MONEY Ask the Expert

Rental Properties vs. Stocks and Bonds

Investing illustration
Robert A. Di Ieso, Jr.

Q: I bought a rental property that has increased in value considerably. The cash is great, but I’m wondering if I should sell high and invest in a different asset.
– Russell in Portland, Ore.

A: “This is a situation where there really is no one-size-fits-all answer,” says David Walters, a certified public accountant and certified financial planner with Palisades Hudson Financial Group.

To tackle this question, you’ll want to first get a handle on just how well this investment is performing relative to other assets.

For a simple apples-to-apples comparison, take the property’s annual net cash flow (income minus expenses) and divide it by the equity in the home, he says. You can use this yield to see how the income generated by this property stacks up against that of other investments, such as dividend-paying stocks.

To calculate your total return, take that yield and add it to your expected annual long-term price gains. If your yield is 5%, for example, and you expect the value of the property to appreciate 2% a year on average, your annual total return would be 7%.

Next, you’ll want to figure out just how much you would have left to reinvest after you pay the real estate broker (typical commissions are 6% of the sale price) and the taxes. “In this case, taxes could be a big factor,” says Walters.

Remember, because this is an investment property, you are not eligible for the capital gains exclusions ($250,000 for individuals and $500,000 for couples) available when you sell a primary residence.

Assuming you’ve owned the house for more than a year, you’ll owe the long-term capital gains rate, which is 0% to 20% depending on your tax bracket; for most people that rate is 15% for federal taxes. Your state will also want its share, and in Oregon it’s a pretty big one – 9.9%.

There’s more to it. If you depreciated the property – odds are you did – you’ll need to “recapture” some of that write off when you sell, and at your marginal income tax rate. Here too you’ll owe both federal and state taxes.

One way to avoid paying a big tax bill now is to do a 1031 exchange, in which you effectively swap this property for another investment property in another neighborhood or a different market — though there are plenty of caveats.

Assuming you don’t want to re-invest in actual real estate, the big question is where you should invest the proceeds of the sale – and is it better than what you already have?

You could look at alternative assets that have a similar risk and reward profile — dividend-paying stocks, real estate investment trusts or master limited partnerships.

A better approach, however, may be a more holistic one. “You want to know where this fits in the big picture,” says Walters. Rather than try to pick and choose an alternative investment, you may just roll the proceeds into your overall portfolio – assuming it’s appropriately diversified. If you can max out on tax-deferred options such as an IRA or, if you’re self-employed, a SEP IRA, even better.

Depending on how much other real estate you own, you could allocate up to 10% of your overall portfolio to a real estate mutual fund, such as the T. Rowe Price Real Estate Fund (TRREX) or Cohen & Steers Realty Shares (CSRSX).

The tradeoff: “Most of these funds own commercial real estate,” says Walters. “There aren’t a lot of options to get passive exposure to residential real estate.”

Then again, investing in actual real estate takes time, lacks liquidity, and comes with some big strings attached. On paper, your investment property might seem like a better deal than any of the alternatives, says Walters, “but there are 50 other things you have to think about.”

With real property there’s always the risk that you’ll have to pay in money for, say, a new roof or heating and cooling system. That’s one thing you don’t have to worry about with a mutual fund.

MONEY Credit Scores

The One Graph That Explains Why a Good FICO Score Matters for Homebuyers

young couple outside of home
Ann Marie Kurtz—Getty Images

An analysis from an economic policy group estimates that tight credit standards may have prevented 4 million consumers from getting mortgages since 2009.

When it comes to buying a home, there’s a lot more to the process than just finding an affordable home for sale and having enough money for a down payment. Most people need loans to finance such a large purchase, but even as the housing market has rebounded from the foreclosure crisis and low property values of 2010, mortgages remain very difficult to acquire. A report from the Urban Institute, a Washington-based economic-policy research group, concludes that 1.25 million more mortgages could have been made in 2013 on the basis of conservative lending standards practiced in 2001, years before the housing bubble began to inflate.

