Though the housing market has yet to stabilize in many communities, homeowners can’t ignore property maintenance and other critical spending that will add to their home value in the future. Yet for most of us, the days of spending multiple thousands of dollars on a kitchen, bath or room addition expecting our market value will grow exponentially is much like the U.S. housing boom – over.

Simply put, as Americans have been forced to get more realistic about using their homes as piggy banks, it’s time for similar realism about what improvements and renovations will pay off in a housing market with years of inventory to sell.  Here are some steps to consider when improving your property in today’s market.

Before you borrow or spend, get some advice on your overall financial picture:

During the boom years of the housing market, people treated renovation as a financial fait accompli: Put in a $40,000 kitchen and add $60,000 to your selling price.  Today, putting more money into your house requires a significant reality check. A careful and thorough review of your overall savings and tax picture can give you an idea whether the dream kitchen you want is a worthwhile investment or if it’s time to downsize the improvement to some cosmetic changes like new paint and a new sink.

Check current values on the payoff your chosen renovation will have:

Remodeling magazine’s annual Cost vs. Value report breaks down average cost and market return for projects large and small based on your region of the country. Their website is www.remodeling.hw.net.  The current 2009-2010 report discusses upscale projects like a bathroom addition returns only about 60 percent of its cost in the current market; adding an attic bedroom would return 83 percent of the cost. However, none of the projects in Remodeling annual survey currently breaks even.

Consult Uncle Sam:

The American Recovery and Reinvestment Act is still allowing taxpayers certain deductions and credits for energy-smart renovations to their property. For example, the Residential Energy Property Credit applies to taxpayers who install insulations, energy-efficient exterior windows and energy-saving heating and air conditioning with a maximum credit limit of $1,500 for improvements put in place by the end of 2010. It’s smart to consult your tax professional before going ahead on any of these moves in case Washington extends the limits or possibly increases these breaks for homeowners.

Think about how long you’ll be in the home:

If you want to get your money out of a renovation, keep in mind you’ll probably be waiting awhile. In August, the National Association of Realtors reported a plunge in home sales after the expiration of the federal home buyer tax credit. In July, existing-home sales were down 27 percent from June and a full 25 percent below the year-ago month. Most home sales experts are not predicting full stabilization for the U.S. housing in the market for at least six months.

Beware the bump in property taxes:

The great thing about a more valuable home is the potentially higher value when you sell. The bad thing is a visit from the county assessor – more valuable property tends to lead to higher tax assessments. Make sure you cannot only afford the cost of renovation, but what you’ll need to pay in higher taxes if your home is reassessed. Also, keep in mind that the fall in home values hasn’t led to lower taxes in many communities.

Don’t forget to deduct applicable sales tax:

If sales tax was imposed on a major renovation or if your state or locality imposes a general sales tax on the sale of a home or the cost of a substantial addition or major renovation, you might be able to deduct it.  This alternative is particularly valuable in low-tax states, and the sales tax paid on the purchase of some large items including the purchase of a home or major addition can be added to the table amounts. Discuss this with your tax professional.

Always check local valuations:

A reliable and experienced local real estate broker knows what the market will bear. Talk to them about any anecdotal evidence they have about what renovations might be most sensible as your home market improves. You’ll also get a tutorial on what current buyers are willing to pay for based on the current attributes of your home.

College Students and Financial Planning

In August, the Wall Street Journal reported that student-loan debt now surpasses credit card debt as the No. 1 source of outstanding consumer debt with some $829.8 billion in current federal and private school loans.
For some, those statistics are a good news story – that individuals are finally getting serious about paying off the plastic. For others, it’s more a sign that the rising cost of college is simply becoming a greater albatross around the necks of graduates for years to come.

Maybe the time for a financial education shouldn’t be the moment the new grad gets his or her first job or rents his or her first apartment. Maybe it should start earlier – like senior year of high school. Parents might consider introducing their 18-year-old to a financial planner who will instill some critical lessons about debt, savings, investing and planning before they’re off on their own on a campus far from home. Call Capital Advantage, Inc. first and we can help!

Why pay for advice when parents can offer their own at home?

The simple truth is that many parents are struggling trying to understand their own financial circumstances, particularly if they haven’t done much planning themselves. That’s why it might make sense for a parent who seeks out qualified financial advice to extend that planner’s assistance to children on the verge of adulthood.

Here’s why:

The average college loan debt now tops $20,000:

Whether your child has been forced to borrow heavily or not at the start of their college career, the simple fact is that in four years, a family’s financial circumstances can change substantially. News reports are filled with stories of college students signing their name to private loans that cost them heavily down the line. A financial planner and possibly a tax professional can act as advisors and tutors to teens and young adults so they won’t fall into financing traps that can damage the rest of their financial lives. There’s another reason that debt management for school loans alone is important – based on current bankruptcy law, student debt is virtually impossible to eliminate in a bankruptcy filing. Indeed, it’s another way of saying that student debt is forever.

Young people possess the most valuable asset of all – time: 

In college, most students are focused on one goal – graduating and getting a good job. But what if students put that goal in the context of affording a home, affording graduate school and eventually affording a solid retirement? A planner could help a student entertain the notion of smart savings and tax planning while they’re still in school so they can focus their thinking about goals and what it will take to pay for them.

Lifetime habits are best built in youth:

Don’t you wish you started saving for retirement at age 18? Exactly. The 2010 contribution limit for taxpayers under 50 years of age to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for the year. The contribution can be split between a traditional or Roth IRA, but the combined limit is $5,000. Learning about the need to save independently for retirement is best delivered while someone is young. The moment a new graduate qualifies for an employer-sponsored 401(k) plan, they’ll know how attractive that option will be particularly if it offers matching. If this saving can be done while not accumulating significant debt, that’s obviously a goal.

