Free Money Finance

Most Common Problems Identified by Home Inspections

Buying a Home: The Missing Manual lists the most common problems and issues identified by home inspections as follows:

• Improper surface grading and drainage.
• Improper and undersized electrical wiring.
• Older and damaged roofs.
• Deficient and older heating systems.
• Poor overall maintenance.
• Structural problems.
• Plumbing problems.
• Exterior items.
• Poor ventilation.

Maybe I'm always looking at great homes or I've only used weak home inspectors, but I've never had one identify anything very major. Sure, there have been tons of small "fix this" and "replace that" suggestions, but nothing like "the wiring in the home needs to be replaced" or "the roof is ready to cave in." Then again, maybe these occur infrequently (just because they are the most common, doesn't mean they happen regularly.) Maybe a home inspection is like insurance -- you pay for it though you rarely need/use it (and hope you don't have to.)

And just to clarify, I'm talking about a general home inspector. We did have a specialized inspector check the water in a private well once and it came back high in chemicals that we didn't want to drink. That simple inspection (that the seller had to pay for, BTW) saved us a ton of money -- and kept us from buying a home in retrospect that we really didn't want/need.

How about you? Have any of you ever had a home inspector come up with something significant that either saved you a ton of money (the seller had to pay to fix it) or kept you from buying a house that wasn't up to snuff?

How to Handle Six Money Dilemmas, Buy a Home OR Rent a Home

Money magazine lists six money dilemmas and what to do about them. Over the next few days, I'll list each dilemma, what Money suggests as the best option, my take on the issue, and additional FMF posts on the topic. Here goes:

Dilemma #5: Buy a home OR rent a home

Money's suggestion: Buying is best as long as you're confident you'll be staying put for several years.

My take: Got to go with Money on this one. And while the real estate market hasn't exactly been on fire lately, now's probably a GREAT time to buy if you plan on living in a home for several years. Home prices probably still will go down a bit, but we've got to be at least close to the bottom at this point.

FMF posts related to this topic: Make Money When Buying a House and Save Money When Selling a House, We Made an Offer on a House, They Laughed at Us

What's your take on this issue?

How to Handle Six Money Dilemmas, Prepay Your Mortgage OR Invest

Money magazine lists six money dilemmas and what to do about them. Over the next few days, I'll list each dilemma, what Money suggests as the best option, my take on the issue, and additional FMF posts on the topic. Here goes:

Dilemma #4: Prepay Your Mortgage OR Invest

Money's suggestion: Investing wins.

My take: I have a mixed response on this one, but for the most part, I'm going against the flow.

I would first fully refund my retirement plans (for me it was my 401k) and THEN I would pay off debt. I know that Money recommends investing that second portion as well, but we simply wanted to be rid of the debt and owe nothing to anyone. Could we have made more money with another option. Probably. Did we rest better at night knowing we didn't owe anyone anything? Certainly. Have we done well financially as a result of our plan. Yep, our net worth has continued to grow dramatically throughout the years.

FMF posts related to this topic: Paying Off a Mortgage Versus Investing, My Formula for Buying a House

What I Might Do with My Old House When I Buy a New House

On my post titled We Made an Offer on a House, They Laughed at Us I had a reader ask what we planned to do with our old house. I said we had several options and that I should probably write a post about them. This is that post.

Before we get into the specific options, let's start with a few facts:

• Based on real estate prices in our market and what other homes like ours are selling for, I'd guess that we'd get a high of $200,000 and a low of $170,000 for our home if we put it on the market today.

• We own it free and clear, so there's no debt we'll need to take care of.

• I've been subtracting $5,000 a month from the value of the house in Quicken, so right now it's in my net worth at a value of $145,000.

• I plan to keep taking $5,000 out per month (yes, a $5k hit to my net worth each month) until the house's value hits $100,000. More on why I'm doing this later.

• We can afford to own this home and buy a new one at the same time -- we don't have to sell the old one to get the new one. That said, I'm not crazy about owning two homes.

Ok, so now that we've set the stage on where we are financially, let's review the options:

• Sell it outright -- We could put it on the market and sell it at market price just like most people who sell their homes do. Advantages: It gets us the highest possible dollar amount for our home. Disadvantages: We have people tracking through our house for weeks or months, it can be expensive (if we use a realtor) and it can be very time consuming (if we don't use a realtor.)

• Rent it out -- We could rent the property, wait for the housing market to turn around, and then sell it. Or simply keep it rented out forever. Advantages: Steady stream of income. May help us out tax-wise as I believe we could deduct depreciation. Disadvantages: Being a landlord. Yeah, I could hire someone to do this but I'm still not sure I like the thought of someone else living in my property (and doing who knows what to it.)

• Let someone else use the house free of charge (for instance a pastor or someone else who may not be highly compensated) -- This is where the "let's use it to help others" ideas start. This isn't a bad idea, but it's not my favorite. Advantages: Helps someone in need. Disadvantages: Probably the most expensive option for us.

• Sell it for an extremely low price to a needy family -- We know a few families that simply can't afford a nice home. One would even like to adopt but simply doesn't have the space in their home. Our house has more than enough room. If we sold them our home for, let's say $100,000 (hence the target figure in my net worth), they could afford that. Advantages: We get to help out a needy family AND we get some cash for the house. Disadvantages: It's not the best deal financially. Plus we'd need to REALLY spell out the rules (such as they'd have to live in the home a certain number of years or sell the house back to us for $X -- we don't want to sell to them simply to have them put it on the market and sell it for $130,000.) We'd probably need to get a lawyer involved.

• Give it away -- Yes, we could GIVE it away to a charity, take the charitable tax deduction, and eliminate our budgeted giving for a few years to "pay ourselves back" (at least until we got to $100k.) Advantages: Very easy to do. Disadvantages: Takes some time to re-coup the costs (via taxes and saving versus giving for a couple years.) Would CERTAINLY need to get a lawyer/accountant involved.

So those are the options we're currently considering. Not sure which one we'll end up with or if there are other ideas yet to come. If I had to pick one at this point, I'm leaning towards the "sell it for an extremely low price to a needy family" option. But we still have a lot of time before we need to decide that issue.

Anything I missed? I'm sure there is.

For more thoughts on this crazy housing market, see these posts:

• A Buyer's Biggest Weapon in This Real Estate Market

• St. Joseph Saves the Real Estate Market

• One Positive of the Housing Decline

A Buyer's Biggest Weapon in This Real Estate Market

As I was reflecting on our recent house bid and the fact that many people are predicting that the worst of the real estate market decline is still ahead of us, I began to think that a buyer's biggest weapon in this real estate market may simply be patience. If it's true that prices will go down before they go up, then there's absolutely no need to rush to buy. In fact, every day that passes is one that likely delivers a better price for us. I know, I know, many of you have already told me this -- guess it's just finally hitting home to me.

Of course, if I wait too long, I'll be buying on the upswing. But the general consensus appears to be that 2008 will be a down market and the next few years will be flat. If that's the case, then I have a good amount of time to find just the right place -- and enough time to sock away a very sizeable downpayment.

So I'll bide my time, keep my ears to the ground, and know that with every tick of the clock, my patience is being rewarded with a lower price. ;-)

We Made an Offer on a House, They Laughed at Us

A couple weeks ago we went out and saw several houses with the intention of bidding very low if we found something acceptable. (Our agent knew we were going to do this since she had suggested it.) The next weekend we saw two of the houses again and one of them was good enough for us to move into -- at the right price. None of us were in love with it (especially my wife who said, "I could work with it"), but we were willing to move for a great deal since it had enough of what we were looking for.

There were many reasons we thought this house could sell for significantly less than the list price including:

• The list price was $549,900 which was a joke. Sure, it was a two-year-old, beautiful house, but these guys haven't been reading the papers. No way they're going to get close to that for the place. I've been in enough homes in this area to know they'll be lucky to get in the high 400s for it.

• We'd heard that the owners were desperate for a bid. They had moved out of town to take another job and were carrying two homes -- one more than most people want to fund.

• We didn't know if this was the case or not, but maybe the owners' new company would help them financially if they were able to sell the home but got a low price for it. I've seen companies kick in $20,000+ to get a key executive's house sold and maybe this was something available here too.

• It's winter time and the prospect of heating an empty home in Michigan for five months can't be enticing the way heating prices are now.

• There aren't many buyers in this category of home, so they probably haven't had much traffic.

In short, they were prime for a low-ball offer if anyone ever was.

So we did a little "would you take the house for this?" test. For instance, I said to my wife, "would you take this house for $100,000?" Of course she would. We could turn around and sell it for far below market and make a killing.

"Would you take this house for $200,000?" Yep.

"Would you take this house for $250,000?" Yep.

We ended up at $350,000 and I emailed our agent to feel out the other agent on this price.

Let's just say, they weren't interested. ;-)

But seriously, their realtor did say they'd probably go as low as $450,000 -- which is AMAZING to me -- a $100,000 discount! (BTW, a few days later, they officially lowered their asking price to $499,000.)

Oh well, the more I thought of it, the less I liked the place anyway.

It's very difficult to find the right home on the right land in the right location. We've seen a ton of homes with one of these right where we want it to be, a few with almost two (I say "almost" because it wasn't exactly what we wanted, but close), but none with all three options right in the sweet spot of what we're looking for. But we can afford to be picky -- we have a great place to live and, if anything, I think the market is going down more before it heads back up. If so, every day we wait is more money in our pockets. ;-)

St. Joseph Saves the Real Estate Market

I'm sure many of you have heard the suggestion that if you want to sell your house you need to bury a St. Joseph statue in the yard. For those of you who haven't you can check out this piece titled Desperate home sellers turn to St. Joseph. It gives all the details on this "method" for selling homes.

I particularly like a few sections of the article. Here's the first:

Yet most home sellers favor the simpler 3- or 4-inch models sold in a "Home Sale Kit" -- most of which are made in China and often depict St. Joseph as a carpenter.

One Web site, Good Fortune Online, has a kit with a statue of St. Jude -- known as the patron saint of hopeless causes -- "to help those with a difficult property to sell," the site says.

Another site, Stjosephstatue.com, takes orders for its "Underground Real Estate Agent Kits" at (888) BURY-JOE.

Many of the kits cost $5 to $7, and include burial instructions and a prayer.

That's what Hicks found at The Angelus Religious Goods store at 641 Diamond Ave. NE in Grand Rapids. Her choices included a pewter version for $19.95.

There are kits for this? Who knew?

And, BTW, is it St. Joseph or St. Jude?

And here's something I found extremely interesting:

"You have to make sure that St. Joseph is facing your house," laughed Mary Kay Schneider, who fields a lot of questions about St. Joseph at the Dominican Center Book Store on East Fulton Street, but does not sell the statues. "If you face it out, the neighbor's house across the street will sell instead."

I have a couple neighbors I've been wanting to get rid of -- now I know how! ;-)

But what cracked me up the most is the variety of ways that this procedure is "supposed" to work (this was in the hard copy of the paper -- not on the site linked above). It lists the various options on how to bury a St. Joseph statue correctly:

• Bury upside down next to the "For Sale" sign.
• Bury it 3 feet from the rear of the house.
• Place it somewhere on the property.
• Bury it next to the front door facing away from the home.
• Bury it in the front yard.
• Bury it 8 inches to 12 inches deep.

Aren't some of these total opposites of the others? For example, how can it be near the front door or in the front yard and still be at the rear of the house? Maybe you need to bury multiple statues?

As some people in the article note, the real focus should be on prayer, which I'm all in favor of. Then again, if a little statue could help you sell your house, why not go ahead and plant one?

