MONEY real estate

Obama Cuts Mortgage Insurance Premiums to Help Low-Income Home Buyers

aerial view of subdivision
David Sucsy

The changes will save borrowers an average of nearly $1,000 a year.

The White House announced on Wednesday plans to reduce government mortgage insurance premiums in an effort to make homeownership more affordable for low-income buyers. President Obama is scheduled to talk about the policy in a speech Thursday in Phoenix, Arizona.

In the announcement, Housing and Urban Development Secretary Julián Castro said the Federal Housing Administration would slash insurance fees by more than a third, from 1.35% of the loan amount down to .85 percent. The FHA had a 30% share of the mortgage insurance market in the third quarter of 2014, according to Bloomberg.

Mortgage insurance, required of FHA borrowers, is meant to protect the lenders in case of default by allowing them to recoup some of their losses.

Over the next three years, the FHA projects the rate drop will allow 2 million borrowers to save an average of $900 a year when they purchase or refinance a home. The agency also estimates these savings will encourage 250,000 first-time buyers to enter the market.

The move marks a trend of recent policy changes meant to help low-income Americans get into the housing market. In December, mortgage providers Fannie Mae and Freddie Mac announced that certain first-time buyers could now qualify for a loan with a down payment of just 3 percent of the home’s value.

Taken together, today’s announcement and lower down payment requirements should make the housing market far friendlier for the economically disadvantaged. However, David Stevens, CEO of the Mortgage Bankers Association, told CNBC that the effect of the new policy may not spur an especially large increase in home buying.

“I think the marginal impact on sales will be small because potential buyers make the decision to purchase based on trigger events, such as a new job, marriage, kids, etc,” Stevens told the network. “Changes in affordability only impact how much home they can buy.”

While Democrats have been supportive of policies that aid low-income and new homebuyers, Republicans are concerned that lower insurance premiums could put the government at risk if borrowers once again default in large numbers. The FHA has previously required billions in taxpayer assistance, and while the agency is no longer losing money, its capital requirements will not meet the legal limit until 2016.

Find more answers to your home-buying questions in Money 101:
What mortgage is right for me?
How to I get the best rate on a mortgage?
What are the steps in a home purchase?

MONEY buying a home

Sound Advice for Home-Buyers…From a TV Detective

Telly Savalas of the TV series 'Kojak.'
Photoshot Telly Savalas in "Kojak."

The NYPD's legendary Theo Kojak has some wise words for a young couple ready to purchase their first home.

Terri and David came in for a meeting with me. They were expecting a baby and wanted to buy a house.

“I’m a contractor,” David said. “I do painting.” Terri was an attorney with a law firm. Together they made about $150,000.

They had their eye on a $500,000 house, and wanted to make a down payment of 5%, or $25,000. Their question for me: “How should we make the down payment?”

David, who had $30,000 stashed in a safe deposit box, wanted to use that cash for the down payment. Terri wasn’t quite sure that was a good idea. Terri hugged her chair nervously.

Their basic problem was becoming clear: David worked in a business that can be largely cash. Terri liked to follow rules. She wanted to know whether showing up at the closing with a pile of $100 bills would get them into trouble later.

It’s at times like this that you need to remember Telly Savalas. That’s right, the actor who played the detective Kojak in the 1970s TV series of that name. He was famous for sucking on a lollipop and saying, “Who loves ya, baby?

“You’re asking the wrong question,” I said to them.

I had their attention.

“What both of you should be worried about is that you can’t comfortably afford this house,” I said. “I don’t care where the down payment is currently located. Let me be clear: You’re buying too much house.”

“But the mortgage guy said that we could swing it,” said David. “I should be able to replace the cash in a year. I’ve calculated it all out and we can do it before the baby arrives.”

This is when we need Telly Savalas.

The answer to the question “Who loves ya baby?” is not “your mortgage broker” or “your realtor.”

This is a lesson I learned the hard way.

Before I started working as a financial planner, I didn’t know what I know today. I made a big mistake.

