MONEY Ask the Expert

Should I Use Home Equity to Invest for Retirement?

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q: We recently retired. We have a small mortgage on our home and lots of equity. Should we refinance our mortgage to free up additional money to invest for our retirement? —Bea Granniss, Amityville, N.Y.

A: Even at today’s low mortgage rates, it’s risky to borrow against your home at this stage of your life, says Tim McGrath, a certified financial planner and founding partner of Riverpoint Wealth Management in Chicago.

It’s true that more older Americans are retiring with heavy debt loads. But taking on additional debt when you are no longer bringing in income puts you in a precarious financial position. In retirement, your income is fixed—you probably have Social Security, your retirement savings, and possibly a pension. If an unexpected expense comes up, your chief recourse is to adjust your spending on discretionary costs, such as eating out and taking vacations. If you pile on more debt, you may not have enough leeway to avoid cutting your fixed expenses, says McGrath.

No question, refinancing looks attractive now. At today’s low interest rates, freeing up cash for a potentially higher return is a tempting notion—after all, stocks have done pretty well in recent years.

But it’s a mistake to compare today’s low mortgage rates to an expected return on investment, especially for retirees. Moreover, the basic math of refinancing may not make sense given your financial situation.

Let’s start with the refinancing rules. Unless you have a mortgage rate that’s significantly higher – at least a half percentage point above the current rate—you won’t free up much income with a refi. And now that you’re not working, it will be harder to get the best terms from a bank.

Borrowing against your home will reset the loan, which means you’ll be paying more in interest over time instead of paying down principal. “Instead of building more equity, you’ll be racking up more debt,” says McGrath.

Refinancing also costs thousands of dollars in fees. So you’ll need to stay in your home for a long time in order to recoup those expenses. But when you’re older, you’re more likely to reach a point where you want to downsize or move.

As for those enticing investment returns, there’s no guarantee the money you invest will produce the gains you’re seeking—or any gain at all. Lately, many investment pros have been warning that the returns on stocks and bonds are likely to be lower in the years ahead. Most retirees, in fact, are better off with a more conservative portfolio, since you have less time and financial flexibility to ride out market downturns.

Of course, every retiree’s financial situation is different. Refinancing might be a good solution if you want to pay off other high-rate debt. Or if you’re struggling to afford the mortgage payment, and you want to stay in your home, then refinancing could give you more of a cushion for your regular expenses.

But that doesn’t sound like the case for you. As McGrath says, “Taking money from your home equity and gambling on what could happen by investing it is too much risk in your retirement.”

Read next: How to Squeeze the Most Value from Your Home

MONEY Warren Buffett

This Is How Much It Costs to Live Next Door to Warren Buffett

Getting to call the Berkshire Hathaway CEO your neighbor won't come cheap.

Billionaire investor Warren Buffett famously still lives in the Omaha, Nebraska, home he bought in 1958 for $31,500.

But the five-bedroom, 5 1/2-bath house that just went on sale right across the street is going for a bit more.

Although it was recently appraised for just under a million dollars, according to current owner Phil Huston, the home’s list price is 10 “A shares” of Berkshire Hathaway stock, equal to about $2.15 million today.

Given that many are willing to pay up for Buffett’s time and former possessions—including one man who paid more than $2 million to lunch with the Berkshire CEO and one who splurged for his old Cadillac—it seems reasonable to think that a buyer might pay a premium to become neighbors with the Oracle of Omaha, says Huston.

“Call it the Buffett factor,” he says.

Huston, who has lived at 225 S. 55th street with his antique-dealer wife Anne since 1994, says the residence—built in 1922—has an interesting history of its own. During the 1950s it was the home of the late Donald Keough, who was not only a long-time friend of Buffett, but also went on to become a top Coca Cola executive. (Buffett, an avid consumer of the soft drink, led Berkshire Hathaway to become a top shareholder of Coke stock.)

The Hustons don’t have any offers on their home yet, but they hope to pique the interest of those visiting Omaha this weekend for Berkshire Hathaway’s annual meeting. Click through the gallery above for more images of the residence.

MONEY home prices

15 Insanely Expensive Homes on the Market This Spring

It's finally beginning to feel like spring, and that marks the start of home shopping season. We've teamed up with real estate website Zillow for a peek into the most expensive listings in 15 U.S. cities.