Financial planning means professional training with budgets and spending decisions:

The opportunity to interact with a trained adult on the subject of money – someone who is not the student’s parent – gives a student a chance to learn and ask questions on an adult-to-adult basis.  Planner and student can work together to set and monitor savings, investing and spending goals with proper supervision. Parents and children can also decide how much information they’ll be sharing about each other’s financial situation.

Financial literacy can help students better evaluate career decisions:

Students who understand money stand a better chance of choosing careers and employers who will meet their expectations in terms of work-based challenges and compensation. A financial planner can provide a good sounding board with regard to job offers and benefits offered at prospective employers. Students who get this training are destined to be better than many of their peers at negotiating with employers throughout their careers.

Please call our office at (925) 299-1500 or toll free (888) 299-1500 if you are interested in scheduling a review of your investment strategy and/or financial plan. If you are not a client of Capital Advantage, Inc., we offer free no obligation consultations. We also have excellent referrals to a variety of professionals you may need.

Disaster Plans:
Home-Family-Finances

The idea of a personal disaster plan began circulating in the days after the September 11, 2001 attacks. They got a boost after Hurricane Katrina. Yet even when we experience a fortunate break between natural and man-made crises, it’s still a good idea to have a plan and review it annually.

Why? Because there is no such thing as a one-size-fits all disaster plan, nor should it begin and end with details on how you and your family would cope in the aftermath of a weather disaster or an attack with worldwide implications.

Disaster planning is all about worst-case scenarios that might affect you directly.
Consider these examples that actually have nothing to do with storms or even national security. Do you or your spouse or partner travel extensively on the job?

How prepared would you be if death, illness or unforeseen events kept you from coming home? Is there a child, friend or other close relative who would have special care interrupted if something were to happen to you? What about I.D. theft? Do you have a plan? These are only two of potential dozens that you might devise to address your own personal situation.

A qualified financial planner is a good source of feedback and can suggest ways to organize the various aspects of the plan. He or she can also advise you on ways to structure the report so it can be read and understood by others. Remember – a disaster plan is worthless if your loved ones, attorneys or financial experts don’t know it exists.

Here are some steps to get you started:

Develop a “what if” list.  Don’t rule anything out and bring your most trusted family members, friends and colleagues in on this discussion, even to the meeting with your planner or other financial experts. Consider every possible event that could hurt you, your family, your home or your business – what hurts one automatically hurts the rest. The first question – what if you died or became disabled tomorrow? Could your family and business continue to function while they worked through the aftermath? A good way to make the list is to draw a line down the middle, and on the left side list every possible risk, while writing every possible remedy for those risks on the right side.
 
Check your insurance at home and work. Your “what if” list might help you focus this, but all home and business based coverage should be double-checked with your agent once a year or when major changes occur in your life, such as marriages, divorces, new kids, business expansion or contraction. If you work for an employer, check with their human resources department on the right person your health power of attorney or advance directive designee would call if there were any question about your benefits if you died or were incapacitated. Make sure your coverage is adequate based on any of the emergency scenarios you’ve developed. If you had a huge medical bill, could you pay your deductible and any uncovered costs out of your own reserve funds? How’s your life insurance for you and your spouse? Is your home insurance based on the highest replacement value figures for your neighborhood? While you’re at it, see if your insurance will cover temporary relocation and car replacement if you need it.

Make sure your reserve fund is healthy. In any emergency, cash is king. If your family or colleagues had to pay the mortgage or rent, make payroll, buy groceries, temporarily relocate, pay your out-of-pocket costs for healthcare services, and even pay for your funeral, would they be able to access cash to do it? This goes beyond the creation of a typical emergency fund that pays three to six months of expenses if you lose a job; think bigger to make sure there’s more than enough in savings to cover the cash needs your worst-case scenarios reveal. If you have designated a financial power of attorney, they need to be aware of these assets and have access to them.

Create physical contingency plans. If your family was in different places when a natural or man-made disaster occurred, do you all know where you’d meet?  If you had to relocate to a particular relative’s home, does that relative know you’d be knocking on his or her door? Close the loop with all friends, family and service providers you’d need for support if you had to rely on them – and set up an effective communications plan to go into effect the moment trouble happens.

Plan an escape kit. If you had to leave home within a very short period of time, what would you take? Key financial and insurance documents would be a must, so make sure that material is organized and in one place for speedy packing. Also, it might make sense for all family members to make a list of things they’d pack in a hurry as well – put a time on your calendar each year for everyone to update their list.  If you have financial or work data on computers, it’s important to regularly back up that data on separate drives that could be packed up and downloaded to a portable laptop offsite. Also, don’t forget to plan for your pets if you have them – they’ll need their supply of food, toys and medication if necessary.

In business, protect yourself first and your employees second. A natural or man-made disaster cannot only wipe out your business, but your personal finances as well. Make sure you have appropriate legal structures, estate plans and insurance in place to shelter the financial health of your family from any disaster your business incurs. As for employers, make sure you’ve also made a “what if” plan for work and work through any physical and employment risk your staff could face in a disaster and see what safety nets are available. Also be aware of state laws that mandate specific forms of disaster planning for your city and state.

Protect your customers third.  If you faced a lengthy business interruption, how would you serve the customers who are depending on you? Are there specific customer service and inventory procedures in place to keep them informed, supplied, and most important, loyal once you’re up and running again? Do you have options for alternate office and production space as well as resources for temporary workers? This is why business contingency planning should be a priority.