MONEY real estate

Retiring? Stay or Go, You’ve Got Moves to Make

Housing accounts for the biggest part of your costs in retirement. So spend wisely.

Once you start looking at retirement over a horizon of five years or so, it’s time to start thinking about how you’ll manage your biggest single asset: your home.Whether you intend to stay put or move to that lake cottage, keeping real estate costs under control is key to your security.

Those costs may be larger than you think. On average, housing makes up one-third of spending for those ages 54 to 74—the largest single category. More than half of Americans ages 55 to 64 are carrying mortgages, higher than in previous generations. “Paying mortgage debt into retirement reduces your lifetime wealth and limits your spending,” says Pam Villarreal, a senior fellow at the National Center for Policy Analysis.

Staying in your house, with your mortgage paid, doesn’t free you from making decisions. Few pre-­retirees think about adapting their homes for retirement living. “It’s hard for active people in their fifties or sixties to think about what they might want 15 years from now,” says Bonnie Sewell, a financial adviser in Leesburg, Va.  Should you end up not being able to get around easily, though, you’ll have fewer choices and less ability to make them. So take action now:

Moving? Don’t take your mortgage with you. Nearly 30% of boomers plan to relocate when they retire, according to a new AARP survey. Many of them are seeking to cut costs by moving to a lower-tax state. Carry a mortgage, however, and this strategy may not have a big impact on your cash flow, as a recent analysis by Villarreal found. Mortgage debt can easily erode the benefits of lower taxes. Run your own numbers at whynotmove.org.

Cash flow

Sure, if you’ve got plenty of cash, mortgage payments may not seem like an issue. But there’s security, and flexibility, in not carrying debt. “Many of my clients see having no mortgage payments as a way of freeing up cash for future health care costs,” says Philadelphia financial planner Cathy Seeber.

If you plan to stay, renovate now. By your late fifties, your kids are probably out of the house, and the tuition bills are behind you—or nearly so. Time to renovate? Use this opportunity to make a few additional changes that will let you stay in your home for the next couple of decades. “The last thing you want to do in your seventies or eighties is manage a major rehab in an emergency,” says Sewell.

If you have a house with stairs, make sure you can live on one floor if necessary, says Mary Jo Peterson, a design consultant in Brookfield, Conn.  That may mean expanding a powder room to a full bath. You can also add design touches that appeal to people of all ages—a sloped ­entrance-walk instead of steps is more convenient for moms with strollers and college students dragging suitcases, not just the elderly. Find more ideas at aarp.org/­livable-communities, and your family home can last for generations.

 

MONEY buying a home

Homes You Can Buy For $250,000 in … Portland, Nashville and Philadelphia

If your home shopping budget is around $250,000, here are some choice examples of what you’ll get for your money in three very different cities. Listings from Realtor.com.

MONEY buying a home

Did a Heartfelt Letter to the Seller Land You a Home (or Fall Flat)? Let Us Know!

Were you competing to buy a house, and wrote a letter to the seller to persuade them to pick your offer? MONEY wants to hear about it.

For a new project, MONEY is looking for people who tried to win a bidding war or multiple offer situation (and maybe saved money in the process) by telling the seller something about themselves and connecting on a personal level.

Whether your letter scored you the property or wasn’t enough to win over the seller, we’d love to speak with you. If you’d like to participate, email realestate@moneymail.com with your story and the letter you wrote (if you still have it).

We won’t use your story unless we speak with you first.

MONEY

30-year Mortgage Rates Flat This Week

Average mortgage rates edged up a hair to 4.14% with an average 0.5 points from last week’s 4.12%, according to Freddie Mac data. That’s up from 3.91% a year ago.

Related: Which Mortgage is Right for Me?

The rate on the average 15-year mortgage was 3.23% with 0.5 points, up from 3.03% a year ago. For adjustable-rate mortgages, the rate on a five-year ARM averaged 2.93% this week with a 0.4 point and a one-year ARM averaged 2.40% with a 0.4 point.

MortgageRates060514
Source: Freddie Mac survey.

 

 

MONEY Housing Market

The Most Underwater Homes — That Aren’t in CA, FL, AZ or NV

It's not just the states hit hardest by the housing bust where homes are underwater, though it may seem that way from the stats.

It’s no surprise that lots of homeowners in the states hit hardest by the collapse of housing prices – California, Florida, Arizona and Nevada – don’t yet have enough equity to pay off their mortgage. That’s despite the healthy increase in home prices.

See our story: Where Are the Most Underwater Homes

Nine of the top 10 most underwater cities (using the largest 170 metros) are in Florida, with Las Vegas rounding it out, according to research firm CoreLogic. Finally, we get to Flint, Mich.

