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What is leverage in real estate, and how do I use it?

Defined, “leverage” is the “borrowed capital for (an investment), expecting the profits made to be greater than the interest payable”. So, what is leverage in real estate? Essentially, leverage in real estate is the loan used to buy property, and the amount of potential profit earned during ownership. The amount of leverage you have in real estate depends on several factors: how much cash you’ve invested in the property (think down payment or repair costs), the amount of the loan and interest rate, and the appreciation in property value (the more appreciation, the more your investment is worth and the more profit you will gain from selling it).

In other words, someone that invests a small amount of money in a property and has more liquid assets to invest in something else generally has more leverage than someone who invests a large amount of money and cannot invest in anything else (their entire investment would be in one place, in this case, the property they purchased). Additionally, if both people have equal amounts of liquid assets available for the purchase of real property, the person with the smaller cash investment would see a greater percentage return on that investment.

As an example, take a piece of real estate that will sell for $100,000. Investor A could pay all cash and investor B could put 20% down (or $20,000) and take out a loan for the remaining 80% (or $80,000). If we assume the house appreciates by 10%, investor A (the all cash buyer) would have made a profit on their initial investment of 10% ($10,000 profit divided by $100,000 initial investment). Conversely, investor B (the buyer who used leverage) would have had a 50% gain on their original investment ($10,000 profit divided by $20,000 initial investment). Additionally, investor A would now have $80,000 less cash to invest than investor B because he has $80,000 more cash tied up in this property.

(Scroll down for risks in using leverage)

Leverage works great in an up market, as in the example above; however, it can be risky in a down market. Taking the same example above, if there were a downturn in the housing market and a 10% decline in the home value, the all cash investor has lost 10% of their initial investment, while the leveraged buyer has lost 50% of their initial investment.

As such, it is wiser and more advantageous to use leverage in the real estate market over a sustained period of time (generally five or more years) because historically, real estate has been shown to increase in value over the long-term. It is much riskier to use leverage over a short-term period of time because the market is much less predictable from year to year, than from decade to decade.

Have more questions? Contact us! We're always happy to help you fully understand your options.

 

Follow our Facebook events page, or visit our Instagram or Twitter feeds to see the most current open house updates and details.

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Open House Update :: November 11

Join us this weekend in Piedmont for an open house at this NEW LISTING: a beautiful and highly energy efficient home!

7418 N Williams Ave, Portland (map/directions)
Listed at $450k
Open House: Sunday, 11/11, 1 - 3p

A beautiful 3-bedroom, 2.1-bathroom home in NE Portland's Piedmont neighborhood, near parks, restaurants, and shops. This home lives bright and airy thanks to an open living room/dining area, warm fireplace, beautiful kitchen, & powder bathroom on the main floor. Upstairs there's plenty of room for visiting guests thanks to two well-sized bedrooms and a full guest bathroom. Create your own master bedroom sanctuary with its own bathroom including a dual vanity and walk-in closet. The deck and fully fenced backyard is a perfect spot to enjoy warmer mornings with a cup of coffee - or to build a snowman in the winter. Listed by: Claire Paris of PGR

Look forward to seeing you this weekend! Can't make it to an open house? Give us a call to schedule a viewing ASAP at 503-998-4878.

 

Follow our Facebook events page, or visit our Instagram or Twitter feeds to see the most current open house updates and details.

Join us on Tuesdays at 1p for our "Dear Claire" Facebook Live series. Subscribe to our YouTube channel today to help us reach our goal of 100 subscribers.

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Is it cheaper to remodel my home or move to a new home?

A lot of factors can affect a decision of whether to remodel your home or buy a new (or already-renovated) home. What is the most cost-effective option to upgrade your house? How difficult is it to get a home equity line of credit? How difficult will it be to sell my house? Can I afford a new house?

The thought of moving into a new house may seem overwhelming, but in most cases, moving into a new house is easier and more cost-effective than remodeling your home. There are several different reasons for this, the biggest being that mortgage loans tend to be easier to qualify for and are usually at a lower, fixed rate than home equity lines of credit.

