Common formica counter tops with neutral color

When it comes to upgrading your home one of the primary things to get your biggest bang for your buck, would be to replace the kitchen counter tops.

There are literally dozens of options available to you!  Take a trip through your local  Home Depot kitchen center and Lowe’s kitchen area to get your creative juices flowing.

Upgrading your home will make you appreciate your home more as well as set your home apart from other homes like your home. 

The least expensive counter top options begin with laminate.  There are literally 100′s of colors and textures available.  You can get pre-formed counter tops or have the laminate overlayed your existing counter tops, as long as the surface is tight.  Options available to you when you change the Formica tops are wood back-splashes and edges or possibly even tile on your back-splash.

A solid surface counter top in neutral color

A nice upgrade from Formica or other laminate would be “solid surface” such as Corian or one of the other well known brands.  Again, you have many options for colors for the tops and back splashes.  There are some nice things that can be done in solid surface installations such as different bevels on the countertop edges and inlayed accent colors that look nice.

Depending on your budget on your kitchen upgrade the sky is the limit beyond laminate and solid surface counter tops.  Nice options include concrete, granite and dozens of stone types.

Compete your counter top upgrade with a new sink and faucet and you will fall in love with your new kitchen all over again!  Nothing will enhance your sense of style and improve your home’s value greater than upgrading your kitchen.

Homes get dated over time don’t they?  There are little things you can do yourself to spruce your house or condominium so it looks sharp and shows better.  If you are like me, you’ll gain a whole new appreciation of your home once you do a few simple things to cosmetically update your home.

Old-style brass door hardware

You’ll save a bunch of money if you can do it yourself or solicit the help of a handy friend or two! 

In the next blog post or two (or three), I’m going to give you some simple examples of “do it yourself” cosmetic updates that will spruce up any home – and inexpensively!

In homes prior to the mid-80′s, brass door knobs, cabinet pulls and hinges were the norm.  After the 1990′s more products have come on the market.  Finishes on plumbing fixtures such as nickel, satin, stainless steel and oil rubbed bronze are a welcome change!

A person with a Phillips screwdriver, (that’s the screwdriver with the “+” point on them), or even better a mechanical screwdriver, can easily remove a brass hinge and replace it with a modern color, say oil rubbed bronze.

Door knobs are the same thing.  It takes about 20 minutes per door once you get the hang of it; the change out is as easy as removing the old knob , inserting the new knob and tighting the screws!

Modern lever-style door handle in oil rubbed bronze finish

You’re on your way to updating your home inexpensively!

Are we standing at the Crossroad?

 The front page of the site, called the “index” page,  appropriately says:

 ”Alaska’s businesses and households are only as strong as the economy that supports them. Like the three-legged stool, it takes all three legs to support and sustain our economy. For 20 years now, Alaska’s prosperous and growing economy has enabled us to successfully operate private businesses. In today’s uncertain times, it is essential that each Alaskan learn, understand and actively support our economy—the “three-legged stool”—and what it will take to keep it strong.”

In “The Alaska Journal of Commerce“,  February 3 editorial, “Oil Industry is changing, but it may not be for the better,” the Journal notes that Alaska “now has fewer standing rigs than any other oil producing state, that we now produce less oil than any other oil producing state, and that exploration in Alaska is coming to a halt.

Tellingly, in a recent survey of international oil executives, Alaska ranked close to the bottom of states to invest in, surpassed only by California and Colorado as least-desirable.

In short, the Journal sees a change taking place in the Alaska oil industry, but it’s the change of decline. And while global demand is down in these recessionary times, other oil producing states and nations are taking advantage of the shake-up to reposition themselves. According to the Journal editorial staff, our state leadership seems to lack a sense of urgency, however, which puts Alaska’s future at stake.”

We need to get some of things fixed!  Feel free to share these comments, website and the Journal links to everyone you know!

A Front Door that says "Welcome!"

a) It extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30, 2010.  The previous first time home-buyer plan expired November 30.

b) and it expands the tax credit to include existing home owners who sell their existing house and buy another home.  The tax credit to these people is up to a $6,500, applied against any Federal tax they owe.  If they don’t owe that much tax, it would be a refund.   These transactions have to be completed by April 30, 2010.

Owning your own home is the “American Dream!”  This is a great opportunity for not only first time home buyers, but for people who bought a small home and need to expand into a larger home for a growing family.

There are very few limitations to this program.  Homes have to be less than $800,000, which shouldn’t curb too many buyers in the Alaska market.  A single buyers’ income needs to be under $125,000 per year and married couples with incomes up to $225,000 may received the maximum tax credit.

I’ve had some buyers ask if the tax credit has to be repaid.  This question probably stems from confusion with a previous Alaska Housing first time home-buyer “tax exempt” program that said if a buyer got a reduced interest rate, and they sold the home within three years they may have to repay some of their gain.  The answer to the question of whether or not the tax credit has to be repaid is a solid “No”.  Once you get the credit, you never have to pay it back!

