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Mortgage rates for 30-year fixed mortgages fell over the past week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.14 percent, down from 4.20 percent at this same time last week.
The 30-year fixed mortgage rate plummeted on Wednesday from 4.24 percent to 4.12 percent, where rates have continued to hover into this week.
“Last week, rates dropped to their lowest levels in six weeks as investors shifted out of stocks and into safer assets, like U.S. Treasuries and mortgage-backed securities,” said Erin Lantz, vice president of mortgages at Zillow. “This week, there is a full slate of economic reports scheduled for release, with the potential to nudge rates up.”
Additionally, the 15-year fixed mortgage rate this morning was 3.15 percent, and for 5/1 ARMs, the rate was 2.80 percent.
By Natalie Wise
With our country’s fast pace of life and technology-saturated culture, reading can often take a back seat to work, schedules packed with extracurricular activities and social media. But a new report states that residents of some cities are more literate than others, engaging their reading skills more often.
The report determined that reading culture is defined by how residents use their reading skills, not by how their reading skills test. For instance, the percentage of adults with college degrees, newspaper circulation, use of library resources, and the number of bookstores are all important factors in determining how literate a city is.
The city most interested in reading is Washington, D.C., for the fourth year running. The city features a high level of educational attainment and tech-savvy readers who enjoy using mobile devices to read.
Second on the list is Seattle, which boasts the highest percentage of adults with college degrees (57.7 percent). Thirdly, residents of Minneapolis are avid readers in a city that boasts 41 libraries, a large newspaper circulation and a high concentration of bookstores.
Atlanta (No. 4) and Pittsburgh (No. 5) also have residents who display a high level of reading engagement. Denver (No. 6) boasts high numbers of both weekday and Sunday newspaper readers and their library system is top-notch and well-used.
St. Paul (No. 7), the capital of Minnesota, boasts a high concentration of book stores and is a particular boon for collectors of rare books (and lovers of the reading-and-writing patriarch of the city, Garrison Keillor of “A Prairie Home Companion” fame). Tech-savvy and educated Bostonians helped their city rank No. 8. St. Louis, at No. 9, features high-quality libraries and high magazine circulation numbers.
Last but not least, San Francisco is the No. 10 most literate city. The city ranks second in the number of adults with college degrees (53.6 percent).
By Randi Petrello
Pittsburgh has been named one of the most affordable major metropolitan markets in the world, according to a new report.
The annual Demographia International Housing Affordability Survey found that the most affordable markets among major metros were all in the United States. Pittsburgh led the list, followed by Detroit, Grand Rapids, Mich.; and Rochester, N.Y. Hong Kong is the least affordable, followed by Vancouver, San Francisco and Sydney.
Among the 360 metropolitan markets surveyed in nine countries, 95 were considered affordable, and 84 of those were in the United States. There were 122 moderately unaffordable markets, 67 seriously unaffordable markets and 76 seriously unaffordable markets.
The survey determined affordability using the “median multiple,” which is found by dividing the median house price by gross annual median household income.
Pittsburgh’s median multiple was 2.3. The survey found the median home price here to be $116,000, and the median household income was $51,400.
Josh Caldwell, president of the Pittsburgh Real Estate Investors Association, said that there are a lot of affordable options here and that it is still a buyers’ market.
“You can get a lot of house for a little money here,” Caldwell said.
The Zillow Home Value Index estimates home values in Pittsburgh at $87,000 up 10.7 percent year-over-year, as of January 31.
Also on the list was Kansas City, Mo., which ranked No. 12 on the major market list. Kansas City had a median multiple of 2.9. The median price for a house there was $162,300 and the median household income was $55,500.
As for affordability in other countries, Ireland had the most affordable housing, followed by the United States and Canada. The least affordable were China, Australia and New Zealand.
The survey found that the smallest houses were found in the most expensive market, Hong Kong, while the biggest houses were found in the United States.
By Randi Petrello
Homes are being flipped faster and for higher profits, according to a recent report.
RealtyTrac’s year-end and Q4 Home Flipping Report found that flips were up 16 percent in 2013. Flips accounted for 4.6 percent of all single-family home sales.
