

Mitigation: Regular consultations with a tax professional or attorney familiar with the real estate industry can keep investors informed and protected.

Long-term Strategy and Growth

Real estate investing is not just about making a quick buck; it’s about building lasting wealth. Adopting a long-term perspective and continuously refining your strategy can pave the way for consistent growth in the real estate industry. Here’s how:

1. Define Your Real Estate Identity

Are you more comfortable with a buy-and-hold strategy, where properties are retained for long-term growth and steady rental income? Or do you thrive on the excitement of flipping houses, where properties are bought, renovated, and sold for profit? Understanding your preference can help tailor your investment strategy.

2. Reinvestment is Key

For those adopting a buy-and-hold strategy, reinvesting the rental income can substantially grow your real estate portfolio. By channeling profits into purchasing additional properties, investors can benefit from compounded growth.

3. Diversify Your Portfolio

As you gain experience, consider diversifying across various real estate sectors. Branching out into commercial real estate or exploring real estate investment trusts (REITs) can provide additional avenues for income and growth.

4. Continue Your Education

The real estate industry is continually evolving. By staying updated on market trends, attending seminars, and networking with other real estate professionals, you can adapt your strategy and seize new opportunities as they arise.

5. Scale Strategically

A real estate empire begins with just one property. With time, dedication, and a sound strategy, it’s possible to grow your holdings into a substantial full-time income. As you scale, ensure you’re not overextending; always prioritize the quality of investments over quantity.

Key Tips for Beginners

Embarking on a journey into real estate investing can be thrilling, yet the complexities of the industry can sometimes overwhelm beginners. Simplifying the learning curve is essential for novice investors to make informed decisions and find success. Here are some pivotal tips to guide those just starting out:

1. Start Small and Scale Gradually

Many millionaire real estate investors began their journey with a modest property. Purchasing a smaller, more manageable property as your first investment can help you navigate the nuances of the real estate business without being overwhelmed. As you gain confidence and experience, you can then venture into bigger and more diverse properties to scale your portfolio.

2. Prioritize Education

The world of real estate is vast and ever-evolving. Leverage online real estate platforms to learn about market trends, investment strategies, and financing options. Additionally, joining real estate investment groups can be invaluable. These groups not only provide mentorship but also offer opportunities to share resources, insights, and deals with other investors.

3. Location is Crucial

In the real estate realm, location often takes precedence over the type or condition of a property. A mediocre house in a prime location can fetch better returns than a grand mansion in a less desirable area. Research local market dynamics, neighborhood amenities, future development plans, and other location-specific factors before making an investment decision.

4. Networking is Key

Surrounding yourself with knowledgeable people can fast-track your learning process. By connecting with seasoned real estate investors, you can gain insights from their experiences, avoid common pitfalls, and even discover potential partnership opportunities. Attend local real estate seminars, join investor forums online, and participate actively in real estate conferences to grow your network.

5. Stay Updated and Adapt

The real estate industry is not static. Market conditions, property values, and investment strategies can change. Being adaptable and staying updated on industry trends will ensure you remain ahead of the curve and can capitalize on new opportunities.

6. Always Conduct Due Diligence

Before diving into any real estate transaction, thorough due diligence is imperative. From understanding property taxes and zoning laws to estimating potential repair costs and evaluating tenant profiles, leaving no stone unturned will protect you from potential setbacks.

8 Terms Beginner Real Estate Investors Should Know

Venturing into real estate can feel like you’ve entered a world with its own language. Don’t worry; everyone feels this way at the start. Knowing basic real estate terms can help you communicate confidently and make informed decisions.

Dive into these essential terms every beginner should grasp:

Appreciation: Appreciation is the increase in the value of a property over time. It’s one of the primary ways real estate investors make money, especially in growing markets. Appreciation can result from factors like inflation, increased demand, or improvements made to the property.

Capitalization rate (cap rate): Think of the cap rate as a tool to gauge the potential return on a property. It’s a percentage derived from comparing a property’s net operating income to its current market price.

Cash flow: This term captures the money dance – what’s coming in and what’s going out. In the context of rental properties, it means the rental earnings minus all the costs. Positive cash flow indicates you’re earning more than you’re spending.

Equity: Equity represents the value of ownership in a property. It’s calculated by taking the market value of the property and subtracting any outstanding mortgage or loans against it. As an investor pays down their mortgage or if the property appreciates in value, their equity in the property increases. This equity can be tapped into for various financial needs or reinvested.

Leverage: This term refers to the concept of using borrowed money, often in the form of a mortgage, to invest in real estate. It allows investors to purchase properties with a small down payment and finance the remainder. When used correctly, leverage can amplify returns, but it can also increase the risk if property values decline.

Net operating income (NOI): Simplified, NOI is the profit made from a property after deducting all operational costs. It’s your rental income minus all the expenses, showing the true earning potential of a property.

Real estate owned (REO): An REO property is one that didn’t sell at a foreclosure auction and is now owned by the bank. These properties are often sold at a lower price because banks aim to sell them quickly, making them attractive to investors.

Return on investment (ROI): In simple terms, ROI measures the bang you get for your buck. It’s calculated by comparing the profit you made to the amount you invested. The higher the ROI, the better your investment performed.

Conclusion

Real estate investing offers an avenue to diversify your portfolio, generate steady income, and potentially achieve long-term growth. With due diligence, a clear strategy, and the right team, beginners can successfully navigate the complexities of the real estate industry and lay the foundation for a prosperous investment journey. Remember, every millionaire real estate investor started with their first property. Your journey is just beginning.

Source: crediful.com

Apache is functioning normally

Apache is functioning normally

The mere thought of filing for bankruptcy is enough to make anyone nervous. But in some cases, it really can be the best option for your financial situation. Even though it stays as a negative item on your credit report for up to ten years, bankruptcy often relieves the burden of overwhelming amounts of debt.