So, here, just to mix it up a bit, we give you the most underwater cities that are NOT in what’s known among real estate geeks as CANFLAZ:

City % Underwater
Flint, Mich. 27.5%
Detroit 26.9%
Elgin, Ill. 24.4%
Toledo 24.1%
Cleveland 23.9%
Chicago 22.4%
Memphis 21.2%
Akron 21.2%
Cincinnati 20.8%
Lansing, Mich. 20.3%
Atlantic City 20.3%
Dayton 20.1%
Atlanta 19.5%
Lake County, Ill. 19.3%
Savannah 19.2%

Source: CoreLogic

MONEY Housing Market

Where Are The Most Underwater Homes? These 13 Cities

Fremont Street, Downtown Las Vegas
In Las Vegas, 32% of homes are underwater. Sounds bad, but a year ago the figure was 47%. Brian Jones—Las Vegas News Bureau

Homes without enough equity to pay off the mortgage continue to plague the market, especially in the cities hit hard by the bust (basically, anywhere in Florida). The good news: There's way fewer of them than a year ago.

Home prices rose enough to put another 300,000 homes above water in the first quarter, according to CoreLogic. Over the last year, in fact, prices have bounced back enough to put a significant dent in the percentage of homeowners who don’t have enough home equity to pay off their mortgages.

As of March 30, 12.7% of all homes with a mortgage were upside down, compared with 20% a year ago.

And if prices rise just another 5%, as the research firm predicts, a year from now that share of underwater homes will be closer to 10%.

Still, the financial stability of American homeowners remains stubbornly fragile, reflecting just how painful the housing crash was. In addition to the roughly 6.3 million homes in negative equity, an additional 10 million have less than 20% equity.

Homeowners in that “under-equitied” position are less equipped to sell or refinance, because of lender requirements. Homeowners looking to trade up, for example, often need the proceeds from the sale of their current home to make a 20% down payment on a new one. A 20% down payment not only secures the best interest rates, it eliminates the need for costly mortgage insurance.

Money 101: What Mortgage is Right For Me?

The depth of the underwater problem hurts potential buyers too, by keeping homes off the market amid general overall shortages of listings. First-timers are particularly impacted, because far more lower-priced homes are underwater than higher-end, according to Zillow research.

More: Why Underwater Homes are a First-Time Buyers’ Enemy No. 1

Where the water is deepest shouldn’t surprise: Nevada has the highest share of underwater properties (29.4%) followed by Florida (26.9%). After that comes Mississippi, Arizona and Illinois. Of the 25 largest regions, Tampa had the highest share at 29.5%. Still, that’s a nice improvement from 41% a year ago.

When looking at the largest 170, fellow Florida city Ocala takes the top spot with a remarkable 34.4% of homes in negative equity followed by Lakeland, Fla. (32.7%) and Las Vegas (31.8%).

The list below represents the highest percentage of underwater homes in cities with at least 200,000 mortgaged properties, according to CoreLogic.

UnderwaterCities
Source: CoreLogic
MONEY Rentals

How Your Home Can Bring In Some Cash This Summer

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In addition to beach and ski destinations, homes in rugged outdoor spots do well as vacation rentals, says HomeAway. Spaces Images—Getty Images/Blend Images RM

Ever considered turning your home into a vacation rental? Here's how to make your house pay for your time away. Plus:

AAA predicts this summer will be the strongest travel season in years, and all those vacationers will need a place to stay. Should your home (or second home) be one of them?

Turning your home into a short-term vacation rental could bring in some nice extra change to pay for your own vacation, or even help you pay off that second home: Rates on rental site HomeAway.com average $217 a night.

Before you decide, ask yourself these four questions:

Do people want to come to your city?

Certainly you’ll have the best luck if your home is in, or at least near, a top travel destination. Most of the cities seeing the biggest increases in traveler inquiries, according to HomeAway, are on the beach – places like Mexico Beach, FL and Lavallette, NJ.

No sand in sight near your home? The most important thing is being near your area’s main attractions, whatever those may be, says Jan Leasure, founder of Monterey Bay Property Management. You’ll just have to charge accordingly.

So, how much CAN I make?

Your price depends on the location, of course, and your home’s size and amenities. Search comparable listings on HomeAway and similar sites to determine how much you might fetch.

Then, expenses. There’s marketing: HomeAway and VRBO charge renters 10% of each booking or a flat annual fee of $349 to $999 (the more you pay, the higher your listing will rank in search results). FlipKey and Airbnb, which offer fewer services, charge 3% per booking.

You’ll also need to hire a housekeeper to clean up after guests. HomeAway suggests ballparking each session at $20 for each bedroom and bathroom.

