Home Construction Loan Basics

Mortgages, Buying a Home 1 Comment »

If you are looking to build your own house, and don’t have the cash to finance the construction, you will probably be considering a home construction loan. The following are facts about home construction loans, and the two basic ways that lenders handle this situation:

  1. Standalone Home Construction Loan
    A standalone home construction loan is the simplest construction loan you can get. You will probably have a substantial down payment, a heavy interest rate considering the risk involved in building a home and the things that can go wrong, with a balloon payment at the end of construction to pay off the balance.

    In this scenario, there are probably two lenders, and you will need to close two loans, the construction loan with the first lender, and then the permanent loan with the second lender. This is not typically what people want to do, because there are two sets of closing costs, the general headache of dealing with two lenders, getting qualified separately for each, and much more paperwork.

  2. Combination Home Construction-to-Permanent Financing
    For most people that want to build their own home, this is the more logical way to go. In this scenario, there is only one lender, and one qualification process. The lender will approve you for the construction loan, and probably will only charge small interest only payments during the construction phase of the project. There will likely be a “draw” process by the particular lender’s policies and procedures to pay the contractor incremental payments during construction. Check with you lender as to how stringent they are with the draws. How often can you draw? Do they have to inspect before releasing funds? Both are good questions to get answered before choosing a lender.

    After the construction phase is complete, there will be an automatic conversion to permanent financing. Usually all that is left after the last draw will be the final closing, where your permanent loan will be put in place. From there, it is just like any other home mortgage, so be sure to get all the details from the lender as to term, interest rate, down payment, etc. Try to ask as many questions as possible before getting involved with a lender to be sure you don’t miss something important.

These are the two typical ways that lenders loan money to people wishing to build there own home. But be careful, as lenders are not construction experts, and do not really help you build your house. You need to be very sure of the contractor you hire to build your house. Spend some time checking references, and looking at other homes that the contractor has built or is in the process of building. Get to know them, because contractors have some of the worst reputations compared to other industries when it comes to getting what you pay for. One last note, you need to make absolutely sure that you do not give the contractor the final check until ALL of the work is complete. Once you have paid them the last bit of money left on the contract, they are gone, and I mean gone for good. Until next time…


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5 Car Buying Considerations

Car Shopping 3 Comments »

Buying a car can be a daunting task. If you are looking to buy a new or used car, then you need to consider these 5 things (listed in order of importance in my opinion) before making the decision to purchase:

  1. Reliability
    I have found that domestic cars and trucks tend to have higher maintenance costs and therefore are not as reliable as foreign automobile manufacturers. The cause for this - I don’t know, maybe it is attention to detail or continuous improvement that the foreign dealers have mastered and Americans haven’t, but in any case, Toyota and Honda have outperformed the domestic comparables in my opinion. But reliability is probably the single most important thing, because you don’t want your car to be in the shop getting repaired all the time.
  2. Cost
    Cost is extremely important, but I listed it second because if you pay too little for a car, you might just get what you pay for. Whether it is a certified dealer or Joe over on 15th street, you should have your mechanic check the car out before purchasing.
  3. Gas Mileage
    I am continually amazed at the American people and how they refuse to get rid of their gas guzzlers. Because of the inelastic demand curve of gasoline, as the price goes up, people continue to buy. If we are going to make an impact on gasoline prices, we need to buy small cars, and limit the use of gasoline as much as possible. So when you are looking to buy a car, look at a car that gets over 20 mpg as a minimum.
  4. Warranty or Right to Rescind
    If you are buying from a dealer, see if they have bumper to bumper coverage, it may cost something extra, but when your transmission goes out after 30 days of owning the car, you’ll wish you had it. If you buy from a private owner, include a clause in the bill of sale with a right to rescind the contract for a certain period of time. If you want an example of a car purchase contract, just leave a comment to that effect at the bottom of this page.
  5. Insurance
    As you probably know, insurance companies take the make, model, color and other features of the car into consideration when rating a policy. Sports cars and the color red are almost always rated higher than other vehicles. Check with your insurance agent before purchasing that car.