Whether or not a lender approves a borrower for a mortgage depends on several factors, like income and outstanding debt, but looking at the credit scores of mortgage borrowers during the last several years shows just how tight the market has been post-recession. Here’s how it breaks down.

Urban-Institute-FICO-Score-distribution

The Urban Institute estimates that the stringent credit score standards for mortgage origination resulted in 4 million mortgages that could have been made (but weren’t) between 2009 and 2013. From 2001 to 2013, consumers with a FICO credit score higher than 720 made up an increasingly large portion of borrowers, from 44% of loans in 2001 to 62% in 2013. Consumers with scores lower than 660 made up 11% of borrowers in 2013, but they represented 28% of home loans in 2001.

The study authors note that their calculations do not account for a potential decline in sales because consumers may not see homeownership as attractive as it had been before the crisis.

“Even so, it is inconceivable that a decline in demand could explain a 76% drop in borrowers with FICO scores below 660, but only a 9% drop in borrowers with scores above 720,” the report says.

On top of that, the authors found that tightened credit standards disproportionately affected Hispanic and African-American consumers. In comparison to loan originations made in 2001, new mortgages among white borrowers declined 31% by the 2009-2013 period, 38% for Hispanic borrowers and 50% for African-American borrowers. Loans to Asian families increased by 8%.

Millions of Americans are still feeling the impact of the economic downturn on their credit scores, because negative information like foreclosure, bankruptcy and collection accounts remain on credit reports for several years. Rebuilding the credit and assets necessary to buy a home takes time, particularly in such a tight lending climate, but by regularly checking your credit — which you can do for free on Credit.com — and focusing on things like keeping debt levels low and making loan payments on time, you can start making your way toward a better credit standing.

More from Credit.com

This article originally appeared on Credit.com.

TIME real estate

Why Your Rent Will Rise Again This Year

Condo Towers Rise From Boston to Los Angeles in U.S. Rebound
Patrick T. Fallon—Bloomberg/Getty Images The EVO condominium building stands in downtown Los Angeles, California, on June 23, 2014.

More people than ever are apartment hunting

(LOS ANGELES) — Living in an apartment? Expect your rent to go up again.

Renting has gotten increasingly expensive over the last five years. The average U.S. rent has climbed 14 percent to $1,124 since 2010, according to commercial property tracker Reis Inc. That’s four percentage points faster than inflation, and more than double the rise in U.S. home prices over the same period.

Now, even with a surge in apartment construction, rents are projected to rise yet another 3.3 percent this year, to an average $1,161, according to Reis. While that’s slower than last year’s 3.6 percent increase, the broader upward trend isn’t going away.

“The only relief in sight is rents in the hottest markets are going to go up at a slower pace, but they’re still going to go up,” says Hessam Nadji, chief strategy officer at Marcus & Millichap, a commercial real estate services firm.

The main reason: More people than ever are apartment hunting.

Young people who have been living with their parents are increasingly finding jobs and moving out. Rising home prices are leading many long-time renters to stay put.

In addition, most of the new apartments coming on the market are aimed at affluent tenants and carry higher-than-average rents. That’s especially true in cities where new buildings are going up in urban core areas, which means builders need to recoup higher land and development costs.

Consider Denver, where rents have increased more than 5 percent a year since 2010 — 9.2 percent in 2014 — according to Marcus & Millichap. Of the 9,400 new apartment units added last year, 23 percent were in urban core areas.

Competition for apartments means renters are less likely to be able to negotiate with landlords, or win concessions such as a free month’s rent.

Here’s a closer look at why apartment dwellers will probably see rents go up for a sixth straight year.

—MORE JOBS, MORE COMPETITION

During the last recession many workers who lost their jobs moved in with relatives or took on roommates. About 32 percent of U.S. adults were living with roommates or adult family members in 2012, up from 27.4 percent in 2006, according to Zillow, an online real estate firm.

