MONEY renting

Be a Successful Renter With These 3 Moves

For Rent sign
Zachary Zavislak

Whether you're renting an apartment or single-family home, taking these three steps will help you avoid costly blunders.

Whether you’re fresh out of college, or downsizing out of a suburban home, you may think renting a place is fairly risk-free. As long as you find a suitable unit you can swing each month, you need not worry about much else, right? Isn’t that one of the big advantages of renting over buying?

You don’t get off that easy! These three steps will secure both your home and your wallet.

Related: Avoid These Rookie Landlord Mistakes

1. Budget for upfront costs

Everyone knows this one, right? Renters will likely need to hand over at least their first month of rent plus a month as a security deposit before moving in. But consider this: If you’re moving from one rental to another, you’ll probably have to put down the cash before getting the security deposit back from the place you’re leaving.

This timeline is standard practice among landlords but continues to trip up unprepared renters, says Niccole Schreck, consumer insights and marketing manager for Rent.com. Rather than having to hit up mom and dad, or — horrors — start charging everyday expenses to conserve cash, begin saving a few months in advance. In fact, you should always have a few months of rent saved in case your landlord does not renew your lease. That could happen if, say, owners decide to sell the place.

And don’t underestimate the costs of boxes, tape, bubble wrap and other packing supplies. A moving kit for a three-bedroom home from Staples can run $400. Even ten 24” x 24” x 18” boxes for a studio can run $40, and that doesn’t include tape, wrapping paper, garment boxes, and other incidentals. Costs add up quickly.

Hiring professional help? Make sure you’re ready to go when the movers arrive. “If you aren’t organized and haven’t quite finished packing, it’ll take more time, and they generally charge by the hour,” says Schreck.

2. Read the lease. Really.

After an exhaustive search, it may feel like you can breathe easily once you’re approved for the rental. Not so fast. “Many people will just sign the lease without actually reading it,” says Schreck. A recent survey from Rent.com found that 26% of renters had lost their whole security deposit at some point. One culprit: not knowing the terms of the lease. “You can’t play by the rules if you don’t know them,” she says. For example, your lease may specify no painting, or have rules about putting holes in walls. Ask your landlord to include in the lease or as an attachment anything he verbally tells you, such as holes are fine or your cat won’t be an issue. Also double-check that utilities included in your monthly rent match what your landlord said.

3. Get renters insurance now.

Many renters assume if catastrophe strikes, such as a fire or break-in, the landlord’s homeowners insurance policy will cover their belongings. Wishful thinking. Landlord policies cover the structure of the home, and perhaps owner-provided extras such as appliances, but will not reimburse losses for the personal belongings of the tenant, says Paul Bruemmer, a landlord insurance expert at Farmers Insurance. Yet 60% of renters do not have renters insurance, a Rent.com survey found.

A typical policy runs between $15 and $30 a month, according to the National Association of Insurance Commissioners. (Unusually expensive items such as fine jewelry and art may need additional coverage.) So for the cost of, say, a fine pair of jeans, you can ensure the rest of your beloved belongings will be covered in the event of bad luck.

MONEY Ask the Expert

How Do I Get Rid of My High-Interest Second Mortgage?

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Robert A. Di Ieso, Jr.

Q: I have a $23,000 second mortgage with a high interest rate—8.25%. Should I refinance both my mortgages into one to save money, and at what term? — Jim Davis, Weymouth, MA

A: One of the most important factors in deciding whether to refinance is how long you plan to stay in the home, says Shant Banosian, an executive at lender Guaranteed Rate. The longer you stay, the more you will benefit from any savings from a lower rate. You told us that you are hoping to sell your two-bedroom townhouse in about 18 months so you can move your family of four into a larger home.

You’d like to boost your home equity so you can walk away from your sale with enough money for a nice down payment. Given your time frame, Banosian says it would be a mistake to refinance into a shorter-term mortgage that would significantly raise the monthly payment. Instead, he says, open a home equity line of credit and use that to pay off the second mortgage. HELOC rates average 4.63%, according to Bankrate, and it costs very little to open one, Banosian says. “They’d cut their payment in half.” You could then apply those savings (about $130, you said) to your principal balance.

