There’s no doubt about it–owning a home is an exciting prospect. After all, you’ve always dreamed of having a place that you could truly call your own. But buying a home can be stressful, especially when you’re buying one for the first time. Fortunately, knowing what to expect can make it a lot easier.
How much can you afford?
According to a general rule of thumb, you can afford a house that costs two and a half times your annual salary. But determining how much you can afford to spend on a house is not quite so simple. Since most people finance their home purchases, buying a house usually means getting a mortgage. So, the amount you can afford to spend on a house is often tied to figuring out how large a mortgage you can afford. To figure this out, you’ll need to take into account your gross monthly income, housing expenses, and any long-term debt. Try using one of the many real estate and personal finance websites to help you with the calculations.
Mortgage prequalification vs. preapproval
Once you have an idea of how much of a mortgage you can afford, you’ll want to shop around and compare the mortgage rates and terms that various lenders offer. When you find the right lender, find out how you can prequalify or get preapproval for a loan. Prequalifying gives you the lender’s estimate of how much you can borrow and in many cases can be done over the phone, usually at no cost. Prequalification does not guarantee that the lender will grant you a loan, but it can give you a rough idea of where you stand. If you’re really serious about buying, however, you’ll probably want to get preapproved for a loan. Preapproval is when the lender, after verifying your income and performing a credit check, lets you know exactly how much you can borrow. This involves completing an application, revealing your financial information, and paying a fee.
It’s important to note that the mortgage you qualify for or are approved for is not always what you can actually afford. Before signing any loan paperwork, take an honest look at your lifestyle, standard of living, and spending habits to make sure that your mortgage payment won’t be beyond your means.
Should you use a real estate agent or broker?
A knowledgeable real estate agent or buyer’s broker can guide you through the process of buying a home and make the process much easier. This assistance can be especially helpful to a first-time home buyer. In particular, an agent or broker can:
- Help you determine your housing needs
- Show you properties and neighborhoods in your price range
- Suggest sources and techniques for financing
- Prepare and present an offer to purchase
- Act as an intermediary in negotiations
- Recommend professionals whose services you may need (e.g., lawyers, mortgage brokers, title professionals, inspectors)
- Provide insight into neighborhoods and market activity
- Disclose positive and negative aspects of properties you’re considering
Keep in mind that if you enlist the services of an agent or broker, you’ll want to find out how he or she is being compensated (i.e., flat fee or commission based on a percentage of the sale price). Many states require the agent or broker to disclose this information to you up front and in writing.
Choosing the right home
Before you begin looking at houses, decide in advance the features that you want your home to have. Knowing what you want ahead of time will make the search for your dream home much easier. Here are some things to consider:
- Price of home and potential for appreciation
- Location or neighborhood
- Quality of construction, age, and condition of the property
- Style of home and lot size
- Number of bedrooms and bathrooms
- Quality of local schools
- Crime level of the area
- Property taxes
- Proximity to shopping, schools, and work
Making the offer
Once you find a house, you’ll want to make an offer. Most home sale offers and counteroffers are made through an intermediary, such as a real estate agent. All terms and conditions of the offer, no matter how minute, should be put in writing to avoid future problems. Typically, your attorney or real estate agent will prepare an offer to purchase for you to sign. You’ll also include a nominal down payment, such as $500. If the seller accepts the offer to purchase, he or she will sign the contract, which will then become a binding agreement between you and the seller. For this reason, it’s a good idea to have your attorney review any offer to purchase before you sign.
Once the seller has accepted your offer, you, your real estate agent, or the mortgage lender will get busy completing procedures and documents necessary to finalize the purchase. These include finalizing the mortgage loan, appraising the house, surveying the property, and getting homeowners insurance. Typically, you would have made your offer contingent upon the satisfactory completion of a home inspection, so now’s the time to get this done as well.
The closing meeting, also known as a title closing or settlement, can be a tedious process–but when it’s over, the house is yours! To make sure the closing goes smoothly, some or all of the following people should be present: the seller and/or the seller’s attorney, your attorney, the closing agent (a real estate attorney or the representative of a title company or mortgage lender), and both your real estate agent and the seller’s.