The biggest cost may be your time: An average nine hours a week, according to a HomeAway survey. You may prefer to pay a property manager to help with booking and maintenance. These businesses generally charge anywhere from 10% to 50% of your nightly rate depending on the level of service they provide.

And don’t forget taxes. If you rent your home for two weeks or less, you won’t owe the government a cent. Longer, and you have to pony up the taxes — but you’ll be able to deduct certain expenses. How much you can deduct will depend on how often you stay there yourself. Learn the IRS rules. You also may have to pay local tourist taxes.

Is it legal?

Your county or city may not allow short-term rentals at all (New York City largely prohibits leasing property for fewer than 30 days) or might have specific requirements such as registration and tax collection. Even if the law allows it, your individual homeowners or condo association may not.

Check the rules with your zoning department and your association board. Ideally, consult a local real estate lawyer.

HomeAway offers a helpful guide. Other good resources are at Realtor.com and the Short Term Rental Advocacy Center.

How do I protect my home?

If you’ve decided you do want to try this, guard against vacationers trashing your place with a strong rental agreement, insurance and a security deposit. The security deposit— a few hundred to a few thousand dollars depending on the value of your home and length of stay—may save you the trouble of making an insurance claim if a rowdy vacationer acts up.

HomeAway offers a sample rental agreement. Consult a lawyer to ensure it complies with local laws and to lessen the chances you’ll be on the hook for any damage your guests cause.

A good agreement should cover liability for any necessary repairs or cleaning charges following your guest’s stay, rules on smoking and pets, and a liability waiver for pools and other hazards. Miami real estate lawyer Ben Solomon also suggests adding an occupancy limit so that nice young man doesn’t bring his entire fraternity along with him.

As for insurance, call your home’s insurer to let them know you’ll be renting out your home. Most insurance are “fairly accommodating” to occasional renters, says Jeanne Salvatore of trade group Insurance Information Institute. Make sure you’ve maxed out liability coverage on your homeowner’s policy, which offers protection in case of, for example, a guest’s injury. Consider an additional umbrella liability policy of at least $1 million, says Maryland real estate lawyer Harvey S. Jacobs.

 

MONEY buying a home

13 Rules for First-Time Home Buyers

Man and woman embracing in front of house with sold sign
Man and woman embracing in front of house with sold sign Paul Bradbury—Getty Images/OJO Images

Millenials stepping into the home buying arena for the first time grew up in an era of boom-and-bust, insane home price escalation and subprime lending. Here are today's new rules to follow.

Having witnessed the housing market’s wild ups and downs, Millennials may be wondering what new rules apply in this evolving real estate realm. Luckily, the ‘new rules’ can be discovered in the same tried-and-true traditional rules of home buying that were overlooked in years past.

Here are 13 rules for Millennials looking to buy (while avoiding a housing bubble burst):

  1. If you can’t afford it, don’t buy it.
  2. Don’t jump into a home purchase blindly. Do your research, learn about the area, get advice from others, and study all the available data.
  3. No more creative financing: buy properties with traditional 30- or 15-year fixed loans – and know what your mortgage payment will be each month for the entire mortgage term.
  4. Always put 20% down.
  5. Whatever the bank says you can afford, subtract 20%, and you’ll never be house poor.
  6. You’re not just buying a house, you’re buying a neighborhood.
  7. It’s harder to get a mortgage because qualifications are more stringent these days. Keep great financial records, and be patient throughout the process.
  8. Don’t expect the market to bail you out. That means no overpaying for a house you can’t really afford in hopes of market appreciation making up the difference.
  9. Less is more. A smaller, practical, easy-to-maintain house is the new, big, rambling mansion.
  10. Stay on top of your credit, and shoot for an excellent score (above 750).
  11. Plan to stay in your home at least 5 years. Think you’ll need to sell before then? Keep renting until you know you can stay put for a while.
  12. Budget for all the ongoing costs of home ownership – not just the monthly mortgage payment. Be sure you have the funds for property taxes, insurance, maintenance, upkeep, and even an emergency repair fund.
  13. If you are questioning your job security and your ability to get a new job quickly in the event of a layoff – don’t buy yet.

To a generation who saw risking everything and buying homes with zero down as the norm, these rules may seem new. But, as they say, everything that’s old eventually becomes new again. In this new era, Millennials simply need to look back to get ahead and buy safely, sanely, and securely in the current housing market.

More from Trulia:
9 Things to Look For When Touring An Open House
The Pros and Cons of Buying a Newly Built Home
The 10 Most Costly Home Selling Mistakes – & How To Avoid Them

Michael Corbett is Trulia‘s real estate and lifestyle expert. He hosts NBC’s EXTRA’s Mansions and Millionaires and has authored three books on real estate, including Before You Buy!