When agents and appraisers value homes, they look at what similar properties are actually selling at.  We also note the

The sun coming up behind the Chugach Range over Cook Inlet

amount of “active” competition of similar property are on the market.  The assumption is if  homes in close proximity to yours and with similar “specs” as the subject home sold at a certain price, its logical that your house will get a similar price. 

Income properties are valuated based upon their ability to produce income after all expenses are paid.  The condition of the property is taken into account, of course.  If the property isn’t properly maintained, the rents will decrease and become more management intensive as tenants come and go more often.

There are a number of ways investors might value a building such as “Cash on Cash” which is the return on the investors actual invested cash and other “quick and dirty” methods.  However, by far the most common method of valuing a building  is a factor known as a “cap rate.” 

The process is started bylocating the properties income from all sources (rents and laundry), and then accurately show all the property expenses.  Expenses are items such as property taxes, insurance, gas or other heating, electric, water & sewer, refuse and lawn and/or snow removal.  Of course, overstating the rent or understating the expenses will give you inaccurate results.  A buyer,  a seller, an appraiser and the lender will all scrutinize the expenses to make sure they are accurate.

In addition, to properly analyze the property, it is important to assign a value for vacancy, even if a property happens to be fully rented at the present time.  Most cities keep track of the actual local vacancy rate so you don’t have to guess at it.  Don’t forget set-asides, or property reserves!  Your building is going to need paint in 7 – 10 years and the roof will need work in 15 or so years depending on your weather, etc.  Another item of expense that can be overlooked is property management.  On larger buildings lenders won’t let you manage your own building, especially if you haven’t had experience at it.  Management fees run between 5% and 8% depending on the scope of work and the condition of the property.

Once you get to the bottom line of income minus all real expenses, you assign a capitalization (or cap) rate.  A cap rate is a multiplier to get to building value.  In our market, a very nice well maintained property in a good neighborhood might have a cap rate of 7.5 or 8.  If the building is run down or you need a security team in Kevlar to collect the rent, you could see cap rates of 12 – 13.  The lower the cap rate, the higher the value.

Sadly, in our market rents have remained flat or only increased nominally, while expenses have steadily increased.  For instance, the municipality’s assessed value is often higher than the actual appraisal value, meaning taxes are high.  Property insurance isn’t necessarily a given commodity but varies on the building and how often the buyers have had a insurance claim.

Appreciation.  The foundation of many wealthy people is based in real estate.  Over the long term, real estate goes

Sand Lake in South Anchorage

up in value.  A recent study conducted by the National Association of Realtors found the median equity of homeowners was $50,000.

Leverage.  We can control a property with relatively low amount of money down.  You can buy your primary residence with as little as 5% cash down!  You can buy a non-owner occupied property with 20 or 25% cash down.

Debt Reduction.  Every time you make a payment, you pay off a little bit of the principal and retire your debt and build your equity, unlike rent which only pays for the month you pay for.

Tax Advantages.  You can write off your interest on your loan and, in the case of an investment property, all the expenses of maintenance and repairs.

Income.  You can rent your home and tenants will make your payment!  If your loan paid off or paid low, and rents increase you can have positive cash flow, and all the while enjoy tax benefits of ownership!

Predictability.  The payment on a 30 year mortgage doesn’t change.  You may see increases in taxes and insurance.  The most stable way to live is with a long term mortgage.

Pride of Ownership.  It just feels good to be in your own home sitting on your own deck, tending your own barbecue grill – and as long as you don’t bother anyone else, no one can tell you what you can do with your home!  You make every decision yourself to paint if you want to paint, improve your property - or not.

What do you think?  Did I miss anything?

A typical four-plex in Anchorage

Consider the following.  You take your $100,000 and find a four unit rental building (called a four-plex in Alaska and a quad in other places).  In Alaska, it is possible to find four two bedroom units that are about 1,000 square feet each.  Some have two bathrooms, are newer than 1980 and have some covered parking.  You might even get less expensive if you shop a bit depending on the location.

Now, assuming you don’t want to move into this building (if you did there are even more advantages), loans for non-owner occupied investment purchases  require 25% down-payments, so $100,000 down payment.  Two bedroom units that are normally maintained and clean, will rent for about $1,000 per month for first floor units and say, $1,100 for upper floor units.  That means this building generates $4,200 per month in gross income.

Now, the loan on the $300,000 you borrowed will have payments of about $2,600 per month, including taxes and insurance.  After you collect the monthly rent and pay your mortgage, you’ll have $1,600 left over.  Now you’ll have some other land-lord related expenses.  You need to save some money for future updating and maintenance on your investment such as paint, carpet, wear and tear on the building, etc.  You will have some normal expenses like lawn maintenance or snow removal. You can save money by doing it yourself, or you have money to hire someone.

Some lenders even pad the expenses and figure the expenses on a building like this will be as high as 30% of the gross income.  That would be lumping EVERYTHING together and adding in vacancies, “no-pays” , professional property management and everything else you can think of. 

Even conservatively with 30% expenses, you would have over $400 per month positive cash flow.  Now is where the magic happens. 