At the closing, you’ll be required to sign the following paperwork:
- Promissory note: This spells out the amount and repayment terms of your mortgage loan.
- Mortgage: This gives the lender a lien against the property.
- Truth-in-lending disclosure: This tells you exactly how much you will pay over the life of your mortgage, including the total amount of interest you’ll pay.
- HUD-1 settlement statement: This details the cash flows among the buyer, seller, lender, and other parties to the transaction. It also lists the amounts of all closing costs and who is responsible for paying these.
In addition, you’ll need to provide proof that you have insured the property. You’ll also be required to pay certain costs and fees associated with obtaining the mortgage and closing the real estate transaction. On average, these total between 3 and 7 percent of your mortgage amount, so be sure to bring along your checkbook.
Are you thinking of purchasing a home?
If you are thinking of purchasing a home, speak with one of our financial advisors today for a complimentary consultation. We can help you make the best real estate investment that fits your current and future needs. Contact us today!
Disclosure: The content provided in this publication is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Sterling Group United recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.
You identified your goals and done some basic research. You understand the difference between a stock and a bond. But how do you actually go about creating an investment portfolio? What specific investments are right for you? What resources are out there to help you with investment decisions? Do you need a financial professional to help you get started?
A good investment portfolio will spread your risk
It is an almost universally accepted concept that most portfolios should include a mix of investments. This includes stocks, bonds, mutual funds, and other investment vehicles. A portfolio should also be balanced. That is, the portfolio should contain investments with varying levels and types of risk to help minimize the overall impact if one of the portfolio holdings declines significantly.
Many investors make the mistake of putting all their “eggs in one basket”. For example, if you invest in one stock, and that stock goes through the roof, a fortune can be made. On the other hand, that stock can lose all its value, resulting in a total loss of your investment. Spreading your investment over multiple asset classes should help reduce your risk of losing your entire investment.
Asset allocation: How many eggs in which baskets?
Asset allocation is one of the first steps in creating a diversified investment portfolio. You will decide how your investment dollars should be allocated among broad investment classes. Asset allocation includes stocks, bonds, and cash alternatives. Rather than focusing on individual investments, asset allocation approaches diversification from a more general viewpoint.
For example, what percentage of your portfolio should be in stocks? The underlying principle is that different classes of investments have shown different rates of return and levels of price volatility over time. Also, since different asset classes often respond differently to the same news, your stocks may go down while your bonds go up, or vice versa. Though neither diversification nor asset allocation can guarantee a profit or ensure against a potential loss, diversifying your investments over various asset classes can help you try to minimize volatility and maximize potential return.
Ultimately, how do you choose the mix that’s right for you? Countless resources are available to assist you, including interactive tools and sample allocation models. Most of these take into account a number of variables in suggesting an asset allocation strategy. Some of those factors are objective. This would include your age, your financial resources, your time frame for investing, and your investment objectives. Others are more subjective. Such as your tolerance for risk or your outlook on the economy. A financial professional can help you tailor an allocation mix to your needs.
More on diversification
Diversification isn’t limited to asset allocation either. Even within an investment class, different investments may offer different levels of volatility and potential return. For example, with the stock portion of your portfolio, you might choose to balance higher-volatility stocks with those that have historically been more stable. A quick reminder though, past performance is no guarantee of future results.
Most mutual funds invest in dozens to hundreds of securities, including stocks, bonds, or other investment vehicles. Purchasing shares in a mutual fund reduces your exposure to any one security. In addition to instant diversification, if the fund is actively managed, you get the benefit of a professional money manager making investment decisions on your behalf.
Note: Before investing in a mutual fund, carefully consider its investment objectives, risks, charges and expenses, which are outlined in the prospectus that is available from the fund. Obtain and read a fund’s prospectus carefully before investing.
Choose investments that match your tolerance for risk
Your tolerance for risk is affected by several factors. This includes your objectives and goals, timeline(s) for using this money, life stage, personality, knowledge, other financial resources, and investment experience. You’ll want to choose a mix of investments that has the potential to provide the highest possible return at the level of risk you feel comfortable with on an ongoing basis.
For that reason, an investment professional will normally ask you questions so that he or she can gauge your risk tolerance and then tailor a portfolio to your risk profile.