There are actually three different types of bankruptcy, and each one is designed to help people with specific needs. Read on to find out which type of bankruptcy you might be eligible for. We’ll also help you determine whether it really is the best option available.

What are the different types of bankruptcy?

In general, bankruptcy is the process of eliminating some or all of your debt, or in some cases, repaying it under different terms from your original agreements with your creditors.

It’s a very serious endeavor but can help alleviate your debt if you calculate that it’s unlikely to you’ll be able to repay everything throughout the coming years.

The two most common for individuals are Chapter 7 and Chapter 13. Chapter 11 is primarily used for businesses but can apply to individuals in some instances. Let’s take a look at some bankruptcy basics and the other details that set them apart from each other.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is designed for individuals meeting certain income guidelines who can’t afford to repay their creditors. You must pass a means test to qualify. Then, instead of making payments, a bankruptcy trustee can sell your personal property to help settle your debts, including both secured and unsecured loans.

There are certain exemptions you can apply for to keep some things from being taken away. It all depends on which debts are delinquent. If your mortgage is headed towards foreclosure, you might only be able to delay the process through a Chapter 7 delinquency.

If you’re only delinquent on unsecured debt, like credit card debt or personal loans, then you can file for an exemption on major items like your home and car. That way they won’t be repossessed and auctioned off.

Eligible exemptions vary by state. Usually, there is a value assigned to your assets that are eligible for exemption. You may keep them as long as they are within that maximum value. For example, if your state has a $3,000 auto exemption and your car is only valued at $2,000 then you get to keep it.

Most places also allow you to subtract any outstanding loan amount to put towards the exemption. So, in the situation above, if your car is valued at $6,000, but you have $3,000 left on your car loan, then you’re still within the exemption limit.

Chapter 7 bankruptcy is the fastest option to go through, lasting just between three and six months. It’s also usually the cheapest option in terms of legal fees. However, keep in mind that you’ll likely have to pay your attorney’s fees upfront if you choose this option.

Chapter 13 Bankruptcy

A chapter 13 bankruptcy is the standard option when you make too much money to qualify for a Chapter 7 bankruptcy. The benefit is that you get to keep your property but instead repay your creditors over a three- to five-year period. Your repayment plan depends on several variables.

All administrative fees, priority debts (like back taxes, alimony, and child support), and secured debts must be paid back in full over the repayment period. These must be paid back if you want to keep the property, such as your house or car.

The amount you’ll have to repay on your unsecured debts can vary drastically. It depends on the amount of disposable income you have, the value of any nonexempt property, and the length of your repayment plan.

How long your plan lasts is actually determined by the amount of money you earn and is based on income standards for your state. For example, if you make more than the median monthly income, you must repay your debts for a full five years.

If you make less than that amount, you may be able to reduce your repayment period to as little as three years. You can enter your financial information into a Chapter 13 bankruptcy calculator for an estimate of what your monthly payments might look like in this situation.

To qualify for Chapter 13, your debts must be under predetermined maximums. For unsecured debt, your total may not surpass $1,149,525 and your secured debt may not surpass $383,175. However, unlike Chapter 7 bankruptcy, you may include overdue mortgage payments to avoid foreclosure.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is usually associated with companies. However, it can also be an option for individuals, especially if their debt levels exceed the Chapter 13 limits. A lot of the characteristics of Chapter 11 and Chapter 13 are the same, such as saving secured property from being repossessed.

Having to pay back priority debts in full and having a higher income bracket than a Chapter 7 bankruptcy are also common characteristics. However, unlike Chapter 13, you must make repayment for the entire five years with a Chapter 11. There is no option to pay for just three years, no matter where you live or how much you make.

Another reason to pick Chapter 11 is if you are a small business owner or own real estate properties. Rather than losing your business or your income properties, you get to restructure your debt and catch up on payments while still operating your business, whether it’s as a CEO or as a landlord.

One downside to be aware of with a Chapter 11 bankruptcy is that it’s usually the most expensive option. However, you can pay your legal fees over time so you don’t have to worry about spiraling back into debt.

What are the long term effects of bankruptcy?

It should come as no surprise that going through bankruptcy causes your credit score to plummet. Depending on what else is on your report, your score could drop anywhere between 160 and 220 points.

Those effects linger. A Chapter 13 bankruptcy stays on your credit report for seven years. And a Chapter 7 bankruptcy remains there for as many as ten years. Their effects on your credit score do, however, begin to diminish as time goes by.

You’ll probably have trouble getting access to credit immediately following your bankruptcy. Eventually, you’ll start getting approved for loans and credit cards, but your interest rates are likely to be extremely high.

A new mortgage will probably be out of reach for at least five to seven years from the time you file for bankruptcy. Additionally, any employer performing a credit check can see all of these items on your credit report.

Government agencies can’t legally discriminate against you because of your bankruptcy, but there is no specific rule for privately-owned companies. It could be particularly damaging if the job you’re applying for deals with money or any type of financials. No matter where you work, though, you can’t be fired from a current employer because of a bankruptcy.

Should I file bankruptcy?

There’s no correct answer to this question. It’s ultimately something you’ll need to decide on your own. However, there are a few things you can do to make sure you’re making the best decision possible. Start by finding a licensed credit counselor to help analyze your individual situation. They’ll help you review the guidelines for each type of bankruptcy and determine if you’re even eligible.

At first glance, filing for bankruptcy may seem like a great way to settle your debts and move on with your life. Unfortunately, the process isn’t as simple as filling out a form. The effects of bankruptcy will stick with you for years.

As you begin the evaluation process of whether bankruptcy is right for you, there are several considerations to consider. This overview will get you thinking about your situation. It will also point you in the right direction for more in-depth resources when you need them.

