Build Assets and Wealth 16-1 Rent or Own a Home 16-2 Lease or Buy a Car 16-3 Risk Management and Insurance 16-4 Purchase, Use, and Dispose of Property

16-1 Rent or Own a Home LO1-1 Evaluate the costs and benefits of renting a residence. LO1-2 Analyze the advantages and disadvantages of buying a home rather than renting. LO1-3 Assess the steps and financial aspects of transitioning from renting to owning.

Rent or Own a Home 16-1 Renting a Residence rental agreement Buying a House tax shelter foreclosure From Renting to Owning down payment mortgage closing costs

Renting a Residence A rental agreement is a written agreement that specifies rights and duties of both the landlord and the tenant. Tenants can be evicted (forced to move out) if they do not obey the terms of the written agreement. 16-1 Rent or Own a Home

What are advantages of renting? Renting a Residence rental agreement What are advantages of renting? Advantages of renting include proximity to desired locations, amenities on the property, and lack of responsibility in taking care of real estate. 16-1 Rent or Own a Home

Buying a House Because property taxes and interest on home loans are tax deductible (thus reducing your income tax liability), home ownership is a tax shelter. One of the greatest advantages of ownership is the tax savings benefit. 16-1 Rent or Own a Home

Buying a House Foreclosure is a process of taking away private property to pay debts levied against it. When property is foreclosed, the owner loses his or her rights of ownership and must move out so it can be sold by the creditor or governmental unit. 16-1 Rent or Own a Home

What is the main advantage of home ownership? Buying a House tax shelter foreclosure What is the main advantage of home ownership? Home ownership provides significant tax deductions which lower income tax (federal and state) liabilities. Thus, home ownership provides a “tax shelter.” 16-1 Rent or Own a Home

From Renting to Owning A down payment is a certain amount of money, required by mortgage lenders, paid toward the purchase price of a house. A down payment is usually between 10% and 20% of the purchase price. This money is the initial equity in the home, and assures lenders that the buyer is serious. It also reduces the risk to the lender if the buyer is unable to make payments and the property is foreclosed on and sold at a loss. 16-1 Rent or Own a Home

A mortgage is a long-term debt obligation. From Renting to Owning A mortgage is a long-term debt obligation. A mortgage involves making payments over a long period of time. Mortgages can be for any number of year, but are usually for 15 years or 30 years. Your mortgage payment includes both principal and interest. 16-1 Rent or Own a Home

From Renting to Owning Closing costs, or settlement costs, are expenses incurred in transferring ownership from the buyer to the seller. Closing costs generally add three to five percent to the purchase price. Buyers’ closing costs typically include: title insurance, prorated interest, prorated taxes, escrow fees, recording fees, credit report, and loan origination fee. 16-1 Rent or Own a Home

What are some costs of moving? From Renting to Owning down payment mortgage closing costs What are some costs of moving? Costs of moving include truck rental and boxes (or paying a mover), gas, storage fees, and initial set-up costs at the new residence for utilities and various services. 16-1 Rent or Own a Home

16-2 Lease or Buy a Car LO2-1 Analyze the reasons for and costs of leasing a car. LO2-2 Describe the process of buying a car, including financing the purchase and responsibilities of car loan debt.

Lease or Buy a Car 16-2 To Buy or Not to Buy car lease mileage allowance business expense factory warranty The Car Buying Process preapproval extended warranty

To Buy or Not to Buy A car lease is a contract where you agree to take possession of a vehicle for a set period of time and make regular lease payments. Typically, you make a relatively small down payment. As lessee, you are obligated to take good care of the car, maintain its interior and exterior, get regular maintenance (oil changes), and present the car for warranty work. Any major repairs are the responsibility of the lessor (owner) of the car, typically a leasing company. 16-2 Lease or Buy a Car

To Buy or Not to Buy A mileage allowance is a set number of miles a car is allowed to be driven, agreed to by the lessee. If you exceed this amount, you will be charged a pre- determined amount for each additional mile driven. Some car leases provide that the lessee prepay miles. That is, you can buy additional miles upfront for a reduced rate. 16-2 Lease or Buy a Car

To Buy or Not to Buy A business expense is a cost that is tax deductible and reduces income that is subject to tax. For self-employed entrepreneurs and business owners, the vehicle lease is a business expense. For the business owner, the entire cost of the lease is tax deductible when the car is used for business purposes. 16-2 Lease or Buy a Car

To Buy or Not to Buy A factory warranty is a guarantee that if something goes wrong, the cost of repairs is covered by the manufacturer. A typical factory warranty covers buyers for the first 36,000 miles or three years, whichever comes first. It does not cover the routine maintenance and repair, such as oil changes. If something under warranty goes wrong, it is repaired by the manufacturer at no cost to you. 16-2 Lease or Buy a Car