I bought a house I couldn’t afford. That’s not what I intended to do. It’s just that I was listening to the wrong people and not to Telly Savalas.

I focused on how much mortgage a bank would lend me. Here’s what my experience taught: The bankers don’t love me. They don’t give a rip about me. All they care about is making the most money for themselves. They got their money, but I was miserable.

I made the decision in a month or two and locked myself into the expenses for years to come.

In retrospect, this was predictable. A good rule of thumb is that a home is out of your price range if it costs more than two or two-and-a-half times your annual income. The house I bought was way over this range of affordability.

Housing costs soaked up my disposable income and made it tough to save. Living paycheck-to-paycheck, I couldn’t afford a decent vacation. When an emergency arose, I didn’t have adequate funds. So I felt the stress of both the emergency and scrambling to pay for the emergency.

All this stress was unnecessary.

If I did it right, I would have bought a condo that cost less than 2.5 times my annual income — say, $150,000 instead of the $200,000 I spent. And I would have saved up and made a 20% down payment, not the 10% payment I made.

Yes, the location wouldn’t have been as nice. And I wouldn’t have had an extra half-bath and an icemaker, both of which I enjoyed having — but which I didn’t really need.

Mortgage people and realtors will tell you there isn’t much of a difference. Let’s run some numbers, though: what I did, and what I should have done.

What I did What I should have done
Home price $200,000 $150,000
Down payment 20,000 30,000
Monthly mortgage and tax payments 1,400 860
Monthly assessment 140 110
Monthly utilities 95 75
Monthly maintenance 165 125
Total monthly cost $1,800 $1,170

Spending $1,170 a month on housing would have been fine. Spending $1,800 made me feel “house poor.” It wasn’t the mortgage. It was everything else.

My message to Terri and David: David, report your income. Then, Terri, it doesn’t matter if the money is stored in a savings account, safe deposit box, or plastic baggie in the basement freezer. Don’t worry about it. And for the question that you didn’t ask: When buying a house, remember who loves ya, baby!

———-

Bridget Sullivan Mermel helps clients throughout the country with her comprehensive fee-only financial planning firm based in Chicago. She’s the author of the upcoming book More Money, More Meaning. Both a certified public accountant and a certified financial planner, she specializes in helping clients lower their tax burden with tax-smart investing.

TIME real estate

New York City Apartment Prices at Pre-Crisis Highs

New York City's skyline.
Andrew Burton—Getty Images New York City's skyline.

For the final quarter of the year, the median sale price was $980,000, the highest since before the financial crisis

If you want to buy real estate in Manhattan, you better get ready to write a big fat check.

According to a report published today by DouglasElliman Real Estate, the average price for a condo or co-op in the borough for 2014 was $1,718,531, a 19% jump from the average transaction of $1,443,753 in 2013. The median sales price also went up, rising to $940,000 from $855,000.

For the final quarter of the year, the median sale price was $980,000, the highest since before the financial crisis.

Sale prices for luxury homes also went up. The average sale price for a luxury unit in the fourth quarter was $3,156,968, up 17.2% year-over-year.

The price increase was driven largely by limited availabilities and a “higher than average” demand, according to the report.

How does the data stack up against the rest of the country? Here are a few examples:

In Cleveland, the median home price for the fourth quarter was $87,500, according to Trulia. This means that for DouglasElliman’s median price in Manhattan, you could buy nearly 11 homes at the median price in Cleveland.

Trulia marks Chicago’s median home price at $224,500, so you could buy around four homes in the Windy City with the money you’d use for the median price in Manhattan, according to DouglasElliman.

Finally, there’s the case of Detroit, where Trulia lists the median home price as $39,000. That means if you spent the report’s Manhattan median in Motown, you could buy 24 houses.

This article originally appeared on Fortune.com

TIME

America’s Most Outrageously Expensive Places to Live

Courtesy: City of Palo Alto

Think your town is pricey? Think again

If you’re trying to pinch pennies, you might want to stay away from New York City, Bellevue, Wash., Scottsdale, Ariz., and, oh, just about anywhere in California. According to a new analysis of Americans’ spending patterns by Mint.com, the 10 cities in the country where people spend the most are much, much bigger drains on your wallet than the national average.