MONEY real estate

Four Moves That Will Make Your House a Great Place to Retire

Q: I want to remain in my current home when I retire. What can I do to make sure it is a place where I can age well?

A: If your home is where your heart is, then you have lots of company: Three-quarters of people 45 and up surveyed by AARP say they’ll remain in their current residences as long as they can.

Adapting your home to accommodate your needs as you age takes work, however. So the earlier you start, the better. Do it now, while you have the income and energy to tackle the project, advises Amy Levner, manager of AARP’s Livable Communities initiative. Here’s your plan of action:

Start with the easy fixes. Many of the upgrades that make it easier to stay in your home as you get older—such as raising electrical outlets to make them more accessible, installing better outdoor lighting, and trading in turning doorknobs for lever handles—aren’t expensive. “And these small changes can make a big difference,” says Levner. Check out AARP’s room-by-room guide at aarp.org/livable-communities for more suggestions of what to fix.

Assess the bigger jobs. To make your house livable for the long, long run, consider investing in some more extensive renovations. These include things like bringing the master suite and laundry room to the first floor to avoid stairs, adding a step-in shower, and covering entranceways to prevent falls. Such jobs can be costly (see chart below), so get a bid from a contractor—then determine if it’s worth that price to you to stay or whether you’ll just move later if need be. The good news is that changes you make for aging in place can also make the home more appealing to future buyers, says Linda Broadbent, a real estate agent in Charlottesville, Va.

Notes: Prices for grab bars, door handles, and lights are per unit. Sources: AARP, National Association of Home Builders, AgeInPlace.org, Remodeling magazine

Budget for outsourcing. No getting around the upkeep a house requires. Sure, when you’re retired, you’ll have more time to mow the lawn and paint the fence. But don’t forget that you may be away from home for periods traveling or visiting the grandkids. And later on, you probably don’t want the physical drudgery of home maintenance. Research the fees to hire out some of the tougher tasks such as snow removal and yard work, and build those costs into your retirement income needs.

Deepen community connections. Your close-by social network is just as important as the house itself. “Living in a place where people know you and can help you or provide social interaction will give you a better quality of life,” says Emily Saltz, CEO of geriatriccare-management service provider Life Care Advocates. Use these pre-retirement years to strengthen local ties—explore volunteer opportunities, check out classes, and get to know your neighbors.

Maintaining a social circle is especially important if your kids live far away or have demanding jobs. Good friends will shuttle you to doctors’ appointments and hold the ladder while you change the fire-detector battery, as well as help you up your tennis game.

 

MONEY selling a home

If You Want to Sell Your House This Year, Start Doing These Things Now

Living room
Michael Grimm—Gallery Stock

With home prices recovering and interest rates still low, now may be the time to act. Here are 8 things successful sellers need to know.

In part one of our Spring Real Estate Guide, we told you what to do if you want to buy a home this year. In today’s part two we’ve got tips for sellers. Stay tuned for part three, with advice for those who want to say put and add value with home improvements.

If you haven’t sold a house in the past decade, brace yourself. Today’s buyers are demanding. They’re savvier about market dynamics and data and want to see houses on their own schedule, says Redfin’s chief economist, Nela Richardson. “We’re finding that buyers want access to your house when it works for them,” she says. “They don’t want to wait for the open house.” Baking cookies won’t cut it anymore.

Some things in your favor: Low interest rates are your friend too. Buyers know that rock-bottom mortgages can’t last forever. If interest rates start to tick up, there could well be a rush to buy. On the other hand, if rates go up too far, that will almost certainly dampen prices. “As a buyer’s monthly payment goes up with rising rates, something’s got to give—and that’s likely your home price,” says Keith Gumbinger, vice president of HSH, a mortgage information provider. In other words, sellers: If you snooze, you may well lose.

Your Action Plan

Sell first, then buy. The dilemma most sellers face is whether to buy a new place at the same time. In general, it’s smarter to sell before you buy—there’s nothing worse than having to carry two mortgages at once. You may be able to rent your house from the buyer for a few months, or at least find a short-term rental elsewhere. The one thing you don’t want to do is try to buy a new place with the contingency that you have to sell your old place first. Nothing kills a deal faster, especially if you’re up against other bidders.

