MONEY

Watch: You Can Live Big or Small in the Best Place

A half-hour train ride from Boston or Providence, the town Sharon, in Massachusetts, has the natural beauty of a more remote place.

When it comes to real estate, there’s something for everyone in this charming town, ranked by Money as the Best Place to Live. We took a sneak peek at three homes–entry-level, mid-range, and high-end lake-front—to see how far your dollar goes here.

MONEY Ask the Expert

Should I Sell My Home or Rent It Out?

Q: I may need to relocate for my job. I got a deal on it in 2012. Should I keep it and rent it out while prices are rising—or should I sell and use the profits to make a nice down payment on a new home? — Shane Keys, Atlanta

A: A solid rental property investment generates enough in rent to cover expenses plus a 10% return, says Brandon Turner, an experienced investor and senior editor at real estate investing website BiggerPockets. You told us that you’re paying $1,100 in mortgage, taxes and insurance. Add to that a property manager (average cost: 12% of gross rents), repairs, and a reserve in case of vacancies. It’s unlikely that the $1,500 maximum in monthly rent you’d likely bring in for your three-bedroom home (check comparables at sites like Hotpads and Rentometer) would produce anything close to a 10% return.

You also told us that you have $45,000 in equity. Selling and plowing that into your next home would eliminate the need for expensive private mortgage insurance—now costing you $137 a month because you had to go with a low-money-down FHA loan—and it would of course reduce your mortgage payment. Plus, you’ll be able to protect the profit from capital gains taxes (up to $500,000 for married couples in home equity is tax-free), a perk you eventually lose if you convert your home into an investment property.

Turner’s conclusion: Sell.

MONEY house hunt

‘I Have $1 Million and I Couldn’t Get a Mortgage:’ A Buyer’s Story

Lynda Pratscher bought this two-bedroom condo for $138,500.

Despite her more-than-$1 million investment portfolio, Lynda Pratscher couldn’t qualify for a loan because she wasn’t earning income.

Lynda Pratscher, retired telecommunications project manager, downsized from her $315,000 four-bedroom home Middleton, WI to a $138,500 two-bedroom condo in Wheaton, IL. This is the story of her House Hunt.

She was ready to sell but wasn’t sure where she wanted to end up.

I’ve been a single parent for 15 years or so, and my oldest son was off to college. A four-bedroom, three-car garage home in Middleton, WI was just way too big for me and my younger son and way too much for me to maintain by myself.

I was hesitant because the market hadn’t completely come back yet. I was lucky because I bought in 2002 and the home was worth about $50,000 more than what I paid for it. I sold it in 2012 and decided to rent for a while until I decided what I wanted to do. We went out to Las Vegas and tried that out. We stayed for a year and then moved to Illinois, where we were originally from, in Aurora, just outside Chicago.

After a while she started looking for condos, but saw they were selling fast.

I liked Aurora, but I wanted to go back to college and take classes. I didn’t want the congestion of a big university town though, and I don’t want to live near Animal House. I started looking at towns near the College of DuPage in Glen Ellyn, IL. They have a fitness center, classes, events. I figured, I could build my social life around that.

In February I started contacting agents and looking on all the websites. I set up custom searches and got email updates from agents about new listings. I found a beautifully landscaped condo complex near a lake and started watching for that. When a condo there came up, I contacted the realtor and it was already under contract.

Related: What mortgage is right for you?

At first, she wanted a mortgage. She didn’t want to use all her free cash for a home purchase.

I had quit my job in February, knowing I could live off my savings. I will be 63 in July but I wanted to wait to take Social Security if I could. I have $1.1 million in investments, plus the money from the house sale in a CD. I went to my credit union, and they wouldn’t give me a mortgage because I didn’t have an actual income. They wouldn’t even look at my investments! To them, I had no income. It just sounds crazy.

Then her perfect condo showed up.

I saw a condo on a realtor’s email list and it had everything I wanted. It was on the first floor. It had a one-car garage. It had laundry inside the unit. My agent called me the next morning at 6 a.m. and said, ‘We have an appointment at noon, are you OK with that?’

I walked in and loved the place right away. It was very well cared for and the bathrooms had just been updated. I knew I wanted to put in a bid. She said, ‘I think this thing is going to go very fast.’

The list price was $139,000 and I bid $135,000 cash. They dropped the price by $500, but my agent told me two other people came to see the place after me. I accepted the counteroffer. I didn’t want to lose it. Later, their lawyer told my lawyer they had a backup bid for substantially more than the asking price. I got a great deal.

It turned out that paying cash saved her some money.

Closing was so easy, and the original estimate on my closing costs was $3,000. I ended up paying only around $2,000. I had no idea how much it was worth to pay cash.

House Hunt is an occasional series about buying a new home. Have an interesting story to tell? Email us at realestate@moneymail.com.