The Inside Scoop on Getting Your Property Taxes Reduced

Here's a great comment left on my post titled One Positive of the Housing Decline that I thought you all would want to see:

My wife is a property tax assessor for our county, as well as a licensed appraiser at the state level. In our state, residences are reassessed every 3 years. The process is known as a "mass appraisal" because it has to be done at the neighborhood level (note that several "subdivisions" can make up a neighborhood. Quality of construction, square footage, land, and additions are some of the factors taken into account.

I don't recall the exact numbers, but in these mass appraisals, the goal (and state law) is that something like 90% of the homes should be within 10% of their "market value", that is, the price that the market would support if the property were sold in an arms-length transaction. In a year where market values are down over a three year span, the valuations of those homes being reassessed will be down. In a year where the market values are up over a three year span, the assessments will go up.

Also, due to the "average" nature of the mass appraisal, the chances of a property being undervalued are about the same as a property being overvalued. Of course, you don't hear of many people appealing their undervaluation. ;-)

While beastlike is correct about the budget being arrived at before tax rates are set, the assumption that the dollar amount of your taxes remains the same only applies if everyone in the county appealed their valuation when home values in the area drop.

The law is a bit tricky on this point -- Any property owner is required to file a "return" (think income tax return) each year during a certain window. This return simply allows you to state what you believe the property to be worth. The county can either accept your value or reject it. If they reject it, you have the right to appeal. If you do not file a return, the county's previous assessment becomes your automatic return. In essence, by failing to file a return, you are saying that you agree with the previously assessed value.

However, those homes that are up for their three year reassessment will be assigned a new value, and the property owners notified of the new assessment. These owners (one-third of the county each year) have the right to appeal their reassessment.

If you (a) did not file a return or (b) were not reassessed, then you have NO rights to appeal. This is the important part, at least in our state, and I would assume many others. If you believe the value of your home has dropped since your last assessment (or you believe a previous assessment was overvalued), FILE A RETURN. Otherwise you are stuck.

Mistakes made in square footage, additions, land, etc. are pretty much always corrected IF the process above is followed. If you come to an assessor after the windows have passed, their hands are pretty much tied. The values have been passed on to the county board at that point, and the budget will be set based on those values. The assessors cannot modify them after that point unless you filed a return (with a different value) or were reassessed in that year.

If you filed a return or were reassessed, and believe that you could not sell your property for the amount that you are assessed for, then you need to support that with reasonable comparisons of nearby, equivalent, arms-length transactions for the time period being appealed. For every appeal, my wife will research nearby transactions and see if they support the property owner's numbers. If they do, then she will go ahead and modify the assessment accordingly. It's understood that some percentage of the properties will be overvalued due to the nature of mass appraisals, and it's her responsibility to change these when they are brought to her attention.

Do NOT bring comparisons that are unrelated to your property--A father selling to a son, a foreclosed home, homes too far away from yours, vastly different square footages, vastly different acreages, etc. You are looking for comparisons that are "similar" to yours.

You can always sit down with the assessor and ask them for their comparisons. If you disagree with their comparisons, then you can appeal to the next step, in our state the Board of Equalization for the county. I would guess that your chances here depend on the quality of the assessor. If they know what they are doing, it's going to be hard for you to come up with better comparisons that convince the board that your valuation is better. For instance, my wife's valuations have been accepted over the property owner every single time in the last two years of appeals (about 40-50). Of course, she's also one of the few county assessors who is also a licensed appraiser.

If you lose before the Board of Equalization, you still have another option--you can appeal to the Superior Court. At this point there is a filing fee ($80?). My understanding is that the county attorneys do tend to settle a lot rather than go to court.

All said, it's going to take a lot of time and effort to argue an assessment that's close to the real value. If there are obvious mistakes, then you should absolutely appeal to have them corrected (make sure you file a return in order to do so). If you believe there is no way that you could sell the property for what the county's assessed value, then take that case to the assessor -- Chances are good that they will make the modifications if your numbers are reasonable. This is going to be the most likely course of action in this "down" market that we are currently seeing in most areas.

Regardless of what state you are in, now is probably the time to educate yourself on the process you need to follow next year to make sure your value is correct.

Thoughts from House Hunting

We looked at seven houses (supposed to be eight) this past Saturday and I thought I'd share my thoughts on the day with you. Here goes:

• Most sellers are still not fully reflecting market conditions in their pricing. I've seen about 40 homes since this past summer and I'm pretty familiar with what homes should sell for -- and many are still way over-priced. It's almost as if they know buyers will be asking for deep discounts so they are purposefully pricing their homes higher to compensate.

• For goodness sakes, if a buyer is looking at your home, be sure you're NOT there. Of the seven homes, two still had the owners at home, and as buyers, we just didn't have the freedom to look as closely as we wanted (which means we weren't as interested when we left -- we just blew through them.)

• We couldn't see the eighth house because the guy's wife "couldn't get the house ready on such short notice." (Three days.) No wonder their home has been on the market for six months now.

• There is no perfect home. To try and get the land, the house, the location, the design, and so on to be all something we like is not going to happen. As such, we're sorting through our priorities and ranking what's the most important to us.

• Looking through all these homes makes us really appreciate our home more. We like the design and size of our home. If it was only on more land and in a different part of the city, we wouldn't be looking at all.

• Two of the places looked interesting and we may make a lowball offer on one of them. Our next steps are to ask some questions and see the homes again.

• It's good to have a couple of contenders. That way, the sellers (and our own agent for that matter) know that we have other options and they'll be as motivated as can be.

• One of the homes we like has no one living in it. The owners moved to Texas and, according to our agent, are desperate for an offer. Music to my ears. :-)

Help a Reader Save His Home

Here's an email I recently received from a reader:

My [family] currently lives in SW Missouri. My wife and I both work full time jobs but have had a string of events that have thrown us so far behind that GMAC has foreclosed and sold our home of  8 years . It did not sell to anyone else at the auction, the mortgage company still has it . We have to come up with $72,000 in order to satisfy them and get our home back, we are currently waiting to find out when we have to leave (which really stinks this time of year).Conventional loans and family are not an option for borrowing money to save our home .We are in a position to make payments now but too little to late as far as GMAC is concerned . I'm hoping that someone can offer advise or know of someone that can help . We don't want a hand out, but we are asking for a chance to get back on the right track without having to turn our children's lives upside down.

There was a car wreck (not our fault, so we replaced the vehicle at our own expense and the other party's insurance has not yet paid and is dragging it out in a big mess) then vehicle failure, our two vehicles died three weeks apart, more complications and money spent . I got sick with a viral bronchitis which took me from work for two weeks. Then my wife had a medical condition which resulted in two surgeries and about three weeks off of work. The result of all of this and a bad credit rating (now worse due to the foreclosure on my name not my wife's) has left us here asking if anyone has any ideas or knows someone that might help give us a chance to save our home.

Anyone out there have any thoughts for this guy?

Keep Yourself Out of Foreclosure with a Loan Modification

I've had a few people ask me what they should do to avoid foreclosure on their home. One option is to request a loan modification. Here's what Yahoo has to say about this method:

A loan modification is a change in the loan contract agreed to by the lender and the borrower. The modifications of major concern today are those designed to reduce the payment burden on borrowers faced with impending rate increases that will make the mortgage payment unaffordable to them. Many are subprime borrowers.

Home owners faced with this prospect, whether they are already delinquent or not, should request a modification. They are very unlikely to get one if they don't ask, and they should make the investment required to make their case. The stakes are very high: They can save their house and their credit.

The piece goes on to give details of how to do this -- and it's followed up with a part 2 for more information. If you're in the situation described above, you'll probably benefit greatly from checking out these pieces.

For those of you looking for other housing related pieces, here are some of my favorites:

• How to Find the Perfect Home: The Four C's

• My Formula for Buying a House

• Don't Let a Bank Tell You How Much to Borrow for a Home

One Positive of the Housing Decline

Though it's a hollow consolation, here's the bright side of the housing decline: if your house is worth less, it's likely that you owe less property taxes. That is, if your local government is accurately reflecting market conditions and updating their records. Unfortunately, they aren't too excited about doing this since it will decrease the amount of revenues they earn. So, I'm guessing they'll simply keep most assessments the same or offer a token decrease (like I got last year.) Well, if you think you deserve more of a break (and many people will based on what's happening in the housing market), you can challenge your bill. And while only 2% of people do challenge their assessments, Business Week says that 33% of challengers win their appeals.

Business Week gives some advice on how to challenge your property assessment:

Experts advise taking one of three approaches. The simplest is to find evidence that the local tax assessor made a mistake when evaluating your property. Since many communities rely on drive-by inspections, this isn't a far-fetched argument. Perhaps the assessor assumed your home had more bedrooms, bathrooms, or improvements, such as a finished basement or attic, than it actually does. A second way to get your assessment trimmed is to marshal property-tax records to prove that homes similar to yours carry lower valuations. You may also have grounds for an appeal if you can show that the type of real estate you own--a condo or luxury home, for example--has failed to keep pace with the local market.

I'm not sure what I'll do this year, but I'm keeping a close eye on the issue. I'm thinking of having my real estate agent give me an estimate of what my home will sell for and use that as evidence in a possible tax assessment challenge.

Anyone done this (challenged their property tax levels)? What happened?

Make Money When Buying a House and Save Money When Selling a House

Here are a couple new, interesting websites I received an email about last week. They are designed to save you money when you sell your house and make you money when you buy it. But before we get to them and what they offer, let's review the home selling and buying process.

When a home is sold, the realtors involved (buyer's and seller's realtors) earn a 6% commission on average for selling the home. That commission is paid for by the seller. Generally, the commission is split evenly between the listing agent and the selling agent. If the listing agent also sells the home, he keeps the entire 6%. So if your home sells for $200,000, you'll end up paying the realtors involved $12,000. That's a pretty big chunk of change, but theoretically it goes to pay for all the ads, MLS fees, and other work done by the realtor.

On the buying side, you don't have realtors fees as all of these are paid for by the seller (though some will argue that they are factored into the cost of the house, I'd say the house sells for what the market declares to be a fair price and the fees are then paid by the seller after the fact.) But that doesn't mean realtor fees don't factor into your buying efforts. For instance, if both you and the seller have agents, you'll pay $200,000 for the house above while the seller will get back $188,000 ($200k - $12k; yes, there are other fees, but I'm trying to keep this simple.) But if you find the seller or he finds you without any agents involved, he is now willing to take a lower price since he'll "save" $12,000 if you buy from him. So let's say you split the difference and you buy the house for $194,000. With no realtors, you save $6k on the home and he makes $6k more. It's a win-win situation!

The two sites I noted above are designed to help you eliminate the realtors' fees as much as possible so more money goes into your pocket. Here's how they do it:

• IggysHouse lets you list a home you want to sell on the MLS system in your area. Since this is something that's usually closed to people looking to sell their own homes and is a key to getting your house in front of agents in your area, this is a valuable service. The site also gets your house listed on Realtor.com (a major real estate website) and offers some other benefits as well. And all of this is FREE. You'll still need to do the other marketing for your home, but this is a big step to saving a bundle (at least 3% of the selling price of the home as you won't have an agent and maybe the whole 6% if you find a buyer without an agent). For details on how this works, visit their how we do it page.

• BuySideRealty basically acts as your agent -- though for a much cheaper rate than normal. The reason they can do this is that they offer fewer services than a regular agent (translation: you have to do much more of the work -- see their how it works page for details) But your reward for doing so is that they'll give you back 75% of the realtor fees they generate. So in the example above, they would have earned $6,000 in realtor fees from the seller and they would give you $4,500 back. Not bad at all for doing a bit more work yourself.

I see sites like these becoming more and more common as people look to eek out whatever equity is left in their homes. It could even work for us, IF we decide to sell our house when we buy the new one and IF we had the time to do much of the legwork ourselves (which we don't.)

I'm interested in your opinions -- what's your take on these sites and/or this do-it-yourself trend?