Is your current status temporary or permanent?

You should also look at your expected future and compare your potential earnings to your amounts of debt. If you don’t see how you’ll ever pay off that debt, then bankruptcy may be a wise option. Also, understand the types of debt you owe. Tax payments, student loan debt, and liens on your mortgage or car will not be discharged even when you file for bankruptcy.

Once you figure out which specific options are available to you, it’s time to contact a bankruptcy attorney. You’re certainly able to represent yourself, but the process is complicated. It’s usually best to have a professional work on the case on your behalf. Just be sure to interview a few different lawyers to get multiple opinions and prices to compare.

Evaluate Your Situation

Even when your bankruptcy is underway, it’s smart to spend some time evaluating how you got there. Was it due to a one-time financial hardship, like a long bout of unemployment? If that’s the case, then you know that you have a brighter future ahead of you with the promise of work and steady income to pay your bills.

However, if you’re on the path to bankruptcy because of reckless spending, you really need to look inward and address your overspending habits. Otherwise, it becomes too easy to put yourself in the same situation a few years down the road. Use your bankruptcy as a second chance to start fresh with a clean financial slate.

Why Consider Bankruptcy?

If you’re considering bankruptcy, then you’re most likely feeling overburdened with debt and other financial obligations. You probably have a tough time paying your bills each month and may even worry about how you’ll ever pay off some of your outstanding balances.

If you’ve already exhausted your other options, like working overtime and cutting back on your non-necessities, it might be time to seriously think about potentially declaring bankruptcy. Some signs that you might be ready include:

  • Increased interest rates because of late payments or bad credit
  • Using credit cards for daily purchases without paying off the balance each month
  • Already downsized things like house, car, and other assets
  • Working multiple shifts or jobs
  • Paying off debt with retirement funds
  • Wages are being garnished

If one or more of these situations apply to you, then you should probably continue your research into bankruptcy. If not, try finding other ways to improve your financial situation. For example, you could rework your budget if there are easy places to cut back on.

You can also try negotiating with your lenders, particularly if you’re experiencing just a short-term setback. Most lenders are willing to work with you. They would much rather set up a new payment plan than have the debt discharged or settled through bankruptcy.

Bankruptcy Alternatives

If you want to file for bankruptcy it takes careful planning. Due to the long-term legal and financial consequences of bankruptcy, there are many rules that must be followed before you’re eligible.

For example, it’s necessary to show the bankruptcy court that you have obtained credit counseling and considered debt relief options like debt settlement or debt consolidation. Bankruptcy is controlled exclusively by the federal judicial system, which strongly recommends hiring an attorney before attempting to file.

If you need help finding a bankruptcy lawyer, contact the American Bar Association. They offer free legal advice, and you may qualify for free legal services if you are unable to afford an attorney.

Creating a Checklist to Avoid Dismissal

Before you file for bankruptcy, there are several important questions you should ask yourself. There are also several key steps that you need to take. First, it’s necessary to ask yourself if you really need to file for bankruptcy.

If you don’t, you probably won’t be approved anyway. You also need to calculate income, expenses, and assets, find a trustworthy attorney, and select a credit counseling program.

It’s helpful to be methodical and to use a checklist. Failure to take the right steps and find the right credit counseling could result in more wasted money and a bankruptcy dismissal where they throw out the case.

Reasons to Delay Bankruptcy

Even if bankruptcy is the best choice for you, there may be some situations where it’s smart to delay the process so you can maximize your benefits. First, if you had a high income within the last six months that no longer applies to your situation, then you might want to wait.

That’s because the bankruptcy court weighs your last six months of income to determine your eligibility for Chapter 7 bankruptcy. If you had a nice monthly salary a few months ago but have been laid off since then, that means test isn’t going to reflect your current situation accurately.

Another reason to delay bankruptcy is if you are anticipating an upcoming major debt. New debt isn’t allowed to be discharged once you file for bankruptcy.

So, for example, if you’re about to have a major medical surgery, you might consider waiting until it’s over to include the medical bills as part of your bankruptcy plan. Talk to a professional to see the eligibility requirements. Luxury items charged right before a bankruptcy filing, for example, likely won’t be included as part of your debt discharge.

Changes in Bankruptcy Law

Before getting started, it’s important to note the changes that went into effect in 2005 under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). While the changes don’t affect some people applying for bankruptcy, they may affect others.

Federal bankruptcy laws require mandatory credit counseling to make sure you fully understand the consequences of declaring bankruptcy. It also created stricter eligibility requirements for Chapter 7 bankruptcies. For Chapter 13 bankruptcy filings, the law requires tax returns and proof of income.

An informed decision begins with understanding bankruptcy laws, the bankruptcy process, and what has changed. It’s essential to better understand these changes before you make any final decisions.

Filing Under Chapter 7 or Chapter 13

Understanding how bankruptcy works means understanding the process and laws related to Chapters 7 and 13 of the Bankruptcy Code. Depending on the details of your situation, you might be eligible to file under Chapter 7 or Chapter 13. Which route you choose has a lot to do with your income and what assets you want to keep.

Your debts can either be resolved quickly or over a several-year period. It’s helpful to read up on in-depth frequently asked questions related to each route.

Calculating Chapter 7 Means

To have all your unsecured debts eliminated under Chapter 7 bankruptcy, you must qualify under the Chapter 7 means test. Using your personal information, or a basic estimate, an online calculator can help determine this for you. When filing bankruptcy, you must also fill out an appropriate form in which you enter your income, expense information, and data from the Census Bureau and IRS.

If you don’t meet the income level requirements to file for Chapter 7 bankruptcy, you can still file for Chapter 13. A Chapter 13 will settle many of your debts after you successfully complete a three to five-year repayment program.

