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Thinking About Making a Move? Important Financial Considerations When Selling or Buying a Home

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As we head into peak residential real estate season, you may be thinking about whether it’s the right time to list your home for sale or to go house hunting. In addition to considering how local market circumstances such as job growth, mortgage rates, and tax incentives influence your timing, you also want to think about how selling or buying a home may impact your long-term financial plan. In this article, we explore important questions both sellers and buyers should ask themselves when considering a move.

 
 

For Sellers

1. How much will it cost to sell your house?

A good rule of thumb is to be prepared to pay costs of up to 10% of your home price to sell your house.  This includes expenses associated with getting your house in shape to show, such as cleaning and painting, realtor commissions, closing costs including transfer tax and legal fees, and repair costs or concessions.  

Depending on how long you owned the house and whether it was your primary residence, you may also owe taxes on the profit from your home sale. If you’ve owned your home for at least two years and lived in it for at least two of the last five years, you can exclude up to $250,000 of the profit as an individual or $500,000 as a married couple, if you file a joint tax return.  If you’ve owned your home for at least one year, any profit will be taxed as a long-term capital gain.

2. Where would you go next?

If you’re planning to buy another home, consider the cost of maintaining that new house on an annual basis, from mortgage related expenses and property taxes to maintenance and repairs.

If your plan is to rent, you may need to figure out how to manage the potentially large inflow of cash from the sale of your home. This inflow should be incorporated into your long-term financial plan and aligned with your goals, which for many of you is retirement. If you allocate some of this cash to investments, it may be worthwhile to seek guidance from a Financial Advisor on the most efficient way to deploy it in such a volatile stock market.

3. How will you pick a buyer?

The attractiveness of an offer may depend on your risk tolerance and your timeline. Cash offers may be attractive because they don’t depend on bank underwriting or appraisals and can often be completed more quickly. Though cash offers may mean a lower selling price, they may be more likely to close without issues. 

For Buyers

Many areas of the country are experiencing a seller’s market, where there are more prospective buyers than there are homes for sales. When housing inventory is low, buyers have fewer choices and may have to pay higher prices or be more willing to make concessions. Understanding how these factors impact your financial plan can help you make bidding and buying decisions with greater confidence.

1. How do you decide how much to bid?

Often, the response to this question is, “How much can you afford?” If you anticipate getting a mortgage, the Federal Housing Administration generally uses a 43% debt-to-income (DTI) ratio as a guideline for approving mortgages.  Keep in mind that getting approved for a mortgage does not guarantee you will be able to afford the payments, so it is critical to be sure you understand, and are comfortable with, the level of financial risk you will be taking on. 

Once you understand how much you can afford, you will have a clearer picture of your price range and how much you can bid.  

2. How much will you need to set aside as a down payment?

If you are able to put down 20% of your home price, you may be able to avoid paying private mortgage insurance. There may, however, be situations where you opt against a 20% down payment. Your Financial Advisor may be able to advise you on what down payment makes the most sense for your situation. 

3. What other costs do you need to budget for?

The costs associated with buying a house go beyond the down payment and the monthly mortgage payments. You will need to factor in expenses such as closing costs, which are all the fees associated with the mortgage, as well as title insurance, NY state mortgage tax and mansion tax for purchases over $1 million, property taxes, homeowner’s and mortgage insurance, homeowner’s association fees, and relocation expenses. You will also need to plan for routine and unexpected home maintenance and repairs. 

Key Takeaways

As you can see, the financial implications of selling or buying a home go far beyond the purchase price and can have long-term impacts on your financial plan and overall wealth strategy.

When it comes down to it, the best time to sell or buy is the time that works best for you. Selling or buying a home is not just a financial decision, but a personal one. It’s important to make sure the timing makes sense for you from the standpoint of lifestyle and emotional preparedness. Whether you’re thinking about selling or buying a home, working with a Financial Advisor who understands your circumstances, priorities, and long-term goals can help you formulate a plan that is designed to protect your vision of the future.

About the Author

Richard Bloom, CFP® is a Financial Advisor with The MayerGelwarg Group at Morgan Stanley. He works with our clients to gain a full understanding of their financial goals and coordinates wealth planning analyses on their behalf to clarify the long-term financial implications of the decisions they make today. Rich is a Certified Financial Planner™, earning that designation through New York University, and is an active member of the Estate Planning Council of New York City and the Financial Planning Association of New York. He can be reached by email at Richard.Bloom@morganstanley.com or by telephone at (212) 893-7597.

DISCLOSURES

Article by Morgan Stanley and provided courtesy of Morgan Stanley Financial Advisor.

Richard Bloom is a Financial Advisor in 1290 Avenue of the Americas, New York, NY 10104 at Morgan Stanley Smith Barney LLC (“Morgan Stanley”). 

This article has been prepared for informational purposes only. The information and data in the article have been obtained from sources outside of Morgan Stanley. Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of the information or data from sources outside of Morgan Stanley. It does not provide individually tailored investment advice and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this article may not be suitable for all investors. Morgan Stanley recommends that investors independently evaluate particular investments and strategies and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning, charitable giving, philanthropic planning and other legal matters.