Home equity lines of credit tend to be higher and at a variable rate, similar to a credit card. So, unless you have a substantial cash savings to pull from, a major renovation or remodeling home project (such as a bathroom or kitchen) may not be a great option for you. In these instances, buying a new home that already has the upgrades you are looking for is probably smarter.

To find out what types of loans and interest rates that you may qualify for, it’s best to contact your local lender or credit union. They’ll be able to help you understand your loan options, and what you may qualify for, including home equity lines of credit, should you choose to go that route.

For those who have enough cash savings to cover remodeling costs, it’s best to compare the out of pocket costs verses potential home value increase. To do this, answer the following questions as accurately as possible:

(scroll below for 3 questions to ask before you renovate)

  1. How much money will my renovation cost? This includes contractor time, labor, and materials. It’s best to get estimates from at least two or three contractors who are licensed and bonded, and who have a good reputation in the community. Be sure to tell the contractor exactly what type of materials you’d like to use in your renovation (i.e. quartz counters vs. granite counters, type of wood and style of cabinetry, carpeting vs. laminate vs. wood floors, etc.) so they can estimate material costs more accurately.
  2. How much value will this renovation add to my home? The best way to find out the potential added value now verses after remodeling is to consult an experienced real estate expert who is familiar with your area or neighborhood. A Realtor can help you find out what your current home value is, and what your home may be worth after the renovations have been completed.
  3. Given this information, is remodeling my home the best investment of my cash? If the renovation cost is higher than the potential increase in home value, then it’s probably better to move than to remodel. If, on the other hand, the renovation will add a significant amount of value to your house that outweighs the cost of the remodel, then it’s probably better to renovate.

Have more questions? Contact us! We're always happy to help you fully understand your options.

 

Follow our Facebook events page, or visit our Instagram or Twitter feeds to see the most current open house updates and details.

Join us on Tuesdays at 1pm PST for our "Dear Claire" Facebook Live series. Subscribe to our YouTube channel today to help us reach our goal of 100 subscribers.

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How to Remove a Name From a Mortgage or Deed

We get a lot of questions about how to remove someone from a mortgage and/or deed, and if it's possible to do so without refinancing or selling your home. First, let’s go over the difference between your liability on a mortgage vs. your liability on a deed. 

When you finance your home mortgage jointly with another person, the lender is accounting for both of your assets, liabilities, and income. Your risk as borrowers is also looked at jointly, and your future liability on the home loan is equal. If, at some point, you want to remove one person from the mortgage loan (this commonly happens in divorce or breakup situations), the other person would have to re-qualify for the loan separately. In order to do this, you would have to either refinance (change the terms of your mortgage loan, including who is liable to pay the loan back), or sell your home and remove both parties’ liability to pay the loan back. 

(Scroll down for how to remove a name from a deed)

A deed, on the other hand, is vastly different from a mortgage. A deed is not a loan liability, but rather proof of ownership and legal right to property. To remove someone from a deed, there are two ways to do this (other than refinancing or selling your home): by mutual agreement, or by legal recourse. If either of these scenarios applies, then you can remove someone from a deed by going through a title company and re-recording the deed with the county in one party’s name.

Keep in mind, however, that removing someone from a deed will not remove that person’s liability to pay the mortgage back if that person is also on the loan. If the person being removed from the deed is not on the loan, then it would make sense to remove that party from the deed as well. However, if that person is also on the mortgage loan, it would not make sense to remove that party from the deed alone, as it does not remove the liability of paying the loan back; the loan liability would remain, but the person removed from the deed would no longer have a legal right to the property. 

So, in short, you can remove someone from a deed if all parties agree, or if it’s been legally mandated, without refinancing your mortgage or selling your home. However, you cannot remove someone from a mortgage loan without refinancing or selling.

Have more questions? Contact us! We're always happy to help you fully understand your options.