Related: Should I Refinance So I Can Stop Paying Mortgage Insurance?

 

MONEY house hunt

‘At 27, I’m the First of My Friends to Own a Home:’ A Buyer’s Story

Nathan Davenport's condo in the Buckhead neighborhood of Atlanta. Courtesy of Zillow

At 27, Nathan Davenport seems to have most of what he wants -- a steady job, a girlfriend and even his own home.

When Nathan Davenport moved from Birmingham to Atlanta three years ago, he was fairly certain he wanted to make Atlanta his home for at least a while. So the sales associate with AT&T recently closed on a condo in the Buckhead neighborhood of Atlanta, two blocks from a new mega-development bringing 80 high-end retailers to the area by the end of the year. Just shy of 27 and single, Davenport is the first among his friends to own a home. This is the story of his House Hunt.

He knew exactly what he wanted.

I knew that I am not going to change my job anytime soon. I knew that I wanted to be around people and have stuff to do. Buckhead seemed really attractive with all the stores coming for the first time. I wanted grocery stores and restaurants within walking distance, like in New York. And, I knew that I did not need a lot of space.

I figured property rates will go up, which also motivated me to buy a condo in the neighborhood. And the commute to work is an ideal 15 minutes.

Although he was looking at condos, he did not want to compromise on amenities.

I wanted hardwood floors and granite kitchen tops. And, this might sound weird coming from a guy — but a walk-in closet. I definitely wanted one. I did not like the modern open bedroom, loft-like apartments that I saw.

Once he found his ideal condo, he waited five months for the exact unit to become available.

I started looking at places in August last year and purchased the place in April this year. The unit with the floor plan I wanted had just sold out, and it took five months for another one to get on the market. As soon as it did, I put in my bid, even without actually looking at the unit.

He bid the asking price of $205,000. But then …

The appraisal valued it at $190,000. I changed my bid to $195,000 and closed the deal. I put down 5%, most of what I had saved and the rest is financed through a mortgage.

I wouldn’t say I want to live here long-term. When I get married, I might want to move out. I will rent out this place then. I might think of buying my next house in five to eight years. But I definitely want to stay in Atlanta, preferably in this neighborhood.

MONEY mortgages

Good Luck Getting a Mortgage on a Condo. Here’s What You Need to Know

There's a reason why most condo sales are in cash. It's harder to get a mortgage for a condo than a home. Even if you do, you'll pay more.

Home buyers are paying with cash more than ever. In the first quarter, 43% of home sales used cash, according to RealtyTrac, the highest level since the data firm began tracking this three years ago.

Single-family homes get most of the spotlight, perfectly appropriate given the role that well-funded investors converting foreclosed homes into rentals played in rescuing the housing market.

Related: When Wall Street Becomes a Landlord

But cash really rules when it comes to condos. More than half – 56% – of all condo sales were for cash in the first quarter versus 38% for homes, RealtyTrac says.

In Florida and Nevada, that percentage leaps to over 80%, according to analyst Thomas Vitlo of CoreLogic. Other states with high shares of condo cash sales, says CoreLogic:

State Condo Cash Sales
Florida 81.2%
Nevada 80.5%
New York 79.5%
Alabama 75.7%
Arizona 65.7%

 

Those high figures surely reflect investor interest in condos as good rental properties (and investors pay cash): Generally lower-priced than homes, they also require less maintenance. And, condos often are the home of choice for downsizing Baby Boomers who are able to pay cash out of the sale proceeds of their last home.

Related: I Have $1 Million and I Couldn’t Get a Mortgage

The biggest factor, though, is availability of credit. As Vitlo explains, before the recession getting a mortgage to buy a condo was not a problem. You can see that in the numbers: Between 2000 and 2007, the average percentage of condos bought with cash in Florida and Nevada was 22.9% and 35.4%.

Tighter lending standards have made getting a condo loan incredibly difficult and not just because fewer people make enough money to qualify. The condo development itself might not qualify, under Federal Housing Administration rules put in place after the recession.