Qualifying and Qualifying Debts

Your debts qualify for bankruptcy relief when you can prove you are unable to pay them, but a great deal depends on your situation and which chapter you are filing bankruptcy under. Debts can be either unsecured or secured. Secured debts include mortgages, cars, and debts related to a property you’re still paying for.

Unsecured debts include credit card debt, bills, collections, judgments, and unsecured loans. It’s important to know which debts qualify for bankruptcy. But, it’s even more important to know whether your situation makes you eligible for this major step. To determine this, a full financial assessment is necessary. You can start by reading more about debts that qualify.

Defaulting on a Student Loan

If you have defaulted on a student loan, there are several options open to you. Bankruptcy is one of them, but if your goal is to have a student loan discharged under Chapter 7, this can be very difficult.

Nevertheless, taking certain steps as soon as possible can help prevent wage garnishment. Knowing your options can help you make the best choice before matters become more difficult. Under Chapter 13, your defaulted loan can be consolidated with your other bills. This will give you a better payment plan or a temporary reprieve from making payments.

If you have a federal student loan, check out your repayment options, especially if you are facing financial hardship. Otherwise, read more to figure out how to pull yourself out of student loan default.

What Assets You Can Keep During Bankruptcy

Depending on how you file for bankruptcy, there are certain assets you can keep. Different states have different exemptions, and in certain states, you can choose between state and federal bankruptcy exemptions.

If you need to have debts discharged, are out of work, and cannot afford a repayment plan, some assets might be lost. In most cases, however, people who declare bankruptcy can keep their homes and cars and much of what they own while they repay their debts under a modified plan. It all depends on your unique circumstances and how you file.

Get a FREE Credit Evaluation Before You File Bankruptcy

A bankruptcy can affect your credit for 7 to 10 years and should be considered a last resort option when all other options have failed. Many times, people file bankruptcy when it is completely unnecessary. A credit professional can help you fix your credit and deal with your creditors so you can avoid filing for bankruptcy.

Before filing bankruptcy, talk to a credit specialist:

Visit the website and fill out the form for a free credit consultation with a professional credit repair company.

Source: crediful.com

Apache is functioning normally

Apache is functioning normally

Depending on the severity of your symptoms, the Social Security Administration (SSA) may consider asthma a disability. This means you might qualify for Social Security Disability Insurance (SSDI). You might also qualify for work accommodations under the Americans with Disabilities Act (ADA).

How much are SSDI benefits for asthma?

The average monthly SSDI benefit for disabled workers was $1,486.83 as of August 2023

.

To determine a person’s monthly SSDI benefits, the Social Security Administration uses a fairly complicated calculation based on the person’s past earnings.

SSDI applicants also usually need 40 work credits (20 of which must have been earned in the 10 years before the disability began) to qualify for benefits. The amount needed to earn a work credit changes every year. In 2023, workers earn one credit for each $1,640 in wages or self-employment income

.

What types of asthma qualify for disability?

Because asthma can have several symptoms, “when evaluating asthma, SSA does categorize the disability with a broad use of the word,” says Amanda Bonnesen, managing partner at Berger and Green law firm in Pittsburgh.

“Being diagnosed with asthma does not automatically render an individual disabled,” Bonnesen says. “The condition must impair their ability to work and function, despite all medical options and care.”

The SSA Blue Book provides general terms for what’s covered, but separate medical diagnoses you might see in your medical records that could be covered include allergic asthma, Aspirin-exacerbated respiratory disease (AERD), cough-variant asthma, exercise-induced asthma, nighttime asthma, steroid-resistant asthma and occupational asthma, Bonnesen says.

Jennifer Cronenberg, who is senior counsel and director of legal information with the National Organization of Social Security Claimants’ Representatives, says the SSA will likely consider any form of asthma that prevents an individual from full-time work.

“Some considerations that might come into play are [when asthma causes] time off task, absences, unscheduled breaks, intolerance to dust, fumes and odors and limited stamina,” she says. “While one limitation might not knock out all work, a combination of limitations might leave a person with such limited residual functional capacity that they are unable to perform any competitive, substantially gainful full-time work activity.”

How to apply for SSDI

You’ll need several things on hand when filling out your SSDI application, including:

  1. Your work history, including employer names, dates of employment, a list of previous jobs and information about workers compensation benefits you’ve received.

  2. Medical records, lab and test results and information about your medications.

  3. Contact information for your doctors, care providers and their offices, as well as the dates of your visits.

  4. Information about family members who might qualify for benefits.

The SSA first determines if the application meets some basic requirements for benefits. Then it forwards the case to the Disability Determinations Services office in the applicant’s state. At that point, an adjuster and state physicians make the decision to approve the application.

During that time, you’ll be asked to fill out additional forms regarding your work history and daily functioning. “These forms are imperative, as it is your way to communicate with your adjudicator about your symptoms and daily struggles,” Bonnesen says. You may even be required to undergo an independent medical evaluation.

You can appeal if the SSA denies your application. When that occurs, “the case is transferred to a different adjudicator, and a new and independent decision is made on the previous medical evidence and any new medical evidence provided,” Bonnesen says.

If the SSA denies your appeal, you can hire an attorney and ask for a hearing before an administrative law judge. If you disagree with the judge’s decision, you can request a review from the Social Security Appeals Council. The final option is federal court

.

Work accommodations for asthma

People with respiratory impairments can consult the Job Accommodation Network, which is a service of the U.S. Department of Labor’s Office of Disability Employment Policy, for examples of workplace accommodations under the Americans with Disabilities Act. Examples include:

  • Providing air conditioning, heat and dehumidification as needed, as well as a smoke- and fragrance-free environment.

  • Additional rest breaks for fresh air or to take medications as necessary.