In the Golden State, it helps to be made of money: the Silicon Valley area is especially spend, with Palo Alto, Mountain View and Sunnyvale all on the top 10 (Palo Alto is number one), along with Fremont, Irvine and San Francisco and San Jose.

Mint’s analysis looks at the average transaction amounts rather than the volume, so bigger cities don’t necessarily take a bigger hit (that doesn’t seem to help the Big Apple, though). While the average transaction for Mint users nationwide is $171, that number soars to more than $345 in Palo Alto, almost $240 in New York City and more than $235 in San Francisco.

Perhaps unsurprisingly, housing and auto expenses are highest in New York City, and healthcare costs are highest on the West Coast, in the San Francisco-Oakland and San Jose areas, two cities that have the second-highest home and auto spending, as well.

Nationwide, the top merchant frequented by Mint users is Amazon.com, followed by Wal-Mart, McDonald’s, Target and Starbucks, respectively. And for anybody who thinks it’s literally impossible to walk into one of those big box stores for one thing and not spend a bundle, you’ve got plenty of company: The average Wal-Mart transaction is more than $53 and the average Target ticket is more than $55.

And we make a lot — a lot — of food purchases: The top three spending categories by the number of transactions were all food-related: groceries, fast food and restaurants, respectively.

If saving the most money possible is your top priority, don’t despair, though: Mint also dug up the cities where Americans spend the least. You might want to check out a handful of cities in the middle of the United States: Columbus, Ohio, Indianapolis, Ind. and two cities in Texas — Fort Worth and San Antonio — were among the five places where Mint users spent the least, along with Orlando.

 

TIME celebrities

Michelle Williams Has Sold the Home She Shared with Heath Ledger

Foundation Louis Vuitton Opening - Outside Arrivals
Pierre Suu—GC Images Michelle Williams attends the Foundation Louis Vuitton Opening at Foundation Louis Vuitton on October 20, 2014 in Boulogne-Billancourt, France.

The couple bought the house in 2005

Actress Michelle Williams sold the home in Brooklyn that she bought with the late Heath Ledger a decade ago.

Williams and their daughter are reportedly moving to Los Angeles for acting opportunities for the 34-year-old actor.

The home, a four-story, six-bedroom house, sold for $8.8 million, more than a million more than the asking price and more than double what she and Ledger, who died in 2008, paid for the home in 2005.

[Curbed]

MONEY home prices

What to Expect From the Housing Market in 2015

aerial view of subdivision
David Sucsy

Consumers think 2015 will be a better year than 2014, especially for selling a home. But the recovery faces an uphill climb.

What does 2015 have in store for the housing market? Nine years after the housing bubble peaked and three years after home prices bottomed, the boom and bust still cast a long shadow. None of the five measures we track in our Housing Barometer is back to normal yet, though three are getting close. The rebound effect drove the recovery after the bust but is now fading. Prices are no longer significantly undervalued and investor demand is falling. Ideally, strong economic and demographic fundamentals like job growth and household formation would take up the slack. But the virtuous cycle of gains in jobs and housing is relatively weak, and that will slow the recovery in 2015. All the same, consumers are optimistic, according to our survey of 2,008 American adults conducted November 6-10, 2014.

Consumers Expect 2015 to Be Better, Especially for Selling a Home

Consumers are as optimistic about the housing market as at any point since the recovery started. Nearly three-quarters — 74% — of respondents agreed that home ownership was part of achieving their personal American Dream, the same level as in our 2013 Q4 survey and slightly above the levels of the three previous years. For young adults, the dream has revived: 78% of 18-34 year-olds answered yes to our American Dream question, up from 73% in 2013 Q4 and a low of 65% in 2011 Q3.

AmericanDream

 

Furthermore, 93% of young renters plan to buy a home someday. That’s unchanged from 2012 Q4 despite rising home prices and worsening affordability.

