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Guru Q&A: Is an Annuity Right for Me?
FiLife User Question: I draw social security and I work part time. My wife and I have rental property that we plan to sell when she retires in another 8 to 10 years. I rolled my 401K into an IRA when I retired. It has lost about 30% of its value this year. What guaranteed rate would I be able to get on an annuity? I don’t expect to start drawin the annuity for another 5 years. What is my best product?
-Lake
FiLife Guru Repsonse from Ali Rogers: Hi Lake, I’m the real estate guru, so I can’t directly answer your annuity question — someone else will have to jump in there — but I do want to provide a note of reassurance about that rental property!
The U.S. housing market is in the middle of a down cycle, but prices do typically recover, especially when you look at timeframes that are ten years long — make sure that you keep it insured and in good repair, and it will be a valuable chunk of your wife’s retirement when her turn comes.
FiLife User Repsonse from Lake: Thanks for answering my question. My wife and I too are real estate agents. I have decided to buy a model home (under construction) from a national builder and rent it back. They are willing to pay 25% above market rent. I plan on rolling my retirement IRA into it as a down payment (depending on what my accountant has to say).
FiLife Guru Response from Michael Kitces: There are a number of annuity products that may be helpful for you, but you need to be VERY careful to understand what is guaranteed and what is not.
In terms of annuities that provide a guaranteed RETURN (generally, fixed annuities), you will find that the rates are typically similar to CDs (although some annuities have been offering slightly better returns than CDs lately). Suffice it to say, you’re talking about typical fixed-income-oriented returns.
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Getting a Mortgage: Make Sure You Ask These Questions
A lot of people are having trouble finding a mortgage these days. But don’t let the difficulty of the search affect the quality of your search. FiLife put together a list of questions you need to ask when shopping for a mortgage. Even better, we outlined the answers you want to hear.
Mortgage Grilling Guide
Does the rate you’re quoting me include any points?
You’ll have to run the numbers yourself to see if it’s worth it, but you should know if points are involved right at the beginning of this process.
Is there a prepayment penalty if, at any time, I decide to make a larger-than-usual payment?
There really shouldn’t be. Don’t get a mortgage that has one.
How long can I lock in my interest rate while waiting to close on my home purchase?
30 to 60 days is the norm.
How much does it cost to extend the lock-in period?
It depends: Some lenders charge a flat fee, others use a percentage of the loan. Either way, negotiate. Many lenders will extend for a few days for free. If you need more time, the fee should be a small fraction of a percentage of your loan, like .125% or a couple of hundred dollars.
Do I have to have homeowner’s insurance in order to get this loan?
Most lenders will require you to get homeowners insurance in order for them to grant you a loan. For their purposes, your insurance policy only has to be big enough to cover the cost of the mortgage (after all, they don’t care about your home, they just want to protect their investment). You should get more coverage than that, though—enough to rebuild your home if were destroyed. You can, and should, shop for homeowners insurance on your own. Check out this guide to learn more about it.
Read the rest of our Grilling Guide here. Or if you have a specific question of your own, talk to our mortgage guru Steve Heideman.
The Gift That Lets You Keep On Living In It
Gifting Your House and Living in It, Too
FiLife Take: With the housing market still suffering, now may be the right time for older homeowners to gift their properties to their kids. With a qualified personal residence trust, parents can keep living in their homes and get big savings on gift and estate taxes.
Guru Q&A: Does Renters Insurance Cover Mold and Marijuana Damage?
FiLife User Question: I have a rental home in Las Vegas that was raided because the renter was growing marijuana in the attic now there is a mold problem. Will my renters insurance cover the damage?
-spazz
FiLife Guru Answer: Probably not . . there’s a section called “Perils Insured Against” in your policy, so pull it out and read it . . mine specifically excludes “mold, fungus or wet rot.”
You are going to want to fix the problem quickly though — mold is one of those problems that gets worse the longer that you ignore it. I used a technician from All Tech Environmental to remediate my basement mold; I don’t know if they have a franchise in Nevada, but perhaps they can recommend someone.
You basically need to get rid of the existing mold through treatment, and then make sure there’s enough air circulation/sunshine so the problem doesn’t recur.
NYC: Cheap Rent in Plain Sight
One of New York City’s biggest money drains? Rent. More than 50% of renters pay at least $1,850 a month to live in Manhattan. These numbers are high enough to dissuade recent graduates from following their dreams to the big city. Especially since most landlords require first and last month’s rent as well as a security deposit up front. We’re talking about a start-up cost in the thousands.
But there’s a cheaper way: Women’s residences. These dormitory style buildings offer prime Manhattan addresses at below-market rates. Most of these buildings require residents to be students, interns or working full time. This New York Times article from 1982 reported that these residences often had year-long waiting lists. But these days the wait time isn’t as long, and in some cases there is no wait at all.