Don’t just list your home—market it. Gorgeous photographs, video walk-throughs, perfect floor plans—buyers want it all. You need an agent who can develop a full-blown marketing plan, including social media. “People are doing so much more research ahead of time, going through listings online, and weeding out properties before they see them,” says Benjamin Beaver, an agent with Coldwell Banker in San Angelo, Texas. That’s especially true of millennial first-time buyers, who have grown up with information on demand.

And a top-flight agent can help pay for himself. Redfin found that listings with photos taken by a professional got 61% more views, and homes listed between $200,000 and $1 million sold for $3,400 to $11,200 more than similarly priced homes. A video tour including views of the neighborhood (parks, restaurants, main street) is another great tool. “If your photos capture an interested buyer, the video can help boost their interest,” says Rae Wayne, a real estate agent in Los Angeles. Plus, a video can help drive additional traffic to your listing.

Negotiate with your agent. Bernice Ross, the CEO of RealEstateCoach.com, has a brilliant method for testing a potential agent’s bargaining skills: Ask her for a reduction in her commission—and then think twice about hiring her if she agrees. “If they can’t negotiate a full commission on their own behalf, how are they going to negotiate the best price for you?” she says.

Don’t “test” the market. Pricing right is an art these days. The last thing you want to do is accidentally list too high out of the gate. Not only does it require cutting the price—in many cases to less than the estimated value—but it also means more time on the market. “It’s not like the old days where you put in a 10% buffer,” says Jacquie Sebulsky, a broker with Cascade Sotheby’s International in Bend, Ore. “People are savvier, and many agents won’t even show a house if it’s overpriced.” According to Zillow Talk: The New Rules of Real Estate, a house that is priced right will sell in about half the time of one that is overpriced.

Another reason to price right: traffic. In the first week a listing goes on the market, it gets four times as many visits as a month later, Redfin found. Moreover, if you do end up dropping your price, says Richardson, it sends a signal to buyers that you’ll come down more. “One agent described it to me as ‘blood in the water,’ ” she says.

To help you arrive at a price, your agent should show you up to 10 comparable active, pending, and recently sold (in the past three months) listings and sales. The most recently sold and the ones that are pending are the best; six or even four months ago may not reflect today’s market, says Brendon DeSimone, a broker in New York City and the author of Next Generation Real Estate. Automatic valuation tools, such as from Zillow and Trulia, are definitely great sources of intelligence. They’ll show you how quickly houses are selling in your market, how close they are going to asking price, and more. But data can tell buyers only so much. “The computer can’t see the inside of the house,” says Ross, “and it can’t see if your house has a view.”

Go green. With homes selling at a healthy pace, you probably don’t need to make any major pre-sale upgrades. One that does pay off: the front lawn. A 2012 Texas A&M survey found that curb appeal increases sales prices by up to 17%. “Green grass is huge, whether that means new sod or just fertilizer and lots of water,” says Wayne. Sustainability and low maintenance are the top trends for residential landscape projects, according to the 2015 Residential Landscape Architecture Trends Survey, so you might add simple native plants. You don’t have to spend a lot. See what’s on sale at Home Depot. It only has to be green, not gorgeous.

Fix what’s broken. Paul Reid, a Redfin agent in Southern California, recommends getting a home inspection and fixing any problems before you list the house, despite the out-of-pocket costs. “First-time homebuyers in particular don’t want to come in and do a ton of work,” he says. “They’re making a huge financial commitment and don’t want a money pit. I’ve seen it time and again where a buyer will get in escrow, have the inspection, and back out because the list is overwhelming.”

Go clean. Ten years ago it was mostly upper-end sellers (and maybe desperate ones) who went to the trouble to “stage” their home. Now, the idea that you need to clean out your closets, clear off the counters, take down your photos, and pare down the furniture and accessories is Real Estate 101. That said, you don’t need to hire anyone (though you may need to find someplace to store all your junk). Two areas not to forget: the entrance (that expression about not getting a second chance to make a good first impression is true) and the bathrooms. “I like to say that big, fluffy, white towels can add $10,000 to the price of a house,” says Sebulsky.