Which real estate activities do consumers think will improve in 2015? All of them – but especially selling. Fully 36% said 2015 will be much or a little better than 2014 for selling a home. Just 16% said 2015 will be much or a little worse, a difference of 20 percentage points. The rest of the respondents said 2015 would be neither better nor worse, or weren’t sure. More consumers said 2015 will be better than 2014 for buying too. But the margin over those who said 2015 will be worse was not as wide.

BetterorWorse

 

Despite this optimism, barriers remain to homeownership. Saving for a down payment is still the highest hurdle, as it was last year, followed by poor credit and qualifying for a mortgage. Not having a stable job has become considerably less of an obstacle, dropping to 24% this year compared with 36% last year thanks to the recovering job market. But affordability has become a bigger obstacle. Some 32% of respondents cited rising home prices, compared with 22% last year.

BiggestObstacle

 

Housing Recovery in 2015: Rebound Effect to Fade Before Fundamentals Can Take Over

Different engines power each stage of the housing recovery. During the early years—roughly 2012 to 2014 – the rebound effect drove the recovery. Investors and other buyers scooped up undervalued homes and took advantage of foreclosures and short sales, boosting overall sales volumes. Local markets hit hardest in the housing bust posted the largest price rebounds. Now, though, the rebound effect is fading. Price levels and price changes are both approaching normal, foreclosure inventories are dwindling, and investors are pulling back. This is inevitable as the market improves and therefore shifts to slower, more sustainable price increases and a healthier mix of home sales.

So what replaces the rebound effect in the next stage of the housing recovery? The market increasingly depends on fundamentals such as job growth, rising incomes, and more household formation. But here’s the hitch: These fundamental drivers of supply and demand haven’t returned to full strength. They aren’t able to fully take the reins from the rebound effect. Importantly, the share of young adults with jobs is still less than halfway back to normal, many young adults are still living with their parents, and income growth is sluggish. This points to a tricky handoff, and means housing activity in 2015 might disappoint by some measures, though the rental market will remain vigorous.

Here’s what we expect:

  • Price gains slow, but affordability worsens. Price gains slowed in 2014 and we’ll see more of the same in 2015. In October 2014, prices increased4% year-over-year, down from 10.6% in October 2013. The slowdown has been especially sharp in metros that had a severe housing bust followed by a big rebound. Now, prices nationwide are just 3% undervalued relative to fundamentals. That leaves fewer bargains and scant room for prices to rise without becoming overvalued. What’s more, with consumers expecting 2015 to be a better year to sell than 2014, more homes should come onto the market, cooling prices further. Nevertheless, despite slowing price gains,home-buying affordability will worsen in 2015 for two reasons. First, even these smaller price increases will almost surely outpace income growth. In 2013, incomes rose just 1.8% year-over-year in nominal terms, and a negligible 0.3% after adjusting for inflation. Second, the strengthening economy and the Fed’s response should push up mortgage rates.
  • The rental market will keep burning bright. Next year will see strong rental demand and lots of new supply. The demand will come from young people leaving homes belonging to parents or roommates and renting their own places. Until now, they’ve been slow to leave the nest. But the 2014 job gains for 25-34 year-olds should lead to the rise in household formation we’ve been waiting years for. At the same time, the 2014 apartment construction boom will mean more supply in 2015 since multi-unit buildings take about a year to build. Will rent gains slow? Probably – provided that this new supply keeps up with formation of renter households. This surge of renters will probably cause the homeownership rate to fall. To be sure, the ranks of homeowners will probably rise. But an even larger number of young adults will enter the housing market as renters.
  • Single-family starts and new home sales could disappoint. While apartment construction is breaking records, single-family housing starts and new home sales are still not much better than half of normal levels. They’ll improve in 2015, but not as much as we’d like. Our consumer survey suggests more people will try to sell existing homes. That would add to the supply on the market and possibly reduce demand for new homes. Also, the strongest source of housing demand will be young people getting jobs and forming households. But they’ll be moving into rentals and saving for a down payment rather than buying homes right away. Finally, the vacancy rate for single-family homes is still near its recession high, which discourages new construction. The apartment construction boom shows that where there’s demand, builders will build. But buyer demand for single-family homes simply hasn’t recovered enough to support near-normal levels of single-family starts or new home sales.