Flips raked in an average gross profit of $58,081 in 2013, up from $45,759 in 2012. The average gross profit in the fourth quarter was $62,761, up from $52,746 in the fourth quarter of 2012, according to the report.
In Pittsburgh, the average gross profit for a flip was $57,674, up from $38,475 the year before.
Josh Caldwell, president of the Pittsburgh Real Estate Investors Association, said there are a few different ways to flip houses.
“Some people go for low-end, very cheap houses,” Caldwell said in a written statement. “I like to work in the $200,000-plus areas of town. So there are opportunities all over town, but you have to search for them. The goal of a flip house is to find one with significant upside to it.”
Caldwell said he sees a lot of homes in the Pittsburgh area being flipped, but that not all flippers are doing the same thing.
In the Virginia Beach-Norfolk-Newport News area, the average gross profit in 2013 was $91,262, up from $88,581 in 2012. The number of homes flipping here was up 141 percent in 2013, compared to 2012.
The average time to complete a flip was 84 days in 2013, according to the report.
RealtyTrac created the top 15 markets for profitable flipping by narrowing the list to those metros with at least 100 flips in the third quarter and where flipping increased from the previous year, sorted by total gross profit. The report considers a flip as a home that is purchased and sold again within six months.
By Nora Tooher
If you’re looking for a bicycling challenge this spring, try pedaling in Pittsburgh.
Steel City has two of the steepest streets in the nation, according to a graphic listing the “Top 10 U.S. Steepest Streets,” compiled by Fixr for Urban Velo, a bicycling publication.
The steepest street in the country is Waipio Road in Honokaa, Hawaii, a muscle-busting road with a 45-degree incline, rising 800 feet from the historic Waipio Valley to the plateau above in just six-tenths of a mile. Only four-wheel drive vehicles are permitted on the road.
Pittsburgh, located 107 miles southeast of Cuyahoga Falls, is home, however, to the steepest public street in the country – Canton Avenue. With a 37 percent gradient, Canton Avenue is ranked the second-steepest street in the Guinness Book of World Records only because of a miscalculation, which gave that honor to Baldwin Street in New Zealand. It turns out that Baldwin Steep has a mere 35 percent gradient, not the 38 percent gradient originally calculated.
Another Pittsburgh thoroughfare, Dornbush Street, made the list, coming in at No. 8 with a 31.98 percent gradient.
Surprisingly, Los Angeles had four steep streets on the list: Eldred Street, 33 percent gradient; 28th Street between Gaffey and Peck, 33 percent; Baxter Street, 32 percent and Fargo Street, 32 percent.
San Francisco, known for its hills, has only two streets on the list, Nos. 9 and 10: 22nd Street between Church and Vicksburg, and Filbert Street – two of the steepest navigable streets in the Western Hemisphere, both with a 31.5 percent grade.
Spring Valley, Calif., was the other community to make the list, claiming the sixth spot with Maria Avenue, a street so hilly the list’s authors wondered if the planners who laid out the road had “ever even visited the site.”
For local bicyclists looking for a challenge closer to home, an article in the latest issue of Urban Velo says simply trying to ride a bike in downtown Cleveland is difficult: “Streets, even those cutting through the heart of downtown, are as much as six lanes wide with cars regularly traveling 10 miles per hour over posted speed limits. Cyclists are often left to figure it out for themselves among the pothole-laden asphalt, often without a bike lane to offer even some notion of protection.”
Critical Mass, a local bicycling advocacy group, however, has successfully organized a group bike ride in Cleveland on the last Friday of every month.
Mortgage rates for 30-year fixed mortgages fell last week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.20 percent, down from 4.25 percent at this same time last week.
The 30-year fixed mortgage rate peaked on Wednesday at 4.28 percent before falling to 4.20 percent over the weekend.
“Last week mortgage rates dipped after Friday’s job report which, while fairly strong, failed to meet the market’s expectations,” said Erin Lantz, vice president of mortgages at Zillow. “This week, we expect rates to remain about where they are now, and aren’t anticipating any market-moving surprises with the release of the FOMC’s (Federal Open Market Committee) minutes from the March meeting.”
Additionally, the 15-year fixed mortgage rate this morning was 3.17 percent and for 5/1 ARMs, the rate was 2.86 percent.