Give yourself a deadline. It’s true that houses tend to sell faster in spring and summer (in large part because families want to be settled before the new school year begins). And if your home is still sitting come Labor Day, think twice about keeping it on the market into the fall. “By then a lot of people have made their choices, and if your house has been on the market for six months, people automatically assume something is wrong,” says Sebulsky. Every market is different, of course, but winter may actually be a better option. There’s less competition from other sellers, as well as some pent-up demand after the holidays. Bonus: Anyone trudging through open houses during the winter “tends to be pretty serious about finding a house,” Sebulsky says.

Get more answers to your questions about home buying and selling:
How do I make my home attractive to buyers?
What renovations will pay off when I sell?
Will I pay income taxes on the sale of my home?

MONEY real estate

The 30 Most Livable Cities for Baby Boomers

Wisconsin State Capitol and the State Street pedestrian mall, Madison, Wisconsin
Walter Bibikow—Getty Images/age fotostock Wisconsin State Capitol and the State Street pedestrian mall, Madison, Wisconsin

Apparently, Wisconsin is the place to go for an active, enjoyable life after age 50. At least, that’s what a new livability index from AARP says.

Apparently, Wisconsin is the place to go for an active, enjoyable life after age 50. At least, that’s what a new livability index from AARP says. The index ranks cities, down to the neighborhood, based on several factors that make an area desirable to the 50-plus population. AARP broke the rankings into three population categories (10 cities in each), and there are six Wisconsin cities on the list, more than any other state. (Minnesota came in second with four.)

Labeling a city “most livable” is a pretty subjective assessment — people who love New York may not be crazy about living in Fargo, N.D., for example, but both are on this list. AARP tried to find cities that included many of the factors important to Americans aged 50 years and older. The rankings are based on analysis by the AARP Public Policy Institute and other experts of 60 community factors in seven categories: housing, neighborhood, transportation, environment, health, engagement and opportunity. The analysis included responses to a national survey of 4,500 Americans in that age group about what’s most important for them to have in their communities. Each of the cities on this list stands out in many of the 60 factors AARP analyzed, making them suitable for residents with a variety of tastes.

Large (Population 500,000 and Higher)

  1. San Francisco
  2. Boston
  3. Seattle
  4. Milwaukee
  5. New York City
  6. Philadelphia
  7. Portland, Oregon
  8. Denver
  9. Washington, D.C.
  10. Baltimore

Medium (Population 100,000 to 500,000)

  1. Madison, Wis.
  2. St. Paul, Minn.
  3. Sioux Falls, S.D.
  4. Rochester, Minn.
  5. Minneapolis
  6. Arlington,Va.
  7. Cedar Rapids, Iowa
  8. Lincoln, Neb.
  9. Fargo, N.D.
  10. Cambridge, Mass.

Small (Population 25,000 to 100,000)

  1. La Crosse, Wis.
  2. Fitchburg, Wis.
  3. Bismarck, N.D.
  4. Sun Prairie, Wis.
  5. Duluth, Minn.
  6. Union City, N.J.
  7. Grand Island, Neb.
  8. Kirkland, Wash.
  9. Marion, Iowa
  10. West Bend, Wis.

When thinking about a new location, there are several things to consider, beyond what the community has to offer. For starters, you may want to look at job opportunities and the unemployment rate, and if you’re considering buying a home, see if you can afford property in the neighborhood you find desirable. Livability may be challenging to quantify, but affordability is a bit more black-and-white. Financial stability should always be a large factor in making big life decisions.

More from Credit.com

This article originally appeared on Credit.com.

MONEY buying a home

This Spring’s Hottest Real Estate Markets

North Beach, San Francisco Bay Area homes
Christian Heeb—Getty Images North Beach, San Francisco Bay Area

Buyers need to move a bit faster this year in order to snag their dream house, even in some of the slowest-moving markets. Homes are going especially quick in the San Francisco Bay Area, Southern California, Seattle, and Salt Lake City.

Housing inventory remains tight, and one of the questions on the minds of many homebuyers this spring is just how fast they will have to move to get the home they want and can afford.

To find out how long homes are staying on the market, we calculated the share of homes for sale on Trulia over a two-month period. We first looked at homes listed on February 5, then counted how many were still for sale on April 5. Faster-moving markets had a lower percentage of homes still on the market after two months, while slower-moving markets had a higher percentage.