 

Follow our Facebook events page, or visit our Instagram or Twitter feeds to see the most current open house updates and details.

Join us on Tuesdays at 1p for our "Dear Claire" Facebook Live series. Subscribe to our YouTube channel today to help us reach our goal of 100 subscribers.

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Open House Update :: November 3

Join us this weekend in Piedmont for an open house at this NEW LISTING: a beautiful and highly energy efficient home!

7418 N Williams Ave, Portland (map/directions)
Listed at $450k
Open House: Saturday, 11/3, 1 - 3p

A beautiful 3-bedroom, 2.1-bathroom home in NE Portland's Piedmont neighborhood, near parks, restaurants, and shops. This home lives bright and airy thanks to an open living room/dining area, warm fireplace, beautiful kitchen, & powder bathroom on the main floor. Upstairs there's plenty of room for visiting guests thanks to two well-sized bedrooms and a full guest bathroom. Create your own master bedroom sanctuary with its own bathroom including a dual vanity and walk-in closet. The deck and fully fenced backyard is a perfect spot to enjoy warmer mornings with a cup of coffee - or to build a snowman in the winter. Listed by: Claire Paris of PGR

Look forward to seeing you this weekend! Can't make it to an open house? Give us a call to schedule a viewing ASAP at 503-998-4878.

 

Follow our Facebook events page, or visit our Instagram or Twitter feeds to see the most current open house updates and details.

Join us on Tuesdays at 1p for our "Dear Claire" Facebook Live series. Subscribe to our YouTube channel today to help us reach our goal of 100 subscribers.

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What to Expect When Refinancing Your Home in 7 Simple Steps

In our last blog post, we explained why you may want to refinance your home loan; which means paying off your current mortgage with a new mortgage. Homeowners often take advantage of this option to have a more desirable mortgage loan, usually at a lower interest rate or over a shorter period of time.

In today's post, we're explaining what to expect when refinancing a home.

Our big tip: Different lenders have different home refinancing loans to offer, so it’s good to shop around periodically to see if there’s a better mortgage loan available to you. Pay attention to all the fine print to make sure you are getting a better refinanced mortgage than the one you already have.                               

How to Refinance Your Home in 7 Simple Steps

1. Determine Your Financial Goals

  • Estimate how long you plan to live in your home.
  • Consider every debt and how much interest you are paying.
  • Review your current mortgage terms.
  • What do you expect to achieve by refinancing?                

2. Talk to More Than One Lender

  • You don’t have to refinance your home with your current lender! This is something homeowners don’t always consider; or they assume the options will be the same with every lender.
  • You should get 3-4 refinancing loan quotes from lenders to make sure you are getting the best deal.

3. Apply & Receive a Pre-Approval

  • When you’ve found the best refinancing loan offer - and have reviewed for any unexpected fees and costs - submit your application to the lender! The mortgage company will review your current and past finances to see if you qualify for a good mortgage refinancing option. This review could include your income, credit, assets, and property type.

(Keep scrolling for knowing when the property review takes place and our tips for refinancing.)

4. Wait for the Appraisal & Property Review

  • A title report will be requested and the homeowner’s insurance binder will be ordered.
  • The lender will hire a licensed appraiser to make a complete assessment of the current value of the property. The appraiser is an impartial party who will visit your home to take notes and pictures before making a final assessment. The terms of the loan will be based on the appraiser’s property value.
  • The appraiser could determine that your home is worth more or less than you and your lender expected, which would then change the terms of the refinanced loan.

5. Receive the Official Approval

  • All of the information on your financial position and the property will be carefully evaluated by an underwriter. At this point, you may need to provide additional documentation so that the underwriter can make a properly informed decision.
  • When the underwriter has made a final decision and approved the loan terms, you will receive an approval letter with all the terms of the new loan.
  • Read through the terms carefully and look for any unexpected expenses that might cost you more money over time.