Investment professionals and advisors
A wealth of investment information is available if you want to do your own research before making investment decisions. However, many people aren’t comfortable sifting through balance sheets, profit-and-loss statements, and performance reports. Others just don’t have the time, energy, or desire to do the kind of thorough analysis that marks a smart investor.
For these people, an investment advisor or professional can be invaluable. Investment advisors and professionals generally fall into three groups: stockbrokers, professional money managers, and financial planners. In choosing a financial professional, consider his or her legal responsibilities in selecting securities for you.
Also, consider how the individual or firm is compensated for its services and whether an individual’s qualifications and experience are well suited to your needs. Ask friends, family and coworkers if they can recommend professionals whom they have used and worked with well. Ask for references, and check with local and federal regulatory agencies to find out whether there have been any customer complaints or disciplinary actions against an individual in the past. Consider how well an individual listens to your goals, objectives and concerns.
Stockbrokers work for brokerage houses, generally on commission. Though any investment recommendations they make are required by the SEC to be suitable for you as an investor, a broker may or may not be able to put together an overall financial plan for you, depending on his or her training and accreditation. Verify that an individual broker has the requisite skill and knowledge to assist you in your investment decisions.
Professional money managers
Professional money managers were once available only for extremely high net-worth individuals. But that has changed a bit now that competition for investment dollars has grown so much, due in part to the proliferation of discount brokers on the Internet. Now, many professional money managers have considerably lowered their initial investment requirements in an effort to attract more clients.
A professional money manager designs an investment portfolio tailored to the client’s investment objectives. Fees are usually based on a sliding scale as a percentage of assets under management. The more in the account, the lower the percentage you are charged. Management fees and expenses can vary widely among managers and all fees and charges should be fully disclosed.
A financial planner can help you set financial goals and develop and help implement an appropriate financial plan that manages all aspects of your financial picture, including investing, retirement planning, estate planning, and protection planning. Ideally, a financial planner looks at your finances as an interrelated whole. Anyone can call himself or herself a financial planner without being educated or licensed in the area, you should choose a financial planner carefully. Make sure you understand the kind of services the planner will provide you and what his or her qualifications are.
Looking to build your wealth and investments?
Building a nest egg and a strong financial portfolio through rental property, real estate, or other investments is complex. Call us today and set up a complimentary consultation with one of our certified financial advisors. Our trusted professionals can help you make the right decisions and guide you every step of the way.
The content provided in this publication is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Sterling Group United recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.
Annuity products have grown more sophisticated over the years to meet the demands of today’s more sophisticated investors. Just as mutual funds grew in popularity as an alternative to certificates of deposit, the variable annuity was developed as an alternative to the fixed annuity. Variable annuities offer potentially higher returns than fixed annuities. Of course, there is a risk of loss as well. So, deciding which annuity product to invest in often comes down to deciding how much risk you are willing to take.
Fixed annuities provide certain guarantees
When you purchase a fixed annuity, the issuer guarantees that you will earn a minimum interest rate during the accumulation phase and that your premium payments will be returned to you. If you annuitize the contract (i.e., take a lifetime or other distribution payout option), the issuer guarantees the periodic benefit amount you will receive during the distribution phase. (Guarantees are subject to the claims-paying ability of the issuing insurance company.) The interest rates earned during the accumulation phase will reflect current fixed income rates, changing periodically. During the distribution phase, the payment is based on the prevailing interest rates at the start of the distribution phase, and then remains constant. This fixed payment may lose purchasing power over time due to inflation. Consequently, many investors are hesitant to lock in a fixed annuity payout rate.
Variable annuities provide growth opportunities instead of guarantees
When you purchase a variable annuity, the annuity issuer offers you a choice of investment options in what are known as subaccounts. The issuer may offer many different types of asset classes such as stock, bond, and money market funds. The issuer of a variable annuity does not guarantee or project any rate of return on the underlying investment portfolio. Instead, the return on your annuity investment depends entirely on the performance of the investments that you select. Your return may be greater than or less than that of a fixed annuity. However, if you die before you begin receiving annuity distributions, your heirs will receive at least as much as the total of your premium payments, regardless of the annuity value.