If these predictions for 2015 sound similar to our predictions for 2014, you’re right. As the rebound effect fades and fundamentals take over, the recovery gets slower and the market starts to look more similar from one year to the next. But there’s good news here. Even though the recovery remains unfinished, the housing market is becoming more stable and more certain for buyers, sellers, and renters.

Markets to Watch in 2015

As the rebound effect fades, our 10 markets to watch have strong fundamentals for housing activity. These include solid job growth, which fuels housing demand, and a low vacancy rate, which spurs construction. We gave a few extra points to markets with a higher share of millennials. These young adults are getting back to work and that will drive household formation and rental demand. We didn’t include markets where prices looked at least 5% overvalued in our latest Bubble Watch report. Here are our markets to watch, in alphabetical order:

  1. Boston, MA
  2. Dallas, TX
  3. Fresno, CA
  4. Middlesex County, MA
  5. Nashville, TN
  6. New York, NY-NJ
  7. Raleigh, NC
  8. Salt Lake City, UT
  9. San Diego, CA
  10. Seattle, WA

MarketstoWatch1

 

These markets are spread across the country: Boston, Middlesex County (just west of Boston), and New York in the Northeast; Dallas, Nashville, and Raleigh in the South (the Census considers Texas part of the South); and Fresno, Salt Lake City, San Diego, and Seattle in the West. No Midwestern metros make the list because they generally have slower job growth and higher vacancy rates than other markets, even though many are quite affordable and prices are rebounding.

In 2015, more markets will settle back into their long-term housing patterns. Fast-growing markets that boomed last decade, collapsed in the bust, and then rebounded are now leveling off. Even the markets that have been slowest to recover and have struggled longest are seeing foreclosure inventories decline and the sales mix moving back toward normal.

At the same time, first-time homeownership, single-family starts, and new home sales won’t come close to fully recovering in 2015. But if 2015 brings strong job growth, big income gains, and the long-awaited jump in household formation, then 2016 could be the year when we see a major turnaround in homeownership and single-family construction.

MONEY 401(k)s

Here’s a Good Reason Not to Fund Your 401(k)

141226_RET_FUND401K
Getty Images/Tetra images

Don't get too caught up in the amount of money you're saving for retirement. Focus instead on the income you'll have.

We save for retirement so we can create income for ourselves when we stop receiving a paycheck. And as a financial planner, I am supposed to determine how much money clients need to sock away in order for them to generate enough income to sustain their lifestyle in retirement.

But if the income itself is the most important thing — not the amount of money you amass to create that income — why don’t we ever focus on building lifelong income streams outside of our investment portfolios?

A recent meeting with a client — I’ll call her Mary — sparked an interesting conversation on the subject.

The subject of the meeting was goal planning. We began by outlining SMART goals for the next year, five years, and beyond. Mary had a very specific goal for the next five years: She wanted to leave her current job and become a full-time real estate investor. Although quite interesting, this wasn’t necessarily a unique goal. Many people aspire to do this, yet they get caught up in concerns about retirement — and rightly so.

In order to truly go after this goal, Mary would have to cut back on her retirement savings. “Oh no,” says society. “How can she possibly reduce her 401(k) contributions? She’s in her early 30s and does not have anywhere near enough stowed away. Saving early and often is necessary to ensure that she can retire someday. Plus, tax deferral is too good to pass up!”

I disagree in this specific scenario. Mary happens to know a good deal about real estate. She may not be an expert investor yet, but she is working on it. It’s her dream to create a lifestyle funded by real estate activities, specifically rental income. Additionally, investment real estate can provide some great tax advantages.