6. Submit Documents & Sign the Papers

  • After the underwriter has cleared your documentation, the refinanced loan documents will be prepared and delivered to the title company.
  • The escrow office will receive the loan documentation from the lender, prepare the new documents, and contact you to sign.

7. Start Fresh With Your New Mortgage Terms             

  • The funds will be released for disbursement once the lender has reviewed everything and all the terms have been met.
  • When all the funds have been disbursed, the title company will record your new lien at the county.
  • Depending on your new loan terms, you can now enjoy a lower monthly payment, plan for a shorter loan term, or use the money you received to improve your household’s finances!

Helpful Tips for Refinancing
You can save yourself money and create opportunities by refinancing your home mortgage. To make sure your refinancing process is as successful as possible, save these tips:

  • Be prepared financially and with proper documentation.
  • Understand the mortgage process.
  • Avoid high fees and credit issues.
  • Read the terms of the new loan carefully.
  • Compare the benefits of the new loan vs. your current loan.
  • Ask your lender about anything you’re not sure of.

Knowing what to expect when refinancing your home will help the process go more smoothly. It’ll also make it easier to understand the terms of the new loan and the differences between your current loan and your new refinanced loan options. Remember the goal of any refinancing process is to put you in a better financial position now and in the future!

Have questions? Give us a call! We're always happy to help you fully understand your options.

 

Follow our Facebook events page, or visit our Instagram or Twitter feeds to see the most current open house updates and details.

Join us on Tuesdays at 1p for our "Dear Claire" Facebook Live series. Subscribe to our YouTube channel today to help us reach our goal of 100 subscribers.

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Why should I refinance my home mortgage?

Thinking about refinancing a home mortgage loan and not sure where to start? We're reviewing what to expect in a typical process and why you may want to refinance sooner rather than later. 

What Does It Mean To Refinance Your Mortgage? 
When you refinance your home loan, you're paying off your existing mortgage with a new mortgage. Homeowners typically take advantage of this refinancing option to reduce their interest rate and/or payment, or to change the terms of their mortgage loan (such as switching to a shorter or longer loan term).

You can also borrow against your home equity in order to receive cash. This “cash-out refinancing” option allows you to use proceeds from the refinancing to pay off non-mortgage debts or renovate your home.

However in 2018, you can no longer deduct the interest payments on extra funds pulled from refinancing, so renovation financing would likely be a better option if you’re planning on renovating your home. (Read more about how the new laws for taxes in 2018 will affect deductions taken for things like mortgage interest payments and property taxes.)          

Should You Refinance or Build Equity? 
Is it better to refinance your mortgage OR let the equity build up as much as possible? It really depends on your financial situation. If you’re in the position to refinance your home, that’s a sign you’re on the right financial path! It means your financial situation has given you options that can prove beneficial in the short or long term. It’s important to understand those options and make the best decision for your financial health.

7 Reasons to Consider Refinancing Your Mortgage            

  • You want to lower your monthly payments.
  • You want to pay off your mortgage sooner.
  • You have an adjustable rate mortgage.
  • You have an interest-only loan.
  • You have a high interest rate.
  • You’re paying mortgage insurance.
  • You need cash-in-hand to pay non-mortgage higher-interest debt.

(keep scrolling for our refinancing tips!)
"Is there any point to refinancing if my monthly payment amount doesn’t change?"

Yes! Even if you’d still pay the same amount every month after refinancing a home mortgage, it may still save you money if you can shave years off the life of your loan. You could pay off your mortgage early and save tens of thousands of dollars. This is why it’s so important to go over all your options carefully with a mortgage specialist to find out whether it's worth to to refinance your home.

Helpful Tips for Refinancing
You can save yourself money and create opportunities by refinancing a home mortgage, if done properly. To make sure your refinancing process is as successful as possible, bookmark these tips:

  • Be prepared financially and with proper documentation.
  • Understand the mortgage process.
  • Avoid high fees and credit issues.
  • Read the terms of the new loan carefully.
  • Compare the benefits of the new loan vs. your current loan.
  • Ask your lender about anything you’re not sure of.