For borrowers to obtain FHA mortgages, the community has to pass an approval process documenting healthy finances, insurance, among other things. As of late May, 10,020 condo developments had received approval – a fraction of the roughly 158,000 communities around the U.S.

Condos are a “special hell,” says Keith Gumbinger of HSH Mortgage, because the buyer isn’t the only person responsible for property’s future condition—so is the association and even other tenants.

Find out whether your condo is approved here.

FHA mortgages generally allow lower down payments than conventional loans (as low as 3.5%) with lower credit score requirements. So these rules are particularly problematic for first-time buyers, for whom condos provide a reasonably priced housing option, says Tim Lucas, editor of My Mortgage Insider.

What you need to know:

Cash, alas, is actually king. If you can cough up the cash, you may be able to negotiate a better deal because sellers don’t have to worry about financing falling through, either because you don’t qualify for the mortgage or the unit doesn’t appraise. Cash also means a faster closing time.

You’ll pay more. Because condos have historically higher default rates than homes, lenders will charge extra, Lucas says. That may be in the form of a fee – typically .75% of the loan amount – or a higher interest rate, say, 4.375% instead of 4.25%. You may avoid the charge if you can make a big down payment, above 25%.

Where you live matters too. No wonder everyone’s paying cash in Florida and Nevada. Many lenders charge extra for condos in those states. Plaza Home Mortgage, for example, charges a fee of 0.375% of the loan amount there; American Financial Resources charges 0.15% in nine states, including Georgia, Louisiana, Massachusetts, New Jersey and Utah.

There’s even more documents required. In addition to all that paperwork you have to fill out, the condo association will have to fill out a questionnaire asking for info such as “are there lawsuits pending?” The association also will have to supply a budget.

If you’re military, go VA. The Veterans Administration offers a zero down loan even on a condo. The condo developments also have to be approved in advance, though there’s a longer list than the FHA, Lucas says.

MONEY Housing Market

U.S. Foreclosures Lowest Since December ’06, But Some Cities See Increases

Foreclosures are down nationwide, but some cities are just starting to hurt.

Foreclosure filings around the country fell 26% in the last year to their lowest level since December 2006, according to RealtyTrac.

Four of the 20 largest metropolitan areas, however, saw foreclosures increase year-over-year. Filings in Boston’s metro area were up 44%, followed by regions centered around New York, NY (up 23%), Washington D.C. (up 8%), and Philadelphia (up 5%).

Metro Area YY Growth in Foreclosure Filings
Boston, Cambridge, Quincy, MA-NH 44%
New York, Northern New Jersey, Long Island, NY-NJ-PA 23%
Washington, Arlington, Alexandria, DC-VA-MD-WV 8.2%
Philadelphia, Camden, Wilmington, PA-NJ-DE-MD 5%
Chicago, Naperville, Joliet, IL-IN-WI -12.71%

 

RealtyTrac’s Daren Blomquist explained the foreclosure uptick in these areas as a the local market playing catch-up with the rest of the nation. In states like New York, creditors have to surmount relatively stringent procedural hurdles before being able to foreclose on a property. As a result, underwater homes in these regions are hitting the market long after other states have already dealt with much of their distressed property.

In the first quarter of 2014, the average foreclosure in New York took 1,103 days to reach completion; 706 days in Massachusetts; and 633 days in Pennsylvania. Average time for the entire United States: 572 days.

“It’s not surprising that some of the states with the longest foreclosure timelines are those with markets still dealing with increasing foreclosure activity even as the country as a whole continues to hit new lows,” said Blomquist. “On the other hand, the increase in bank repossessions in some states with shorter foreclosure timelines like California and Oregon demonstrates there is still some pent-up foreclosure activity in those states as well.”

State Foreclosure Timeline
New Jersey 1,103 days
New York 986 days
Florida 935 days
Hawaii 840 days
Illinois 830 days

 

For those worried about foreclosure, the lender can make as much difference as the state they live in. Rob O’Donnell, a Re/Max agent who handles distressed properties in Massachusetts, says some lenders are more aggressive than others when it comes to repossession.