However, in order for her to achieve this goal, she has to save for the next down payment on a second investment property (she currently has one such property). From the outside, this goal seems to stand in the way of saving for retirement. To achieve her five-year real estate investment goal at this stage in her life, she can’t fully fund her 401(k). She has to direct most of her savings toward future property purchases.

Let’s shift our point of view for a minute and look at this situation through a different lens. By buying rental properties, she is establishing a sustainable income stream — an alternate form of cash flow from which she can benefit now and in the future. As this rental income grows, her 401(k) and IRA balances become less relevant. The rent checks she receives monthly actually alleviate the burden of amassing a large amount of money for retirement. And she avoids the stress of watching stock market investments ride the economic roller coaster.

This approach is definitely not for most people, but it does raise an interesting question. What other income streams might we be able to establish that could supplement the income from our retirement portfolios? What can we create for ourselves that could take the place of pensions, Social Security, and even our 401(k) plans?

———-

Eric Roberge, CFP, is the founder of Beyond Your Hammock, where he works virtually with professionals in their 20s and 30s, helping them use money as a tool to live a life they love. Through personalized coaching, Eric helps clients organize their finances, set goals, and invest for the future.

Read next: 6 New Ideas That Could Help You Retire Better

Listen to the most important stories of the day.

MONEY best of 2014

5 Trends That Changed the Face of Real Estate in 2014

Lightbulb in doorway
MONEY (photo illustration)

Cheaper solar power (finally), what millennials really want in a home, and a better shot at a mortgage (for some).

Every year, there are innovators who come up with fresh solutions to nagging problems. Companies roll out new products or services, or improve on old ones. Researchers propose better theories to explain the world. Or stuff that’s been flying under the radar finally captivates a wide audience. For MONEY’s annual Best New Ideas list, our writers searched the world of money for the most compelling products, strategies, and insights of 2014. To make the list, these ideas—which cover the world of investing, retirement, health care, tech, college, and more—have to be more than novel. They have to help you save money, make money, or improve the way you spend it, like these five real estate trends.

Best Trend for Energy Efficiency

Thanks to better manufacturing methods, the cost of residential solar panels has fallen about 7% per year since 2000, says the Department of Energy. And that’s not the only thing making solar look like a brighter choice.

Better financing options: Low-interest, no-­money-down solar loans are now offered by lenders such as Admiral Bank, credit unions, and through major solar-panel sellers like SolarCity. (Energysage.com/solar lists the options.) David Feldman, senior financial analyst for the National Renewable Energy Laboratory, ran the numbers to compare loans to leasing, long the most popular way of going solar. He says a typical system, which might lease for $168 a month over 20 years, would cost $136 or less per month with a loan.

Chi Birmingham

Improved resale value: A study by Lawrence Berkeley National Laboratory found that homes with owned, not leased, solar panels could sell for almost $25,000 more than comparable non-solar homes.

Best Price Cut to Root For

Home prices rise, home prices fall, but the commission you pay to sell has barely budged from 5% or so. (That’s split between listing and buyer’s agents.) A few years ago it looked like new competitors might change the status quo, but the housing crash seemed to slow progress down. Now price-cutting may be picking up again: In October the brokerage Redfin cut its already low 1.5% fee to list a home to just 1% in the D.C. area. Let’s hope this move is a sign of more competition to come.

Best New Reason You May Finally Qualify for a Mortgage

That all-important three-digit score that determines how much you’ll pay to borrow money got an overhaul in 2014, which should mean a higher score for some consumers. Fair Isaac, which computes the most commonly used credit score, the FICO score, announced it would no longer ding borrowers who had a bill sent to collections if the balance was later paid or settled. Previously, even those paid accounts had remained a blemish for up to seven years.

The new formula will also give less weight to unpaid medical bills that end up in collections, in part because that can happen by accident when a patient believes the insurer covered the cost. More than one in five Americans will be contacted by a collection agency for medical bills this year, according to NerdWallet. If you have a single medical bill in collections, and no other blemishes, you can expect to see a 25-point jump in your score.