Stepped-up hiring has begun to reverse that trend. About 2.8 million more Americans have jobs than 12 months ago.

“The share of young adults with jobs has climbed in the past year, and that will help many of them move out of their parents’ homes,” says Jed Kolko, chief economist at online real estate firm Trulia. “Most of them will be renters first.”

More people vying for apartments helps drive rents higher. And metropolitan areas with faster job growth are generally seeing higher-than-average rent hikes as well.

The three metro areas with the biggest annual increase in rent in January, according to Trulia: Denver (14.2 percent), Oakland, California (12.1 percent), and San Francisco (11.6 percent).

Job growth in each of those cities also eclipsed the national growth rate of 2.3 percent over the 12 months ended in January. Employment grew 3.7 percent in Denver, 2.7 percent in Oakland and 4.5 percent in San Francisco.

—HOMEBUYING DELAYED

Traditionally, renting has been a stepping stone toward homeownership. When rents rise, tenants are motivated to buy sooner, especially when interest rates are near historic lows, as they are now.

But these days, renters are taking longer to buy. The U.S. homeownership rate ended last year at a 19-year low of 64.4 percent.

Between higher rents taking a bigger bite out of the bank account and sharply higher home prices, potential buyers are having more trouble saving for a down payment and qualifying for a mortgage.

And many millennials, or 18- to 34-year-olds, simply prefer renting.

That’s true for Alyssa Hankins, a marketing and social media strategist in Los Angeles. She moved in February to a newly opened complex where rents range from $2,325 for a studio to $5,920 for a two-bedroom unit. She wants to be able to move quickly if a job opportunity comes up.

“It’s less about affordability and more about flexibility,” says Hankins, 29.

When renters stay put, fewer apartments are available for new tenants, which in turn drives up rents.

—NEW APARTMENTS ARE PRICEY

Developers added 238,000 apartments nationwide last year, a 14-year high, with another 210,000 expected this year, according to Marcus & Millichap.

In theory, more apartment construction should help bring down rents because landlords would compete for tenants. But 80 percent of new complexes, Nadji estimates, are high-end projects aimed at renters willing to pay a premium for amenities like gourmet kitchens and concierge service.

How much of a premium? The average rent for apartments completed last year was $1,721. That’s 46 percent higher than the average apartment rent for older units, according to Marcus & Millichap and data provider MPF Research.

“There’s very little new supply being added anywhere else,” says Nadji, “so that’s why there’s so much pressure on rents and very little choice for the average renter.”

MONEY renting

These Are the Most—And Least—Affordable Places to Rent

Fieldston Historic District, Riverdale, Bronx, New York
Alamy Fieldston Historic District, Riverdale, Bronx, New York

A New York City borough is the least affordable—but it's not the one you're thinking of.

It’s no secret that renting has become more expensive in recent years. Now, new data a from housing data firm RealtyTrac lets us know exactly where in the country renting is most and least affordable.

In order to find out which areas are easiest on the typical renter’s wallet, RealtyTrac crunched the numbers on 461 counties across the U.S. with a population of at least 100,000 and sufficient data available, to determine the percentage of the local median household income that gets eaten up by the “fair market” rent (set by the U.S. Department of Housing and Urban Development) on a three bedroom property.

The Bronx, in New York City, where fair-market rent takes up a whopping 69% of median income, ranks as the least affordable county in the nation—a result of the borough’s extremely low median income and relatively high rents.

San Francisco, Brooklyn (Kings County, New York), and Philadelphia, are also high on the list, each taking up around 48% of the typical household salary in rent payments.