And for those of you who are skeptical out there, no, this is not a paid post for them. Though I wish it was! ;-)

Foreclosures Hit High, Could Be Time to Buy for Me

MSNBC recently reported that housing foreclosures jumped 30 percent in the third quarter. While they noted that 45 out of the 50 states reported higher levels of foreclosures than last year, they also said the highest concentrations were in a handful of markets that made up more than half the total. The markets? They are: California, Arizona, Florida, Nevada, Ohio, Texas and Michigan.

Yep, Michigan, my home state. Seems like we're in the hotbed of foreclosures now (though much of the action is in Detroit -- across the state from me) which means it's getting to be a better and better time to be a buyer. I've got my eyes out -- I'm hooked into my realtor's database for any new houses on the market -- but I don't yet have an inside track on getting foreclosure information. I'm considering subscribing to a service like RealtyTrac or Foreclosure.com, but at $40 a month, they seem a bit pricey.

Anyone have any experience with using either of these sites (or something like them)?

Paying Off a Mortgage Versus Investing

Here are some thoughts from a Yahoo Finance piece comparing paying off your mortgage versus investing instead:

As I see it, if money is even the slightest bit tight, hold onto it and pay off the mortgage month by month. There's nothing magically good about having a paid-off mortgage, but there's something seriously bad about not having ready liquid assets even if your home is paid for.

In short, unless you're sitting on surplus cash, I see no urgent reason to pay down or pay off your mortgage in a hurry.

As a "pay off your mortgage" advocate, here's my response:

1. I agree that you shouldn't put all your available cash into paying off your mortgage. You need an emergency fund and need to be saving for retirement (at least enough to get the full employer match) as well. If you can do these two things and still have cash left over, then paying off your mortgage is a viable alternative. This is the situation I was in when I paid off mine.

2. There's a big difference between theory and reality. In theory, paying a mortgage month-to-month and investing the rest is a great idea. The numbers will certainly support it as the better alternative. But how many people actually go ahead with the "plan" -- to actually save? I've seen many start to save for a few months or even a couple years, only then to decide that they "need" a big-screen TV, new boat, etc. and blow it all. So much for the "plan." Reality is different than theory -- especially in personal finances.

3. Everyone generally discounts the built-in insurance that comes with having a mortgage being paid off. For instance, two people lose their jobs. One has his home paid off and the other doesn't. Who's more worried? Yeah, if the second guy saved/invested like he should have, MAYBE he's less worried. But it's likely he hasn't exactly stuck to the plan (re-read point #2), so the guy with the home paid off is probably more secure.

4. What's the "I don't owe anything to anyone" feeling worth? Most people don't know because they owe something to someone. As a person who's had no debt for ten years now, I can tell you it is certainly a nice feeling. You hear the term "debt freedom" (or something like it) thrown around all over the place, but you don't really know that there is a true sense of freedom until you become debt free. And that's a feeling money can't buy.

5. My wife wants us to be debt free, so we are. ;-)

Real Estate Meltdown in Full Swing

As most of you know, I'm looking to snag what once was a high-priced property for a much lower-than-peak price. Yes, we hope to move areas within our city, giving us a better location, better house, and more land. We've been looking for a few months now, but we haven't found exactly what we'd like. And sellers haven't gotten really desperate -- or at least I didn't think they had until I got this email from my real estate agent (we were discussing the number of listing going down recently as well as prices in the market):

We may see a drop in number of listings around the holiday's. You're right, there are a lot of desperate people out there.  If you are seeing homes out there that are close to your price range don't forget that we can offer less. ( A LOT less)  Sometimes people won't lower their price online but if they actually have an offer in front of their face they may take it.  You wouldn't believe some of the deals I've put together recently!!!  Right now I have a house that started out being listed at 599 and it may sell for 321!!!!  The moral of the story is: Don't let the listed price stop you from going to look!

Ok, the meltdown is official. When the price of a house drops almost 50%, either they were smoking dope when they priced it at $599k or things have gotten really, really bad. It's probably a combination of the two, but that's just a massive drop. Unbelievable!

Buy House, Get Your Money Back (Plus a Free Set of Parents to Care For)

Well, house sellers are getting more and more creative as the real estate market shows no signs of turning around soon. I expect to see some really outlandish stuff/incentives before the tide starts to turn, but for now, this one's pretty good. Basically, these people are offering the buyer their money back when the sellers die. In addition, there's a "kicker" if someone wants to go the extra mile. The details:

Bob and Ricki Husick came up with a more creative twist: Whoever buys their four-bedroom, 31/2-bath home on Fountain Hills Drive in Pine would get their money back after the Husicks die.

Not only that, but if the buyers are willing to care for the Husicks in their old age, they could also inherit the Husicks' retirement home in Arizona for a total estate now worth about $500,000. The couple has no heirs.

Now while it's not clear to me, the article implies that this is not all that the buyers are offered. Consider this:

"Why not go for the works? So if we're worth $2.5 million, you get it all," said Mr. Husick, 55, a former Wachovia mortgage broker who would like to continue working after he and his wife move to Arizona.

"That's one way you get a built-in child or a built-in someone to care."

Of course, the value of the estate could erode, too, depending on the Husicks' fortunes and the cost of their long-term care. But Mr. Husick points out that he began saving for retirement at age 21, and he's willing to let the buyers write the will to ensure they inherit the Husicks' assets.

"We don't want you to think we're trying to trick you," he said. "You draw it up and we'll sign it."

So I think this is the deal:

1. The buyer buys the house.
2. The buyer takes care of the Husicks until they die (which is probably 30 years or so down the road.)
3. The buyer gets the entire estate when they die.

A few questions here:

1. Do the Husicks think this deal will really provide someone who wants to care for them? Or will it provide someone who wants to speed up their demise? (Or maybe just put them in the cheapest retirement home they can find.)

2. What's to stop the Husicks from changing the will?

3. How do the buyers know the Husicks won't spend all the money before they die?

4. Does anyone else think this whole arrangement is strange?

I've got to give them kudos for the PR angle here. They got a big feature in their local paper -- that should make their house stand out from the crowd. The article notes the same:

"Gimmicks create attention, which means more viewers and more activity. Then again, the buyer may say 'Take the price of the car out of the sales price,'" Mr. Hanna said.

That's what I would do. If someone had a "buy a house and get a car" deal, I'd take the price of the car out of the house's offer price and start negotiating as if that was their starting offer.

So why are they doing this? They're starting to get desperate:

If buyers prefer a more conventional arrangement, the Husicks are willing to sell their home, without any strings, for $399,900. The house, which the couple is selling themselves, has been on the market for 11 months.

Yep, almost a year on the market and no signs of a sale. I think it's going to get brutal before it gets any better.

I'm still looking for exactly the right home in the right location at the right price. To some degree, sellers in our area simply haven't gotten the message yet that they need to drop prices DRAMATICALLY. When they are setting the prices on their homes, they are looking at comparable sales for homes that sold a year ago -- before the market when down 10% or so. They need to start at 10% down, and then be more aggressive if they want to sell now. Once a large number of sellers realize this, prices should drop like a rock, and I'll be waiting. ;-)

Bankruptcy or Foreclosure?

Here's a question MSNBC recently attempted to answer: What is better on your credit report - foreclosure or bankruptcy?

The summary of their answer:

Like most aspects of personal finance, there’s no “one-size-fits-all” guidelines for which is the least bad alternative.

Real helpful, huh?

Actually, it's a pretty good piece once you dig into it. The article starts by saying that both bankruptcy and foreclosure are bad for your credit and you should avoid them both. Duh! But then they go on to give some decent tips for avoiding foreclosure including setting up a new repayment plan, modifying the loan, and various other ways to work with your lender to get you both through a potential foreclosure.

I'm thinking that banks are going to be getting more creative in helping people deal with these issues. Otherwise, they're going to end up holding a ton of real estate that they don't want to have.

Personally, I'd do everything I could to avoid either of these -- cut spending, get a second (or third) job, sell items I wasn't using, borrow money from relatives, and so on. I think they would both be a nightmare to go through.

So what's your take on the issue -- would you choose foreclosure or bankruptcy? Or maybe you'd just decide to not get yourself into a position to have to choose? ;-)

Issues Not Usually Addressed When Discussing Paying Off Home Debt

Here's a piece from Money magazine's series from The Mole, a financial planner who gives the inside scoop on what planners usually recommend, and what he sees as the right answer instead. In the latest edition, he advises people to pay as much as they can on their homes -- having as little debt as possible -- and implies that we should pay off our homes as soon as we possibly can. His main thoughts:

Financial planners also sometimes try to argue in favor of debt, the argument being that the less money you put down, the more investment gains will be magnified.

If some financial advisor gives you this line, say "no thanks" in no uncertain terms. These other investments will bring other risk, a ton more in fact. The only thing we know for sure is that the advisor and the mortgage broker will make more money.

My advice is to be your own banker when possible and minimize debt.

His argument above is one that many people don't really consider, myself included. We've talked a lot about whether or not people should pay off their homes early or instead just pay the monthly mortgage and invest any extra. During these discussions, we've noted that paying off the mortgage is a guaranteed return, but we haven't addressed the issue that it's much less risky than investing in stocks. Yes, there's a big expected return difference, but there's also a big risk difference.

BTW, he also notes that while paying mortgage interest will get you a tax deduction (making the cost of a mortgage lower), if you invest in stocks in a taxable fund instead of paying off your mortgage, you'll pay taxes on your gains, thus lowering the amount they generate for you.

It’s Your Home, Stop Raiding the Piggy Bank

Here's a piece courtesy of ARA Content. It gets a little sales-oriented at the end, but I thought the information it provided overall (don't keep pulling equity out of your house) was worth the brief infomercial.

Most Americans dream of owning their homes free and clear someday, part of their retirement nest egg. Yet, for many, this dream gets farther and farther from reality as they break into their home equity piggy banks.

“I am somewhat surprised at the number of our loan applicants, even many of our excellent credit quality customers, who have taken equity out of their homes over the last few years via cash-out refinances or home equity loans,” says Gary Miller, a 25-year veteran of the credit industry and CEO and co-founder of FirstAgain LLC, a financial services company based in San Diego, Calif. “Now, with larger mortgages and often less equity, particularly with the recent home price depreciation hitting many areas of the country, these people face a longer and more difficult path to debt-free home ownership.”

Before you decide to borrow against your hard earned home equity, consider the following:

* Are you using your home equity for something that actually adds value (equity) to your home, such as a remodeling project or a swimming pool or for something important in your life such as a child’s education or unexpected medical bills? This can be a prudent way to finance such expenditures. Home equity loan rates are attractive and the interest is usually tax deductible if you itemize. However, if you are using your home equity to finance vacations or pay your bills, think again, as you may be overextending yourself.

* Are you using a fixed rate home equity loan with the shortest term you can easily handle? Adjustable rates may make sense for the financially well off (and financially sophisticated) but for most people, a fixed rate and a fixed monthly payment avoid future payment shock and is the better alternative. Paying off your loan sooner obviously builds your home equity more quickly. Think of it as forced savings.

* Cash out refinances can make sense if you are improving your overall mortgage terms and using the cash for an appropriate purpose. Again, consider shortening your loan term if possible.

* Are you thinking about a home equity line of credit (HELOC)? This product is marketed like a credit card with adjustable teaser rates, ease of use and other incentives, encouraging you to use your home equity for just about anything with long repayment periods. Be careful. Having a HELOC in place may be prudent for certain purposes (for example, a future emergency) if you can be disciplined about not normally using it and pay it down quickly if you do.

* If you have excellent credit, you may qualify for an attractively priced unsecured loan that doesn’t require pledging the equity in your home. This type of loan, such as FirstAgain’s AnythingLoan, offers highly competitive, fixed interest rates and an ease of use not available with mortgage products. Entirely online and paperless, you can apply in the morning and have $10,000 to $100,000 in your account by the afternoon. It takes just minutes versus the days required for a mortgage loan.