Richard Bloom may only transact business, follow-up with individualized responses, or render personalized investment advice for compensation, in states where he is registered or excluded or exempted from registration, http://brokercheck.finra.org/Search/Search.aspx.

© 2022 Morgan Stanley Smith Barney LLC. Member SIPC. CRC 4399252 2/2023

Westchester County Announces Grant Initiative of $10 Million in Funding to Local Businesses, Nonprofits

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Westchester County Executive George Latimer today announced a $10 million funding initiative to support small businesses and nonprofits facing challenges due to COVID-19. Westchester County Business FIRST: Financial Investments for Recovery and a Sustainable Tomorrow is a new grant program designed to offer immediate financial relief to organizations in Westchester County that have been negatively impacted by the pandemic.

L-R: Bridget Gibbons, Westchester County’s Director of Economic Development; George Latimer, Westchester County Executive; Dr. Marsha Gordon, Business Council of Westchester President/CEO

“We are at a critical point in Westchester County’s history – and such times call for leadership and innovation,” said Latimer. “The Westchester County Business FIRST Program will provide urgent financial assistance to businesses and nonprofits now, and set the foundation to rebuild our economy as we work toward a sustainable future.”

The Westchester County Business FIRST Program is being administered by the County Office of Economic Development through the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Program is open to businesses and nonprofits that employ 99 or fewer people and whose primary business location is in Westchester County. Eligible business and nonprofits can apply for grants of up to $49,000.

Applications will be accepted from September 21 through September 30, 2020 at https://westchestercatalyst.com/business-FIRST-programs/

“These are difficult times, but as ‘The Catalyst’ for economic growth and vitality, the Office of Economic Development is here to support County businesses and nonprofits,” said Bridget Gibbons, Westchester County’s Director of Economic Development. “These organizations help fuel our economy and provide quality jobs in our communities. This funding is designed to help them recover and get back to business.”

To be eligible, organizations must be in good standing with Westchester County and are required to demonstrate revenue losses of at least 25% from March 7, 2020 to present due to the COVID-19 pandemic. The applicant must establish that the organization was a financially viable operation prior to March 7, 2020, the date Governor Andrew Cuomo signed Executive Order 202 declaring a disaster emergency. The organization must have been open as of Feb. 1, 2020, currently be in operation, or closed temporarily and plan to reopen for business in 2020.

Business Council of Westchester President/CEO Dr. Marsha Gordon said: “The Business Council of Westchester (BCW) is extremely supportive of this program and applauds the leadership of County Executive George Latimer and Director of Economic Development, Bridget Gibbons in developing this initiative for small business and not-for-profits in Westchester.  These sectors have been especially hard hit and desperately need these financial resources to survive.  The County is also analyzing which sectors have been hardest hit, so that these resources can be deployed most effectively. It will be important to make sure that all businesses are aware of this opportunity , so outreach via business organizations, community- based organizations and churches will also be important, as well as outreach in different languages to ensure that as many as possible are aware. The BCW will certainly work to share with our outreach to our over 1000 members and robust database of County businesses and not for profits as well as through social media.  This is a ray of hope for those organizations struggling to stay alive.”

Westchester County Association President & CEO Michael N. Romita said: “So many of Westchester’s businesses and non-profits suffered significant economic hardship as a result of the pandemic crisis.  As our local economy begins to transition from reopening to recovery, programs like Westchester County’s Business FIRST initiative will go a long way towards helping businesses regain their economic footing.  We applaud the County Executive and his economic development team for its innovative use of CARES Act funds and look forward to helping spread the word to eligible organizations.”

Nonprofit Westchester Executive Director Jan Fisher said: “Nonprofit Westchester is grateful for our partnership with Westchester County Government during these unprecedented times. We thank the County Executive and his team for this grant opportunity, and for ensuring that there are county resources available to support nonprofit organizations as they continue to provide essential services to Westchester’s most vulnerable residents.”

Certain entities are not eligible to apply for Westchester County Business FIRST grant, including units of government; real estate holding companies, businesses or nonprofits that generate revenue through passive real estate; adult entertainment establishments; gas stations; and businesses or nonprofits that have defaulted on federal debt, including loans from the Small Business Administration.

For more information on the application process, visit https://westchestercatalyst.com/business-FIRST-programs/

 

News Courtesy of the Office of the Westchester County Executive

Staying Focused in Turbulent Times 

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By Richard Bloom

Richard Bloom

While today’s markets can be nerve racking for even the most experienced investors, those who approach it with a long-term plan in place have a much greater chance of protecting themselves from mistakes and seizing the opportunities that lay ahead. The best way to take advantage is to create a goals-based approach to wealth management using a disciplined four-step process. The first–and often the most important–step is discovery, an honest, open conversation about your goals and your entire financial picture. In the second step, your Financial Advisor works with you to assess various scenarios and advise on appropriate strategies designed to help you meet your goals. Your plan should safeguard your short term needs while strategically positioning you to ensure your long term goals will be met. Once you have agreed on a personalized wealth strategy, your Financial Advisor advises how to implement in the most efficient way.  Finally, as time progresses, your Financial Advisor will regularly review your financial situation with you, making adjustments according to your needs, life events and changing market conditions.

