Latest News/Blog

The Rueth Team - Denver's Top Mortgage Company

Options for Helping Sellers Buy BEFORE They Sell 

By Nicole Rueth - January 16, 2021

With inventory low and sellers not wanting to be displaced, our sellers trepidation is adding to an already low inventory problem.  I recently shared a client story who owned their home outright but due to declining self-employed income heading into retirement could not afford both homes.  Here is the solution I found.. We secured a $500,000 line of credit based on her pension/retirement income.  Then put that money in her savings account and let it season for two months.  After seasoning, she purchased her dream home using a Reverse Mortgage putting 50% down, listed her first home, sold it and paid off the HELOC.   

I love finding a way!!  

Let's go over a few other options...

Bridge Loans.  Bridge loans are short term loans against the equity in your current primary.  There are a few options for these with smaller portfolio banks.  The bank will charge .5 to 2 points up front since they know this is a short term loan and limit you to 80% loan to value on the current home.  You will then be able to use that money to put a down payment on a new home and pay off the bridge loan when you sell your existing home.  Note that this option has become more limited with COVID.

HELOC.  Even better than a bridge loan is a HELOC, or a home equity line of credit. This is also a portfolio bank loan on the equity on your existing primary home, but allows for a higher loan to value (90%) and the fees are almost non-existent.  Typically the only fee is an early termination fee of around $350.  However, I have seen this as high as $1200.. so ask.   BIG difference.. a HELOC is on a home NOT on the market.  Once it's listed, the only option is a Bridge loan, so plan ahead.  Another bonus is, my team can gather your documents and secure both the HELOC (or bridge) and your new home's loan.

Add a Sales Contingency.  I am seeing more and more of these.  We are all familiar with contingent buyer offers; but what about marketing a listing with a contingency for the seller finding a home, allowing the seller to get out of the contract if they don't find one within a defined period of time.  Many of today's buyers would be willing to wait just to have a house locked up.

Use 401k/IRAs.  The Cares Act allowed us to withdraw retirement funds without penalty, but I will defer to your CPA for the ongoing tax cost of this option.  401Ks allow you to withdraw up to 50% of your vested account balance to a maximum of $50,000.  IRAs allow for up to 60 days for a rollover period, letting you use that money for the duration.  

Gifts/Co-signers. This one almost goes without saying.  One thing that many don't know is that an employer, close friend, charitable organization or family member can give a gift .. can you say Uncle?  Did you also know that after 12 months co-signers can exclude this payment from their DTI allowing them to buy their own home?

Rent Your Current Home.   Now this option does not help our inventory issue.. but does get your seller ready to move and capitalize on the rental income to help lower their debt to income.  With today's historically low interest rates, cash flowing on investments is strong.  But note.. not all homes make good investments.  Are they ready to start building their Investment Empire?  We've got a class for that ;-)  AND.. if they end up selling that home after they move.. well.. life happens!

Longer Closing Periods.  Kind of speaks for itself.  Every buyer is coming in hot and wanting a quick close to be competitive.  But what if you gave your sellers a longer close with a tight loan condition so they could look for that replacement home knowing the loan was locked up.

Rent Backs.  Buyers today are willing to give these away for free!  Per lending guidelines, we need a homeowner to move into their new home within 60 days.  So if the new buyer is buying as a primary or second home, we need the contract to say the period is no more than 60 days.  But if buying as a rental or with cash, a longer period of time also works. Having said that.. remember.. life happens.  So if the rent back period was extended after closing, who am I to say?

Have a unique case?  Let's brainstorm... It's the puzzles that keep our minds sharp and our sellers moving!

The Affordability Wall Conversation Continues

It's The Down Payment We Need To Worry About

By Nicole Rueth - January 2, 2021

Despite the pandemic, loss of jobs, political and social unrest, 2020 has seen an incredible surge in housing.  The home became everything and everywhere to all of us. That hyper focus along with the Fed's monetary policy added fuel to a generational swell that was already in play before COVID-19 existed.  Rates hit an all time low for the 16th time on December 24th, keeping mortgage purchase applications up over 26% and refinance applications up 124% from last year.  Inventory continues to hit record lows as sellers are concerned about the transmission of COVID and builders struggle to recover from years of under production. 

2021 will be another strong year in housing as our economy re-boots as we go back to work, ballgames, restaurants and travel.  GDP growth is expected to hit 3.5% and unemployment 6.2%.  Housing prices are expected to climb 8% while rates start inching up to 3%.  Employers will also start calling their employees back as the percent of workers working from home drops from 21% in 2020 to 18% in 2021 and 12% in 2022. 

So... where will these workers call home?  Are you setting them up for success given what we know today?  The conversation of the Affordability Wall continues to grab headlines; but for today.. we are able to hold it at bay.  But that will not last.  Not with home prices continuing to rise with multiple offers and rates eventually going up.  Of course there is a lot that goes into this conversation.. will builders start to create enough inventory? will higher prices start to wane demand?  will higher rates cause rate lock keeping even more sellers from selling or trigger lender compression holding rates down longer?  I can't help myself but geek out on these what ifs.  But for today... here is one thing I know for sure.. rates WILL eventually go up. And the likelihood of prices going down is extremely minimal due to housing's lack of supply. 