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On the other end of the spectrum, Delaware County, Ohio, was ranked as the most affordable city for renters, with fair-market rents costing just 14% of the median household income. Delaware was closely followed by Williamson County, Tennessee; Hamilton County, Indiana; and Fort Bend County, Texas.

image008 (1)

RealtyTrac also notes that renting is generally more expensive than buying a house. The firm found monthly ownership costs of a median-priced home—including mortgage payments, property taxes, and home and mortgage insurance, assuming a 10% down payment—account, on average, for just 24% of the median income. Fair-market rents, by comparison, averaged 28% of the typical household income. Overall, RealtyTrac found house payments were more affordable than fair-market rents in 76% of the counties it analyzed.

“From a pure affordability standpoint, renters who have saved enough to make a 10% down payment are better off buying in the majority of markets across the country,” said RealtyTrac vice president Daren Blomquist.

That said, Blomquist warned, “Keep in mind that in some markets buying may be more affordable than renting, but that doesn’t mean buying is truly affordable by traditional standards.” He added, “In those markets renters are stuck between a rock and hard place when it comes to deciding whether to buy or continue renting.”

MONEY Odd Spending

7 Things You Won’t Believe Were Sold for Only $1

Copies of the New York Daily News are displayed on a newsstand in New York's Times Square
Brendan McDermid—Reuters Copies of the New York Daily News are displayed on a newsstand in New York's Times Square March 31, 2015.

An offer is on the table to buy the New York Daily News for just $1, which on the surface seems mind-boggling. Bizarrely, many big-ticket items have been known to trade hands for just a buck.

As Reuters reported on Tuesday, Cablevision is preparing to make a bid for the struggling New York tabloid the Daily News. The bid is expected to be a grand total of just $1, which sounds insane until you factor in that the paper reportedly loses $30 million annually and needs an investment of $150 million in its printing press.

Here are a few other noteworthy things that have sold a for just a buck. Some are amazing deals, while others aren’t remotely bargains, even with a mere $1 asking price.

Historic Homes
Grand old homes have been known to sell for just $1, often with the catch being that the new owners must handle the cost of moving the building to a new location. In other instances, the list price of $1 is the result of the property being a fixer-upper, to put it mildly, as well as in an undesirable location.

Timeshares
Timeshares occasionally are put on the market for dirt cheap, typically by owners who want to unload the property’s costly maintenance fees. The properties are often sold for $1, though most of RedWeek’s Bargain Timeshares roundup are listed at $0.

Cars
A used car dealer in New Zealand hoped to get about $3,000 for a 1994 BMW in an online auction, but due to a mistake a customer wound up purchasing it at a Buy-It-Now price of $1. The dealer actually honored the sale price too. Meanwhile, at least one car dealership in Texas listed a few $1 mystery cars on his lot as part of a Black Friday promotion in 2013.

Flights
When $1 flights appear, travelers must act immediately and be flexible about when they can fly. For obvious reasons, deals like this are available in extremely limited quantities. Over the years, carriers such as Nature Air (in Costa Rica), TigerAir Australia, America’s Spirit Airlines, and Europe’s Ryanair have been known to sell flights for $1, or about that much in the local currency.

Newsweek
A few months after Newsweek stopped putting out a print edition in 2013, the brand was purchased by IBT Media for $1. It had previously been sold to the wealthy philanthropist and businessman Sidney Harman, also at a price of $1, plus liabilities.

Dinner
Last summer, the on-demand food delivery service Spoonrocket tried to break the Guinness World Record for largest ever virtual dinner party, and it used a $1 dinner promotion as enticement to get consumers to join in the cause. Too bad the site crashed during the PR stunt and countless people found it impossible to get their $1 dinner.

Hotels
The Public Chicago hotel periodically offers hundreds of hotel rooms at a special rate of $1 per night. How and when the rooms go on sale is something of a mystery, however, and anyone hoping to snag the deal would have to sign up for promotional emails from the hotel. In years past, the Hoxton Hotel in London has run a similar promotion, though its rooms were offered at £1.