The IRS allows you to deduct all expenses from your income on your taxes and you are allowed to depreciate the building, which is a deduction you take every year on your taxes.  Your “after-tax” income is greater than your before tax income because of this deduction.  You see, the government wants people to invest in income property.  When they do it, they provide homes for other people to live in and they create work for lawn guys, painters, plumbers, etc.  You get the picture.

The other thing is that over time, real estate goes up in value.  Much of the wealth of the nations rich, is based in real estate.  Many wealthy people started just like this example!  You see, if the past is any indication of the future, your $400,000 4-plex might be worth $500,000 in a few short years. 

You get the idea, I think.  You buy now, pay the bills with your tenants rent money, have a positive cash flow, get large tax benefits on your taxes and have the building go up in value and make even more money when you sell it!  By the way, the four plex investment works even better on a larger scale.  The more units, the more income and more money at the bottom line.  Or, you can start lower at the duplex (two unit) level! 

Of course, talk to your tax accountant and real estate professional and lender so you get good professional advice from all angles.

Many times buyers in the summer market get distracted with many things like good weather, fishing, a trip to Grandma’s house, etc.  At the same time many sellers are ready to get their property on the market now that the grass has greened up and the kids are out of school so they can easily move when the house sells. 

The inventory of homes on the market typically grows in June and sales lag a bit.  There usually are more agreements between buyers and sellers in July and August in the Alaskan market.

Interest rates are great right now!  Now is the time to make it happen!  What are you looking for?  I have “something for everyone!”

Prepare in advance of your home search

Not every lender is the same, just like every person isn’t the same.  Real Estate agents will work with more than one lender and consider personalities when making a referral.  It is very important that you are meeting with a licensed, established lender to avoid any fly by night operations.  Yes, they do exist!  If a deal sounds too good to be true, it probably is!
It is not a bad idea to ask the lender how long they have been in the business to make sure that they have the experience necessary to give you the best loan options.  Do they offer all types of loan programs such as FHA, VA, Conventional and Alaska Housing Loans?

Keep in mind when you shop rates the quotes you receive are just that “quotes”!  Until you are under contract and have decided on a lender you are not able to lock in on the interest rate.  Interest rates can change at any given time so for example even if a lender quotes a rate at 9:00 am the rate can change up or down before the end of the day.
If you do lock early make sure you are aware of any extension fees that may occur if you go past the 30 day deadline.
 

2.  Prepare for your lending appointment by bringing:
a. One month current paystubs
b. Three months bank statements
c. Three most recent years tax returns and W-2 forms
d. If divorced a copy of the decree and child support paperwork if applicable

3.  Aim for a home you can afford. 
Go back to #1.  Over time, you’ll come to appreciate why lenders are conservative and generally don’t want your mortgage to be over 30% of your gross income.  In time, you’ll find you will be glad you have extra money for other things such as family vacations, new furniture and personal hobbies.  Don’t get yourself get strapped too tight.

4.  Get Professional Help
This is another good spot to ask for a referral from someone you trust.  A Realtor is a professional in assisting buyers in the entire process of finding, negotiating and closing on a home.  “Your” realtor should have your best interests at heart and can help you through out the entire process.
You should see enough homes to be confident of values before you bid on a house.  Your real estate professional should be able to provide you with “pending” and “closed” sales of similar homes so you can be confident of the price you offer.

5.  Don’t Buy if You Can’t Stay Put

A home in a long term investment!  You should plan on staying in the home three to five years at a minimum.  If you cannot commit to remaining in one place for at least that long, owning probably isn’t for you. 

6.Consider the schools when you purchase!
Even if you don’t have children now, you might some day.  Even if you don’t, you may sell one day and want to appeal to as wide a group of buyers as you can.  And people with children consider the schools.

7.  Remember “location, location, location.” 

Neighborhood, location and schools are important

You’ve heard this as long as you’ve talked about real estate.  Everyone from your dad to Donald Trump reminds you that location is important.  Someday, when you are a seller you’ll find a buyer might overlook other flaws in your home if your location is great.  A good view is a real asset, too.

8.  Clean up your credit score.
Aim to raise your FICO score to at least 720.  That is what you’ll need to qualify for the lowest rates on home loans.

9.  Keep your score blemish free. 
While you’re improving your credit score, make sure you don’t do things that might sabotage your efforts.  Pay your bills on time.  Late payments on all kinds of bills, not just your credit card bills can lower your score.  And don’t open new credit account that you don’t really need.

10.  Get a home inspection
An appraisal and a home inspection are different things.  An appraisal is for the bank to confirm the house will secure the banks loan to you.  A home inspection with experience will confirm the operation of the key points of your home and evaluate all major components including furnace, water heater, foundation, roof, window height and other key points of your home.  This inspection will teach you a lot about your home, and may give you the opportunity to ask the seller to make some key required repairs.  Some “first-time home buyer” lender programs require buyers to get a home inspection, but generally, it is recommended but not required.  Get one!