  • Alternative work arrangements during certain periods, such as when construction is taking place in the office and it’s causing breathing issues.

  • Removing the need to use stairs or walk long distances to get to your desk

    .

How likely is it that the SSA will approve my SSDI application?

“The SSDI process can last up to three years before a favorable decision is made,” Bonnesen says. “It’s impossible to provide a likelihood of approval rate, since humans are on the other side of the decision.”

Statistics show, though, that the SSA denies the majority of disability claims it receives

. To set up your case with the best odds, Bonnesen recommends two things.

  1. Maintain care. Refraining from all drug, alcohol and cigarette use during the process and remaining in medical treatment can help, Bonnesen says. For example, establishing care with specialists such as pulmonologists and allergists, undergoing all necessary testing and remaining compliant with all prescribed medications can help improve your odds.

  2. Track your condition. Cronenberg recommends keeping a symptom journal that details things such as how often you use rescue inhalers, how often you have to take breaks after performing simple household tasks, how long those breaks last and if you have to take additional breathing treatments.

Source: nerdwallet.com

Apache is functioning normally

Apache is functioning normally

Scalability, Insurance, Digital, Servicing, DPA Products; Events, Training, and Webinars

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Scalability, Insurance, Digital, Servicing, DPA Products; Events, Training, and Webinars

By:
Rob Chrisman

Tue, Oct 10 2023, 10:26 AM

“I dance like people wish they weren’t watching.” Someone sure is watching, and counting, empty houses. Lack of available housing inventory has helped keep housing costs high throughout many of the nation’s big cities, but nearly 5.5 million homes sit vacant across the nation’s 50 largest metropolitan areas. The average vacancy rate across these 50 metros is 7.22 percent, with New Orleans (13.9 percent), Miami (12.7 percent), and Tampa (12.2 percent) having the highest vacancy rates. Vacancy rates are lowest in Minneapolis, Austin, and Washington, D.C., the only metros in the study with vacancy rates below 5 percent. Just because an area has a high vacancy rate doesn’t necessarily mean that there’s something wrong with its housing market. Roughly one-quarter of vacancies are due to being empty for rent, one-fifth because they’re only used part time, and one-twelfth because they’re being repaired or renovated. (Today’s podcast can be found here. This week’s is sponsored by NotaryCam, your partner for The Perfect Close! Ease of use, additional closing compliance, better borrower experience, reduced timelines, and cost savings, what is stopping you from getting on the RON train with NotaryCam? Listen to an interview with Curinos’ John Sayre on key data points from the residential lending markets and how lenders are utilizing that data to make more informed decisions.)

Lender and Broker Software and Services

“If you’ve got buyers who need just a little more cash, get to know Down Payment Resource and its nationwide database of down payment assistance (DPA) programs for FTHBs, repeat buyers, teachers and first responders to name a few. At MBA Annual, catch DPR’s Rob Chrane on a panel with loan Depot’s Mosi Gatling, FormFree’s Christy Moss, iEmergent’s Laird Nossuli and Movement Mortgage’s Montell Watson to explore DPA’s role in reaching mortgage-ready borrowers (Tues. 10/17 @ 3 pm). Need more now? Schedule a meeting with us at Annual or download this case study on how Gatling produces nine figures working with the Nevada Rural Housing Authority to assist first-time, military and low-income buyers.” (STRATMOR’s current blog is titled, “Mind the Down Payment.”)

There are banks, and there are subservicers. Much rarer is the combination: a bank subservicer, a subservicing partner that also offers the surety and stability that comes with being a depository institution. This is the unique combination that Servbank offers. The great people, great tech, and best-in-class experience that is delivered to customers and clients is strengthened by the “bank subservicer” designation. The distinguishing effect for customers and clients? The safest, most comprehensive, and truly reliable partnership the industry has to offer. Partner with Servbank today.

For more than 30 years, Clayton, a Covius Solution, has been a market leader in loan due diligence, helping mortgage and capital market clients see and evaluate risk in their portfolios. Now Clayton’s best-in-class service and expertise is supported by its new digital platform, Focus. Focus allows clients to efficiently access deal information and seamlessly upload, validate, and work exceptions, all in one place with a single sign-on. From a correspondent lending perspective, the platform offers aggregators real-time access to conditions, loan grades and documents on the loans they are acquiring. Aggregators can also give correspondents viewing and transacting rights to their specific pipelines, while monitoring performance across all counterparties. Contact Tom Coffey, Clayton VP of Business Development, to learn more or to schedule a meeting with him at MBA Annual in Philadelphia Oct. 15-18 or at ABS East in Miami Oct. 23-25.

Boo! LoanCare’s bringing all treats (no tricks) to this year’s MBA Annual Convention in Philadelphia! Join Kevin Cooke, Jr., financial industry-veteran and recently appointed Head of Strategy & Business Development, and key members of Company leadership for the unveiling of two new proprietary consumer-facing digital platforms unlike any other on the market. “I am excited to bring a best-in-class opportunity to our partners to communicate and market products to their homeowners,” said Kevin. “Reach me at Kevin Cooke and let’s see how our seamless blend of tech innovation and exceptional user experiences can serve your portfolio.” Private demonstrations of LoanCare Analytics™ will also be available to those interested.

Matic, a digital home insurance platform built for the mortgage industry, recently announced an exclusive partnership with New American Funding to extend their marketplace of 50 A-Rated carriers into New American Funding customer offerings. New American Funding joins over 100 mortgage lenders, servicers and banks, representing 20 percent of loans processed in the U.S., that partner with Matic to integrate the insurance shopping experience into the homeownership lifecycle. Now more than ever, mortgage leaders are turning to Matic to help them offer value to customers, generate revenue, and reduce costs in a tough housing market. If you’re a mortgage leader, don’t miss out: book a demo with Matic to learn how to add an ancillary revenue stream that removes friction from the insurance process and keeps customers within your existing systems.