MONEY Millennials

5 Big Myths About What Millennials Truly Want

150119_EM_MillennialMyth
Jamie Grill—Getty Images

We've heard a ton about millennials—where they want to live, what they love to eat, what's most important to them in the workplace, and so on. It's time to set the record straight.

In some ways, it’s foolish to make broad generalizations about any generation, each of which numbers into the tens of millions of people. Nonetheless, demographers, marketers, and we in the media can’t help but want to draw conclusions about their motivations and desires. That’s especially true when it comes to the young people who conveniently came of age with the Internet and smartphones, making it possible for their preferences and personal data to be tracked from birth.

Naturally, everyone focuses on what makes each generation different. Sometimes those differences, however slight, come to be viewed as hugely significant breaks from the past when in fact they’re pretty minor. There’s a tendency to oversimplify and paint with an exceptionally broad brush for the sake of catchy headlines and easily digestible info nuggets. (Again, we’re as guilty of this as anyone, admittedly.) The result is that widely accepted truisms are actually myths—or at least only tell part of the story. Upon closer inspection, there’s good reason to call these five generalizations about millennials into question.

1. Millennials Don’t Like Fast Food
One of the most accepted truisms about millennials—easily the most overexamined generation in history—is that they are foodies who love going out to eat. And when they eat, they want it to be special, with fresh, high-quality ingredients that can be mixed and matched according to their whims, not some stale, processed cookie-cutter package served to the masses.

In other words, millennials are huge fans of Chipotle and fast-casual restaurants, while they wouldn’t be caught dead in McDonald’s. In fact, the disdain of millennials for McDonald’s is frequently noted as a prime reason the fast food giant has struggled mightily of late.

But guess what? Even though survey data shows that millennials prefer fast-casual over fast food, and even though some stats indicate millennial visits to fast food establishments are falling, younger consumers are far more likely to dine at McDonald’s than at Chipotle, Panera Bread, and other fast-casual restaurants.

Last summer, a Wall Street Journal article pointed out that millennials are increasingly turning away from McDonald’s in favor of fast casual. Yet a chart in the story shows that roughly 75% of millennials said they go to McDonald’s at least once a month, while only 20% to 25% of millennials visit a fast-casual restaurant of any kind that frequently. Similarly, data collected by Morgan Stanley cited in a recent Business Insider post shows that millennials not only eat at McDonald’s more than at any other restaurant chain, but that they’re just as likely to go to McDonald’s as Gen Xers and more likely to dine there than Boomers.

At the same time, McDonald’s was the restaurant brand that millennials would least likely recommend publicly to others, with Burger King, Taco Bell, KFC, and Jack in the Box also coming in toward the bottom in the spectrum of what millennials find worthy of their endorsements. What it looks like, then, is that millennials are fast food regulars, but they’re ashamed about it.

2. Millennials Want to Live in Cities, Not Suburbs
Another broad generalization about millennials is that they prefer urban settings, where they can walk or take the bus, subway, or Uber virtually anywhere they need to go. There are some facts to back this up. According to an October 2014 White House report, millennials were the most likely group to move into mid-size cities, and the number of young people living in such cities was 5% higher compared with 30 years prior. The apparent preference for cities has been pointed to as a reason why Costco isn’t big with millennials, who seem to not live close enough to the warehouse retailer’s suburban locations to justify a membership, nor do their apartments have space for Costco’s bulk-size merchandise.

But just because the percentage of young people living in cities has been inching up doesn’t mean that the majority actually steer clear of the suburbs. Five Thirty Eight recently took a deep dive into Census data, which shows that in 2014 people in their 20s moving out of cities and into suburbs far outnumber those going in the opposite direction. In the long run, the suburbs seem the overwhelming choice for settling down, with roughly two-thirds of millennial home buyers saying they prefer suburban locations and only 10% wanting to be in the city. It’s true that a smaller percentage of 20-somethings are moving to the suburbs compared with generations ago, but much of the reason why this is so is that millennials are getting married and having children later in life.