Mortgage rates for 30-year fixed mortgages fell last week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.25 percent, down from 4.27 percent at this same time last week.
The 30-year fixed mortgage rate peaked on Wednesday at 4.29 percent before falling to 4.20 percent, where rates hovered for the remainder of the week.
“Rates dropped last week, erasing most of the run-up triggered previously by the Fed’s surprisingly aggressive guidance on plans to increase the Federal Funds Rate,” said Erin Lantz, vice president of mortgages at Zillow. “We expect rates to remain fairly steady this week, not making any significant movements until after Friday’s jobs report.”
Additionally, the 15-year fixed mortgage rate this morning was 3.22 percent and for 5/1 ARMs, the rate was 2.77 percent.
Mortgage rates for 30-year fixed mortgages rose last week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.27 percent, up from 4.19 percent at this same time last week.
The 30-year fixed mortgage rate surged early last week, peaking at 4.33 percent on Thursday before dropping down near 4.28 percent, where rates hovered for the remainder of the week.
“Last week, rates surged after the Federal Reserve suggested it might increase the Federal Funds Rate sooner and more significantly than expected, surprising many market observers who look to this rate for guidance on where mortgage rates are headed,” said Erin Lantz, vice president of mortgages at Zillow. “This week, we expect rates will inch up further on the momentum of last week’s direction from the Fed and expectations of positive news from economic data scheduled for release.”
Additionally, the 15-year fixed mortgage rate this morning was 3.22 percent and for 5/1 ARMs, the rate was 2.87 percent.
Mortgage rates for 30-year fixed mortgages rose this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.21 percent, up from 4.11 percent at this same time last week.
The 30-year fixed mortgage rate steadily rose last week, peaking at 4.27 percent on Monday before dropping slightly to today’s rate.
“Rates rose on Monday to levels not seen since mid-January, as the situation in Ukraine appeared to improve and Friday’s jobs report beat expectations,” said Erin Lantz, director of mortgages at Zillow. “This week, we expect rates to remain fairly steady, unless the economic reports being released in the latter half of the week are strong enough to accelerate the gradual upward momentum we saw following last week’s jobs report.”
Additionally, the 15-year fixed mortgage rate this morning was 3.15 percent and for 5/1 ARMs, the rate was 2.74 percent.
By Nora Tooher
Thinking of retiring somewhere great – say, maybe Miami, Phoenix, Las Vegas or … Pittsburgh?
That’s right, Pittsburgh made Forbes magazine’s list of the “25 best places to retire in 2014.” And it’s the second year in a row it’s made the list.
For those who hadn’t considered Steel City as a potential retirement haven, the magazine notes that Pittsburgh offers a solid economy, a reasonable cost of living, a typical home price of $130,000, a large number of doctors per capita, and high ranks for volunteering, bicycling and walkability.
On the down side, Pittsburgh has a high crime rate and cold winters.
The majority of communities on Forbes’ list are in warm or moderate locales, but several other colder cities also made the cut, including Fargo, N.D., and Boise, Idaho.
Although weather was one of the factors considered, the main criteria was good retirement value, including the overall cost of living, home prices and the state’s tax climates for retirees.
The final list included communities in 16 states in all four continental time zones. Four states – Texas, Florida, South Carolina and Pennsylvania – have two or more listings.
State College, the home of Penn State, was the other Pennsylvania community on the list. Positives include a good economy, an average home price of $259,000, a low crime rate and a high walkability rate. The cost of living in State College, however, is 5 percent above the national average.
Other communities deemed ideal locales for retirement living – in alphabetical order – were: Abilene, Texas; Auburn, Ala.; Austin, Texas; Bellingham, Wash.; Blacksburg, Va.; Bluffton, S.C.; Boise, Idaho; Bowling Green, Ky.; Brevard, N.C.; Cape Coral, Fla.; Charleston, S.C.; Clemson, S.C.; Fargo, N.D.; Fredericksburg, Texas; Las Cruces, N.M.; Morgantown, W.Va.; Ogden, Utah; Oklahoma City, Okla.; Port St. Lucie, Fla.; and Salt Lake City.
No Ohio communities made the cut.