These were just a few key points to consider when buying a car. Don’t get in over your head; buy something cheap that is older, and foreign with good gas mileage. You’ll appreciate it when you stop at the pump, and years later when you still have a good working vehicle!


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Lease Option to Buy

Real Estate Investing, Buying a Home 2 Comments »

Today, I want to do a follow up on an article I posted awhile back covering Residential Lease Options. If you have been following this blog for any length of time, you will understand that I work in real estate, and have a passion for investing. If you don’t already know the secret to real estate investing, I suggest catching up on those two articles before continuing this one. As a real estate investor, I would consider the following strategy to utilizing a Lease Option to Buy:

  1. I would locate a property that is undervalued, or that I can negotiate to well below the market value.
  2. I would buy the property using a traditional mortgage or cash out for the seller. I have found that cash or the equivalent to the seller is far more likely to persuade them to sell the property at a lower price. Also, a quick tip, if you are sure of the area a property is located in, then offering more than typical earnest money is a great way to persuade a seller. They know that you are serious and get the impression that you can close the deal, and not get rejected for a loan at the last minute. And it doesn’t hurt you to offer more earnest money, if you are getting a loan that requires money down, you can apply the earnest money toward your loan down payment.
  3. Then I would make any necessary repairs.
  4. Then I would market the property using the MLS, local paper, real estate flyers, and signs around town (and of course, in front of the house itself). You must get the message out. Use language like bad credit no problem, rent to own, financing help available, etc. This will open up the market to people that would not otherwise consider your property. Many good people these days have black marks on their credit because of a bad divorce, etc. and just cannot get traditional financing. Trust me, I have met many of these kinds of people.
  5. Ink a deal. Get a substantial cash option payment before you sign anything. Make the buyer commit to the property. They will take care of it a lot better if they have a significant amount of cash invested.
  6. Manage the property until you get to the end of the lease. This can be good or bad. You will have to deal with leaky toilets and electrical outlets not working, but if that is too much for you, hire a property management company.
  7. At the end of the lease, finalize the deal. If they are ready to buy, you must sell. If they can’t buy, then you get to keep the option payment and re-sell the property (you can repeat the process, and get another option payment, :) ). In some circumstances, the buyer may negotiate for more time. This is ok, however it opens up the entire contract for renegotiation, allowing you to reassess the property’s value, and get better terms on the deal.

This is a simple version of how I would invest in a property using the Lease Option to Buy strategy to sell the investment. If you have questions/comments, please leave them at the bottom of the page. And sign up for my RSS feed to stay up to date on all the latest information and tips automatically, and free of charge.


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Real Estate Flyer

Real Estate Investing No Comments »

Real Estate FlyerIn this edition of Personal Finance Resources, I am going to show you one of the flyers I put together for a piece of property I am managing. I am using this flyer in an advertising campaign right now, so this a real live example. I used Microsoft’s Publisher to put the flyer together, and was able to create something very professional, in only about 30 minutes to an hour. Some key points to remember when composing a real estate flyer:

  • Your key product/service/benefit to the client should be at the top of the page.
    In this particular example, I am wanting to rent a nice house near a lake. So I just simply put “House for Rent!” at the top. The reader is very aware of what the ad is about just by glancing at the title.
  • Directly after the key action item, you need to have something that really draws the attention.
    In this example, I am playing on people’s love for the water in telling them just how close to the lake this property is located.
  • Pictures
    Any quality flyer has to have some pictures. In my flyer, I choose a exterior elevation picture, to show how nice the house is, and then a picture of the over sized bathtub, that gives the reader a sense of the upgrades of this particular piece of property.
  • The Description
    Some people want the details. But as I did in this real estate flyer, it is in small text, and gives some good supporting details on upgrades, location, and then the all important price. But this is a more expensive property for the area I deal in real estate, and therefore I minimized the size of text where I show the price. I want the focus of the advertisement to be around the location and the features of the property, not the price. If you are marketing something where you are near the bottom of the market for price, then you might make the focal point of your message the price, instead of the features.
  • Contact Information
    For this real estate flyer, I put the phone number at the bottom of the page, increased the text size, and made the phone number itself red text, to really set it off the page. This is the key thing that I want the reader to do is to call me. In glancing at this flyer, you really see that there is a house for rent, it looks nice, and the phone number pops out at you. If someone wants the details, they can look more closely at it, but those are the main areas their eyes will be drawn to.