Trulia_FastestMovingMarkets_Infographic_Apr20151

Our two-month measure is similar to a common housing statistic: days on market (DOM). In general, housing markets with more inventory and fewer buyers will have a higher share of for-sale homes remaining on the market after two months and a higher median DOM. But we prefer our two-month measure over the widely watched DOM as a way to determine how quickly homes are moving in a market.

Why? We think DOM is potentially misleading. If lots of new inventory suddenly lands on the market, then the median DOM could fall thanks to all those newly listed homes. Thus, a low median DOM might indicate that buyers are snapping up homes quickly, so homes aren’t staying on the market long (a seller’s market). But it could also signal that a lot of new inventory has just come onto the market (a buyer’s market). As a result, it’s difficult to decipher what’s really going on based on DOM alone.

Looking for a Bargain Home? So Is Everyone Else

Nationally, 60% of homes listed for sale on February 5 were still on the market on April 5, down a bit from 62% for the same period last year. What’s quickening the pace of sales? It turns out it’s homes priced at the low end of the market. To see this, we evenly divided all homes in each of the 100 largest U.S. metros into three price tiers.

We gave each metro its own price cutoffs based on what’s considered high-end, mid-range, and low-end locally. On average, lower-priced homes moved fastest. Only 50% of homes in this tier were still on the market after two months compared with 65% of higher-priced homes.

What’s more, home sales in the low-price tier sped up more compared with a year ago than sales in other tiers. The share of low-price homes still on the market after two months dropped 3 percentage points, compared with a 1 point drop for middle-tier homes and a 1 point increase for high-tier homes. As always though, the national trend hides big differences from one local market to another. In many metros, the sales pace is quickening, while in others it is slowing.

Trulia_FastestMovingMarkets_BarChart_Apr2015

California: Home to America’s Fastest-Moving Housing Markets

If you’re a home seller, California may indeed be the Golden State. Eight of the 10 fastest-moving housing markets are there, and homes are selling much faster than in the Northeast, South, and Midwest. In fact, fewer than 30% of homes for sale in the three San Francisco Bay Area metros remained on the market after two months.

By contrast, about 70% of homes in Long Island and Albany, NY were still on the market. In addition, the only metros outside California that made the 10 fastest moving list were Seattle and Salt Lake City.

America’s Top 10 Fastest-Moving Housing Markets
# U.S. Metro % of homes still for sale after two months, April 2015 % of homes still for sale after two months, April 2014 Difference in share still for sale, 2015 vs 2014 Median Asking Home prices, April 2015
1 San Francisco, CA 26% 28% -3% $1,099,000
2 San Jose, CA 30% 31% -1% $800,000
3 Oakland, CA 30% 31% -1% $598,000
4 San Diego, CA 33% 44% -11% $549,990
5 Orange County, CA 41% 45% -3% $699,000
6 Seattle, WA 42% 45% -3% $409,993
7 Sacramento, CA 42% 45% -3% $396,950
8 Los Angeles, CA 43% 45% -3% $549,000
9 Ventura County, CA 43% 50% -6% $589,999
10 Salt Lake City, UT 45% 28% -6% $299,900
Note: Among the 100 largest U.S. metros. The two-month shares and the difference are rounded to the nearest percentage point, and the difference was calculated before rounding; therefore, the rounded difference might not equal the difference between the rounded shares. Click here to download the full results for each of the 100 largest U.S. metros.

None of the fastest-moving markets have slowed since last year. In fact, the markets on our top 10 list that sped up the most are San Diego, Ventura County, and Salt Lake City. Other markets that are speeding up most rapidly are almost exclusively in the South and Southwest. The share of homes for sale in Cape CoralFort Myers, FL still on the market two months later dropped from 64% in April 2014 to 47% in April 2015. El Paso, TX and Richmond, VA also sped up at a similar pace, even though homes in those markets aren’t moving quickly enough to land them on the 10 fastest-moving markets list.

To illustrate this point, the figure below shows that homes in markets with bigger price increases tend to move faster, though not always. For the most part, these fast-moving metros are sellers’ markets where homes don’t sit very long.