“Given the more difficult lending environment caused by the recent sub prime meltdown, home equity products have become both more expensive and more difficult to obtain as lenders tighten their credit criteria and loan to value guidelines,” says Miller. “Our product represents a great alternative for those with excellent credit who don’t have a home equity loan option.”

To learn more about FirstAgain and its AnythingLoan, please visit www.FirstAgain.com.

I Almost Saved $100k on a Home!

Many of you know that we've been shopping for a new home, hoping to pick up a steal while the housing market is in the toilet. We've been looking for a few months now and as we head into winter, it looks like we won't be going anywhere this year.

But an interesting series of events last week almost made us take action. Here's what happened:

• This past summer, we saw a house that we kind of liked (it was a great house, but I didn't really like the land that it was on -- too sloping). It was priced at $349,900 -- not a price that was out of our range, but we didn't like it that much at that price.

• Our realtor has a website where we can flag properties and "watch" them. If something changes (like a sale or price drop), we get an email notifying us of the change. We liked this house enough to put it on our watch list.

• Last Monday I received an email -- there had been a change on the house. The price was now $239,900! I knew that this was either a mistake or the sellers were in big trouble and needed to sell the home quickly. I didn't know if we'd want the house even at $239k, but it certainly made the place more attractive. I emailed our agent and asked for details.

• She got back to me and told me what I suspected -- it was a mistake. The real price was now $339,900. Someone had typed a "2" instead of a "3".

Like I said, I'm not sure we would have gone for it even at that price, but it was exciting there for a day or so. I wonder what would have happened if we (or someone else) simply decided to make an offer on the place at $239k. Think the seller would have been surprised to know their realtor put in the wrong price by $100k? ;-)

Foreclosures in Your Neighborhood Will Decrease the Value of Your House

I found this tidbit in the September issue of Kiplinger's:

Homes lose about 1% of their value for each foreclosed property within an eighth of a mile.

As you might imagine, this is bad news for all of us for several reasons:

1. It seems foreclosures are all over the place -- thus making it likely we'll have one nearby.

2. We've probably yet to see the worst of the foreclosures -- there may be many more coming to our neighborhoods.

3. It's cumulative -- 1% loss for EACH foreclosed property near you. Ouch! These can really add up if you're in a harder hit area.

How to Use Staging to Sell Your Home

While I'm on vacation, some great bloggers are filling in for me with a few posts each day. The following is from Cindy at Staged 4 More:

Staging has become a new buzzword of the real estate industry. I often have homeowners calling me to inquire about staging, but after in-depth conversation, I realize that they often a) don’t know why they need to stage their house, they just know they should and b) have a complete misunderstanding about staging and therefore have unreasonable expectations of what goes on when a professional stager stages his/her home.

To explain staging in brief: Staging is not about decorating, it is about marketing. Think of when Nike comes out with a new pair of shoes. They package the product and make it fabulous and appeal to as many potential buyers as possible before they roll out for the mass consumers. Same with selling a home. As a home seller, once I have decided to place my home on the market, my home now becomes a listing, a real estate product that opens its doors to the general public. What staging does is to package and market the home to make it show-ready to appeal to a broad spectrum of buyers. Therefore staging helps to sell listings quicker in both hot and cold real estate markets, and potentially for more money.

So now your home is staged, now what? Just because of your home is staged, it doesn’t mean that it’s automatically attracting buyers to open houses. It still has to be marketed properly. Like great food is paired with great wine that brings out the food’s flavor and depth, same with your home. Now your home is staged, it needs to be pair with good photographs to make the home attractive. Staging has duel purposes: not only staged homes should to show well in person, staged homes should also show well on the internet. This is the online shopping age, people even buy cars over internet and it is no longer strange to buy homes off ebay. With 80% of buyers start their home purchases online, it is extremely important to pull the buyers into the open houses by having great listing photos.

One of the pitfalls that I have seen as a professional stager is that agents don’t market their listings properly by presenting the home with poor photographs: poorly lit, bad camera angle or unclear photos. If the listing photos are unattractive, it is very easy for buyers to click to the next one.

People often think that staging is a fix-it-all for all sorts of problems, especially when the home is not selling or it is overpriced. Unfortunately, in reality, that is not the case. You still need to leverage staging to your best advantage. Going back to the Nike example, it’s great now that you have got the well-designed shoes (the product), and you have packaged it well (staging), you still need a strong marketing campaign to introduce your products and appeal to the buyers. The selling process can be very complicated and there are a lot of variables that are against you in succeeding of selling your home at the price that you desire. In a competitive market like now, it is even more important to make sure everything is working to your advantage as a seller. Great staging is only part of it. It also has to work with other factors such as listing photography, proper pricing, and strong marketing that will help your listing be the shiny penny.

Quick and Cheap Tips for Selling Your Home

While I'm on vacation, some great bloggers are filling in for me with a few posts each day. The following is from Cindy at Staged 4 More:

Home selling is not only a grueling process emotionally, it can also be grueling on your bank account. Here are a few tips that can help you to prep your home for sale, and at the same time not breaking your bank:

1. For exterior curb appeal:

a. Powerwash the exterior walls & windows instead of repainting. If your paint job is in fair condition (i.e. no visible holes in your wall or obvious discoloration from the sun), powerwashing the exterior & windows can make your home look like it just got a brand new coat.

b. Add tree barks or rocks. If you don’t have money to add plants in the yard, this is a way that you can still present a nice, clean simple look instead of just plain dirt that can look cold and unappealing to buyers.

c. Weed. Unruly yard means the homeowners don’t spend much time maintaining it, and if that’s the case for their exteriors, buyers are going to assume it’s going to be so with the interiors. It’s casting doubts in buyers' heads, and also a yard full of weeds creates bad first impressions. People want to buy a manicured yard, not a jungle.

2. Interiors:

a. Painting: Every home is different and the wear and tear of your interior walls can vary. In the cases where most of the paint job is in good condition, you can generally remove the minor scuffmarks, etc. with Mr. Clean’s Magic Eraser (it is truly magical, I highly recommend it). If your walls have visible traces of discoloration from the sun, look faded, or have visible holes from installing artwork, message boards, etc., I would recommend painting the interior walls. Pick a color that is neutral and not overpowering. Any off white colors will generally work. Swiss coffee from Kelly Moore is a great interior color with white trims. If you are really strapped for cash and cannot paint the walls, I would recommend cleaning the walls, clear off any cobwebs, and paint the trims. Overall, paint is really the cheapest thing you can pay for, do it yourself in one weekend, and it makes the homes look renewed.

b. Cleaning: Think mother-in-law coming to visit clean! Buyers do pick your home apart, after all, they are not buying toilet paper in grocery stores. Buying a home is the biggest purchase in someone’s life. It is very important to keep the home clean to gain a good first impression and also show that you have maintained the home while you lived there.

c. De-cluttering: You are planning to move, right? So let’s just start packing things a little bit early. Buyers may not go into your drawers, but they will definitely poke their heads into your closets. They want to know about the storage space in this home and how much of their stuff can fit in here. I generally recommend removing 40%-60% of things from the closets, such as clothing that you are not using in this season, things you no longer need, etc. Do recycle and donate these unwanted items so they are not ending in the landfills. I also have encountered homeowners stacking their bills and papers neatly on their desk when I asked them to de-clutter. NO. Not only leaving your bills out is an identity theft concern, you are also distracting buyers from your house. They will look at your clutter instead of your house. Generally buyers cannot visualize the home without clutter, because they are already so distracted by the clutter they see. So make it easier for buyers to move in mentally into the home by de-clutter and keep the home very clean.

d. De-personalize: Put away any collections that you have, whether it is troll dolls, personal photos, trophies or whatnots. They are your precious items, you certainly don’t want them to be stolen or broken during a crowded open house. You also do not want buyers to be distracted. We are human beings and we are naturally curious about other people’s lives. There is a reason why reality television is still very hot in this country. Don’t give buyers reason to not look at your home.

e. Light fixtures and hardware: If your light fixtures are outdated, I recommend updating them to more modern options. It not only gives the home a more modern, polished feel, but the newer fixtures also throw off more light which will brighten the home more during open houses. You can generally get light fixtures at a very reasonable price at Home Depot or Lowe’s. If you have a real estate agent, ask your agent to sign up for Lowe’s realtor program, where you as a homeowner can get coupons and discounts at Lowe’s. Similarly with updating hardware like knobs on kitchen cabinets, switch plates, etc. Little touches can make a huge difference in perception. 

3. Hiring real estate professionals:

a. Real estate agents: Any real estate transaction can go awry at the last minute and getting an offer is only the easy part. The battle lies in negotiating, and a good, experienced agent will help you to get the equity, protect your interests and hold your deal together. But if you are determined not to pay someone commissions, be prepared by hiring legal professionals to make sure you are covered legally. You also should be prepared to do all the legwork of marketing, paying for ads in the newspaper, getting signs for marketing, showing homes on weekends, and dealing with phone calls from unqualified buyers, low ball offers and many random people. It can be very mentally trying and physically demanding.

b. Stagers: Unfortunately there are no industry ethics and regulations to restrict individual stagers. So do ask for experiences, portfolios, business insurance documents and references. I do know of stagers using stock photos or I have seen unethical stagers stealing other stagers’ photos, so a good way is to ask about the before and after photos: “Oh, tell me about the story behind this one.” If the stager has a blog, it is also a great way to see what kind of personality you are working with.

If you are strapped for cash for full on staging, ask to see if you can do partial staging. That means staging only the key rooms of the home: living room, dining room, kitchen, master bedrooms, etc. If that is still not working for your budget, ask for consultation reports where you can spend between $150-$500 depending on individual home size, the professional stager will provide you a detailed to-do report so you can DIY staging yourself. The report should also include a follow up visit to make sure everything is ready. A good stager should be able to work with your budget, all you need to do is communicate openly and honestly what you want and need. But do remember that you cannot have champagne taste on beer budget. There still needs to be a reasonable expectation of what your stagers can do given your budget.

Help a Reader: Can You Buy Too Little House?

I recently received this question from a reader:

My husband and I will be moving next summer.  He is a physician finishing training looking at jobs in the $200K + range.  When we look at how much of a house we can afford, we laugh a bit because we have no intention of spending that much. We have been paying down his medical school loans for a few years, and have only about 40K left.

So is it beneficial or detrimental to spend too little on a house (in terms of taxation and investing)?  We think it would be better to save and invest for retirement.

I cannot seem to find any info addressing this topic.  Everything is about how much one can afford.

I sent her my thoughts but also said I'd ask all of you. So there you have it -- what would you suggest she do?

When Will the Housing Bust Be Over? Not Soon

Here's an MSNBC response to a reader's question on when housing prices will stop falling. They start by covering the fact that no one knows, but then they at least take a shot at it and give a prediction. After citing all the facts, MSNBC comes to this conclusion:

Each local housing market is different, and each transaction is unique. But there’s ample evidence that many sellers haven’t yet cut prices enough to attract buyers. The most telling sign is the level of unsold homes on the market, which as of July was more than double what is was when the market was roaring ahead.

That backlog is probably one of the best indicators of a market turnaround: As that number comes down, it’s a sign that prices have reached a point where buyers are coming back into the market in big enough numbers to clear the unsold inventory.

But that may take some time. One big reason is that many would-be sellers are sitting out the slump and waiting for a turnaround. If they see signs of the market stabilizing and list their homes all at once, the backlog of unsold homes could shoot up again — putting more pressure on prices.

No one can say how long this will take to play out. During the last two major housing slumps — in the early 1980s and the early 1990s — it took several years before prices and sales recovered. Earlier this year, some housing market watchers had been looking for an upturn by the middle of next year. But after the recent turmoil in the mortgage market and monthly data showing foreclosures still rising, some of those forecasts have been pushed back to a recovery in 2009.