So as you can see, with Microsoft Publisher and a few marketing tactics, you can come up with a quality real estate flyer that can really grab the attention of someone in the market to rent a house (or whatever you are trying to sell). Now all you have to do is get as many of them out to the public as possible, and get them in front of some people. ‘Til next time…

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While getting mastercard payment, one can enjoy the free benefits as well. There are home mortgage packages as well as other options for loans. These services can be availed through online banking as well. Such deals help debt relief in effective way and do not let debt pile up.


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Turkey Day Real Estate Investments

Real Estate Investing No Comments »

Working on potential real estate investments is totally fascinating, and finding deals that fit a profitable formula is both extremely challenging, and extremely rewarding. Currently, I am working on a deal with a local realtor who is also a real estate investor here in Belton/Temple TX. He is trying to get out of the property management business, and owns a number of properties in the area (maybe about a dozen properties).

These properties are single and multi-family homes, and are in different areas throughout town. He has a few problem properties in the Temple market, which are a risk to me and my investors, remembering that location is the most important factor in real estate. But overall, he has a good spread of properties, and I am interested in about 3 of those properties. One is a duplex located just across the street from a property I already own, and therefore I am totally convinced of the neighborhood and the ability for this property to produce.

All in all, I am looking to put two properties (which includes 5 rental units) under contract, with the attempt to achieve a total payment of around $1,100-1,200. These properties gross around $2,200-2,300 per month, which is really good money for the risk. So this is just as word of encouragement to y’all out there, as you can get into good deals, you just have to keep looking.

One point I will make, I found this guy just by checking the MLS for some multi-family properties for another potential client. I saw a good price on a duplex, good location, and knew it would cash flow. If you have a little time, drive the neighborhoods you want to do business in, and just look for some “For Sale” signs. Farm those markets, and find those deals. To make it big, you are going to have to do a little more than the next guy.

‘Til next time, sign up for my RSS feed, and get the updates as they happen on this project and more to come in the future.


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Spending to Saving: Making the Change

Budgeting 1 Comment »

To really obtain wealth and/or financial freedom, there must be a change in our mindset. From our youth in America, we are taught to spend, spend, spend and pay for it later. The concept of having it all — right now is what most everyone wants in this country. Unfortunately, unless you have an 80″ vertical and can dunk a basketball, it will take time, patience and careful investing to unmask any substantial wealth. But I am just going to take a moment and give you a few pointers on how you can gear up for improving your financial health:

  1. Ignore Advertisements
    TV is one of the worst things you can do to yourself. It is totally commercialized these days and offers nothing wholesome, only product pushing programs. TV is at the heart of our debt-ridden society. If you can bear it, get rid of it. In my house, we don’t even have cable, so if we want to watch something, it is a movie that we have pre-selected on DVD.
  2. Track Your Goals
    It may not sound like it will help, but if you have a written budget, and written income goals it will help you to focus for the future. Take a few minutes to write down all of your expenses and come up with some reasonable income goals (challenge yourself, don’t just put down what you are currently making).
  3. Seek Out Help from People Who Have Done What You Want to Do
    There’s nothing like having someone near you that has been where you want to go. Start out with blogs like this one, and find professionals that are in a market that you want to participate in. Don’t try to think of something everyone needs but doesn’t have, as you will never get anywhere that way. There is nothing new under the sun. I like real estate, and have had some success in both. If you want to get into those markets, I can help. Sign up for my RSS feed (it’s free) and begin learning about real estate investing and property management.