In an unpredictable market, forward-thinking mortgage lenders are focused on what can be done now to prepare for the next market growth cycle. In a recent survey conducted by Wolters Kluwer, many lenders point to one key factor: scalability. To ensure they can scale to meet borrower needs, more and more lenders are looking at investment in innovative, flexible technology as the key to increasing ROI and stepping forward as market leaders. Read more about the survey responses today and be sure to schedule a meeting at MBA Annual to speak with an expert.

Training, Events, and Webinars

Like every other month, with roughly a third of the month over with, October if flying by. What’s happening out there? A good place to start is here, and click on “events” for conferences in the future.

Looking to learn all about DSCR loans for the rental market from an industry expert? Join LendingOne’s upcoming webinar events featuring Samuel Bjelac, VP of Third-Party Originations. He offers his valuable insight into DSCR loans, along with a comprehensive overview of how LendingOne is helping mortgage brokers and their clients succeed in the rental market. Tomorrow! Save your spot for October 11th at 2PM. DealDesk: Focus on DSCR Loans for Rental Investment Properties: Register Here. Monday, October 16th at 2PM. Register for this free webinar presentation in collaboration in NAMB: Investment Property Solutions for Mortgage Brokers: Sign Up Today. For more information about the LendingOne Third-Party Originations Channel, call us today to learn more: 866-794-0937 or visit our website.

Home ownership remains the de facto American Dream, and as a credit union you are well-positioned to help your members make that dream a reality. So why do so many members choose to finance their home purchases elsewhere? Join Mark Teteris, CMB, and John Dumonsau from Optimal Blue on Oct. 24 for an ACUMA Inside Track webinar titled “Mortgage Pricing and the Member Journey.” During this knowledge-packed session, you will hear from experienced mortgage industry professionals on how you can position your credit union for mortgage success by creating a structure that provides members with the information, tools, products, pricing, and confidence to secure their home loan with you. Save your seat today.

Today is the next Mortgages with Millennials with Kristin Messerli and Robbie Chrisman, and sponsored by National MI. Tune in every Tuesday at 10AM PT to the weekly video show designed to empower mortgage professionals to tap into the millennial market. This show demystifies the psychology of first-time homebuyers and offers strategies to win more market share with a key segment of the market. Sign up for a weekly reminder with the link to join and a sneak peek into the next episode. Today you’ll hear from Michael Sarracini, the CEO of Keyspire. After building a multimillion-dollar real estate empire by the time he turned 25, he has trained more than 100,000 real estate investors to build wealth through real estate. As a young and successful investor, Michael will bring a unique perspective on how the next generation perceives real estate and the messages they need to step into the market.

Looking for more in-depth commentary on weekly mortgage news? Register here for “Mortgage Matters: The Weekly Roundup” presented by Lenders One. Every Wednesday at 2:00 PM EST/11:00 AM PT is a dive into a range of mortgage-related topics, including market trends, interest rate fluctuations, innovative mortgage products, and industry advancements. Listen to a unique mix of age perspective, expertise, and charisma to the screen, ensuring that the information is not only educational but also entertaining. Tomorrow’s features Plaza Home Mortgage’s head of capital markets, Mike Modell.

ConFi Today’s third session webinar, Wednesday, October 11th 11:30 am–12:30 pm PT | 1:30 pm–2:30 pm CT | 2:30 pm–3:30 pm ET; Real Talk About Artificial Intelligence: How Will Enforcement Activity Impact the Use of AI in Consumer Financial Services, will focus on the latest issues and enforcement trends related to financial institutions using AI tools.

Friday the 13th is The Mortgage Collaborative’s Rundown covering current events in the mortgage market for 30-45 minutes starting at noon PT in “The Rundown”. Tom G. and I are joined by Delmar’s head of business development Victoria DeLuce.

PRMG University TPO October Training Calendar: Learn about the FHA 203(h) product, the Mortgage Insurance for Disaster Victims program. Friday, October 13th | 1:00 PM – 2:00 PM PDT. Join PRMG University to learn about PRMG’s non-QM Expanded Access product which provides options for bank statements, express documentation, assets for qualifying, reduced derogatory seasoning and much more. Friday, October 20th | 10:00 AM – 11:00 AM PDT. Join PRMG University and Essent to learn how to review short-term rental income guidelines, when you can use it as income and how to document it. Monday, Oct 23rd | 1:00 PM – 2:00 PM PDT

As we celebrate America’s independence, we have many other reasons to celebrate as well. This October 15-18, we’re taking the original gathering of real estate finance professionals to the birthplace of our country, and we’re celebrating some of the reasons you’re going to love it: MBA’s Annual Convention & Expo 2023.The largest annual gathering of real estate finance professionals, this is the one event you need to gain access to the industry’s power players and innovators. Be inspired and get informed by engaging speakers on the Main Stage. Meet with dozens of exhibitors in THE HUB and get hands-on access to the latest products and services. Dive deep into Breakout Sessions to get the insight you need on all the facets of the business.

Appraisal Buzz new course: Review Case Studies Residential. Apply the review process that you learned in Review Theory-Residential by walking through a case study that focuses on a two-stage review assignment. Day one begins with a quick refresher of review concepts. From there, you will work on an assignment that gets dropped on your desk much like it does in real life. Working in groups, as well as individually, you’ll identify and analyze the components of the case study review assignment. October 16 – 19, 10:00 AM – 2:00 PM CT. 14 Hours DE, 1 Hour exam.