So, maybe now isn't the best time to buy, huh? We're not really in any sort of hurry though, and at this point I think we'd have to see something closer to perfect before we jumped in to buy. I'm guessing we won't find a new place this year but will hit it hard next spring and will find something before the summer is over. Sounds as if prices may even be better then than they are now but, of course, 1) no one knows and 2) every market is different. Don't you just love real estate? :-)

I Told You So

I just have to bring up the issue of bad mortgages again. Most of you won't remember this, so let me give you a bit of history.

I've written all sorts of posts on what I call "evil house loans." A few of them are as follows:

• 50-Year Mortgages
• Interest-Only Mortgages
• No Money Down Mortgages
• Other risky loans 
• 43% of First-Time Home Buyers Put No Money Down

In almost every case where I discussed these issues, I had one (or several) people tell me how I was wrong, how the loans were actually good, etc. I even had a mortgage broker join the fray and we went back and forth on the issue. But those people are pretty quiet now that we've seen the truth in what I was saying -- that many people who had no business borrowing as much money as they did were over-extending themselves and asking for financial disaster. And many of them are now living with the consequences of that financial disaster.

It's funny for me to see the press tout that people are headed back to "traditional" plans for buying homes -- selecting a home you can afford, putting a good downpayment on it, and so on -- exactly the sort of stuff I recommend in my formula for buying a house.

People, this isn't rocket science (otherwise, I couldn't write about it.) Personal finance really just boils down to a few, simple concepts that everyone can understand and everyone can follow. If you do decide to follow them, you'll end up being well off. If you don't, well then, you're going to face challenges in your finances.

I'm not saying "I told you so" to brag or to say "see, I was right!" but to remind you that next time you're tempted to go against sound financial principles, think long and hard before you proceed. The people who took out subprime mortgages thought they were "getting a good deal" or "making a good money move" or simply over-extending themselves. They went against wise financial counsel, thinking they were smarter than everyone else. And now we're seeing the fruit of those decisions, and it's not good.

Don't let the same thing happen to you.

Is Your House an Investment?

My boss and I have an on-going debate. He says his home is an investment (thus he has a nice, big house as part of a golf course community) that will grow in value and provide for him in retirement. He's moved several times in his career and has always made good money on the sale of his homes. I, on the other hand, have a much-less-expensive "average" home (nice, but nothing special) and prefer to put as much as I can into the stock market. My thought is that a home is closer to a purchase than an investment and thus I want to get a good value on it and put as much money into something else that really performs.

Money magazine takes on these issues in the September issue where it asks if your house is a nest egg. In the piece, they list and refute three myths:

• Myth: My home is a sure investment
• Myth: Downsizing will leave me flush with cash
• Myth: I can always tap my equity and invest it for even better returns

And they end with this "bottom line":

Saving for retirement is still Job No. 1. Your home may provide a roof over your head in retirement, but you'll need cash if you want to eat.

I'll be sending this article to my boss. ;-)

In the magazine (not online) they also have an interesting graphic that compares 51- to 56-year-olds net worths "today" (really 2004) versus in 1992 and how the growth in that time has mostly been in home values (Money labels the graphic "House Rich, Cash Poor".) Here are the stats:

• Total net worth in 1992: $136,260
• Total net worth in 2004: $152,000
• Difference: +11.6%

• Total nonhouse wealth in 1992: $49,140
• Total nonhouse wealth in 2004: $47,500
• Difference: -3.3%

My thoughts on these:

1. So, held over long periods of time, it appears homes do grow in value, huh? Duh! Of course. Still, that fact alone doesn't mean they are a good replacement for stock investments. In fact, it can be argued that renting and investing is a better deal than buying a home.

2. I remain shocked at how little net worth people have. Now there are a few caveats to this data. It doesn't say whether it's average or median information, so we're in the dark there. Also, the information doesn't include "401k, pension income, and business wealth," all of which could be a decent amount. That said, even if these doubled the amounts above, the net worth numbers are still paltry for people in their early to mid 50's. Come on -- some of these people are 10 years from retirement age!

3. The nonhouse wealth is really distressing. These people have less than $50k liquid net worth? And it's gone DOWN in the 12 years measured? Unbelievable.

To Add Value to Your House, Add a Bathroom

In Money magazine's September issue, they note that "for the surest bet in home remodeling, build a new bathroom." They go on to list the typical increase in a home's value when various bathroom configurations are added. Their list:

• Add a half bath -- 10.5% typical increase in home value
• Add a full bath -- 20% typical increase in home value
• Add a full bath to a one-bathroom house -- 23% typical increase in home value

My thoughts on these:

1. I wonder if these facts hold true in the present home-selling environment. They are from 2005, so things may have changed a bit since then. That said, maybe adding a bathroom is a viable strategy for people looking to sell their homes.

2. There's a fine balance between enough bathroom and too many bathrooms. We've looked at houses with 4 1/2 baths (and there's only four of us) in which each child has their own private bathroom. And these aren't $500,000 houses we're talking either. These are maybe upper-middle-class places in upper-middle-class to middle-class neighborhoods.

3. Whatever happened to the days of one bathroom per home? I guess it was too inconvenient. I remember growing up what a pain it was on Sunday morning when my dad "went in" with the paper only to emerge an hour or so later. Heaven forbid you needed to use the bathroom during that time. :-)

4. We often have more than one bathroom being used at the same time (think kids taking baths/showers at the same time in different rooms.) When we have company, we have all three bathrooms going at once when we all get up and are preparing to go somewhere.

How to Save on Realtor Fees

When I announced that we're house shopping, I said that the realtor we were talking to was willing to negotiate his commission to save us some money. I also said that I'd talk about how we got him to agree to do this, and that's what I'll outline in this post.

Let's start with some basics:

1. In our area, realtors earn a 6% commission on average for selling a home.

2. The commission is paid for by the seller.

3. Generally, the commission is split evenly between the listing agent and the selling agent. If the listing agent also sells the home, he keeps the entire 6%.

4. Out of the fees the realtors earn, some (most? a majority?) goes to the agent's real estate office. This doesn't really impact the negotiation process, but I mention it just to round out the basics.

Now, here are some assumptions for our situation:

1. Our current house is valued at $200,000 (probably a bit less than this now, but let's use this as a round number.)

2. We're looking for a house in the $350,000 range. We could buy anything from $250,000 to $450,000, so I'm using $350k in this example.

So, given these basics and this situation, any agent we use to help us buy a home as well as sell a home will earn the following by being selected as our agent:

1. He'll earn $10,500 ($350,000 * 3%) when we buy our home. Yes, he could earn twice that if he was the listing agent too, but since this is rare, I'll assume he earns the lower amount.

2. He'll earn $6,000 ($200,000 * 3%) when we sell our house. Again, he could earn twice that if he found the buyer as well, but again, that's not likely.

Given these facts, we represent $16,500 to whatever agent we select. That's a good chunk of change. Realtor's like money, so it puts us in a good place to negotiate.

Now before we proceed, it's key to note that a majority of the $16,500 is not paid by us. The $10,500 is paid by the seller when we buy the home. We only pay $6,000 to our agent (plus another $6,000 to the other agent) when he sells our place. Needless to say, we'd like to minimize the amount we pay to our agent (there's little we can do to impact the other agent.) And since we have the $10,500 paid by someone else to offer our agent, we're in a good spot to reduce our costs.

I approached the first agent we talked to with these facts and he immediately understood what I was saying. He said he'd certainly reduce his commission on our house if we selected him as our agent. Notice that we're discussing this before we decide who our agent will be. In fact, I said something like, "IF we select you as our realtor, would you be willing to reduce your commission when selling our home?" The emphasis was on the "if" at the start of the sentence. We have the negotiating power at this point and it's key to use it if you want to decrease your commission.

We decided not to go with this agent, but we ran into another one we like and had her show us a few homes. After a couple weekends of this, I brought up the issue of a commission reduction IF we used her to buy and sell our homes. She said that of course she'd cut her commission. We agreed that she'd "only" take 1% on our home, making $2,000 from us if someone else sold our home. As such, we will end up saving $4,000 -- not bad.

Of course, the issue is how much work she'll do if we buy our home first and then rely on her to sell our place for only $2,000. But it's not like the agent does much anyway. Having her will get our house listed on the MLS system (the computer system all realtors use to find homes for their buyers) which is 75% (or more) of the value in having an agent in my opinion. So I think we'll be fine. Besides, I'm not 100% sure that we'll sell anyway, so we may explore some creative options for our current house.

So that's it in a nutshell. If you're buying and selling a home in the same market, you have great negotiating power. Use it and you can save yourself a bundle.

Sellers Still Offering Big Incentives on Homes

I've written about some of the extra incentives sellers in my city are adding to their homes in an effort to get rid of them, but here's another piece that offers even meatier details. This time it's builders who are offering some over-the-top incentives to sell their homes. A few examples:

In Boca Raton, Fla., Gordon Homes is offering to pay two years of property taxes and insurance -- worth as much as $150,000 on houses priced as high as $2.5 million -- for buyers of completed homes at its upscale Azura development. In Richmond, Va., Orleans Homebuilders Inc. is offering "Sizzling Summer Sale Savings" that include as much as $100,000 off the cost of upgrades ranging from granite countertops to a conservatory. And in Medford, Ore., Diane Adams, a real-estate agent, is offering to pay four months of mortgage payments on the $975,000 house she and her home-builder husband constructed on 20 acres near Crater Lake. "I'd also negotiate a lower price, too," says Ms. Adams, an agent with Re/Max International Inc. "I just want this house off our books."

Across the country, the theme is the same: Home builders and home sellers are juicing their efforts to unload single-family homes. Among other things, they are offering buyers cash discounts of as much as 20%, throwing in a pool and agreeing to finish basements, garages and other spaces at a cost of several thousand dollars -- incentives much richer than builders were offering as recently as six months ago, when the downturn didn't look as bleak.

Yep. And the worst may be to come:

Since then, home builders have been hit hard as rising mortgage delinquency rates have made lenders much more reluctant to issue new loans, causing home prices to fall and inventories of unsold homes to rise. In June, new-home sales had fallen more than 40% from their peak two years ago, and more than half a million new houses -- nearly eight months of supply -- sit in inventory, according to the most recent report from the National Association of Home Builders. Contract cancellations, meanwhile, have hit nearly 30% for some builders.

Things may not get better for a while. The National Association of Realtors said yesterday that new home sales this year were likely to fall 19% from last year, worse than its previous forecast of a 17.7% drop.

They then share a few more stats/examples:

The latest survey taken by the National Association of Home Builders indicates that 56% of builders are now offering incentives, up from about 45% a year ago. And those incentives are growing bigger. In California's San Diego County, Chris Heller, a real-estate agent with Keller Williams Realty, says that until about 18 months ago, builders had little reason to offer incentives. Today, he says, "buyers are asking for the moon, and they're often getting it."

Mr. Heller says that on houses in the $700,000 range, his clients are typically scoring multiple concessions totaling as much as $80,000. Generally, that includes a price reduction, an agreement to pay closing costs or upgraded flooring or appliances -- or a combination of all three.

This trend toward more-generous incentives is "likely to intensify," says Mark Zandi, chief economist at Moody's Economy.com, citing a growing inventory of new homes, an oversupply of pre-owned homes on the market and "a glut of homes that are a year or two old that investors bought as rental property that have never been lived in, and those investors are now trying to sell, too."

My general thoughts on this topic:

1. All markets are different. Some (most?) are down, some are even, some are up. There are probably just more that are down and are down bigger that are driving the total numbers.