If you have any questions or comments, please feel free to leave them at the bottom of this page. Stay tuned for more great insight to treating your financial health…


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StarTex Power Comments

Budgeting No Comments »

In this addition, I would like to just give some comments on how I feel about StarTex Power. StarTex Power is a Texas Electrical Retailer (read more on Texas Electricity Rates), and has been growing since deregulation. I am a customer and would like to share just a few comments with my readers today.

  1. StarTex Power has been very reliable. Because they do not actually control the electrical generation or power lines, the delivery of electricity to my house has not changed.
  2. Their prices are good. I think they have a 1 year contract price that will guarantee a particular kilowatt hour rate, but I am on the month to month plan.
  3. I haven’t had any billing issues, all bills have been paid, and the readings appear to be about right.
  4. One negative though, during the summer months, they increased the rate on me without notice (they never promised to send notice prior to rate change, however), and it is November now, without a decrease. I have heard of energy companies jacking rates in the summer, but I would think that they would go back down during the winter months. I have been with the company for close to a year, through last summer, and into this winter, expecting a decrease, but it hasn’t happened yet. If you are really concerned, consider their contract plan to secure a particular rate.

I think all in all, StarTex Power is a typical retail energy provider. If I saw another energy company offering a much lower rate for power, I would switch. On another note, the nice thing about going month to month with them, is that you can switch to another provider without a disconnect fee. So if I see another provider with much lower rates, I can easily make the switch! If y’all get a chance, leave some feedback at the bottom of this page, and sign up for my RSS feed for automatic updates.


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Back from Mexico, Just Want to Say Thanks to Nicholas

Blogging, Investing No Comments »

Last week, our Church went on a missions trip to Monterrey, Mexico. This trip was a special blessing for me, as our Pastor had me preach on Tuesday night, and it was my first time to preach. The people in those Churches have a close relationship with each other and God. And seeing some of the conditions they live in, it really speaks of their faith and love for God.

But I just want to give a big thanks to Nicholas, as he took over for me while I was gone, and brought some very different topical financial help to Personal Finance Resources. Nicholas is a rouge stock market and options investor, and makes (typically) between 15-40% profit per year (currently he is investing fairly conservatively) on his investments. So I really thought that he was an excellent fill-in during my absence.

At Personal Finance Resources, we really are striving to give you tips and information that have been tested successfully by the authors delivering the material. So when you are looking at an article published here, understand that the context is that of real people actually doing the particular strategy outlined. There have been thousands of dollars and years of time invested in the techniques covered in this blog, so sign up for the RSS feed so that you can get this information automatically and free of cost (these strategies cost thousands of dollars at seminars and other educational institutions).


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Call Spreads

Options, Investing No Comments »