Today, affordability looks great.  Wages for those who are working remains strong and rates are just over 1% lower than they were a year ago.  Looking at the chart below DMAR's median home price a year ago at 3.72% rate has a payment $39 or 2% higher than today's home which is priced $49,000 more. 
But if this rate of appreciation continues AND rates go up.. affordability will loose it's edge and first time homebuyers will feel the most pain.  Even if rates stay low a little while longer, higher home prices come with higher down payments.  And the current struggles to get down payment assistance or FHA buyers under contract will only get harder.

Our job is to be the messenger, to get creative, and to ensure every first time homebuyer we can help is given the chance to begin building their wealth.  Make 2021 the year of the first time home buyer before rates and higher down payments create an affordability wall worth talking about.


Good Buy or Good Bye?

What Is Good Cash Flow?

By Nicole Rueth - December 23, 2020

When someone asks, “Is this property a good buy?” Or  “Should I be saying goodbye and invest elsewhere?”  It’s not as easy as giving a quick yes or no. Most of the time there's not a straightforward answer because each person is starting from a different place have different long term or short term goals. So what is a great property for one isn't necessarily the best for someone else. 
The single most considered factor of any investment is Cash Flow.  I am often asked “What is a good cash flow?”.  My answer is always the same...Positive.  How much cash-flow is needed is subjective. Maybe you’re living in the property and house hacking so you don’t have to pay rent, or it could be a multi-unit that is cash-flowing so well it will pay itself off in 15 years instead of 30. Maybe it’s earning just enough cash to cover the mortgage, insurance, taxes and maintenance and nothing more....but it’s a long hold investment strategy...and that works too. 
Part of figuring out cash flow is determining the use of the property. Will it be a long term rental, such as year long leases, or is it an Airbnb or short term rental. These decisions will not only affect cash-flow but the time and energy it takes to manage it.  
Which leads to another criteria....Location! If you want to manage the property yourself, something I always advise for at least a few years, you'll need to purchase in an area close to where you live. Conversely if you want to branch out and buy out of state you will need to insure you have an incredibly trustworthy management team. The biggest risks and loses in real estate investments are vacancies. Having a management team who owns their own rentals and understands the pain of vacancy will ensure that they are quick to help you fill yours.  
Ultimately, make sure the property you purchase fits your goals. Cash flow, use, and location can start the conversation, but you need to have a long term plan in place to make sure each of your decisions, meet the long term goals you have. The last thing you should do is jump into purchasing your first or next investment because your neighbor mentioned he heard of a good “deal”.  
Build a team; one who will help you analyze each opportunity to determine if a property is a good buy or if you should simply say good bye to the deal. If this has sparked your interest and you want to know more, join me the second Thursday of each month at 6:30pm for our Investment Empire class where we spend an hour and a half going through the nuts and bolts of creating long-term wealth through real estate and dive deeper into this and so much more. 


The Gift of Equity

By Nicole Rueth - December 7, 2020

2020 has been such a challenging year. Let’s start by saying that our hearts go out to those families and businesses who have been adversely affected by the pandemic and its economic fallout. As the promise of a vaccine grows, we want to reflect on some of the good news we have enjoyed in Colorado. 

Our state’s average homeowner gained $17,000 in equity this past year. Just 1.4% of Denverites are underwater - which does make sense since we’re in the mountains. With Boulder placing #7 in the nation for homeownership wealth gains and Denver-Aurora-Lakewood, CO coming in at #9 last year according to the Survey of Consumer Finance, it’s safe to say “location-location-location” continues to be on our side. 

According to the Denver Metro Association of REALTORS®' (DMAR) October 2020 Market Trends Report, Denver’s real estate market has not only recovered from March and April’s loss; it has picked up the pace from before. As of the end of November, year-to-date closed homes were up 6.02% over last year and sales volume was up 14.01%. The median close price was up 7.14% - which is an incredible equity win for our homeowners.

According to DMAR’s November 2020 Market Trends Report…
  • Through the first 3 quarters of this year, 90% of the metro area zip codes experienced a median closed price increase.
  • High purchase demand (28% year over year) and limited inventory is giving homeowners incredible equity! FHFA came out showing 9.1% annual growth, and Case Shiller noted 7.3%. With a 2.75% rate, this equates to an annual $27,300 appreciation and $6,333 principal reduction on a $300,000 home. 
  • November’s housing inventory of 3,415 homes broke the previous record-low by 1,406 active listings yet 1,164 more properties were bought and sold landing at 4,820 closed transactions. With hungry buyers competing in bidding wars, home prices are on the rise and 22 days in MLS represents the lowest on record.
This all sets the stage for today’s conversation which is “the gift of equity.” With Santa firing up the reindeer, now seemed like the right time to explore the topic. First, we think you already know that you can count yourself as incredibly fortunate if the gift of equity is in your past, present, or future. And, who are we to tell someone’s parents or kooky Aunt that they should not invest in your family’s prosperity instead of buying some more tech stock? Speaking of which, please consult with your accountant, attorney, or financial advisor before acting on anything discussed here. 