If you elect to annuitize and receive periodic distributions from your variable annuity, you can choose to receive either a fixed payout (like with a fixed annuity as previously discussed), a variable payout, or a combination of the two. If you select a variable payout, then the amount of each payment will depend on the performance of your investment portfolio. If the portfolio increases in value, then your payments will increase as well. Most annuity issuers offer a third option that allows you to lock in a minimum fixed payment every month, with the possibility of an additional variable payment based on the performance of your investment portfolio. By allowing your principal to remain in investment accounts during the distribution phase, you have the continued opportunity to benefit from rates of return that are higher than what would have been received with a fixed annuity. But remember, you also run the risk that your payout could be lower if your investment choices do not perform well.
Which is better?
First, make sure that an annuity is appropriate for you. Annuities are long-term savings vehicles used primarily for retirement. There are many advantages to annuities, but there are drawbacks, too. These include a 10 percent tax penalty on earnings distributed before age 59½, and the fact that all earnings are taxed at ordinary rather than capital gains rates. If an annuity is right for you, then the choice between fixed and variable annuities will depend on your situation and preferences.
Usually, choosing between the two comes down to your risk tolerance and the amount of control you want over investment decisions. With a fixed annuity, there is little risk. You know what you’re going to get out of the annuity. However, the growth potential of a fixed annuity is limited. A variable annuity, on the other hand, has a much greater potential for growth (although with this growth potential, there is a greater potential for loss). You also have the opportunity to make the investment decisions that will impact the growth of your annuity. How much risk you can comfortably accept, and your ability to manage your investment, will help you choose between a fixed and a variable annuity.
Still have questions?
If you still have questions on the differences between fixed and variable annuities, contact us today and set up a consultation and let us help you create a financial investment plan that works for you.
Note: Annuity withdrawals and distributions prior to age 59½ may be subject to a 10% federal tax penalty unless an exception applies.
Note: Variable annuities are long-term investments suitable for retirement funding and are subject to market fluctuations and investment risk, including the possibility of loss of principal. Variable annuities contain fees and charges including, but not limited to, mortality and expense risk charges, sales and surrender (early withdrawal) charges, administrative fees, and charges for optional benefits and riders.
Note: Variable annuities are sold by prospectus. You should consider the investment objectives, risk, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity, can be obtained from the insurance company issuing the variable annuity, or from your financial professional. You should read the prospectus carefully before you invest.
Go out into your yard and dig a big hole. Every month, throw $50 into it, but don’t take any money out until you’re ready to buy a house, send your child to college, or retire. It sounds a little crazy, doesn’t it? But that’s what investing without setting clear-cut goals is like. If you’re lucky, you may end up with enough money to meet your needs, but you have no way to know for sure.
How do you set goals?
The first step in investing is defining your dreams for the future. If you are married or in a long-term relationship, spend some time together discussing your joint and individual goals. It’s best to be as specific as possible. For instance, you may know you want to retire, but when? If you want to send your child to college, does that mean an Ivy League school or the community college down the street?
You’ll end up with a list of goals. Some of these goals will be long term (you have more than 15 years to plan), some will be short term (5 years or less to plan), and some will be intermediate (between 5 and 15 years to plan). You can then decide how much money you’ll need to accumulate and which investments can best help you meet your goals.
Looking forward to retirement
After a hard day at the office, do you ask, “Is it time to retire yet?” Retirement may seem a long way off, but it’s never too early to start planning–especially if you want your retirement to be a secure one. The sooner you start, the more ability you have to let time do some of the work of making your money grow.
Let’s say that your goal is to retire at age 65 with $500,000 in your retirement fund. At age 25 you decide to begin contributing $250 per month to your company’s 401(k) plan. If your investment earns 6 percent per year, compounded monthly, you would have more than $500,000 in your 401(k) account when you retire. (This is a hypothetical example, of course, and does not represent the results of any specific investment.)
But what would happen if you left things to chance instead? Let’s say you wait until you’re 35 to begin investing. Assuming you contributed the same amount to your 401(k) and the rate of return on your investment dollars was the same, you would end up with only about half the amount in the first example. Though it’s never too late to start working toward your goals, as you can see, early decisions can have enormous consequences later on.