3. Millennials Don’t Want to Own Homes
Closely related to the theory that millennials like cities over suburbs is the idea that they like renting rather than owning. That goes not only for where they live, but also what they wear, what they drive, and more.

In terms of homes, the trope that millennials simply aren’t into ownership just isn’t true. Surveys show that the vast majority of millennials do, in fact, want to own homes. It’s just that, at least up until recently, monster student loans, a bad jobs market, the memory of their parents’ home being underwater, and/or their delayed entry into the world of marriage and parenthood have made homeownership less attractive or impossible.

What’s more, circumstances appear to be changing, and many more millennials are actually becoming homeowners. Bloomberg News noted that millennials constituted 32% of home buyers in 2014, up from 28% from 2012, making them the largest demographic in the market. Soaring rents, among other factors, have nudged millennials into seeing ownership as a more sensible option. Surveys show that 5.2 million renters expect to a buy a home this year, up from 4.2 million in 2014. Since young people represent a high portion of renters, we can expect the idea that millennials don’t want to own homes to be increasingly exposed as a myth.

4. Millennials Hate Cars
Cars are just not cool. They’re bad for the environment, they cost too much, and, in an era when Uber is readily available and socializing online is arguably more important than socializing in person, having a car doesn’t seem all that necessary. Certainly not as necessary as a smartphone or broadband. Indeed, the idea that millennials could possibly not care about owning cars is one that has puzzled automakers, especially those in the car-crazed Baby Boom generation.

In many cases, the car industry has disregarded the concept, claiming that the economy rather than consumer interest is why fewer young people were buying cars. Whatever the case, the numbers show that the majority of millennials will own cars, regardless of whether they love them as much as their parents did when they were in their teens and 20s. According to Deloitte’s 2014 Gen Y Consumer Study, more than three-quarters of millennials plan on purchasing or leasing a car over the next five years, and 64% of millennials say they “love” their cars. Sales figures are reflecting the sentiment; in the first half of 2014, millennials outnumbered Gen X for the first time ever in terms of new car purchases.

5. Millennials Have a Different Attitude About Work
As millennials entered the workforce and have become a more common presence in offices around the world, much attention has been focused on the unorthodox things that young people supposedly care more about than their older colleagues. Millennials, surveys and anecdotal evidence have shown, want to be able to wear jeans and have flexible work hours to greater degrees than Gen X and Boomers. Young people also want to be more collaborative, demand more feedback, and are less motivated by money than older generations.

That’s the broad take on what motivates millennial workers anyway. An IBM study on the matter suggests otherwise, however. “We discovered that Millennials want many of the same things their older colleagues do,” researchers state. There may be different preferences on smaller issues—like, say, the importance of being able to dress casually on the job—but when it comes to overarching work goals achieved in the long run, millennials are nearly identical to their more experienced colleagues: “They want financial security and seniority just as much as Gen X and Baby Boomers, and all three generations want to work with a diverse group of people.”

What’s more, IBM researchers say, millennials do indeed care about making more money at work, and that, despite their reputation as frequent “job hoppers,” they jump ship to other companies about as often as other generations, and their motivations are essentially the same: “When Millennials change jobs, they do so for much the same reasons as Gen X and Baby Boomers. More than 40 percent of all respondents say they would change jobs for more money and a more innovative environment.”

TIME

Many Young Adults Need Parents’ Help to Buy a Home

Mortgage Bankers Association To Release Weekly Mortgage Market Index June 12
Daniel Acker—Bloomberg /Getty Images

At least they’re out of the basement

Three out of four young adults who recently bought their first home needed their parents’ help to afford the down payment, closing costs or other expenses, a new survey finds.

Interest in homeownership is picking up, especially among first-time buyers, and mortgage lender loanDepot LLC commissioned a survey to find out how today’s millennials — 97% of whom will take out a mortgage to buy their homes — plan to pay for their investment.