So, what exactly are we talking about? Simple. Peter and Wendie intend to sell their home (a primary residence or 2nd home) to their son David and his wife Diane, but at a price below market value. The delta between the sales price and the market value of the home is the gift of equity. The transfer counts as a present even though no money changes hands.

Beyond the obvious lower sale price, there are many ways this can benefit David and Diane. Most lenders allow the gift to pay off or reduce the required down payment and it can also help save them the cost of private mortgage insurance. Peter and Wendie can alleviate any number of things they feel guilty about and possibly avoid gift and capital gains taxes but there are details that need to apply.

Best of all, this is ridiculously easy. A gift of equity requires a dedicated letter signed by both the seller and the buyer along with a legal appraisal that specifies the reduced sales price. So maybe remember to return your parents’ calls a little faster than you used to. 

This is as good a place as any to say the obvious because sometimes it’s not so obvious if someone has never heard it before like if you’re Gen Z. The sooner you can invest in real estate, the better. Give yourself the gift of equity. We don’t mean speculating and rolling the dice and flipping house like pancakes. But do the math. Could you take your current lease payment along with your Starbucks addiction and go qualify for a home loan? Well, then why aren’t you? Even with the real estate booming and inventory exceptionally low, with a good Realtor® on your team, you’ll be surprised what you can find in a starter home. And look forward. Someday, maybe that house you buy now is still an investment property and you can ‘rent’ it out to your kids.

Last for today. You don’t need us to tell you all the different ways you can subsequently leverage your home’s equity, but did you know if you have at least 50% equity in your home you are deemed "equity-rich"? Sounds like a Monopoly milestone doesn’t it? The bottom line is homeownership accounts for 90% of total wealth and a gift of equity is a powerful way to achieve that. Here’s to a happy, healthy, and equity-rich year for all of us in 2021.  

Your Investment Strategy Starts Here

By Nicole Rueth - November 18, 2020

Last week we talked about defining your retirement income goals using real estate investments and a big picture view of how to achieve it. Now I want to narrow the lens and look step by step on how to start to achieve those goals because everyone wants to live comfortably throughout their retirement. 

First ask yourself … are you willing to move? I talk about this step a lot as it’s one of the best tips I can give to those who are staring off in real estate investing. By moving into each property, you can lock in a lower primary home interest rate and won't need to put nearly as much down, because primary homes only require 3% and have access to down payment assistance. If you don’t care to move and you purchase your property as an investment be prepared to put anywhere from 15-25% down depending on the product. But of course you save yourself the hassle of moving. Keep in mind there is no right  or wrong answer and The Rueth Team has helped countless people invest, both ways.  

Next is figuring out how much you can afford and what type of property you want to purchase.  

 If you’re currently renting and look at purchasing your first property you can likely afford more than you think! For example, if your rent is at $1,850, the top end of your home search could be around $350,000. And if you’re thinking, “I don’t have $11,000 to spend on a down payment!” It’s ok. Many people utilize CHFA or other down payment assistance programs to help them afford their first property. These systems allow you put 0% down if you qualify on a primary home. This would mean only needing to bring closing costs to the table.  

Now let’s jump over to the type of property you want to invest in as there are pro’s and cons to any choice. If you’re looking into living in the property you might want to purchase a single-family home or condo, you can live in the house by yourself for the first year or you can rent out the other rooms creating cash flow right off the bat. And finding roommates isn’t the hassle it used to be. In fact because of online resources, it easier than ever to not only find people, but to help calculate the amount for to charge for each room. For example, when my sons were looking for roommates for their single-family homes, we were able to fill the rooms within 48 hours and they both either live for free or very reduced amounts.  

If you don’t want roommates but you want the possibility of decreasing your own living expenses a multi-unit is your answer. Fourplexes, my preference, duplexes and triplexes are a great product, and you don’t need to qualify for the entire monthly mortage amount just using your monthly income. That’s right! You can use 75% of the projected rental amounts as income. Which means if you’re rent is around $1,800 right now you could purchase a fourplex at $750,000 and use the rental income from the other three units to pay off the mortgage. Better yet if you price it correctly the other three units could help cover the cost of the fourth, your, unit. And to sweeten the deal, you only need to place 3.5% down on the entire property going FHA or 0% down if you’re a veteran.  
There are a lot of choices when it comes to investing in real estate, and there’s no one size fits all rule. You have to determine what you need from your investments and what you’re willing to do along the way. And if you come across any questions while you’re at, give me a call. Helping our clients build wealth through real estate is one of my favorite ways to provide support. 

Nicole Rueth with The Rueth Team. We look forward to serving you.