Some other points to keep in mind as you’re planning your retirement saving and investing strategy:
- Plan for a long life. Average life expectancies in this country have been increasing for many years. and many people live even longer than those averages.
- Think about how much time you have until retirement, then invest accordingly. For instance, if retirement is a long way off and you can handle some risk, you might choose to put a larger percentage of your money in stock (equity) investments that, though more volatile, offer a higher potential for long-term return than do more conservative investments. Conversely, if you’re nearing retirement, a greater portion of your nest egg might be devoted to investments focused on income and preservation of your capital.
- Consider how inflation will affect your retirement savings. When determining how much you’ll need to save for retirement, don’t forget that the higher the cost of living, the lower your real rate of return on your investment dollars.
Facing the truth about college savings
Whether you’re saving for a child’s education or planning to return to school yourself, paying tuition costs definitely requires forethought–and the sooner the better. With college costs typically rising faster than the rate of inflation, getting an early start and understanding how to use tax advantages and investment strategy to make the most of your savings can make an enormous difference in reducing or eliminating any post-graduation debt burden. The more time you have before you need the money, the more you’re able to take advantage of compounding to build a substantial college fund. With a longer investment time frame and a tolerance for some risk, you might also be willing to put some of your money into investments that offer the potential for growth.
Consider these tips as well:
- Estimate how much it will cost to send your child to college and plan accordingly. Estimates of the average future cost of tuition at two-year and four-year public and private colleges and universities are widely available.
- Research financial aid packages that can help offset part of the cost of college. Although there’s no guarantee your child will receive financial aid, at least you’ll know what kind of help is available should you need it.
- Look into state-sponsored tuition plans that put your money into investments tailored to your financial needs and time frame. For instance, most of your dollars may be allocated to growth investments initially; later, as your child approaches college, more conservative investments can help conserve principal.
- Think about how you might resolve conflicts between goals. For instance, if you need to save for your child’s education and your own retirement at the same time, how will you do it?
Investing for something big
At some point, you’ll probably want to buy a home, a car, maybe even that yacht that you’ve always wanted. Although they’re hardly impulse items, large purchases often have a shorter time frame than other financial goals; one to five years is common.
Because you don’t have much time to invest, you’ll have to budget your investment dollars wisely. Rather than choosing growth investments, you may want to put your money into less volatile, highly liquid investments that have some potential for growth, but that offer you quick and easy access to your money should you need it.
Are you ready to set your financial goals?
If you’re looking for a team of financial advisors and investment advisors you can trust to help you reach your goals, contact the experts at Sterling Group today
Why do so many people never obtain the financial independence that they desire? Often it’s because they just don’t take that first step–getting started. Besides procrastination, other excuses people make are that investing is too risky, too complicated, too time consuming, and only for the rich.
The fact is, there’s nothing complicated about common investing techniques, and it usually doesn’t take much time to understand the basics. The biggest risk you face is not educating yourself about which investments may be able to help you achieve your financial goals and how to approach the investing process.
Saving versus investing
Both saving and investing have a place in your finances. However, don’t confuse the two. With savings, your principal typically remains constant and earns interest or dividends. Savings are kept in certificates of deposit (CDs), checking accounts, and savings accounts. By comparison, investments can go up or down in value and may or may not pay interest or dividends. Examples of investments include stocks, bonds, mutual funds, collectibles, precious metals, and real estate.
You invest for the future, and the future is expensive. For example, college expenses are increasing more rapidly than the rate of overall inflation. And because people are living longer, retirement costs are often higher than many people expect.
You have to take responsibility for your own finances, even if you need expert help to do so. Government programs such as Social Security will probably play a less significant role for you than they did for previous generations. Corporations are switching from guaranteed pensions to plans that require you to make contributions and choose investments. The better you manage your dollars, the more likely it is that you’ll have the money to make the future what you want it to be.
Because everyone has different goals and expectations, everyone has different reasons for investing. Understanding how to match those reasons with your investments is simply one aspect of managing your money to provide a comfortable life and financial security for you and your family.
What is the best way to invest?
- Get in the habit of saving. Set aside a portion of your income regularly.
- Invest in financial markets so your money can grow at a meaningful rate.