It seems the “bank of mom and dad” is a fallback most count on, with 75% of young adults who recently bought a home saying their parents helped them out. Another survey, this one from BMO Harris Bank, finds that about a quarter of first-time homebuyers expect to get money from their parents or other relatives.

Among parents of future would-be homebuyers, 17% of respondents to the loanDepot survey say they expect to have to chip in, up four percentage points from five years ago — a gap that suggests a number of today’s wanna-be homeowners expecting financial assistance probably shouldn’t hold their breath.

There are some indications that, even as young adults expect more assistance from their parents, the older generation has a dwindling amount of resources they can use to help. Over the past five years, just under three-quarters of parents who helped their kids buy homes used their savings, but that number is expected to fall to about two-thirds in the future, according to the survey. Instead, more parents will refinance their own homes, take out personal loans and borrow against their 401(k)s — potentially risking their own financial security.

And parents are digging deeper into their pockets to help out in other ways, too: Almost a third say they’ll pay some of their kids’ other expenses to help the younger generation save money, and 18% plan to help their kids pay down their student loans. Of the parents who are contributing to their kids’ investments, half say they’ll help their kids make the down payment, 20% say they’ll help with closing costs and 20% say they’ll actually co-sign the loan.

This might be reasonable in markets where high down payments are the norm, but experts warn that parental assistance sometimes can mask the fact that the home just isn’t affordable for the aspiring homebuyers. “One of our clients helped the child buy into the same neighborhood they lived in. The parents were excited, but it turned out to be a huge burden for the kids,” Brett Gookin, principal at wealth management firm Aspiriant, told SFGate.com last year. (San Francisco has the second-highest average down payment in the country, just behind New York City.)

MONEY credit cards

Can You Pay Your Mortgage With a Credit Card?

best travel rewards credit card
Robert Hadfield

Sometimes, lenders allow you to pay one debt with another, but there are a lot of things to know before you charge a mortgage.

You can use a credit card to pay many kinds of bills, and if you have a rewards credit card you pay in full every month, you can use those payments to increase your rewards. It’s a common strategy.

Still, just because you have the ability to pay a bill with your credit card doesn’t mean it’s a safe tactic. Some consumers are tempted to use their credit cards to make mortgage payments, if they have that option, because large transactions generate more rewards, but doing that might actually cost you, rather than save you money.

It’s not very common to have the option to pay your mortgage with a credit card, but if you have the ability to do so, you’ve probably wondered about the risks and rewards of paying a loan with a credit card.

What to Ask Your Lender

If you can use your credit card to pay your mortgage, find out if there are fees associated with the transaction. Credit card transactions can be very expensive to process — it depends on the card you’re using — so the lender may charge you that fee so they don’t have to foot the bill

If there’s a fee, compare that to the rewards you might earn by charging your mortgage payment. Say you’re using a card that offers 1.5% cash back on all purchases — any processing fee exceeding 1.5% means you’re paying to pay your mortgage.

You should also ask how that transaction will be processed. A Reddit user recently posted about paying a mortgage with a credit card, and the payment went through as a cash advance on the card. Cash advances start accruing interest as soon as the transaction clears, which means they can get extremely expensive. Also, cash advances generally carry a higher interest rate than normal credit transactions, hitting you with a double-whammy of higher interest that starts accruing immediately.

Should your lender not charge fees in excess of your rewards, and if it codes the mortgage payment like a regular credit transaction, the strategy could work in your favor.

At the same time, you may set yourself up for some serious financial damage if you miss a payment on the card and have to pay interest on what might end up being a very large balance. You can see how your mortgage is impacting your credit scores for free on Credit.com.

More from Credit.com

This article originally appeared on Credit.com.

MONEY Warren Buffett

Airbnb Will Let You Stay in Warren Buffett’s Childhood Home

Warren Buffett's childhood home
Airbnb

Assuming you’re a Berkshire Hathaway shareholder.