Best Tip for Advertising Your Home Sale

“One of the things younger buyers say is important to them is that the house has great cell coverage,” says Richard Davidson, CEO of Century 21 Real Estate.

Most Shocking True Confession

“I recently tried to refinance my mortgage, and I was unsuccessful in doing so … I’m not making that up,” said Ben Bernanke, former chair of the Federal Reserve, on how banks may be making it too hard to get a mortgage.

MONEY Debt

4 of the Weirdest Reasons People Have Gone Into Debt

Girl surrounded by stuffed animals
Maarten Wouters—Getty Images

These cautionary tales show how NOT to handle your finances.

For more than a decade, I’ve worked in the field of debt resolution, helping thousands of people overcome their debt issues. Most clients come to me in debt due to what I would call “typical” reasons for falling into debt. This includes loss of income or unexpected medical issues in the family, which become difficult to manage when there are bills to pay. However, sometimes we see some unusual situations that led to debt, which I call “doozies.” Here are some doozies that top the list.

1. The Child Spoiler Client

A few years ago, I had a client with a large amount of credit card debt. So as we usually do with clients, we discussed the reasons for the debt. He put his chin down, looked away and said, “Really, this is because of my child, she’s my only child and I just can’t say no.” These expenses included private school at 5 years old, and horseback riding lessons at almost $2,000 a month. The compulsiveness – or, really, obsession – with his only child had put him into debt. He was spending more money on her every month than his mortgage and car payments combined.

My Advice: Stop the horses! Overspending will put you in debt, whether for you or others. Learning to say no, instilling good spending habits and limits will keep you off that pony ride.

2. The Dream Wedding Client

A couple came to me shortly after their wedding. They said they had a lot of credit card debt, and had expected to be able to pay it off after the wedding. When they told me they had $75,000 of debt, I asked how the amount got to be so high. They said they felt that their wedding was important to them and they never budgeted the expenses and just assumed they would rely on gifts to pay off those expenses from the wedding. They told me that they didn’t expect some of their relatives to be so “cheap” with gifts and as a result they received less money than they expected. They then fell short on paying the bills.

Furthermore, falling behind on your payments will also hurt your credit score, which causes a number of issues, including making the cost of debt more expensive for you over time. (You can see how your debt is affecting your credit scores for free on Credit.com.)

My Advice: Take a tier off of the cake! Make a budget and stick to it. Never rely on future money to pay off bills.

3. The “Don’t Tell My Spouse I Have Debt” Client

I was a bit surprised when one client came to me and said, “My husband doesn’t know about this debt so you cannot call my house or send any paperwork there.” This scenario really isn’t that uncommon. One partner has debt and the other has no idea about the debt or if they do know, they don’t know how much is really owed. These clients have even given me lists of times we can call and alternate addresses to send paperwork to. For these clients, the trend to keep secret debt often starts early on in the relationship where one has a credit card outside the relationship and begins to spend and not tell the other. This infidelity continues until the one partner simply doesn’t have the funds anymore to pay the bills and they are forced to come to us to resolve it for them secretly.

My Advice: Avoid financial infidelity at all costs. Communication is a key element in any good relationship, and talking to your partner openly and honestly about finances is no exception and can actually keep you out of debt.

4. The House Flipper Client

A few years ago I had a steady stream of clients who came to me after they lost money in attempts to flip houses in places like Florida and Vegas. They told me that their friends made money doing this so they thought they’d try it, too. My flippers believed that they could purchase a cheap house in a short sale and invest in improvements and then sell the property for a profit. While this is a great idea if you’ve budgeted for time post-construction if the house doesn’t sell, it can jam you financially if you don’t have the money to pay the bills until the house is sold. Which is exactly what happened to them when the market fell out. They couldn’t sell the house in a short time and they were left with a house they couldn’t afford and mounting debt.

My Advice: There are lots of good ideas to make money, but before making any attempts, make sure you’ve done your homework and are prepared to handle the worst-case scenario.