Talk to Your Lender About Refinancing Options 
Even if you wouldn’t expect to benefit from or qualify for refinancing, you should understand the process of refinancing your home and how it can benefit your household budget. You might be pleasantly surprised with the options your lender can offer!

Even if you decide not to refinance your mortgage after speaking with your lender, talking about the possibility can show you how your budget could potentially improve to create better mortgage lending opportunities in the future. A successfully refinanced mortgage can reduce your monthly payments, shorten your loan terms, and create opportunities with cash from equity.

Have questions? Give us a call! We're always happy to help you fully understand your options.

 

Follow our Facebook events page, or visit our Instagram or Twitter feeds to see the most current open house updates and details.

Join us on Tuesdays at 1p for our "Dear Claire" Facebook Live series. Subscribe to our YouTube channel today to help us reach our goal of 100 subscribers.

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Open House Update :: October 27 & 28


While you're out and about this weekend, join us at these amazing homes in Beaverton and North Portland!

7315 N Fenwick Ave, Portland (map/directions)
Listed at $300k
Open House: Saturday, 10/27, 10a - 12p & Sunday, 10/28, 12-2p

Details: This 1-bedroom, 1-bathroom North Portland bungalow has a spacious backyard with private back deck and just blocks from Max line & Kenton neighborhood shops and restaurants. Thanks to hardwoods throughout and a kitchen skylight, this cozy home is bright even on the cloudiest of days. Parking for two with an over-sized garage, and separate entrance leads to basement with tall ceilings. Could easily be converted to a 2-bedroom. This sweet home has incredible potential; it's just waiting for your imagination and finishing touches! Listed by: Michael Toews

306 SE 61st Ave, Portland (map/directions)
Listed at $800k
Open House: Saturday, 10/27, 11a-1p

Details: Grand 5-bedroom, 3-bathroom Craftsman estate on Mt Tabor! Ample front porch to enjoy your morning, looking at a spectacular view. Classic light and bright living room with a sophisticated fireplace will make transform cold winter nights into cozy ones. The master bedroom will quickly become your favorite sanctuary. A large dining room and kitchen are ideal for entertaining guests. French doors open to a magical backyard, complete with fruit trees, berries bushes, a patio with deck, and a kid's play house! A finished oversized, attached garage will make storing off-season toys a snap! See it this Sunday! Listing by: Claire Paris

17737 SW Lawton St, Beaverton (map/directions)
Listed at $350k
Open House: Saturday, 10/27, 1-3p & Sunday, 10/28, 1-3p

Details: Stunning 4-bedroom, 2.1 bathroom home in Beaverton's Autumn Meadows neighborhood. With an open floor plan with wood floors and vaulted ceilings, this house has an eye for design and lives large. Stainless steel appliances and huge kitchen island provide ideal space for entertaining. Great location in the heart of Beaverton with easy access to Nike, Costco, local amenities, and freeways. Listed by Heather Paris

274 NW 215th Terrace, Beaverton (map/directions)
Listed at $275k
Open House: Sunday, 10/28, 1-2p
Details: A well-appointed 2-bedroom, 2.1-bathroom townhome, close to Orenco Station and numerous amenities: grocery shopping, restaurants, coffee shops, and breweries! Thanks to big windows and great layout, this home lives bright. With a deck off the open living room/kitchen area and a backyard, there's plenty of room to enjoy these gorgeous fall days with family and guests alike. Ideal for those looking for a sweet, bright space to call their own. Listing by: Claire Paris

Look forward to seeing you this weekend! Can't make it to an open house? Give us a call to schedule a viewing ASAP at 503-998-4878.

 

Follow our Facebook events page, or visit our Instagram or Twitter feeds to see the most current open house updates and details.

Join us on Tuesdays at 1p for our "Dear Claire" Facebook Live series. Subscribe to our YouTube channel today to help us reach our goal of 100 subscribers.