MONEY home improvement

Tackle These Projects Before Selling Your Home (And After Buying)

Home improvement projects that pay off for buyers and sellers, according to Porch.com.

That outdated powder room you never bothered to fix up? Well, that’s not going to fly with potential buyers. So it makes sense that general contractors were the most popular project home sellers took on before listing their home, according to a new report from home improvement firm Porch.

What if you just moved in? You were far more likely to hire a painter.

Whether they’re buying or selling, many homeowners turn to home improvement projects to boost property value or enhance curb appeal. Porch’s analysis of more than half a million projects by region show that many popular projects go hand-in-hand with practical considerations such as repairs and home inspections.

For sellers: The most popular home improvement hires are general contractors and handymen, followed by electricians, plumbers, and roofing professionals. The reason is simple: to avoid any issues during home inspections.

Top Projects Sellers“Have a professional remodeler walk around the house with you inside and out,” Paul Sullivan, chair of National Association of Home Builders (NAHB) Remodelers, recommended. It will “make the process much smoother.”

The work appears to pay off. Contractors provide, on average, 68% return on investment, according to Porch.

One surprise, Porch said: Not many sellers said they were hiring painters. A fresh coat of paint returns close to 100% of the money spent in boosted value, its report said. Sullivan cited one home in a Boston suburb which sold for $60,000 over the asking price within four days, which was “absolutely” due to improved presentation.

Sellers often wonder if they should make the investment in improvements solely to sell, says Tom O’Grady, of the National Association of the Remodeling Industry. They might be comfortable accepting a lower selling price rather than risk not getting their money back in the form of a higher sale price.Top Projects Buyers

Painting is one of the first things buyers tackle after moving in. That brings an average return on investment of 152%, Porch says. Other top projects included installation of new appliances such as dishwashers and refrigerators, roof repair, and home inspections.

Larger endeavors like renovating kitchens and bathrooms are common, Sullivan added, but both he and O’Grady advised against making drastic, costly changes immediately after moving in.

Instead, O’Grady said, small enhancements like crown molding, new tiles, and better light fixtures can dramatically change a room, making it more comfortable for new owners until it’s financially feasible to do a complete renovation.

“Live in the house for a month or two and get a feel for the place,” Sullivan said. “When you’ve lived in a house for 10 years, you know its shortcomings. But when it’s a new house, you only think you know.”

MONEY Investing

If You Live in Vegas, You Might Want to Buy More Bonds

140527_REA_LasVegas_1
Las Vegas' more volatile home prices suggest residents should invest their portfolios more conservatively, a new report says. Glenn Pinkerton—Las Vegas News Bureau

Where you live, and how much home equity you have, should impact how you invest for retirement, argue Morningstar experts.

The collapse of housing prices five years ago made a lot of people question whether owning a home was a good investment. But you probably never connected where you live with how you invest.

That’s a mistake, says David Blanchett, head of retirement research at Morningstar. Blanchett argues in a recent paper that investors’ strategy for building retirement wealth should look beyond typical portfolio considerations — stocks versus bonds, growth versus value — and take into account the health of your real estate market.

“Real estate is the largest physical asset most households have,” Blanchett says. And it can be an important financial asset: Home equity could be tapped to help fund retirement, or a paid-off home passed along to heirs.

But, as the housing bust taught us the hard way, a downturn in home prices can wipe out equity in a flash. Especially if you own a home in a market where prices are volatile, such as Las Vegas, Miami, or Washington D.C.

In that case, you might want to adjust your investment strategy, according to Morningstar. Here are some ways your housing situation could impact your investing style:

If you live in a one-company town: Invest more conservatively. A city dominated by one industry or one company leaves you vulnerable. “If that company went out of business, or had a significant layoff, lots of people might all want to move at the same time,” Blanchett says. Even if you don’t work for the company, you’re still exposed.

If you have a lot of equity in your home: Invest more aggressively. The more equity you have in your home, the less affected you are by pricing changes. For example, if you’ve just purchased your home with 10% down, a 10% decline in home prices would completely erase the value of your investment. That same decline for someone who has paid off the mortgage would represent a much less significant loss. “You can afford to take on more risk in other parts of your portfolio,” Blanchett says.

If you rent: Increase your allocation to REITs. Stashing a 5%-10% chunk of your portfolio in real estate investment trusts is a common diversification tactic. But owning a home also exposes you to real estate. If you have a lot of home equity, or live in a riskier market, you want to stay at the low end of that allocation. If you rent, on the other hand, you could put closer to 10% of your nest egg in REITs, Blanchett says.

 

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