2. This article nails it on the head when it comes to what's happening in my market. I'm at the point now where I see a house listed for $350,000 and immediately think that the "true" selling price is probably $280,000 or so. I'm not sure if it's sellers over-pricing or just a market in freefall. One property I've been eyeing went on the market for $459,000 (over what I want to pay, but I knew it could come down a lot.) It's currently at $419,900 three months later. I think it can be had for $350,000 or below. Yes, these are wild times.

3. Even in a bad market, houses do sell. We had a neighbor sell his house in four days. There are things you can do to sell your house. For a few of these suggestions, see these links:

• How to Sell Your House in a Bad Market

• Home Sellers Yield High Returns Investing in Curb Appeal

• Selling Your Home in a Buyer’s Market

• Set the Stage for a Quick Home Resale

Build Your Own House Blog (And Final Giveaway!)

Today we wrap up a month of talking about the book Be Your Own House Contractor. It's been a fun time, I've learned a lot, and I hope you've enjoyed it too (with giveaways, what's not to love?). I'm going to end the series by pointing you to author Carl Heldmann's blog. It's just getting up and running, but if he keeps it up, the blog should be a great resource for those of us thinking of being our own general contractor.

And now for the final book giveaway. You can win a free copy of Be Your Own House Contractor. Here's how it works:

1. Leave a comment below -- any comment.

2. Sometime Monday, I'll stop by the post, stop the submissions, and name the winner.

3. It will be that person's responsibility to check back to see if they are a winner and then email me their contact information.

4. I'll send all the winners their books in one mass mailing going out the second week in September.

A few rules for these giveaways:

1. You can not win more than one prize.

2. I will be the complete and final judge.

3. Legal disclaimer: I can not guarantee safe delivery of the items. I'll send them via US Mail, so it's likely they'll be fine, but I can't control it and won't be held accountable if the mail system messes up.

4. If you win something and do not contact me within a week of winning, I reserve the right to give your prize away to another winner. Note again: I won't track down the winners -- it's your responsibility to come back and see if you won.

Good luck! Post a comment below for a chance to win this book!

How to Find the Perfect Home: Convenience

I'm highlighting Money magazine's excellent resource on how to find the perfect home. Today, we'll talk about considering the home's convenience. Their thoughts:

Cities offer great job and cultural opportunities, but they generally come with high real estate costs. To get more house for your money, you might look along the edge of a hot neighborhood or in a smaller town nearby. But will you miss the pace? Will you end up with a longer, pricier commute than you'd prefer? Will family and friends ever visit?

Money goes on to note that the average commute in 1990 was 22.4 minutes but in 2005 it was 25.1 minutes. That doesn't seem like a big gain, but when you consider you spend an extra 2.7 minutes each way for 250 days a year, that ends up to being an extra 22.5 hours a year! (not to mention the extra gas and car maintenance costs.)

Money also suggests you look at other factors like the nearest hospital, supermarket, pharmacy, and airport as well as the quality of the schools as a factor of convenience.

These are all factors to us with distance to work, distance to church, schools, and distance to supermarket being the key factors. It's a series of trade-offs for sure -- and we're yet to find the right mix.

Click here to read part 1 of this series.

How to Get a Really, Really, Really Good Deal on a Home

MSN Money has an article on EXACTLY the strategy I'm using as we look for a new house. As I've said, now is a great time to buy a house, and one reason it's so good is that prices are coming down, everything is negotiable, and sellers are not discounting any offer (even if it's a very lowball offer, they still have to ask if it's worth taking it now or risking holding on to the place for another year or so.)

This piece gives details on how to lowball a home seller. The highlights:

Home sellers are not automatically turning up their noses at offers that come in far below their asking prices these days as prices stagnate and the inventory of homes for sale remains elevated in many markets.

And here's an example of what's happening:

Before he even made an offer, the asking price had dropped by about $80,000, he said. After O'Heron made his case for an even lower price, he bought the home for $270,400, with about $11,000 in other credits. The net price ended up being $115,000 below the initial asking price.

And here's how he was able to do this:

O'Heron was able to take advantage of a market in which buyers decidedly hold the upper hand, with its excessive for-sale inventory due in large part to job losses in the area.

This is exactly the situation I'm facing. We're in a market that's been hit at least as hard as the national averages -- probably harder. We've had some job losses as a community and a state (Michigan), home inventory is up, time on the market is up, and selling prices are down. I think nothing of seeing a $375,000 home and thinking the "real" price is probably in the $325k range.

So here's what I do:

1. I identify homes we may be interested in. My agent emails me new listings based on my criteria, I have access to the local city MLS system, we search the paper each weekend, and we have friends and family (including a banker friend) on the lookout for us, telling us of new places they find.

2. Once we have a vague idea that the home is something we could be interested in, I go online and download the MLS information giving me all the details on the home. I get a consumer-based report, not the ones the agents get, so if I need extra information, I call or email my agent.

3. If it still looks good, we set up a visit and see the place. We match it up against our criteria and see decide whether or not it's a possibility.

4. If it's at least in the ballpark, I flag it on our agent's website and I get email updates on any changes in the property (sold, price reduction, etc.) Then I wait...and watch the price drop. One spot I have had my eye on started at $459k and is now at $419k a few months later. If it drops another $50k or so, we may make a move.

5. So far, none of the houses we've liked have been sold out from under us. And if they were, that would be ok, we haven't been absolutely in love with anything yet. But if we did find something we just HAD to have, I think we'd make an immediate offer. We'd still go low, but probably not as aggressively lower as we might otherwise. Who knows what would really happen, we haven't been to that point yet.

Should You Shop in One Place for All Your Home Needs? (And Giveaway!)

This month we're talking about the book Be Your Own House Contractor. Today, I'm highlighting a piece from the book's companion website at http://www.byoh.com/ that says you should shop in one place (as much as you can) for all your home needs:

Q: I found better deals for some items at various building supply companies. You say shop for as much as you can under one roof. I don't get it. If the main way to save money in this business is to shop well, you're wrong aren't you?

A: Well, it wouldn't be the first time! My reasons for buying as much as you can from one source haven't changed much over the years, its just gotten easier to do it as home building centers have grown and become more competitive. Your time is worth something (although one book reviewer who obviously never read my book accused me of not taking one's time into account), and shopping item by item takes a lot of time. You will get better service and a fair price, and you can still bicker over certain items with the one stop store.

If you can get one place to give you a quantity discount and you think they are close in price to what others would charge, then I'd say to stick with one place too. Why spend hours and hours more shopping to save a few pennies -- or even a few dollars. Then again, if you can save a boatload by shopping around, then it's probably worth the time and effort.

Want to know more? You can win a free copy of Be Your Own House Contractor. Here's how it works:

1. Leave a comment below -- any comment.

2. Sometime tomorrow, I'll stop by the post, stop the submissions, and name the winner.

3. It will be that person's responsibility to check back to see if they are a winner and then email me their contact information.

4. I'll send all the winners their books in one mass mailing going out the second week in September.

A few rules for these giveaways:

1. You can not win more than one prize.

2. I will be the complete and final judge.

3. Legal disclaimer: I can not guarantee safe delivery of the items. I'll send them via US Mail, so it's likely they'll be fine, but I can't control it and won't be held accountable if the mail system messes up.

4. If you win something and do not contact me within a week of winning, I reserve the right to give your prize away to another winner. Note again: I won't track down the winners -- it's your responsibility to come back and see if you won.

Good luck! Post a comment below for a chance to win this book!

How to Find the Perfect Home: Capacity

I'm highlighting Money magazine's excellent resource on how to find the perfect home. Today, we'll talk about considering the home's capacity. Their thoughts:

To squeeze into a budget, you might have to get a smaller - wait, I'm a real estate agent: cozier - house than you'd like. So forget about square footage, often a misleading number. More important is how that space is allocated.

They go on to say you should ask the following questions:

• Does it have enough closet space?
• Are there enough bedrooms?
• Does the kitchen suit my needs?
• Is there a spot to work from home?

A few thoughts on this issue from me:

1. This is probably the biggest area of disagreement between me and my wife. I want a house a bit bigger than our current place, she wants a house that's easier to clean (which means smaller.) I've offered to pay for a cleaning person to come in and take care of the cleaning for us all, but she doesn't want to do that. So, we remain in disagreement.

2. The comment about square footage and layout is correct. If designed properly, 2,000 square feet can seem like 2,300. And if done poorly it can seem like 1,600. That's a BIG difference.

3. Closet (and storage) space is key. We've seen some houses with closets so small you could barely fit a hanger in them.

4. Bedrooms is an issue for us too. We'd like to have rooms for our family, a spare room, and office, and a workout room. But I'm not sure we can find all this in our price range. That's six bedrooms if the place doesn't have a den, library or something similar. One solution for us: a basement designed the way we want it.

5. I ignore the kitchen when we look at homes -- my wife spends 50% of her time there while looking. :-)

6. I would love to work from home some day and want a place that gives me that option.

Money ends this section with a few interesting facts:

• The median American single-family home has gotten 61% larger even as household size shrank.
• Median American single family home in 1970: 1,385 square feet; In 2005: 2,227 square feet.
• Median American single family home in 1970: 3.14 people; In 2005: 2.6 people.

We have four people. Does this mean we can get a 3,426 square foot house and just be average? ;-)

Click here to read part 4 of this series.

Click here to read part 1 of this series.

Don't Pre-pay Subcontractors (And Giveaway!)

This month we're talking about the book Be Your Own House Contractor. Today, I'm highlighting a piece from the book's companion website at http://www.byoh.com/ that tells you not to pre-pay subcontractors:

Q: My foundation sub wants 25% down before he will start my job. This makes me nervous. What do you think?

A: I think you have good reason to be nervous. Find someone else. Paying for labor in advance has never worked and it is counter-productive to what you really want to accomplish, which is for your subs to do your job quickly and on schedule. Paying even honest people in advance destroys the incentive to do your job before someone who won't pay in advance. If they already have a healthy sum from you, the pressure is off to do your job. Besides, what if they get hit by a truck and die before they finish your job (assuming they ever start). Bye-bye deposit. Never pay for labor in advance.

Think about it this way -- if they get your money upfront, what's the incentive for them to do the job quickly and with excellence?

Want to know more? You can win a free copy of Be Your Own House Contractor. Here's how it works:

1. Leave a comment below -- any comment.

2. Sometime tomorrow, I'll stop by the post, stop the submissions, and name the winner.

3. It will be that person's responsibility to check back to see if they are a winner and then email me their contact information.

4. I'll send all the winners their books in one mass mailing going out the second week in September.

A few rules for these giveaways:

1. You can not win more than one prize.

2. I will be the complete and final judge.

3. Legal disclaimer: I can not guarantee safe delivery of the items. I'll send them via US Mail, so it's likely they'll be fine, but I can't control it and won't be held accountable if the mail system messes up.

4. If you win something and do not contact me within a week of winning, I reserve the right to give your prize away to another winner. Note again: I won't track down the winners -- it's your responsibility to come back and see if you won.

Good luck! Post a comment below for a chance to win this book!

How to Find the Perfect Home: Condition

I'm highlighting Money magazine's excellent resource on how to find the perfect home. Today, we'll talk about defining the acceptable condition of your home. Their thoughts:

Unless you're buying brand new, expect your home to need some upgrades. Just be sure the issues aren't structural. Better to go with a home needing cosmetic work or at least a less extensive overhaul. The investment you make in resolving these will improve your quality of life while living there and increase the resale value.

Money has included a green, yellow, and red light system as well to tell readers which repairs are ok to deal with, which are fine but may require a bit more expense, and which ones they definitely do not want to mess with.

In addition, Money cites a Harvard study that says new homeowners spend an average of $2,300 annually on improvements. Is that all? If we find a place and all it needs is $2,300 of improvements/changes, you'll find me outside in front of the house -- dancing in the street! ;-)

Click here to read part 3 of this series.

Click here to read part 1 of this series.