Related: Why You Should Be House Hunting for Foreclosures Right Now

“Some mortgage companies and banks foreclose more quickly than others, and there are some banks that don’t foreclose,” says O’Donnell. In his experience, small lenders and private companies are quicker to pull the trigger. Larger mortgage firms are either simply slower or more reluctant to foreclose for fear they might run afoul of the law. Blomquist recounted one instance where a major Nevada lender reportedly went months without filing a foreclosure notice while the company familiarized itself with with new regulations.

In areas where foreclosures have increased, more properties are being gobbled up at auction by investors before they can hit the open market; something that could be bad news for regular buyers, who prefer multiple listings services over the courthouse steps to find their homes. Blomquist says auction purchases have gone up significantly since last year, driving up housing prices and fueling banks’ interest in more foreclosures.

“In some markets, there’s quite a bit of competition [for distressed real estate] because it’s selling for use as a rental,” says Blomquist. At auction, “banks can get more than they ever expected to recover on that loan.”

Major Metros With Highest Foreclosure Rate in May
Tampa, St. Petersburg, Clearwater, FL
Miami, Fort Lauderdale, Pompano Beach, FL
Chicago, Naperville, Joliet, IL-IN-WI
Riverside, San Bernardino, Ontario, CA
Baltimore, Towson, MD

 

Other foreclosure stats: The Tampa and Miami metros led the way in foreclosure rates, followed by Chicago, San Bernardino, and Baltimore. In May, one in every 1,199 housing units was the subject of a foreclosure filing, from initial notices of default to final bank repossessions.

TIME China

China’s Real Estate Downturn Spells Trouble for Global Economy

A sales assistant talks to visitors in front of models of apartments at a real estate exhibition in Shenyang
A sales assistant talks to visitors in front of models of apartments at a real estate exhibition in Shenyang, Liaoning province April 17, 2014. Sheng Li—Reuters

The world's largest trading nation's economic growth remains heavily dependent on property, meaning a sharp downturn in that sector would be felt across Asia and beyond

“Will the government save the market if housing prices fall?” That was the question being asked in China this week — not by stressed-out mortgage holders, but by the country’s most famous (and wealthy) property mogul, Pan Shiyi.

Pan, the chairman of giant real estate developer SOHO China, has made a series of pronouncements in recent weeks that reflect an increasingly bearish long-term outlook for China’s property sector.

At an industry forum in late May, Pan compared the nation’s real estate prospects to the Titanic. “It [the real estate industry] will soon hit the iceberg in front of it,” he declared.

Pan’s outlook may be bleak, but is borne out by statistics. According to Standard & Poor’s, residential housing prices in China will drop by 5% this year — a dramatic reversal from last year’s rise of 11.5%.

That’s bad news for China’s property holders, but potentially also a worrying sign for global investors. With Chinese economic growth heavily dependent on the real estate sector, which accounts for 20% of GDP by some estimates, a sharp slowdown in the property market would be felt far beyond China’s borders. (China is, after all, the world’s largest trading nation.)

After more than a decade of sizzling double-digit growth, the government is targeting 7% growth this year. But the potential for a real estate correction means that the actual number could be much lower.

There are already some signs that imports are being affected as consumer confidence weakens. The General Administration of Customs announced Sunday that imports in May declined 1.6% year on year — a drop that surprised industry analysts. That compared to an increase of 0.9% year on year in April.

With prices trending sharply downward, the president of the country’s largest residential real estate developer, Vanke, has declared that the “golden age” for property is over. “The period when everyone made money from property is gone,” Yu Liang was quoted as saying recently.

A conflagration of factors is driving the decrease in prices, not least repressive market policies that restrict the number of properties city dwellers can own. Markets in larger cities are also being flooded with knockdown properties being dumped by overextended investors or government officials looking to rid themselves of any undeclared assets in light of a recent and severe government crackdown on corruption.

Chinese media reported Monday that one coal-mining magnate was attempting to offload 100 apartments in a coveted location along Beijing’s Second Ring Road.