One lucky Berkshire Hathaway shareholder will get to spend a weekend in Warren Buffett’s childhood home, Airbnb announced Tuesday.

The contest comes after the legendary investor and Berkshire CEO said room rental service Airbnb was a good option for company shareholders looking to travel to Omaha for an annual shareholder meeting.


The Buffett contest is only open to Berkshire Hathaway shareholders. Anyone interested has to do the following:

Provide your name and address and a few creative answers to the following questions:

(a) What are you most excited to experience in Omaha? (200 words max)
(b) What are you most looking forward to at the Berkshire Hathaway Shareholders Meeting? (200 words max)
(c) What’s your favorite Airbnb experience? (200 words max)
(d) What’s next on your travel bucket list? (200 words max)

While a stay in Omaha, Neb. may not seem like much of a travel weekend to some, for fans of the Oracle of Omaha it’s akin staying a night in the Lincoln Bedroom. No word on whether people staying in the house will be required to stick to the Buffett diet, largely made up of Utz Potato Sticks, ice cream and Coca-Cola products.

This post originally appeared on Fortune.com.

TIME

No Money For a Down Payment? Here’s Where to Move

Mortgage Bankers Association To Release Weekly Mortgage Market Index June 12
Daniel Acker—Bloomberg via Getty Images A "for sale by owner" sign stands outside a home in LaSalle, Illinois, U.S., on Friday, June 7, 2013. The Mortgage Bankers Associations weekly mortgage market index, which measures mortgage loan applications for purchases and refinancings, is scheduled to be released on June 12. Photographer: Daniel Acker/Bloomberg via Getty Images

…Along with places you should just avoid entirely

The logjam in real estate seems to be coming unstuck, with Zillow.com predicting that 5.2 million renters are going to buy homes in the next year, a nearly 25% jump from last year.

“Many current renters clearly seem to be re-thinking their attitudes toward homeownership, and are expressing more confidence in the overall housing market as a result,” Zillow chief economist Stan Humphries says in a post on the site’s blog. The site finds that the confidence of prospective buyers is on the rise from Dallas to Detroit.

But average down payments have a huge amount of variability across metro areas, new research from RealtyTrac.com finds, and that can be the make-or-break factor for first-time homebuyers. People who expect to buy in top-priced real estate markets like New York City and San Francisco had better bring their checkbooks: The average down payment in San Francisco is right around 30%, while it tops 37% in New York. And in both places, thanks to the high prices of homes in general, that adds up to an eye-popping $300,000-plus — more than the cost of a home in many parts of the country.

The rest of the top five markets with the highest average down payment percentages are more of the same: Marin and San Mateo Counties in the Bay Area, and Kings County — otherwise known as the borough of Brooklyn — in New York.

If that’s not your speed, how do you feel about Ohio or Michigan? Four of the five lowest-priced markets with the lowest down payments by percentage are in those two states, along with Macon, Georgia. In these places, down payment dollar amounts fall in a much more reasonable range, from just under $4,500 to a little over $7,000.

Of course, there are lots of other factors homebuyers have to take into consideration like the availability of jobs and quality of life. RealtyTrac also looked for the lowest down payments in what it calls “millennial magnet markets” where large numbers of young adults have moved over the past several years.

Here there’s a little more variety in terms of geographic location as well as the type of community: Towns in the metro areas of Fayetteville, N.C., Clarksville (on the Kentucky-Tennessee border), Little Rock, Des Moines and the Washington D.C. bedroom communities of Arlington and Alexandria all make the cut. The average down payments range from around 9% to just under 12.5%, and with the exception of the pricier Virginia ‘burbs, the average dollar amounts all clock in below $20,000.

Clarksville and Des Moines also make RealtyTrac’s list of the top markets for first-time homebuyers, along with Durham, N.C., Philadelphia and Davidson County outside of Nashville. All five have average down payment percentages lower than the national average of 14%, and have seen an increase in the number of millennial residents since the end of the recession.

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