Arch MI October webinars. Google CEO, Sundar Pichai says “AI is more profound than fire or electricity or anything we’ve done in the past.” If you’d like to find out how you can use this powerful tool in your business, register to attend the upcoming Arch MI webinar on Wednesday, Oct 18th. Ginger Bell, CEO, Edumarketing will be sharing how to leverage AI for your marketing. Register here.

Join CoAMP and Deephaven Mortgage as they present NON-QM Best Practices October 19th @ 2:00 PM, MDT. Discover how to incorporate Tech and Traditional Training to become subject matter experts. Cost: Member & Member Guests – $25; Future Members – $50

Join MMBBA for Lunch & Learn: New Homes & Builder Update Thursday, October 19 from 11:00 am-1:00 pm. Hear Zonda’s Nicollette Chapman deliver a powerful and impactful class about the current state of the housing market, the new construction market, local updates, and how to secure more builder business all backed by Zonda’s data.

Join Mortgage Bankers Association of Metropolitan Washington for a fast-paced, fun presentation walking through the Fed’s monetary policy, economy, interest rates and housing as we quickly approach 2024. “Reading the Markets: A Real-time Economic and Interest Rate Discussion” with Bill Bodnar, Thursday, October 19, 10 – 11 am.

Capital Markets

Rates are, at least temporarily, down this morning based on war in Israel, but we’re still talking about the jobs data. Nonfarm payrolls nearly doubled consensus expectations as 336k jobs were added in September and the prior months were revised up. 70 percent of the increase could be attributed to the leisure and hospitality, government, and health care sectors. The unemployment rate, labor force participation rate, and average workweek all remained at their August levels. A resilient labor market and rising wages put pressure on the Fed to keep rates in restrictive territory.

We also learned last week that the number of available jobs also increased unexpectedly to 9.6 million led by a sharp increase in business and professional services. It is possible that the strikes involving major labor unions will add to wage growth later this year although other non-union workers are likely to see slower wage growth this year. Elsewhere, manufacturing continued to contract for the eleventh consecutive month in September, however at a slower pace than prior months. The services sector grew for the ninth consecutive month and production increased at a faster rate. Overall, inflationary pressure remains despite certain areas of the economy having contracted due to the Fed’s tighter monetary policy.

This holiday-shortened week for the bond market brings the $101 billion mini-Refunding (e.g., the Treasury auctioning off securities) as well as updates on inflation, including PPI and CPI, inventories, and Michigan sentiment. The week is also heavy with Fed speakers, while the minutes from the September FOMC meeting will be released tomorrow. Regarding MBS and besides today’s Class A 48-hours, Class B net out is on Friday. We’ll also see bank earnings: JP Morgan, Citigroup, Wells Fargo, and PNC Financial, along with BlackRock.

Today’s economic calendar is already under way with NFIB small business optimism for September (dropped to a four-month low in September, reflecting worsening expectations for the economy and credit conditions). Later today brings wholesale inventories and sales, a Treasury auction of $46 billion of 3-year notes, and no fewer than four Fed speakers. Now that the bond market is back open, we begin the trading week with Agency MBS prices better than Friday’s close by roughly .250 and the 10-year yielding 4.70 after closing last week at 4.78 percent.

 Download our mobile app to get alerts for Rob Chrisman’s Commentary.

Source: mortgagenewsdaily.com

Apache is functioning normally

Apache is functioning normally

PNC Bank issued pink slips to an undisclosed number of employees this week as part of its focus on controlling costs. 

“As part of our strong focus on expense management, we have reviewed our organizational structure and have identified an opportunity to better position our company for long-term success. This includes a shift away from work not fully aligned to our strategic priorities and will result in a reduction in staffing levels in certain areas,” the company’s spokesperson said in an emailed statement.

While the spokesperson declined to comment further, an affected former employee’s LinkedIn post showed that her position would be eliminated on Dec. 1.

No Worker Adjustment and Retraining Notification (WARN) notices were submitted to the Pennsylvania Department of Labor & Industry. PNC is headquartered in Pittsburgh.

“We’re going to have to take a hard look at where we can generate savings in this company without cutting the potential for growth,” Bill Demchak, CEO of PNC, told analysts during its Q2 earnings call in July. 

After setting a target to cut $400 million in expenses by 2023 at the beginning of the year, PNC increased that to $450 million in July. 

PNC’s non-interest expense for the first half of 2023 was $6.7 billion, up from $6.4 billion during the same period in 2022.

HousingWire was unable to confirm which lines of business were affected, but it follows PNC’s layoffs in July when it made “limited organizational changes” within its mortgage and home equity groups, the spokesperson confirmed. 

PNC has a retail banking business that covers residential mortgage, corporate and institutional banking and asset management. 

The company reported total consumer loans of $101.8 billion, including residential mortgages, automobile, home equity and credit card loans in the first half of 2023, according to its 10-Q filed with the Securities and Exchange Commission (SEC). 

Of the $101.8 billion in consumer loans, residential real estate loans took up 46% of the total volume at $46.8 billion in origination as of June 30. 

PNC has 11,986 registered mortgage loan originators, according to the Nationwide Licensing System (NMLS).

Source: housingwire.com

Apache is functioning normally

Apache is functioning normally

Properly formulated, the weighted average cost of capital, or WACC, merges a business’s cost of capital across financial components. Once weighted for proportional balance, WACC bundles all company financial sources (with an emphasis on equity and debt) and adds them together. The final figures represent the current value of a company, or a project or initiative undertaken by a company.

Understanding the weighted average cost of capital, or the cost of capital, is both a business calculus and an economic term. It’s a term to describe the relationship between two key economic components – equity and debt, as a financial ratio.

What Is WACC?

The WACC is the rate that a company must pay, on average, to finance its operations. It’s a figure that business leaders use to make strategic decisions, and a data point used by investors as part of their fundamental analysis of a company.