I haven’t found these kinds of residences in other cities (if you know of them – let us know in the comment section.) It makes sense that so many popped up in New York – finding a decent apartment here is akin to a full time job. These residences are a great starting place for newcomers to the city. You’re in the comfort of Manhattan and can explore other neighborhoods without the stress of apartment hunting deadlines. You can meet other people in the residence and make friends, and possibly future roommates.
Here’s a breakdown of some of the better know halls (and guys, here’s one for you):
Answers to Today’s Money Questions
Lots of us have lots of questions about our money these days.
Many of our long-held financial beliefs – like the benefits of diversification and the stability of brick and mortar banks – are being challenged. It’s a good time to check in on your finances and figure out where you’re OK and where you can do better. But it’s also a confusing time to do so.
FiLife visitors are asking our personal finance gurus for some help. Here are a few of their answers related to retirement savings, home equity loans, health insurance and taxes. Check them out – their words of wisdom just might apply to you. Or ask a guru your own personal question.
Question 1: Economic Decline
I am just curious what advice would you give to people in regards to how they should handle their 401 k as it relates to the economic troubles the country is facing?
Cashe22,
Certainly, today’s environment leaves us all a bit stressed about our retirement funds. But at the same time, it also emphasizes all the more the importance of spending less than you earn, and saving money for the future, so that you’re better able to handle times of financial stress.
For those who have a very long-term investment horizon until they retire, I don’t think any major changes need to occur. For some, this environment is a reminder of the importance of having a well-diversified portfolio, and for everyone it’s a reminder that the markets do have downs in addition to ups. But that’s part of the normal market cycle (although obviously the cycle is a little more extreme this time around!). Read Full Answer
Question 2: Is There A Penalty?
I have a high interest home equity loan. Is there a penalty if I prepay or pay more every month than what is required?
Also, is there a penalty for adding principal every month?
Most HELOCs do not have a big prepayment penalty– something like $300 if you pay it off before 3 years. The best thing to do is to take a look at the paperwork that you received when you closed your loan. In there, there will be what is called a “prepayment penalty rider” that will tell you the terms–if any–of your prepayment penalty. Another thing you may do is call the customer service number on your statement and see if they can give you the information you seek. See All Answers
Question 3: My Momma Needs Hip Insurance
Her hip replacement went south and needs a new one, but old insurance doesn’t cover upgrades?
Get her doctor to write a letter that states that the hip replacement is medically necessary and then submit an appeal of the decision, including a copy of the letter. Insurance companies will generally not substitute their judgment for the judgment of the medical professional that is providing patient care. Read More »
House-Hunting Horror Stories
Crying Over the House Hunt
FiLife Take: Neal Templin has moved several times while working at The Wall Street Journal. Templin and his wife know the house-hunting drill. But their most recent move to New Jersey threw some curve balls they weren’t expecting.
Surviving the Housing Market Storm
After a couple of years of falling home prices, homeowners are understandably nervous about how they can protect what for most is their biggest asset.
For investors in stocks and bonds, successful strategies to combat the ups and downs of the marketplace are fairly straightforward. Have a diversified portfolio to balance risk, be disciplined about consistently saving money and don’t chase returns or the latest fad.
Homeowners face a trickier landscape. Diversification, for one, isn’t really possible. Owning ten homes, besides being very expensive, just multiplies the trouble in a falling market. Also, buying and selling homes isn’t as easy as buying and selling mutual funds or shares.
But there are steps homeowners can take that can help you ride out the housing storm.
Take a Deep Breath
For starters, don’t get too addled about the value of your home. Perspective, not panic, is always the first step in assessing the situation. Despite the scary headlines, the vast majority of homeowners are still sitting on decent gains, even if the value of their homes has declined over the past couple of years.
It’s important to understand that home values rocketed in the early part of the century in a flukish way. Those kinds of gains won’t be seen again anytime soon. Home prices, after the current shakeout ends, are most likely to resume their steady, nearly humdrum appreciation of value.
Moving Will Probably Cost You
Trading Houses Hasn’t Made Me Wealthy
FiLife Take: Moving is expensive - even if your employer is covering most of the relocation costs. Neal Templin shares his personal moving stories and explains why most cheapskates benefit from staying put as long as possible.
Ask Your Real Estate Agent for a Break
Want a price break when selling your home? Try asking your agent.
According to a Consumer Reports survey released earlier this month, of the thousands of sellers who were interviewed who attempted to negotiate a break in real estate commissions, 71% succeeded.
Of course, you’re likely to get some pushback in this slow market. An agent will argue - correctly - that if homes take longer to sell, then he or she is investing more time, and wants to be paid for it.
Still, that doesn’t mean you have to pay the top rate. It’s like buying a car: the first thing you have to do is to ask for a discount off list. And according to Consumer Reports, more than half the sellers surveyed didn’t even bother to do that!
One more tip: once you’ve asked your real estate agent to justify his or her commission, get some specific commitments. If her response is “ads sell houses, and ads cost money,” get her to agree – in writing – to a specific number of classifieds or web banner ads that showcase your property.
–Alison Rogers, FiLife’s Real Estate Guru
* Have a real estate question? Ask Ali and read more of her answers here.