It's a GREAT Time to Buy a House

This whole subprime mortgage meltdown (by the way, have I said I told you so lately?) has really created a couple great buying opportunities for those of us who have managed our money correctly the past several years. First, the stock market has (and may continue to have) offered some great opportunities to load up on depressed stocks -- chances to get some stocks on sale as I like to say. (I know, Kurt, that you hate that phrase, but please indulge me) Second, for a potential house buyer like myself, now's a GREAT time to be a buyer. If you have some cash, low (or no) debt, and good credit, you can get houses for a steal these days. It's really just a matter of finding the right situation for living -- that's the biggest issue for us. Once we do find something we like, we'll be able to move quickly to get it at a great deal.

While now is certainly a great time to buy a house, the question is whether it's the best time to buy. Will prices go down even more? Will they be flat for awhile? Or have we seen the worst of it? Before I state my position on the issue, I thought I'd share a few facts. First, it appears house prices will be going down for a while longer:

Homeowners trying to sell last month faced the biggest glut of homes on the market in about 16 years, as declining sales and growing problems in the mortgage market helped push home prices down for the 12th straight month.

The National Association of Realtors said sales by homeowners slipped to an annual rate of 5.75 million last month, down 0.2 percent from the revised 5.76 million pace in June. Economists surveyed by Briefing.com had forecast the sales rate would fall to 5.7 million in the latest reading.

Not only did sales slip but the number of homes for sale jumped 5.1 percent, the group said, meaning there is now a 9.6-month supply of homes for sale, up from 9.1-months in the June reading. It was the biggest supply of homes by that measure since October 1991.

"We are literally swimming in an ocean of homes for sale. In fact, at 4.59 million units, we have the most raw inventory for sale in history," he said. "Until we work through this extremely large inventory glut, we're not going to see any momentum in home prices."

Basic economics tells us that a higher supply of homes along with lower demand (not as many buyers can even get mortgages to buy the homes they want) tells us that prices will need to give. There are more price declines to come:

"These are 'PC' figures -- pre-crunch," said Larson. "The mortgage credit crunch that began very late in July and picked up steam in August will likely put more downward pressure on home sales and prices this month and into the fall."

The report comes after Friday's government reading that showed new homes selling at a better-than-expected pace. But the reports showed more weakness in prices - which have become a major concern for the U.S. economy as a whole.

Here's what I'm thinking:

1. We haven't seen the worst of it yet -- prices will be dropping more. And in my market, we're a bit worse than the national averages, so we're probably due for more drops too.

2. But how much more is the key. I'm thinking we will see drops into the spring or maybe summer of next year before prices stabilize. Then I'm expecting a year or two of flat prices. That means we have plenty of time to select the best house for us -- and get it at a great deal.

3. That said, if we found something we really loved, we'd jump on it now. After all, we plan to live there a long time, so even if we buy now and the price drops continue, we'll reap it back in three to four years. Besides, what if I'm wrong and we've seen the worst of it, and prices start to go up. In that case, we've missed a bargain.

4. Or I could be wrong and we're going to see price drops for a year or so more, maybe longer. This is why it's important for us to buy a place we really like -- so we can stay there a long time and weather the storm.

5. As a seller, the current market is a nightmare. I'm looking at some creative ways for us to unload our house once we buy a new place. I'll keep you updated on those if we get to them.

How to Get Good Subcontractors to Work for You (And Giveaway!)

This month we're talking about the book Be Your Own House Contractor. Today, I'm highlighting a piece from the book's companion website at http://www.byoh.com/ that tells how to get good subcontractors to work for you:

Q: All of the subs I've talked to say they're too busy with their regular builders to do my job. I'm only building one house. The guys they work for keep them busy all year. This is not easy! How do you do it?

A: I offer them more money than their regular builders and I tell them that they will be paid immediately, as soon as the job is done. Most builders don't pay their subs fairly or on time and they're always trying to beat them up on cost. It's a fact. Use it to your advantage. Money does talk. You are saving tens of thousands in this process of building your own home. Don't be greedy or cheap and your job becomes easier.

Oh yeah, money talks for sure! ;-)

Want to know more? You can win a free copy of Be Your Own House Contractor. Here's how it works:

1. Leave a comment below -- any comment.

2. Sometime tomorrow, I'll stop by the post, stop the submissions, and name the winner.

3. It will be that person's responsibility to check back to see if they are a winner and then email me their contact information.

4. I'll send all the winners their books in one mass mailing going out the second week in September.

A few rules for these giveaways:

1. You can not win more than one prize.

2. I will be the complete and final judge.

3. Legal disclaimer: I can not guarantee safe delivery of the items. I'll send them via US Mail, so it's likely they'll be fine, but I can't control it and won't be held accountable if the mail system messes up.

4. If you win something and do not contact me within a week of winning, I reserve the right to give your prize away to another winner. Note again: I won't track down the winners -- it's your responsibility to come back and see if you won.

Good luck! Post a comment below for a chance to win this book!

Resources You Can Use to Build Your Own Home (And Giveaway!)

This month we're talking about the book Be Your Own House Contractor. I'm going to keep looking at some pieces from the book's companion website at http://www.byoh.com/ for now. Today, I want to highlight the site's list of resources you can use to build your own home including budgeting, loan, home design ideas and more. In particular, see #10 where it says:

Subcontractors: The Best Place to find the lowest labor prices is on NEW home construction sites…we GC’s keep labor costs low! You do NOT want remodeling contractors. Here’s a Free PDF from me on: Subcontractors, finding, scheduling, overseeing, & paying them.

Did he say "free"? That's my favorite word! ;-)

Want to know more? You can win a free copy of Be Your Own House Contractor. Here's how it works:

1. Leave a comment below -- any comment.

2. Sometime tomorrow, I'll stop by the post, stop the submissions, and name the winner.

3. It will be that person's responsibility to check back to see if they are a winner and then email me their contact information.

4. I'll send all the winners their books in one mass mailing going out the second week in September.

A few rules for these giveaways:

1. You can not win more than one prize.

2. I will be the complete and final judge.

3. Legal disclaimer: I can not guarantee safe delivery of the items. I'll send them via US Mail, so it's likely they'll be fine, but I can't control it and won't be held accountable if the mail system messes up.

4. If you win something and do not contact me within a week of winning, I reserve the right to give your prize away to another winner. Note again: I won't track down the winners -- it's your responsibility to come back and see if you won.

Good luck! Post a comment below for a chance to win this book!

Great, Cheap Way to Learn Building Skills -- Volunteer to Build a Habitat for Humanity House

As most of you know, we're talking this month about how people can save a bundle being their own general contractors while building their own homes. In one of the book giveaways I'm doing in conjunction with this focus, a reader left the following comment that I thought was excellent:

I'd recommend you work with Habitat for Humanity on a house, it will give you a lot more insight into building a house.

Great idea! You learn a ton about building a house and help people at the same time!! very cool!!!

I have thought about this in the past and this comment jarred my memory. I think when my son gets to the age where he could be useful in building that this would be a great idea for both of us to do together.

Anyone ever worked on a Habitat house? What was it like? Did you learn a lot?

How to Find the Perfect Home: The Four C's

Money magazine has an excellent resource on how to find the perfect home. Here's a summary of the piece's philosophy:

[The perfect home] isn't the one that has everything. It's the one with more of what you want and less of what you don't. This system can guide you to it.

Their "system" boils down to focusing on what they call the four C's which are as follows:

• Cost
• Condition
• Capacity
• Convenience

Since I'm in the market for a new place, I was especially interested in their thoughts. And upon reading them (and after looking at a ton of homes the past few months), I can tell you that they have some good ideas. As such, I'll be focusing on one of the four C's over each of the next few days. Today, we'll start with cost. Here's what they recommend to find the perfect home you can afford:

I see a lot of buyers make a basic mistake: When deciding if a particular house fits their budget, they look only at listed price and their probable mortgage payments. But to make an honest comparison of the houses on your list, you must consider all the costs you'll be facing. In addition to mortgage payments, there are maintenance costs, property taxes and homeowners association fees, utilities and insurance.

Ah, yes. The mortgage is only the beginning (as any homeowner can tell you.) In addition to the costs they note above, you may need to add in some money (hopefully a one-time expense) to get the house in the shape you want it in. For instance, when we bought our last home, we factored in costs to re-do the paint and carpet in the entire place when we made our bid. It changed the entire appearance of the house and made it the home that we've now enjoyed for almost eight years.

A couple other tips from the piece also include being sure to budget for landscaping costs and for rising property taxes.

Click here to read part 2 of this series.

How Much Money Can You Borrow to Build Your Own Home? (And Giveaway!)

This month we're talking about the book Be Your Own House Contractor. And this week, we're looking at some pieces from the book's companion website at http://www.byoh.com/. Today, we'll discuss how much you can borrow when building a new home. The site does a good job of answering this question, but what I want to note is the importance your credit score plays in how much you end up paying on your loan. The details:

The higher your FICO score, the lower your payments! See for yourself. 30 Yr fixed $300,000 mortgage:

• 760-850 = 6.387% = $1,874 per month
• 700-759 = 6.609% = $1,918 per month
• 660-699 = 6.893% = $1,974 per month
• 620-659 = 7.703% = $2,140 per month
• 580-619 = 8.883% = $2,389 per month
• 500-579 = 9.853% = $2,600 per month

Just the point we've discussed a few times here at Free Money Finance. For more details, check out Your Bad Credit Could Cost You $1 Million.

Want to know more? You can win a free copy of Be Your Own House Contractor. Here's how it works:

1. Leave a comment below -- any comment.

2. Sometime Monday, I'll stop by the post, stop the submissions, and name the winner.

3. It will be that person's responsibility to check back to see if they are a winner and then email me their contact information.

4. I'll send all the winners their books in one mass mailing going out the second week in September.

A few rules for these giveaways:

1. You can not win more than one prize.

2. I will be the complete and final judge.

3. Legal disclaimer: I can not guarantee safe delivery of the items. I'll send them via US Mail, so it's likely they'll be fine, but I can't control it and won't be held accountable if the mail system messes up.

4. If you win something and do not contact me within a week of winning, I reserve the right to give your prize away to another winner. Note again: I won't track down the winners -- it's your responsibility to come back and see if you won.

Good luck! Post a comment below for a chance to win this book!

Costs to Build for Various Sizes of Homes (And Giveaway!)

This month we're talking about the book Be Your Own House Contractor. And this week, we're looking at some pieces from the book's companion website at http://www.byoh.com/. Today, we'll discuss the costs to build various sized homes:

Q: Is the cost per square foot to build the same for any size house?

A: No. Homes are measured in square feet of living area (heated space). More square footage equals more money. That's pretty simple. However, the actual building cost per square foot actually drops as the house gets bigger because the cost of certain expensive items is spread out over more square feet. For example, a 1500 sq.ft house has only one kitchen with all the normal appliances. A 3000 sq.ft house also has only one kitchen, so if tastes in appliances, cabinets, etc. didn't increase too much with the larger house, the house per sq.ft of a kitchen in the 3000 sq.ft house is the same as the 1500 sq.ft house. Let's say a kitchen costs $15,000. That's $1.00 per sq.ft in the smaller house, but only $.50 per sq.ft in the larger house. (Cost per sq.ft is usually spread over the whole house, even if only speaking of a certain room or item.) So, as the house gets bigger, the overall costs will rise (more lumber, more roofing, etc.) but the cost for some specific items, based on a cost per sq.ft of building will drop.

Let's take roofs as an example of how to increase size and decrease cost per square foot. Depending on the pitch of the roof (angle), a 1500 sq.ft house will have X sq.ft of roofing costs. If you double the size of the house to 3000 sq.ft, will you double the roofing costs? No. Only if you add the extra 1500 sq.ft adjacent to the existing square footage. If you put it under or over the existing square footage, the cost of the roof stays the same. This also applies to foundation costs. Get the picture?