So I mentioned call spreads a few times in my last few posts. What are those you might be asking? As I mentioned in my earlier posting titled Options are a Viable Option Right Now, options were created to reduce risk. Call spreads and put spreads (sometimes called vertical spreads) are the next step.
When options are referred to, they are referred to in one of a couple ways. They are either “in the money” or “out of the money.” As you can probably guess, “in the money” means that the stock has intrinsic or real value (i.e. a $25 call when the underlying stock’s market price is $28.) An “out of the money” derives its’ only value from the time value (i.e. a $50 call when the underlying stock is valued at $46.)
We have talked about buying calls and puts. Today we will move into the category of both buying and selling calls of different strike prices at the same time. So the call spread is buying a call close to the money and selling a call further away.
For example:
A stock is currently valued at $25.92. The JAN $27.50 call price is priced at $1.30 while the JAN $30 call is valued at $0.55.
Wait a minute….I thought you said that options are in $5 increments only? Mostly true, most stocks offer $2.50 increments up to $30 or $40.
So back to the example, I will buy 10 contracts of the JAN $27.50 for $1.30 and sell 10 contracts of the JAN $30 for $0.55 at the same time. So purchasing the call would cost me 10 contracts x 100 shares per contract x $1.30 for each for a total of $1,300. At the same time, since I am selling the JAN $30, I will receive 10 x 100 x $0.55 for a total of $550. So I pay $1,300 and receive $550 for a total cost of entering the trade of $750.
So let’s say the stock goes up to $30 at expiration, my $27.50 calls are now worth $2.50 and the $30 calls that I sold are worth nothing. I sell the $27.50 calls for $2.50 a piece for a total of $2,500, subtract my initial investment of $750 for a total profit of $1,750. That is a 233% return on my money. Not bad.
Now let’s say the stock goes to $35 at expiration, my $27.50 call is now worth $7.50 each, but my $30 call that I sold is worth $5.00 a piece. So I sell my $27.50 calls for the $7,500 and re-buy my $30 calls for $5,000 for a difference of $2,500. I then subtract the $750 that it cost to enter the trade for the same return.
If the stock stays at or below $27.50, then both the calls I bought and sold expire worthless, and I lose my $750.
If the stock expires at $28.25,then my $27.50 call is now worth $0.75. So after I sell my $27.50 calls for $750, I do not make or lose money on the trade.
The Pros: If the stock goes in the direction that I think it will go, I make a great return on investment. My bottom line on a $2.50 call spread (what I explained above) is that I will risk $0.75 to make $1.75. On a $5.00 call spread (say buying the $25 and selling the $30,) I will risk $1.50 to make $3.50 if the stock goes the way I want it too. The other big pro, I limit my risk by recouping some of my initial investment.
The Con: If the stock goes a long way in the direction I think it will, I limit my upside to either $1.75 or $3.50 depending on whether I buy a $2.50 or $5.00 call spread.
Again, these are more advanced options investing. Many brokerage firms will not allow beginners to do these trades because they think they are too risky. Why? They do not understand the nature or original reason for options. The trades are also sometimes hard to find, but they too are out there. Good Luck!


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Playing a Bear Market with Options

Options, Investing No Comments »

So, if there is a way to make money when the market goes up, there must be a way to make money when the market is going down. The way for me is puts. As I defined earlier, a put is nothing more than buy the option to put a stock to someone at a certain price on or before a certain date.
So if we go back to our portfolio that we created, we can again see the big movers. Now looking at the chart of a volatile stock, we might find that it is at historical highs or on the high side of its’ normal range. I used to see this and say, well maybe I can buy into that one in a few months if it comes down.
NOT ANYMORE!! Now I look at it and say, this is a potential candidate for buying a put option on it. I again generally stay within the 1 1/2 to 2 month time frame. This gives that stock the time to have that downward move that I am expecting. If I think that it is going to take longer than that to drop, then I will put it on my watch list and wait for the right time. On to a new example.

I have been watching a stock for a while now that is currently at $35.63. The 52 week high is $38 and the low is $12. So I am checking the chart and it seems that it is in its high cycle. After looking through the information available online, I believe that the price will fall to around the $28 in the next 6-8 weeks. So I am looking at the Jan 08 expiration date at the $30 put. They are trading today for $1.15. I am going to wait until Monday or Tuesday of next week and will probably buy 10 of those contracts. I am guessing that the price will drop by then to approximately $0.95. So my initial investment will be $950 ($0.95 x 100shares per contract x 10 contracts) plus commission.
If the stock goes up or stays the same, I lose my investment. However, if the stock goes down to $28 like I think it will, that option will be worth at least $2. When I sell those 10 contracts for $2, it will be worth $2,000 ($2 x 1000shares).

I will continue posting a few more articles on this topic in the near future. Notice that I will not give out recommendations or stocks that I trade. This is purely because I do not believe in giving or taking tips. If I give a tip and one of my friends executes that and it loses money, I stand the risk of him being upset. However, all of the examples that I use are real stocks, real prices and many of them are trades that I am executing in my portfolio. Good luck on all your investments.


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