- Don’t put all your eggs in one basket. Though it doesn’t guarantee a profit or ensure against the possibility of loss, having multiple types of investments may help reduce the impact of a loss on any single investment.
- Focus on long-term potential rather than short-term price fluctuations.
- Ask questions and become educated before making any investment.
- Invest with your head, not with your stomach or heart. Avoid the urge to invest based on how you feel about an investment.
Before you start
Organize your finances to help manage your money more efficiently. Remember, investing is just one component of your overall financial plan. Get a clear picture of where you are today.
What’s your net worth? Compare your assets with your liabilities. Look at your cash flow. Be clear on where your income is going each month. List your expenses. You can typically identify enough expenses to account for at least 95 percent of your income. If not, go back and look again. You could use those lost dollars for investing. Are you drowning in credit card debt? If so, pay it off as quickly as possible before you start investing. Every dollar that you save in interest charges is one more dollar that you can invest for your future.
Establish a solid financial base: Make sure you have an adequate emergency fund, sufficient insurance coverage, and a realistic budget. Also, take full advantage of benefits and retirement plans that your employer offers.
Understand the impact of time
Take advantage of the power of compounding. Compounding is the earning of interest on interest, or the reinvestment of income. For instance, if you invest $1,000 and get a return of 8 percent, you will earn $80. By reinvesting the earnings and assuming the same rate of return, the following year you will earn $86.40 on your $1,080 investment. The following year, $1,166.40 will earn $93.31. (This hypothetical example is intended as an illustration and does not reflect the performance of a specific investment).
Use the Rule of 72 to judge an investment’s potential. Divide the projected return into 72. The answer is the number of years that it will take for the investment to double in value. For example, an investment that earns 8 percent per year will double in 9 years.
Consider working with a financial professional
Whether you need a financial professional depends on your own comfort level. If you have the time and energy to educate yourself, you may not feel you need assistance. However, don’t underestimate the value of the experience and knowledge that a financial professional can offer in helping you define your goals and objectives, creating a net worth statement and spending plan, determining the level and type of risk that’s right for you, and working with you to create a comprehensive financial plan. For many, working with a professional is the single most important investment that they make.
Review your progress
Financial management is an ongoing process. Keep good records and recalculate your net worth annually. This will help you for tax purposes, and show you how your investments are doing over time. Once you take that first step of getting started, you will be better able to manage your money to pay for today’s needs and pursue tomorrow’s goals.
Finding a professional you trust starts here
At Sterling Financial, we provide you with the tools and resources you need to make the best financial decisions. Connect with our financial advisement firm today for a consultation.
Real estate is one of the most important and potentially the most common types of investment vehicles today. Because there is a limited amount of property available, it tends to be a bit less risky than other investments. Yet, today, there are more people than ever renting instead of buying their home. That opens the door for more rental investments than before. But where are the best rental markets in 2020?
Where the Most Growth Is Occurring
When it comes down to it, there is a range of rental markets in the U.S. that are solid investment opportunities. For those looking for the fastest growing or most in-demand markets, consider these.
#1: Orlando, Florida
Perhaps the best place for both short-term and long-term rentals, Orlando, has long been an in-demand place to own real estate. People want to take advantage of all of the tourism here.
#2: Tampa, Florida
The warm temperatures and more moderate home prices, along with a lower cost of living than other Florida cities, makes Tampa a must-see for property investors.
#3: Jacksonville, Florida
Yet a third best place to own rental property in Florida, Jacksonville has a range of benefits to offer. It has more affordable home prices and rental prices, but it remains close enough to everything. It is also a good place for winter vacationers.
#4: Huntsville, Alabama
This one may shock you, but the area has seen incredible growth in recent years due to a growing tech and financial sector. As a result, there just are not enough homes for sale here. And, with a heavy Millennial makeup, renting is the route many people take here.
#5: Dallas, Texas
The weather is ideal, the economy is thriving, and the region offers the stability that many desire. The housing market has a few limitations for those buying their home, which makes renting a home here a very desirable step.
Find the Right Real Estate Investment for You
Investing in real estate in many areas can be a very lucrative opportunity. To make it successful, though, you need to have guidance and support. Our team at Sterling Financial wants to help you. Contact us to learn more about the opportunities we see.