TIME real estate

Nearly 10 Million Mortgaged Homes are Still Underwater

Mortgage Bankers Association To Release Weekly Mortgage Market Index June 12
A house for sale in LaSalle, Ill., June 7, 2013. Daniel Acker—Bloomberg /Getty Images

A new reports estimates some 18% of mortgaged homeowners are stuck with homes worth less than their debt, and that's an improvement over previous quarters

A collapse in housing prices has trapped nearly 10 million U.S. homeowners in homes worth less than their mortgages, according to a new report by real-estate price tracking website, Zillow.

The report estimates that in the first quarter of 2014, 18.8% of mortgaged homeowners were stuck in homes that would sell at a loss. That marks an improvement over the final quarter of last year when 19.4% of home mortgages were underwater and a significant improvement over the 2012 high of 31.4% — but still leaves nearly 10 million households struggling in negative equity.

The report estimates that another 10 million homeowners have 20% or less equity on their homes, known as “effective negative equity” as homeowners can’t draw enough home equity to swallow the costs of selling the home and moving upmarket. Many home owners rely on home equity to fund the broker’s fees and meet the next home’s down payment.

Underwater borrowers threaten to leave a lingering chill in the housing market, the study’s authors concluded. “The unfortunate reality is that housing markets look to be swimming with underwater borrowers for years to come,” said Zillow Chief Economist Dr. Stan Humphries.

TIME housing

Apartments are Driving the Housing Recovery, Not the Suburbs

Retail and Apartment Construction Ahead of Building Permits Data
Subcontractors work at the Donohoe Construction Co. Bentley retail and apartment building under construction in Washington on May 14, 2014. Bloomberg/Getty Images

The momentum in the housing market is back. But it's apartment-building that's driving construction

U.S. home construction is surging back to pre-recession levels, but it’s not because people are building traditional suburban homes.

It’s because apartment building is on the rise.

Home builders began construction on 1.07 million homes in April at an annualized rate, up 13.2 percent from March, the Census Bureau said Friday. That’s the highest rate of home construction since November of last year, and the last time housing construction hovered consistently in the over 1 million homes-per-month annualized range was early 2008.

But homebuilding looks very different than it did six years ago. Today, apartments and condominiums are driving construction, instead of all-American white picket fence homes. In April, construction on structures with 5 units or more increased 42.9 percent compared with the month before, while construction on a classic single-family homes rose a measly 0.8 percent. It’s part of a new trend of young people moving to cities and raising demand for apartment units and rentals.

“It’s been a consistent story,” said Jed Kolko, chief economist with real estate firm Trulia. “Not only is multi-unit construction a larger share of overall starts than it was during and before the bubble, but a higher share of those multi-unit starts are intended for rent as opposed to condos.”

Rentals are in high demand as more people chose to live in densely populated cities and find it difficult to obtain a mortgage. In the first quarter of 2014, 93 percent of multi-family homes started in April were intended for rent, compared with around 60 percent during the pre-recession housing bubble, according to Census data.

During the recession, a lot of young people found themselves jobless and living at home. But as the recovery has picked up pace, young people have gotten jobs and are ready to move out. Much of the multi-unit construction is due to young people re-entering the workforce and renting their own flats. Plus, mortgage standards remain pretty tight after the recession, making it harder to buy a house.

Whatever the reasons, single-family, suburban homes simply aren’t the economic force they were before the recession.

 

TIME Israel

Israeli Ex-PM Ehud Olmert Sentenced to 6 Years in Jail

Former Israel prime minister Ehud Olmert is sentenced to 6 years accusation of corruption in Tel Aviv, Israel on May 13, 2014.
Former Israel prime minister Ehud Olmert is sentenced to 6 years accusation of corruption in Tel Aviv, Israel on May 13, 2014. Jack Guez—Anadolu Agency/Getty Images

The former prime minister and mayor of Jerusalem was convicted of accepting bribes over a contentious real estate deal in the Holy City

Former Israeli Prime Minister Ehud Olmert was sentenced to six years in prison Tuesday and ordered to pay a fine of more than $289,000 after a court convicted him of accepting bribes during his time as mayor of Jerusalem.

Olmert was convicted of accepting $161,000 from realtors who sought approval for a contentious luxury housing development in Jerusalem called Holyland. He served as mayor of the city from 1993 to 2003, and was Prime Minister of Israel from 2006 to 2009.

Judge David Rozen compared Olmert to a “traitor” during the sentencing, the New York Times reports, and railed against the wider corruption of political and business elites. “The cancer must be uprooted,” Rozen said.

Olmert’s defense team had requested a commutation of the sentence to community service, but Rozen matched the prosecution’s request for jail time.

The former Prime Minister maintains his innocence and vowed to appeal the decision in a statement on Tuesday, calling it “severe and unjust.”