Trulia_FastestMovingMarkets_Scatterplot_Apr2015

Housing Markets Moving Sluggishly in Long Island and Albany, NY

In contrast, the slowest-moving markets are in the Northeast, including Long Island and Albany, and in the South, including Columbia, SC, and Knoxville. All but two of the 10 slowest-moving markets had year-over-year price increases below the 5% national average.

However, even among these snail’s-pace markets, the share of homes still for sale after two months dropped in five of 10 metros. Knoxville and Long Island both all sped up 2 percentage points this year compared with last. It’s true that in six of the metros on this list, the pace of sales slowed in 2015 compared with the year before. The pace of sales slowed the most in Miami (9 points) and Pittsburgh (4 points).

America’s Top 10 Slowest-Moving Housing Markets
# U.S. Metro % of homes still for sale after two months, April 2015 % of homes still for sale after two months, April 2014 Difference in share still for sale, 2015 vs 2014 Median Asking Home prices, April 2015
1 Albany, NY 71% 70% 1% $264,900
2 Long Island, NY 69% 71% -2% $474,995
3 Syracuse, NY 68% 67% 1% $153,000
4 Columbia, SC 67% 69% -1% $170,000
5 Knoxville, TN 67% 69% -2% $184,900
6 Pittsburgh, PA 67% 62% 4% $155,000
7 Lake County –Kenosha County, IL-WI 67% 64% 3% $289,000
8 Virginia BeachNorfolk, VA 65% 65% 0% $249,000
9 Birmingham, AL 65% 66% -1% $193,000
10 Miami, FL 65% 56% 9% $319,000
Note: Among the 100 largest U.S. metros. The two-month shares and the difference are rounded to the nearest percentage point, and the difference was calculated before rounding; therefore, the rounded difference might not equal the difference between the rounded shares. Click here to download the full results for each of the 100 largest U.S. metros.

Why do some markets speed up while others slow down? Last year we found the fastest moving markets were those that had the largest year-over-year price gains. Things don’t appear to have changed this year. In fact, asking prices increased near or above the national average of 5% year-over-year in six of the 10 fastest-moving markets.

But fast-moving markets are different in other ways, too. They tend to be more expensive to begin with. In other words, they have both higher price levels AND they’ve notched bigger price increases in the past year. Expensive markets—including many in California—have tight housing supplies because of limited construction in the face of growing demand. So homes get snapped up quickly.

And this is bad news for first-time homebuyers. The combination of an expensive market and fast-selling homes at the low tier is yet another hurdle for first-timers, who are already getting slammed by declining affordability and slow wage growth. Now, even the homes they might be able to afford seem to be disappearing in the blink of an eye.

MONEY Taxes

8 Reasons Your Property Taxes Are So Damn High

150420_EM_PropertyTax
Lisa Corson—Gallery Stock Tourism keeps Las Vegas' property taxes low. New Jersey homeowners have no such luck.

Income taxes are probably top of mind right about now. But for many homeowners, high property taxes are an issue year-round. What's to explain why property taxes are such a burden in certain parts of the country?

A Monmouth University survey released last fall showed that more than half of New Jersey residents want to leave at some point, with 26% saying that it’s “very likely” they’ll move away from the Garden State. The most popular reasons cited for were the costs of housing and property taxes—the high cost of property taxes in particular. “The chief culprit among these costs is the New Jersey’s property tax burden,” Patrick Murray, director of the Monmouth University Polling Institute, explained.

New Jersey isn’t the only state at risk of losing residents to Florida, Pennsylvania, or another state with lower taxes. Stories pop up regularly speculating about the likelihood of homeowners jumping ship from high-tax states like New York and Connecticut as well.

Why is it that some states and municipalities have much higher property tax than their neighbors in the first place? Here’s a rundown of a few major factors.

The community has good schools. Or at least extremely well-funded ones. According to Zillow, the median residential property tax bill in New York’s Westchester County is $13,842, highest in the nation. A Westchester Magazine feature focused on why the leafy, desirable county holds this dubious distinction. The piece draws a comparison to Virginia’s Fairfax County, which is similar in many ways to Westchester: They’re both suburbs of big cities (New York and Washington, D.C.), they have similarly high home values, and they educate about the same number of students in public schools, which in both places have a good reputation.