When is leasing a car, rather than buying, a good idea? To Buy or Not to Buy car lease mileage allowance business expense factory warranty When is leasing a car, rather than buying, a good idea? Leasing may be a better option for a person who needs or wants a new car every few years, who can deduct the cost of the lease, and who does not want to do any major repairs on a vehicle. 16-2 Lease or Buy a Car

The Car Buying Process Preapproval is advanced approval for a set amount of a vehicle loan given by a bank or credit union. An extended warranty covers a car beyond the factory warranty period, often for 100,000 miles or more. You are merely paying upfront for repairs that may or may not be needed. You certainly don’t want to pay interest on future repair bills by adding these contracts to the price of your vehicle. 16-2 Lease or Buy a Car

Why should you get preapproved for a car loan? The Car Buying Process preapproval extended warranty Why should you get preapproved for a car loan? Pre-approval allows a buyer to know how much she or he can spend before starting the negotiating process. Buying a car you really can’t afford is a very bad idea. 16-2 Lease or Buy a Car

Risk Management and Insurance 16-3 Risk Management and Insurance LO3-1 Explain the process of identifying risks and strategies to protect income and assets. LO3-2 Evaluate the costs and benefits of buying insurance.

Risk Management and Insurance 16-3 Risk Management and Insurance Consumer Risks risk risk management self-insuring Buying Insurance deductible co-pay multi-line discount

Risk is the chance of injury, damage, or economic loss. Consumer Risks Risk is the chance of injury, damage, or economic loss. Risk management is the process of assessing risks and planning actions to reduce and avoid that losses that could occur. The first step in risk management is to identify your risks and what you could lose. Then you assess the probability of events occurring that could cause the loss. 16-3 Risk Management and Insurance

Consumer Risks With self-insuring, you set aside money to be used in the event of injury or loss. If a loss does occur, money is taken from the money set aside to pay for the loss. 16-3 Risk Management and Insurance

What are four risk strategies? Consumer Risks risk risk management self-insuring What are four risk strategies? Reducing, avoiding, transferring, and assuming risk are the four risk management strategies. 16-3 Risk Management and Insurance

A co-pay is the amount you pay each time you incur a medical expense. Buying Insurance A deductible is the amount of money you have to pay before insurance begins to pay for services. A co-pay is the amount you pay each time you incur a medical expense. 16-3 Risk Management and Insurance

Buying Insurance A multi-line discount is a discount given for having more than one policy with an insurance company. If you have more than one policy with an insurance company, it is called stacking. Many people have a homeowner’s policy and a vehicle policy with the same insurance company. The total of stacked policies is less than if you carried the policies with separate insurance companies. 16-3 Risk Management and Insurance

When is it a good idea to buy insurance? Buying Insurance deductible co-pay multi-line discount When is it a good idea to buy insurance? When the likelihood of a loss is unknown and unpredictable, and the cost associated with such a loss is high, insurance is the best way to lower risk (by transferring it). 16-3 Risk Management and Insurance

Purchase, Use, and Dispose of Property 16-4 LO4-1 Explain the costs and benefits of buying, using, and selling property. LO4-2 Evaluate the restrictions government places on the use of property by individuals and businesses.

Purchase, Use, and Dispose of Property 16-4 Own Property wealth cash flow listing agreement Restrictions on Property easement title report lien

Own Property Wealth is an accumulation of assets, including bank accounts, real estate, securities, and other investments. A cash flow is the net amount you receive over and above the costs you pay. A listing agreement is a legal contract that describes the property being sold, the price being asked, and the sales commission. 16-4 Purchase, Use, and Dispose of Property

Why is an appraisal needed before buying real estate? Own Property wealth cash flow listing agreement Why is an appraisal needed before buying real estate? An appraisal assures the buyer (and their lender) that the property is worth the amount of the mortgage loan that will be used to finance its purchase. 16-4 Purchase, Use, and Dispose of Property

Restrictions on Property An easement represents the legal right of another entity to have limited use of property. A title report is a record of ownership and all legal restrictions on a property. A lien is a legal obligation that must be paid before a clear title to property can be passed to a new owner. 16-4 Purchase, Use, and Dispose of Property

Why would a prospective buyer of property want to see a title report? Restrictions on Property easement title report lien Why would a prospective buyer of property want to see a title report? A title report will reveal existing restrictions to the use of private property, including easements, zoning laws, CCRs (covenants and conditions of record) imposed by developers, neighborhood associations, and others. 16-4 Purchase, Use, and Dispose of Property