In addition to taking a goals-based approach, below are some further tips on how to navigate through this unpredictable period.

When the market is volatile, almost everyone thinks about their financial future and the potential impact such fluctuations may have on their retirement accounts. However, it is during these turbulent times that it’s important to remember certain basic, time-tested principles of investing.

Continue Contributions

It may not seem intuitive, but continuing to contribute to your retirement plan–even during market downturns–can potentially enhance your returns over the long-run. A down market can be an opportunity for you to acquire more shares of your investments at a lower price. Consistent investing through market ups and downs is called “dollar-cost averaging.” If an investment’s price is high, you buy fewer shares, or units. When prices are low, you buy more. Investing regularly, using dollar-cost averaging, can help reduce the risk associated with buying during big swings in market prices.

Diversify

If you’ve ever heard the saying, “Don’t put all your eggs in one basket,” then you already have a basic understanding of diversification. Diversifying your portfolio can reduce risk and volatility. Review your account and make sure your portfolio is not too heavily weighted in company stock, or in any single asset class.

Stay Invested

You may be anxious about the decrease in the value of your investments. But don’t be tempted to move out of the market, sit on the sidelines and wait for prices to rebound. Trying to time the market could potentially jeopardize your financial strategy–and your future goals.

Maintain a Long-Term Focus

Any investment decisions you make should be based on your financial goals and objectives, time horizon and risk tolerance, rather than concerns about market volatility. Even if the market seems volatile, remember that ups and downs are normal. It is important to stay focused on your financial future and refrain from making short-term decisions on long-term investments.

History demonstrates that there will always be some degree of uncertainty and volatility in the markets. While market events are out of our control, we do have control over our financial objectives and how our investments are allocated to help us achieve them. If you would like assistance in determining the mix of asset classes that can help you meet your financial objectives, contact your Morgan Stanley Financial Advisor.

Disclosures:

Article by Morgan Stanley and provided courtesy of Morgan Stanley Financial Advisor.

Richard Bloom is a Financial Advisor in 1290 Avenue of the Americas, New York, NY 10104 at Morgan Stanley Smith Barney LLC (“Morgan Stanley”). He can be reached by email at Richard.Bloom@morganstanley.com or by telephone at (212) 893-7597. His website is https://advisor.morganstanley.com/the-mayergelwarg-group.

This article has been prepared for informational purposes only. The information and data in the article has been obtained from sources outside of Morgan Stanley. Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of the information or data from sources outside of Morgan Stanley. It does not provide individually tailored investment advice and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this article may not be appropriate or all investors. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

Asset allocation and diversification do not guarantee a profit or protect against loss. Any type of continuous or periodic investment plan does not assure a profit and does not protect against loss in declining markets. Since such a plan involves continuous investment in securities regardless of fluctuating price levels of such securities, the investor should consider his financial ability to continue his purchases through periods of low price levels.

This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material may not be appropriate for all investors. Morgan Stanley Wealth Management recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by Morgan Stanley and/or as described at www.morganstanley.com/disclosures/dol. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.

Richard Bloom may only transact business, follow-up with individualized responses, or render personalized investment advice for compensation, in states where he is registered or excluded or exempted from registration, http://www.morganstanleyfa.com/mayergelwarggroup.

© 2020 Morgan Stanley Smith Barney LLC. Member SIPC.

CRC 2992110   03/2020     

Getting a Strong Start to 2017

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BY SCOTT M. KAHAN

With the stock market hitting record highs, potential interest rate increases and the ongoing uncertainty as to what is going on in Washington, now is the time to organize. Here are a few quick things to address to get started.

Review your portfolio.

With the rally in equity prices, it’s probably a good time to review your asset allocation. A simple way to re-balance your portfolio is to first set what percent of your portfolio should be in each asset class. Then when reviewing your portfolio, the sectors that have gone up will be over weighted and should be reduced, while the underperforming sectors will be under weighted and can be added to. If you follow this practice, it forces you to sell high, buy low and take the emotions out of investing.

Review Your Taxes and Cash Flow.

If you are getting large tax refunds each year, review your withholding. Financially, it’s actually better to get a small refund or owe a small amount. When you get a refund, it’s your money being returned to you with no interest. In other words, you gave the government an interest free loan. Adjust your withholding or estimated tax payments to ensure you are not over or under paying your taxes by too much. Then look to see if you are fully funding your retirement plans. If not, use that extra money each pay check to fund your retirement plan. The retirement plan contribution usually is tax deductible thus saving you even more in taxes.

Review Your Estate Planning.

When was the last time you looked at your wills and other estate planning documents? Make sure all beneficiaries are in place in retirement accounts. Review to make sure you have named guardians for minor children. If you have avoided setting up your estate plans, now is the time to address this important issue.

Scott M. Kahan, is a Certified Financial Planner® professional and President of Financial Asset Management Corporation, a fee-only wealth management firm located at 26 South Greeley Avenue in Chappaqua. Call Scott Kahan at 914-238-8900.