Other design features to be leery of in shopping for your house plans - features that can destroy a budget in a heartbeat - are steep roof pitches; large (and many) windows; lots of turns and offsets in the shape of the structure; expensive siding; long, long driveways; soils that require engineered septic systems; large room spans requiring more expensive framing or structural steel, to name just a few. But if certain design features are important to you, to the point you don't want the house if you can't have them, cut back somewhere else (size perhaps) in order to afford them. Study cost estimating carefully. Do it carefully. It is a builder's most important tool. It is now your job, your budget. After all, you are the builder!

I had heard that it was cheaper to build a two story home than the same amount of square feet in a ranch style because of roofing and foundation costs -- and now I know why. Good information!

Want to know more? You can win a free copy of Be Your Own House Contractor. Here's how it works:

1. Leave a comment below -- any comment.

2. Sometime tomorrow, I'll stop by the post, stop the submissions, and name the winner.

3. It will be that person's responsibility to check back to see if they are a winner and then email me their contact information.

4. I'll send all the winners their books in one mass mailing going out the second week in September.

A few rules for these giveaways:

1. You can not win more than one prize.

2. I will be the complete and final judge.

3. Legal disclaimer: I can not guarantee safe delivery of the items. I'll send them via US Mail, so it's likely they'll be fine, but I can't control it and won't be held accountable if the mail system messes up.

4. If you win something and do not contact me within a week of winning, I reserve the right to give your prize away to another winner. Note again: I won't track down the winners -- it's your responsibility to come back and see if you won.

Good luck! Post a comment below for a chance to win this book!

Should You Prepay Your Mortgage or Invest Instead?

One of the on-going debates in personal finances is whether to pay off your mortgage or keep your mortgage and invest extra money in stocks (or some other investment.) The two sides of the story were recently highlighted in a couple different pieces -- both suggesting a different outcome. First, here's David Bach making a case for paying off your mortgage early:

Like some of my fellow Yahoo! Finance columnists, I'm often asked if it makes more sense to prepay a mortgage or invest the money in stocks and bonds. Rather than ponder which asset will get you a higher return, I think the better question is which investment decision will free you financially and allow you to retire earlier.

In my 9 years of experience as a financial advisor for Morgan Stanley, the clients who paid their debts off early -- specifically their mortgages -- retired 5 to 10 years before those who didn't.

He goes on to tell how to pay off your mortgage early -- make bi-weekly payments (don't pay for the service), automating your extra payments, etc.

This is what I've done and have now been without a mortgage for about 10 years. We did it by keeping our expenses very low, well below my income, then using as much possible to pay off our mortgage. We also applied gifts, bonus money and extra income from a side business to the mortgage. And we did this while fully funding my 401k.

But if you do prepay, be sure to fund your retirement first or else it could cost you:

A recent study suggests these households blow more than $1.5 billion a year, or $400 per household, by accelerating their mortgage payments instead of contributing more to their retirement accounts.

The research found that at least 38% of those who were making extra payments on their mortgage were "making the wrong choice." Instead, these households would get back 11 to 17 cents more on the dollar by putting the money into a workplace retirement plan like a 401(k).

Then there's the other side of the argument -- the one that says to keep the mortgage and invest instead (FYI -- there's a more recent piece than this one, but I just can't find it. But this one will do):

My take is that as a purely financial matter, you're probably better off investing the extra $500 a month given your low mortgage rate.

If you repay your home loan ahead of schedule, you're basically earning a 5.25% return, which represents the amount of interest you avoided paying by making the extra payments.

I think you should be able to do better than that over the long term by investing in a diversified portfolio of stocks and bonds.

I've said before that there's a big difference between planning to do something and actually doing. And one thing I've seen over and over again is people who plan to keep their mortgage and invest what they would have put as extra against the debt. But what most end up actually doing is keeping the mortgage and SPENDING the extra amount. So they end up with a long-term mortgage and no additional investments (or at least not much.)

What's your take on the issue?

Where to Find House Plans (And Giveaway!)

This month we're talking about the book Be Your Own House Contractor. And this week, we're looking at some pieces from the book's companion website at http://www.byoh.com/. Today, we'll discuss where to find house plans:

Q: Where do I find, or how does one get, house plans? Where do you start?

A: Start by visiting open houses near where you live, and preferably, if possible, near where you plan on building. You cannot begin to hope to understand house plans on paper (or on a computer monitor) until you become an expert at what they look like in reality. Carry a tape measure with you (the only tool besides a cell phone a builder needs, with the exception of maybe a broom); measure the actual sizes of rooms you like while visiting these open houses. Thanks to technology, you can now buy an electronic measuring device (for under $100) that allows you to measure more quickly, easily, and discreetly. After you have a feel for room sizes and room flow, you can more intelligently look at these features on paper (or on your computer).

Sample house plans are available in a myriad of places - magazines, plan books, home building centers, kit manufacturers, log home companies, home design computer software, home designers listed in the Yellow Pages, and architects. The cost of these plans will vary tremendously from almost nothing - if you design your own on your home computer - to a few hundred dollars from some of the other sources, to thousands of dollars if you hire an architect. Personal taste and budget will influence where you get plans, but one thing and only one thing will determine the most important thing to look for in choosing house plans. That is, the size of the house. The bigger the house, the more it will cost. Other factors do influence cost too, but it is size to watch out for. You need to study cost estimating before you get too serious about spending your money on what may or may not be your dream house.

We spent a month seeing newly built homes in our city's "Parade of Homes" and have spent another couple month's looking at properties for sale (we have a realtor, but if nothing else you could do this with no commitment by going to open houses.) As a result, we've learned a lot about what we do and do not want in a new house.

Want to know more? You can win a free copy of Be Your Own House Contractor. Here's how it works:

1. Leave a comment below -- any comment.

2. Sometime tomorrow, I'll stop by the post, stop the submissions, and name the winner.

3. It will be that person's responsibility to check back to see if they are a winner and then email me their contact information.

4. I'll send all the winners their books in one mass mailing going out the second week in September.

A few rules for these giveaways:

1. You can not win more than one prize.

2. I will be the complete and final judge.

3. Legal disclaimer: I can not guarantee safe delivery of the items. I'll send them via US Mail, so it's likely they'll be fine, but I can't control it and won't be held accountable if the mail system messes up.

4. If you win something and do not contact me within a week of winning, I reserve the right to give your prize away to another winner. Note again: I won't track down the winners -- it's your responsibility to come back and see if you won.

Good luck! Post a comment below for a chance to win this book!

Buy Land First (And Giveaway!)

This month we're talking about the book Be Your Own House Contractor. And this week, we're looking at some pieces from the book's companion website at http://www.byoh.com/. Today, we'll discuss buying land before you decide on a house plan:

Q: Do I buy the land first, or do I decide on a house plan first?

A: The land comes first. Where you live is more important to most people than what you live in. Where you live is more important for resale than the house itself. Remember that three things determine real estate value: location, location, and location. Resale is important to you because it will determine the value of your home for not only your peace of mind, but also for your lender. Lenders base their loan decisions on the resale value of your home. They want to know that if you fail them financially, they can sell your house and recover part, if not all, of your debt. Makes sense. The price of land will vary more than anything else in construction. It will also consume more of your budget than any single item in most cases, therefore, in order to know how much of your budget will be left over for the house, you have to find out how much the land where you want to live will cost. You may have to make some adjustments very early in the game.

For example, if your total budget (cash and borrowing power) is $200,000, and you find a piece of property for $150,000, that only leaves $50,000 for the construction of the house. This is not good. This is why people keep moving further and further from prime costly land areas (big cities, lakes, rivers, mountains, and resort areas). The further out (or away from these areas) you go, the cheaper land becomes. It's a numbers game where you have to shop, sacrifice, and compromise until you feel that you can afford both the property and a decent sized house that falls somewhere close to your original dream.

Like the last post in this series, I included this question and answer because some past commenters wondered about land and the role it played in the building process.

Want to know more? You can win a free copy of Be Your Own House Contractor. Here's how it works:

1. Leave a comment below -- any comment.

2. Sometime tomorrow, I'll stop by the post, stop the submissions, and name the winner.

3. It will be that person's responsibility to check back to see if they are a winner and then email me their contact information.

4. I'll send all the winners their books in one mass mailing going out the second week in September.

A few rules for these giveaways:

1. You can not win more than one prize.

2. I will be the complete and final judge.

3. Legal disclaimer: I can not guarantee safe delivery of the items. I'll send them via US Mail, so it's likely they'll be fine, but I can't control it and won't be held accountable if the mail system messes up.

4. If you win something and do not contact me within a week of winning, I reserve the right to give your prize away to another winner. Note again: I won't track down the winners -- it's your responsibility to come back and see if you won.

Good luck! Post a comment below for a chance to win this book!

How Much Can I Save on Remodeling My Home? (And Giveaway!)

This month we're talking about the book Be Your Own House Contractor. And this week, we're looking at some pieces from the book's companion website at http://www.byoh.com/. Today, we'll discuss how much you can save on remodeling your home:

Q: How much can I save on remodeling and additions?

A: The National Association of Home Builders recommends that General Contractors (GCs) build in a gross profit of 50% of contract price, or put another way, 100% of the cost of labor and materials. The reasons GCs should charge more are: there is usually more work involved in remodeling and additions, there are hidden costs that don't show up until you are into the project, and most importantly, it takes as long or longer to do these small jobs when more actual dollars could be being made on a new house. Therefore, it stands to reason that you, acting as your own GC, can save 50%.

I covered this question because several of the comments in this series so far have noted that people are thinking of remodeling their homes. So I thought you'd like to know what kind of savings you could be looking at. ;-)

Want to know more? You can win a free copy of Be Your Own House Contractor. Here's how it works:

1. Leave a comment below -- any comment.

2. Sometime tomorrow, I'll stop by the post, stop the submissions, and name the winner.

3. It will be that person's responsibility to check back to see if they are a winner and then email me their contact information.

4. I'll send all the winners their books in one mass mailing going out the second week in September.

A few rules for these giveaways:

1. You can not win more than one prize.

2. I will be the complete and final judge.

3. Legal disclaimer: I can not guarantee safe delivery of the items. I'll send them via US Mail, so it's likely they'll be fine, but I can't control it and won't be held accountable if the mail system messes up.

4. If you win something and do not contact me within a week of winning, I reserve the right to give your prize away to another winner. Note again: I won't track down the winners -- it's your responsibility to come back and see if you won.

Good luck! Post a comment below for a chance to win this book!

Time Shares are a Purchase, Not an Investment

Truer words were never spoken:

Time shares are a purchase, not an investment.

A Bankrate reader recently asked about purchasing a time share for $20,000 for one week's worth of vacationing and wanted to know if this was a good investment. Here's what Bankrate said:

I don't think you should look at this purchase as an investment. Regardless of how you feel about fractional ownership or time shares, it's rare for them to perform well as investments. Take a look at the resale market for fractional ownership in your vacation spot and that should show you why these purchases aren't good investments and demonstrate a way to buy in without paying primary market prices for the weeks you want.

Don't forget to consider the maintenance fees, property taxes and other annual costs associated with this purchase. You also have to place a lot of trust in the property manager to keep up the place and protect the value of your purchase.

My advice is to be very cautious before buying.

My advice is don't buy! Unless you really, really, really love doing the same thing in the same place and you really, really, really know/trust the owners/managers of the property and you really, really, really have more money than you know what to do with, then I'd say you should pass on the time share idea.

We have friends who recently bought into the Disney time shares and seem to like them. Disney may be an exception to the rule, but even with their time share, like others, the cost is very high for what you get.

Anyone out there own a time share or know someone who does (or did?) Any stories to share? I'd love to hear if anyone bought a time share and then sold it some time later for a profit.