[NYT]

MONEY buying a home

Countdown to Buying Your First Home: Our Checklist

Get ready for one of the biggest financial moves you'll ever make: Buying your first home.

First-time home buyers have it tough. The supply of homes for sale is tight, and lenders are tightfisted.

Student debt, at an all-time high of nearly $30,000 per grad, is getting in the way of saving for a down payment, says David Stevens, president and CEO of the Mortgage Bankers Association. But it’s a great time to get your foot in the door.

“Interest rates remain the envy of even your grandparents,” says Keith Gumbinger, vice president of mortgage publisher HSH.com. First, make your finances sparkle.

THE TURNING-POINT CHECKLIST

12 months in advance

Make sure the time is right. Use Trulia.com’s rent or buy calculator to see if you’d really come out ahead, based on loan rates, taxes, and where rents and prices are headed in your area. Nationwide it’s 38% cheaper buying vs. renting.

Clean up your act. Devote this year to saving money and paying down debt. You’ll need at least 3.5% down for an FHA loan, or 10% to 20% for a conventional mortgage. Lenders also like to see job stability, so settle in for now.

Learn what you like. When a home catches your eye—a listing, say, or a photo—pin it to a board on Pinterest. Or try Swipe, a new app from the site Doorsteps, which lets you browse listing photos and mark them pass or save.

Six months out

Look better to lenders. To boost your credit score, order your free credit reports at annualcreditreport.com and fix any mistakes. Pay bills on time, chip away at credit card balances, avoid new debt, and don’t close any accounts or apply for new credit. The average credit score for approved mortgage applicants is 755.

Figure out what you can buy. Use an online calculator like the one at Zillow.com to estimate how much house you can afford based on your income, savings, and debts. That’ll help you research homes and drill down on costs.

Forecast future bills. With an idea of how big a house you can buy, you can do a more detailed budget. Scan listings for property taxes on homes you like. Get a homeowners insurance quote at Insweb.com. Call local utility companies for the typical bills. And tack on 1% of the home’s value for yearly maintenance.

Related: Baby on the Way? Time to Make a Budget.

Three months out

Pick your loan. Fixed mortgage rates, now 4.4%, may edge up to 5% this year, forecasts HSH.com. If you are confident this is a starter home, you can save with a 7/1 adjustable-rate loan, now 3.5%. The risk: You end up staying longer than seven years and rates rise sharply. Most—92% of mortgage borrowers—opt for fixed-rate loans.

Prove you’re a serious shopper. Based on your income and credit, a bank will give you a mortgage pre-qualification. “It’s the No. 1 thing you want in your back pocket when you go shopping,” says Svenja Gudell, an economist with Zillow.

Even better in a hot market: Pay a few hundred to go through underwriting upfront.

Find a guide. Look for a realtor who has worked in the neighborhood where you hope to live. And in a tight market like today’s, ask candidates what their strategies are for unearthing listings and handling potential bidding wars.

TIME real estate

London Apartment Sells for Record $236 Million

The development of One Hyde Park is seen in London
One Hyde Park is seen London, May 2, 2014. Paul Hackett—Reuters

The sale makes the 16,000-square foot, two-story penthouse one of, if not the, priciest pieces of real estate on the planet. London has seen a surge in demand from super-rich eastern Europeans as tensions in the region flare

A London penthouse in the city’s famed One Hyde Park housing development for the super rich has traded hands for a cool $236 million, making it the most expensive apartment in London and possibly the world.

The new owner of the 16,000-square foot, two-story penthouse has not been revealed, but London has seen a surge in demand from the Russian and Ukrainian super-wealthy looking for safe places to stash cash amid smoldering tensions and an uncertain future in the region.

The penthouse sold as an empty shell and when fully furnished its value could exceed $270 million, the Financial Times reports. The property is one of four at the One Hyde Park luxury development built in 2011 in Knightsbridge. Previously, the highest-priced apartment at One Hyde Park went to Ukrainian oligarch Rinat Akhmetov for $229 million.

[FT]

MONEY real estate

When Tapping Your Home Pays

New rules could make reverse mortgages safer. Should you shore up your retirement with one?

THE REVERSE MORTGAGE has long been viewed as a last resort for older Americans with home equity but little cash. Now it’s poised to become a mainstream financial strategy—at least that’s what regulators and financial services firms are hoping. But you should be cautious about jumping in.

First, the basics: A reverse mortgage lets you borrow against your home equity once you hit 62. The loan, which can be taken as a lump sum, lifetime payments, or a line of credit, doesn’t have to be repaid until you move or die.

Unfortunately, these mortgages have been riddled with problems—in particular, misleading marketing and inappropriate lending, a 2012 Consumer Financial Protection Bureau report found. In response, new federal rules recently went into effect. The reforms generally reduce how much of your home’s value you can borrow, among other things, and require lenders to make sure that borrowers can cover upkeep.