Remember, maintaining good financial health can come down to good old-fashioned common sense. So many of these “doozies” could have been avoided had many of these people simply taken the time to stop, think about what they were doing, and focus on the reality of spending and budgeting.

More from Credit.com

This article originally appeared on Credit.com.

MONEY Investing

6 Ways Newbie Landlords Can Protect Against Bad Tenants

Hoarder apartment
Alamy

Skip the hassle of dealing with deadbeat renters by adding these steps to your screening process.

One of the main components of being a successful real estate investor is finding good, qualified renters for your properties. There are few things more frustrating and cash flow draining than a renter who is always late on paying their bills or worse, a renter who never makes their payments.

Here are six easy tips for you to follow to protect yourself against deadbeat renters.

1. Before you rent your property, come up with a “perfect renter” profile.

To do this, first list the main selling points of your house from a renter’s point of view. What does the perfect renter do for a living? Do they have children? What would be the renter’s interests? Once you have your avatar built, then you can actively start marketing your property to the perfect client.

For example, if the main selling point of your house its school district, then you might want to let the local PTA group of the grade school, middle school, and high school know that your house is on the rental market. You might also want to put up flyers of your house on the school’s community board.

2. Perform background checks.

This might seem like a very logical thing to do, but you would be surprised at how many landlords never ask the prospective tenant for a background check. The one I use is Tenant Background Search. This service provides me with an eviction report, FICA score, and nationwide criminal background report — and the best part is that it costs around $25 per report.

3. Have a real estate attorney provide you with all legal documents.

Don’t be cheap and buy your rental agreements off the internet at one of these do it yourself websites. Many of these agreements have loopholes that allow the renter too much wiggle room. As my father always told me, “Prepare for the worst, and hope for the best.”

Related: 6 Reasons Landlords Should Thank Their Tenants This Holiday Season

To prepare for the worse, you should go into the agreement with the understanding that you might have to take legal action against the renter — so wouldn’t you feel more at ease knowing that your attorney provided the legal agreement?

4. Be upfront and honest with the renters before they rent.

I have one rental property here in Orlando that has joust windows. Now, these windows give the house a lot of character, and it does give the house a lot of appeal; however, these windows are not air tight, and the electricity bill can be quite expensive, especially in the summer months. I have always been very upfront with all the renters, and I even put this warning in the contractual agreement.

What is interesting is that I have had only one person who decided not to rent the house because of this language, and not one renter in the past 8 years has tried to get out of the rental agreement early due to the high monthly upkeep. On the flip side, the house next door has the same joust windows, and that house always seems to have a “for rent” sign in the yard. As a landlord it is always the best practice to be fair and upfront when dealing with your tenants.

5. Include routine maintenance in the monthly rental amount.

I had to learn this the hard way by having to re-sod the front yard to one of my houses because the tenants never cut the grass, and the yard was overrun with weeds. There is nothing that will hurt the value of a house more than poor curb appeal.

Related: Rent Payment Plans Can Benefit Both Tenant & Landlord: Here’s Why

To protect your investment, include the upkeep of the yard, spraying of weeds, trash removal service, etc. in the monthly amount. This way, you can pay to have someone other than the renter provide these services, and you can make sure they are done properly.

6. Make sure the renters provide their own insurance.

It is always a good idea to put in the agreement that the renters must provide their own renter’s insurance. This way, if something unfortunate happens, it does not back up on you. I also think it is a good idea to have the rental property or properties set up in an LLC; this way, your personal assets are protected should something happen unexpectedly at your rental property. If your accountant tells you an LLC is not advantageous for you, then I would get a million or two million dollar umbrella policy for extra protection.

Being a landlord is really not that hard — just be careful and treat people fairly. Word of mouth is the best marketing, and people want to rent from good landlords.

Read more from The Bigger Pockets Blog:
7 Smart Tips for Getting the Most Out of a Property Inspection
Offering Rent Specials to Tenants Can Be a Costly Mistake: Here’s Why
11 Things Landlords Should Be Doing Every Year…But Probably Aren’t

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