Little wonder, then, that the property mogul Pan is on the lookout for the visible hand of the government. But, for now at least, state intervention seems unlikely. In a report late last month, the Ministry of Housing and Urban-Rural Development declared that it would stay on the sidelines and “respect the adjustment role of the laws of the market in the real estate sector.”

MONEY home improvement

June Home Maintenance Guide: Do These 11 Things This Month

Garden with pathway
Peter Starman—Getty Images

Make sure your home is ready for summer, with these maintenance projects from Porch.com.

June has the longest daylight hours, making this month perfect for getting outside and enjoying warmer weather. In some parts of the country, June is the start of summer storms and homeowners may need to prepare for sudden showers or power outages. In other parts of the country, June brings increased heat and dryness; homeowners will want to focus on water conservation and shade. Regardless of your particular weather pattern, there are plenty of ways to keep your home beautiful, safe and functional in June.

Gardening checklist

  • keep your raised beds and container gardens moist
  • deadhead spring blooms
  • plant sun-loving herb seeds like basil, chives, thyme, and sage
  • plants edibles like pumpkins, melons, beets, carrots, beans and summer/winter squashes

Weekend projects

  • check smoke alarms and carbon monoxide detectors
  • service air conditioning unit
  • swap out seasonal clothes and bedding
  • turn over mattresses
  • organize garage for summer activities
  • power wash the patio and clean off outdoor furniture

Check out more maintenance calendars from Porch.

Tip of the Month

Create a summer car emergency kit! Fill a container or box with bug spray, bug bite relief, sunblock, hats, and an umbrella. Keep an extra gallon of water to make sure everyone stays hydrated while on the road.

More from Porch:
Moving Time: DIY or Hire Movers?
Do You Really Need Professional Pest Control Service?

Anne Reagan is the editor-in-chief of home improvement website Porch.com.

 

MONEY Tourism

7 Cities Where the Sharing Economy Is Freshly Under Attack

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A Lyft car in San Francisco courtesy of Lyft

As Uber, Lyft, and airbnb expand around the globe, even smaller cities like Grand Rapids are feeling forced to regulate sharing economy businesses.

Big cities such as San Francisco and New York have been confronting the unusual tax and regulatory conundrums posed by sharing economy businesses like Lyft, Uber, and Airbnb for years. Now it’s Grand Rapids’ turn.

As rideshare services like Uber and Lyft expand rapidly around the globe, and as short-term rental operations like airbnb grow to the point of being genuine competitors to hotels, local officials don’t quite know what to make of them—and the kneejerk reaction of regulators is often to side with the tradition businesses these sharing economy services intend to disrupt.

It hasn’t helped that sharing economy businesses have been featured in a string of ugly incidents lately. There was the “XXX Freak Fest” orgy that took place when an unsuspecting tenant rented out his New York City apartment on airbnb last Month. Then there was an Uber driver accused of assault in Oklahoma City, and another Uber driver in San Francisco who was charged with hitting a passenger, and who was found to have convictions for felony drug dealing and misdemeanor battery, despite being subjected to Uber’s background check.

What’s more, no fewer than 14 states have issued warnings–fairly vague, sometimes misleading, but still scary warnings–about the insurance risks in driving or being a passenger in rideshare operations. The companies whose business models are being threatened by the sharing economy are taking action too: In Las Vegas, for instance, a local cab company posted a memo warning that it would terminate any “driver that picks up a passenger using an Uber, Lyft or Sidecar application” in a company taxi or limo. And even cities that seem more open to rideshare businesses sometimes aren’t entirely on board with how these tech companies operate. The Times-Picayune reported that the New Orleans city council is discussing new regulations that would allow Uber’s ridesharing service, but would keep certain taxi rules–such as $25 minimums for luxury sedan rides–that defy “Uber’s insistence on open market pricing.”

As for individual cities in the U.S. and Europe that are stepping up efforts to rein in or ban sharing economy businesses entirely, here are seven hot spots:

Albuquerque, New Mexico
In late May, the New Mexico Public Regulation Commission voted unanimously to order the ridesharing service Lyft to cease operations in the state. Why? The same reason most often cited against ridesharing companies: They’re accused of being commercial taxi services whose drivers don’t have the appropriate licenses and certificates, and who haven’t paid the same fees as taxis. The commission warned Lyft and its drivers that each violation is subjected to a fine up to $10,000.