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Open House Update :: Oct 20 & 21

While you're enjoying the weekend - and this incredible weather! - come see us at these incredible homes!

878 Beach St, Manzanita (map/directions)
Listed at $700k
Open House: Saturday, 10/21, 12-2p

Details: Stellar location in heart of Manzanita with panoramic ocean views. Top to bottom remodel with high-end finishes and open floor plan. Cook your favorite meal in the open kitchen and eat it outside on the spacious deck overlooking one of Oregon's most spectacular beaches. House lives large thanks to the 5 bedrooms and 2 big bathrooms. Only 4 blocks to downtown Manzanita and across the street from the ocean, life doesn't get much better than this. Listing by: Molly Paris

274 NW 215th Terrace, Beaverton (map/directions)
Listed at $275k
Open House: Sunday, 10/21, 12-2p
Details: A well-appointed 2-bedroom, 2.1-bathroom townhome, close to Orenco Station and numerous amenities: grocery shopping, restaurants, coffee shops, and breweries! Thanks to big windows and great layout, this home lives bright. With a deck off the open living room/kitchen area and a backyard, there's plenty of room to enjoy these gorgeous fall days with family and guests alike. Listing by: Claire Paris

306 SE 61st Ave, Portland (map/directions)
Listed at $800k
Open House: Sunday, 10/21, from 3-4p

Details: Grand 5-bedroom, 3-bathroom Craftsman estate on Mt Tabor! Ample front porch to enjoy your morning, looking at a spectacular view. Classic light and bright living room with a sophisticated fireplace will make transform cold winter nights into cozy ones. The master bedroom will quickly become your favorite sanctuary. A large dining room and kitchen are ideal for entertaining guests. French doors open to a magical backyard, complete with fruit trees, berries bushes, a patio with deck, and a kid's play house! A finished oversized, attached garage will make storing off-season toys a snap! See it this Sunday! Listing by: Claire Paris

Look forward to seeing you this weekend! Can't make it to an open house? Give us a call to schedule a viewing ASAP at 503-998-4878.

Follow our Facebook events page, or visit our Instagram or Twitter feeds
 to see the most current open house details.


Join us on Tuesdays at 1p for our "Dear Claire" Facebook Live series. 
Subscribe to our YouTube channel today to help us reach our goal of 100 subscribers.

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Can I buy a home with a friend or group?

As real estate prices have risen over the last decade, it’s becoming more and more common to invest in real estate with other people besides your partner. In a recent episode of “Dear Claire”, we discussed what you need to know about buying a house with a friend or group of people. Here’s a breakdown of what we talked about:

(scroll down for a summary)

1. When you apply for a mortgage with a friend or group, the lender will base your cumulative qualification on the WORST portions of each person’s financial history. In other words, the lender will combine the person with the lowest credit score, the person with the lowest income, and the person with the highest debt-to-income ratio in their calculations. This is because they want to see the highest risk potential possible when determining your pre-qualification.

2. That being said, there are definite benefits to purchasing with others rather than individually. As opposed to purchasing a home alone, purchasing a home with a friend will most likely give you a larger down payment and more purchasing power (you’ll be able to purchase a larger or nicer home with others than you could alone).

3. Come up with an exit strategy should something go wrong. Make sure you’ve had in-depth discussion with everyone involved in the home purchase about what will happen if someone passes away, if a couple breaks up, or if a friendship is severed at some point in the future. This may involve a legal agreement with a clause stipulating how to dispose of the home and divide the profits among the group of people who own it, should something go awry at any point during your mortgage term.

So yes, you can buy a home with a friend or group, and there are definite benefits ... just be sure you have all the facts and plan an exit strategy in case you need it!

Have more questions? Contact us! We're always happy to help you fully understand your options.

 

Follow our Facebook events page, or visit our Instagram or Twitter feeds to see the most current open house updates and details.

Join us on Tuesdays at 1pm PST for our "Dear Claire" Facebook Live series. Subscribe to our YouTube channel today to help us reach our goal of 100 subscribers.

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