In general, a low weighted average cost of capital shows that a business is in good financial health and can more efficiently and economically pay for company operations, either through debt financing or equity financing. Earnings are robust enough to curb company debt loads and offer solid investment returns to market investors, which should increase capital to the company.

Recommended: How to Know When to Sell a Stock

A higher weighted average cost of capital suggests the opposite outcome. The firm is likely paying more to handle their debt and paying more to raise capital for company projects. That scenario can lead to a business with a lower valuation with less demand from investors to buy company stock or invest in its bond issues, as returns on those investments would likely be lower.

Who Uses Weighted Average Cost of Capital?

The weighted average cost of capital formula can be used by a number of people in or around a business. That can include company management, who can use it to guide decisions about the direction of the company, along with investors and investment analysts, who are keeping tabs from the outside.

High vs Low WACC Calculations

Investors can use the results of WACC calculations to help guide their investment decisions. In general, a high WACC may be a turn-off for some investors, as it indicates that the company isn’t as likely to provide investors with a high rate of return. The opposite is also true – a low WACC may be a bullish sign for investors.

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What is the WACC Formula?

The calculation used for WACC includes cost of equity and cost of debt, along with additional economic components commonly used by businesses.

Here is how those components are broken down in a WACC formula.

• E = Market value of the business’s equity

• V = Total value of capital (equity + debt)

• Re = Cost of equity

• D = Market value of the business’s debt

• Rd = Cost of debt

• T = Tax rate

Once you have those numbers, here’s how to calculate WACC:

How to Calculate WACC

Calculating WACC looks like this:

WACC = (E/V x Re) + ((D/V x Rd) x (1-T))

To use the WACC formula, you need to first multiply the costs of each financial component and include that component’s proportional rate. Once you’ve arrived at those figures, multiply them by the company’s corporate tax rate. The resulting figure gives you the company’s weighted average cost of capital.

Difficulties With Using WACC

There’s a caveat to be mindful of when calculating the weighted average cost of capital: The formula heavily relies on the cost of equity in its equation, which is largely unknown, since that value can vary. A company’s share capital depends on what the market (i.e., investors) are willing to pay to invest in the company, as exhibited by the company’s stock price.

Given that unknown, companies must evaluate the expected return of their stock, through an investor’s eyes. That represents the value of the company’s equity and any effort to hide or diminish that value could put a damper on a company’s share price.

That’s why companies factor the estimated cost of equity into the WACC equation – they view the cost of equity as the amount of capital a company needs to spend to maintain a stock price that’s largely acceptable to market investors.

An Example of the WACC at Work

As an example of the WACC at work, let’s look at a company’s weighted average cost of capital – let’s say ABC Company has an annual return of 15% and an average cost of 5% annually to pay for operations. That dynamic represents a 10% profit on its investment in the company.

From an investor’s viewpoint, that same profit scenario represents 10 cents of every dollar invested in the company. That’s 10 cents of capital a business can use to either invest back into the company or can be used to pay down company debt.

On the other end of the equation, if XYZ Company generates an annual investment return of 10% yet owns an average annual cost of capital of 15%, that company is down 5 cents on each dollar invested in the company.

In that scenario, XYZ Co. is in a bind that no company wants to find itself in – its costs of doing business exceed its investment returns. That translates into fewer investors until the firm realigns its financing picture, cuts debt, and gives investors a good reason to buy its stocks and bonds.

Why the Need for Weighted Average Cost of Capital?

The weighted average cost of capital breaks down a firm’s cost of doing business by weighing the debt (including bonds and other long-term debt) and equity structure (including the cost of both common and preferred stock) of the company.

Primarily, companies need to finance their operations in three ways:

1. Debt financing

2. Equity financing

3. A combination of debt and equity

No matter which option a company chooses, sources of capital come with a financial cost.

The WACC seeks to find the “true cost of money” in operating a business by comparing the cost of borrowing of capital to run a company versus raising capital through equity to pay for common business needs like property and equipment, research and development, human capital (i.e., employees), and business expansion, among other costs.

When company executives know the WACC, they can leverage that financial ratio to decide on funding the firm through debt or equity financing. The cost of equity will depend on the value of the company’s stock, while the cost of debt will reflect interest rates.

Basically, companies require an accurate weighted cost of capital to properly weigh expenses and provide fair cost of analysis on projects in the pipeline. Additionally, companies can leverage their WACC to evaluate their capital structure and weigh the myriad financial sources needed to fund operations, proportioned accurately.

Using one form of capital to fund a company’s operations makes the cost of capital formula fairly simple. However, when companies use multiple forms of capital the formula becomes more complicated and requires financial modeling.

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The Takeaway

The weighted average cost of capital is not exactly a precise measurement of a company’s financial health, but it can be a highly useful one, especially for investors. If you’re looking at potentially investing in a company, it can be one piece of information that provides more detail into the company’s relative strength.

The data is easily found in a publicly-traded company’s balance sheets, which are made available to investors on a regular basis. Just visit the company’s web site, locate its financial information page, and look for the relevant data.

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FAQ

How can you calculate WACC for a private company?

Calculating WACC for a private company is more or less the same process as calculating WACC for a public company, but the calculation will need to be done using estimates of the company’s value, perhaps through cash flow analysis.

What is the difference between WACC and Required Rate of Return (RRR)?

While WACC and RRR are similar, the two are distinct from one another. In fact, WACC can be a tool used to determine RRR, but the two produce different values that can be important for investors for different reasons.

How does WACC influence sensitivity analysis?

WACC calculations can change in different scenarios, and sensitivity analysis can help determine how and what those changes are. Effectively, by experimenting with different values, you can get a sense of how sensitive a WACC calculation is, which can be important for investors.

Photo credit: iStock/fizkes

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2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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Source: sofi.com