Barcelona, Spain
After being pressured by taxi companies and hotels, among others, officials in Barcelona are trying to crack down on Uber and airbnb and other sharing economy businesses, with tough fines for unlicensed drivers and a temporary freeze on licenses for owners who want to rent apartments as tourist lodging.

Brussels, Belgium
Uber launched in Brussels in February, and in April, officials banned the service in the city, threatening to hit drivers with a €10,000 fine for picking up a passenger via the app.

Buffalo, New York
A month after Lyft introduced its rideshare service in Buffalo in late April, the city’s director of permits and inspections recommended that police issue summonses to Lyft drivers, who he has determined to be the equivalent of unlicensed livery cab drivers. He also threatened that cars used in rideshare operations could be impounded.

Grand Rapids, Michigan
Strict new regulations are being proposed for owners who want to rent rooms via airbnb or other short-term services. If accepted, a homeowner would have to pay $291 for a license, the home must be owner-occupied in order to advertise room rentals (i.e., no vacation rentals), and only one room in the home can be rented at a time. Also, the city would grant no more than 200 licenses, and owners would have to notify all neighbors within 300 feet of the property about the rental situation. As tough as these rules seem, they could have been worse: A year ago, Grand Rapids was suggesting that homeowners would have to pay $2,000 for a license to advertise and rent via airbnb.

Kansas City, Missouri
Police began issuing tickets to Lyft drivers in Kansas City soon after the service was launched in late April. City officials had deemed that the rideshare service was illegal because drivers hadn’t gone through the training and certification required of taxi drivers. After some legal maneuvering, Lyft is still in action in the city, and a lengthy court battle is expected before the situation is settled.

Malibu, California
The Malibu city council recent voted in favor of issuing subpoenas to over 60 short-term lodging rental websites, including airbnb, according to the Los Angeles Times. There are hundreds of ads for short-term vacation rentals in Malibu, but only around 50 are officially registered with the city and pay the same 12% tax that hotels pay. Officials want to make sure that the city isn’t missing out on hundreds of thousands of dollars in taxes from other rentals. They’re also hoping to crack down on the “party house” atmosphere in neighborhoods that have become popular for vacation rentals.

MONEY buying a home

Half of Millennials Will Ask Mom and Dad to Help Them Buy a Home

For millennials struggling to buy homes, it's mom and dad to the rescue, a new survey says.

When debt and lack of savings stand in the way of homeownership, what’s an eager millennial to do? Ask mom and dad to pitch in, according to a new Trulia survey.

Half of young adult homebuyers, unable to make the investment on their own, said they plan to ask family members for help with a down payment. Meanwhile, 65% said they would not give up their car in order to save to put money down — and 45% said they need their smartphone. For 15%, parting with their Netflix subscription was also not an option.

Almost half of respondents said they didn’t know how much money they’d need to put down in the first place. Of those who did know, nearly two in five said they would put down less than 10%. A 20% down payment is considered best, because it qualifies buyers for the best interest rates and generally eliminates the need for mortgage insurance.

The combination of asking family for money and putting so little down could be “a little bit of a recipe for disaster,” said Michael Corbett, Trulia’s real estate expert.

“I would rather someone not purchase a home, than purchase a home they can’t afford or have to stretch to afford,” he added. Because it creates a “nasty catch-22”: a smaller down payment means a larger mortgage, which means lenders will impose a higher income requirement.

Money 101: What Should I Do Before I Buy a Home?

They may be stretching to afford it, yet millennials comprised the largest group of recent buyers, 31% of purchases, according to the National Association of Realtors’ Generational Trends Study.

This was no surprise to NAR chief economist Lawrence Yun, who noted that younger buyers have the same “American dream” aspiration to own property as the older generation. Which poses a conflict: they “have the desire but not the capacity.”