Financial services companies are also aiming to make these loans more appealing. “Home equity is key to Americans’ retirement security, so it’s crucial to responsibly offer reverse mortgages,” says Christopher Mayer, a Columbia Business School professor and CEO of Longbridge Financial, a startup reverse-mortgage lender that plans to provide broader financial advice too. Boston College professor and retirement security advocate Alicia Munnell is on its board.

Related: What is a reverse mortgage?

Some advisers are touting reverse mortgages as standby credit. Unlike home-equity lines of credit, which can be frozen during a financial crisis, reverse mortgages stay open. Left untapped, your credit line will grow each year by the interest rate you can be charged. “It’s a great way to build a hedge against future needs,” says Coral Gables, Fla., financial planner Harold Evensky, who co-authored a recent study on these loans.

Given the stakes involved, though, you need to approach a reverse mortgage carefully. Here’s how:

Weigh the costs. On a $500,000 home, you might pay $2,500 for mortgage insurance, $3,000 in closing costs, and a $6,000 origination fee, says Edinboro University associate finance professor Shaun Pfeiffer, who co-authored the Evensky study.

The steep upfront costs are all the more reason to take a hard look at your other resources, says Minneapolis financial planner Jonathan Guyton. Do you have a cash-value life insurance policy to tap? Could you trim your spending?

You’ll have to pony up these closing fees even for a line of credit you haven’t used. In that case, is the peace of mind in knowing that you have a sure source of cash and don’t have to sell when stocks fall worth that five-figure sum?

Related: Should you get a reverse mortgage

Be sure you’re staying put. A reverse mortgage makes sense only if you plan to remain in your home for years. Think about how easy it will be to do so as you age and whether you’ll want to move closer to your grandkids. A reverse mortgage may no longer be a last resort, but it’s still a tough call.

 

TIME housing

Grab That Apartment Before the Rent Spikes

In strong-growth markets like Charlotte, landlords are adopting dynamic pricing strategies similar to the airlines and Amazon.com—meaning the asking rent price for apartments can change by hundreds of dollars in the blink of an eye.

The Charlotte Observer recently took note of how commonplace it’s become for rent rates at large apartment complexes in the city to be dictated by software algorithms that track supply and demand — and then tweak asking prices accordingly. The result is that if a handful of units are scooped up by renters over the course of a weekend, the monthly rental rate for similar units in the complex could soar on Monday, if not sooner.

Rent prices can and do change all the time, occasionally with quick, dramatic swings. During one particularly volatile ten-day period, the Observer tracked the monthly rate for a one-bedroom apartment at one complex as it rose from $982 to $1,307 per month.

Such dynamic pricing strategies have been used by airlines for decades, and online sellers like Amazon are utilizing quick-changing prices to a staggering degree. According to one recent study, Amazon had up to three million daily price tweaks last November, and during the busiest shopping period for the 2014 holiday season, the world’s largest online retailer is expected to change prices on its site six to ten million per day.

Even as several software programs focused on producing algorithms for apartment rent yield management have increasingly been embraced by landlords and apartment complex owners, the fact that a unit’s rental rate can jump by a couple hundred bucks overnight often comes as an unwelcome surprise to renters, especially young people seeking their first place. Even worse, apartment managers are using dynamic pricing as a tool to pressure would-be renters into acting fast, at the risk of losing out or seeing rents soar.

“I obviously did not like it,” one 24-year-old said to the Charlotte Observer, with regards to the potential for unit rent prices to change from moment to moment. “All complexes, they say it can change really fast. It just makes me feel pressured to make a decision really fast without maybe considering other options or even how safe it is or if it’s really practical.”

Even so, the increased usage of dynamic pricing in nearly all realms of consumer life isn’t all bad for the average Joe. Yes, it can make car hire rates surge during periods of peak demand, and can cause rental rates to soar seemingly out of nowhere. But dynamic pricing can also drive prices lower when demand eases. That can mean cheaper ride-share rates during “happy hours,” and also that by learning about the local rent market and timing it right, one renter can get a way better deal than his neighbor on essentially the same apartment unit. At one complex in Charlotte, rent for one-bedrooms hit $588 per month last May, down from a peak of $806 in February.

This is the way pricing has been done for decades in the airline business, in which there’s always the possibility that you paid hundreds more (or hundreds less) than the person sitting next to you on the plane. The problem is that it’s impossible to really know the precise best time to buy. The other problem for consumers is that, by and large, people think it’s unfair to charge different prices for the same product. They absolutely hate the scenario in which two different people pay dramatically different prices for essentially the same airline seat, or ticket to a baseball game, or apartment unit.

Well, they hate it if they’re the one who was charged more. If they’re the one who worked the system and figured out a way to pay less, then it’s not so bad.

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