Yet Westchester spends over $1 billion more to fund its schools, and since property taxes cover the lion’s share of that bill, there’s a big disparity in what homeowners pay. The average residential property tax bill is about $5,500 annually, less than half of what Westchester residents pay (people in Fairfax still complain about property taxes being too high).

The average teacher salary in Fairfax was roughly $67,000 in 2014. In Westchester, the average was estimated at $88,000 in 2013. Benefits and administrative costs add up too—Fairfax County has one superintendent, Westchester has 40—and collectively they translate into bigger burdens on Westchester’s property owners. Defenders of high educator salaries always note that they’re necessary given the high cost of living in the area, and it’s a valid point. After all, teachers, principals, and superintendents must pay local property taxes!

State workers make good money too. By most measures, New Jersey homeowners have the country’s highest property taxes. Tax Foundation data shows that the Garden State has the highest effective property tax rate (percentage of home value) and the highest property taxes per capita. The average property tax bill in the state hit $8,161 in 2014, also tops in the U.S. In fact, one study indicates that less than 1% of American homeowners pay more than $8,000 annually in property taxes.

An Asbury Park Press op-ed published last summer noted that a big reason for the state’s high property taxes is how much the state pays its workers:

The problem lies less with layers of government and excessive numbers of government workers providing services than with the generous salaries and benefits of those who are on the public payroll. Average state worker salaries: highest in the nation. Average teacher salaries: third highest. Public employee health benefit costs: second highest in the nation.

Your state relies heavily on property taxes. The above-referenced editorial also points out that 48% of state and local revenues collected in N.J. come from property taxes, which is off-the-charts high: “No other state derives more than 41 percent of its revenue from that source; the U.S. average is 33.1 percent.”

This state of affairs would be more acceptable to locals if the tradeoff for high property taxes is low taxation in other areas. Indeed, New Jersey has one of the country’s lowest gas taxes, and it’s in the middle of the pack in terms of taxes on wine, spirits, and beer. Unlike many other states, people in New Jersey don’t pay any vehicle property taxes either. Then again, New Jerseyans do pay the second highest state sales tax rate (7%, only California is higher).

Little or no tourism. A recent WalletHub study named Hawaii as the state with the lowest property taxes. New Jersey property taxes are eight times higher than their counterparts in the Aloha State. And a big reason why homeowners get off (relatively) easy in Hawaii is that the state collects so much from outsiders, thanks to high taxes on hotels and other tourism expenses. Likewise, taxes paid by casinos and tourists in Nevada are often credited as a reason why state property taxes aren’t high.

Little or no industry. The more that industrial and commercial businesses pay in taxes in a state or town, the less it’s necessary for homeowners to cover the government’s tab. According to the Wyoming Taxpayer Association, 69% of property taxes in the state are paid by mineral production businesses. Therefore, residential property taxes can remain low—the state has no income tax either. The city of Marlborough, Mass., recently estimated that it were it not for local commercial taxpayers, the average homeowner would see his property tax bill (now averaging $4,791) shoot up by $1,164 per year.

Your property is worth a bundle. Your property tax bill is based on multiplying the local tax rate times the assessed value of your home. So, generally speaking, the owners of more valuable homes pay more in property taxes. Marin County has the most expensive real estate in California, on average, so it should come as no surprise that it has the highest (or among the highest) average property taxes too. In New Jersey, the 10 towns with the highest property tax bills all averaged over $18,000 per year, and five out of the ten had average residential property values over $1 million.

Or it’s not worth much at all. A recent RealtyTrac report shows that nationwide, the highest property tax rates were for high-end homes, valued between $2 million and $5 million. That’s not surprising. What is somewhat of a shock, however, is that the second highest effective property tax rate—calculated based on a percentage of a home’s value—was for houses at the extreme low end of the value spectrum, assessed at under $50,000 or less. Granted, owners at the low end aren’t paying big bucks, but in terms of the percentage of the home’s value, property tax rates represent a disproportionate burden.

Your assessment was too high. There may not be much you can do to change your local tax rate—other than move, of course. But you can challenge the assessment on your property. If your appeal results in a lower assessment, your tax bill goes down as well. The National Taxpayers Union estimates that somewhere between 30% and 60% of properties are over-assessed. This guide to disputing your property taxes from This Old House has some of the best advice on the topic we could find.

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.

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