Indeed, for many, existing debt doesn’t allow them to save enough for a down payment. Student debt delayed homeownership for 54% of first-time buyers, according to a NAR study. Of those facing difficulty, 56% of “Gen Y” attributed the delay to student loans.

The numbers show that young buyers need to wait until they’re ready, Yun and Corbett agreed. Given that homeownership is a major expenditure, buyers should have a good sense of whether they’ll need to relocate in the near future, and how secure their job is.

Money 101: Should I Rent or Buy a Home?

In the event of unemployment, Corbett said, a millennial buyer is unlikely to have enough saved up.

“You don’t want to be strapped,” he added. “When the music stops, you don’t want to be caught.”

MONEY home prices

Why You Should Be House Hunting for Foreclosures Right Now

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Tetra Images—Alamy

If you bought a foreclosure a year ago you probably overpaid. Good news: The discounts are back.

Last year, if you went shopping for a bargain foreclosed home, chances are you were thwarted by investors – some of them Wall Street-backed firms with massive bank accounts – thrusting wads of cash at every decent under-$200,000 home in sight.

And, in fact, investors were buying up so many homes, so fast, they pushed prices of foreclosures past what they were worth, according to new data from RealtyTrac. For three months last summer, the average foreclosure sold at a premium to its market value.

Well, looks like it’s safe to go shopping again. As investors have pulled back on their buying, discounts on bank-owned homes have drifted up again this year to 7% in March, RealtyTrac says.

Foreclosure Discounts
Source: RealtyTrac.

That’s good news for buyers willing to put in the effort on some renovations in exchange for a deal. After all, that’s the whole point of buying a foreclosure. Sure, it often needs work – maybe even a lot of work if it’s one of those “anger management” homes exited by a bank-hating owner – but if the subsequent gain in home value exceeds the cost of improvements you’ve just set yourself up for a nice profit whenever you sell.

Back in 2011, those discounts got as high as 15% (this is for bank-owned property listed on the open market, not foreclosures sold at courthouse auctions – those discounts are much steeper). Such values lured investors onto the scene seeking to tap increased rental demand.

Over the last year, institutional investors (defined generally as investors buying 10 or more properties) have cut back, though not in all markets. They’ve generally shifted out of boom-bust hotspots like Phoenix and southern California into more stable areas in the Midwest and South.

So too, the discounts vary by city. The best deals tend to be found in places where the number of foreclosures remain relatively high and economies are struggling—Ohio, for example, and Rochester, N.Y. and Scranton, Pa. But they’re pretty juicy in some large metropolitan areas too, like 11% in Chicago, according to RealtyTrac data.

City Discount
New York City 10%
Los Angeles 2%
Chicago 11%
Philadelphia 10%
Houston 21%
Washington, D.C. 2%
Miami/Ft. Lauderdale 5%
Atlanta 9%
San Francisco/Oakland 2%
Detroit 18%
Riverside, Calif. 4%
Phoenix 5%
Seattle 8%
Minneapolis 7%
San Diego 3%
St. Louis 21%

The trend toward bigger discounts, notes Chris Clothier, co-owner of Memphis Invest, may reflect the quality of the foreclosures now on the market: The more renovation they require, the higher discount they need to offer to attract buyers.

Plus, he says, more banks are making repairs themselves before putting them on the market. Such nicer properties might not even be listed officially as foreclosures and therefore wouldn’t show up in the numbers, Clothier says. “They’d rather fix them up and sell them at a higher price than take the steep discount,” he says. “You might be buying a foreclosure and you don’t know it.”

It’s certainly true that the number of foreclosures on the market has declined significantly, to 9.2% of sales in April, according to RealtyTrac, though it really does depend on the area. Take California, says vice president Daren Blomquist. Foreclosures are way down in hot markets like San Diego and Los Angeles, but in inland California cities (Modesto and Stockton) the percentage of sales that are bank-owned top 20%.

“Distressed property may be more rare, but you’re also buying in a housing market that’s improving and growing,” so it’s not as risky, Blomquist says. “Arguably the best time to buy a distressed property is in a market more like the one we’re entering right now.”

More from Money: When Wall Street Becomes a Landlord

 

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