Mortgage rates for 30-year fixed mortgages fell this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.11 percent, down from 4.18 percent at this same time last week.
The 30-year fixed mortgage rate declined steadily last week, dropping to as low as 4.09 percent on Monday before rising slightly to today’s rate.
“Rates drifted downwards last week as geopolitical concerns emerged from the turmoil in Ukraine,” said Erin Lantz, director of mortgages at Zillow. “This week, while the jobs report on Friday is typically the dominant market catalyst, we expect rates will remain depressed while the situation in Ukraine remains unsettled.”
Additionally, the 15-year fixed mortgage rate this morning was 3.08 percent and for 5/1 ARMs, the rate was 2.69 percent.
Mortgage rates for 30-year fixed mortgages remained unchanged from last week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.18 percent, the same rate recorded last Tuesday.
The 30-year fixed mortgage rate remained stable for the week, hovering between 4.17 and 4.22 percent for the majority of the week.
“Rates were steady last week as uncertain economic data left markets with a fuzzy picture of the health of the economy,” said Erin Lantz, director of mortgages at Zillow. “This week, we expect the uncertainty to continue, leaving rates fairly flat.”
Additionally, the 15-year fixed mortgage rate this morning was 3.17 percent and for 5/1 ARMs, the rate was 2.75 percent.
By Randi Petrello
The majority of the healthiest housing markets are out west, according to a new report. However, Pittsburgh managed to make its way onto the top 10.
Zillow’s new Market Health Index is a scale to measure the current health of an area’s housing market relative to similar markets throughout the United States. The index uses 10 measures to calculate housing market health, including how long homes stay on the market, the number of foreclosures, sale prices, delinquencies, negative equity, as well as the financial health of homeowners.
The top 10 healthiest markets among large metro areas in October were San Jose, Calif.; San Francisco; Los Angeles; San Diego; Denver; Pittsburgh; Portland; New York; and Sacramento.
Pittsburgh earned a 7.4 on the scale for October, while San Jose earned a 9, meaning the region is healthier than 90 percent of all comparable markets tracked by Zillow.
“Pittsburgh is doing quite well, and we have a lot of things going for us that are helping,” said Josh Caldwell, president of the Pittsburgh Real Estate Investors Association. “The gas and oil industry is helping us by driving a lot of growth in the property market. A lot of educated people are coming to the area and they’re helping the economy, as well as the housing market.”
The home value index in Pittsburgh was $111,400 for the month of October, up 1.8 percent year over year. There was 1.1 home foreclosure per every 10,000 in the area.
“Because we don’t have those booms and busts here, it is nearly impossible to be underwater,” Caldwell said.
The index tracks more than 450 metropolitan areas, 900 counties and 10,900 ZIP codes.
As for the future of Pittsburgh’s housing market, Caldwell said he expects it to stay at a steady growth pace.
“Compared to other regions, I’m pretty rosy about our area,” Caldwell said.
Mortgage rates for 30-year fixed mortgages rose again this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.18 percent, up from 4.14 percent at this same time last week.
The 30-year fixed mortgage rate hovered between 4.17 and 4.21 percent for the majority of the week, spiking to 4.27 percent on Wednesday before dropping back down to 4.18 percent on Thursday.
“Last week, rates rose briefly when comments by Janet Yellen, the new Federal Reserve Chair, ended speculation that the Fed might delay the winding down of its stimulus program due to recent weak economic data,” said Erin Lantz, director of mortgages at Zillow. “During this holiday-shortened week with limited economic data scheduled for release, we expect rates will continue to follow the gradual upward path of the past two weeks.”
Additionally, the 15-year fixed mortgage rate this morning was 3.14 percent and for 5/1 ARMs, the rate was 2.71 percent.
Mortgage rates for 30-year fixed mortgages rose this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace 4.14 percent, up from 4.09 percent at this same time last week.
The 30-year fixed mortgage rate rose early last week before leveling off near 4.13 percent on Friday.
“Rates were essentially unchanged last week despite a weaker than expected jobs report,” said Erin Lantz, director of mortgages at Zillow. “Although this week marks Janet Yellen’s first congressional testimony as the new Federal Reserve Chair, we expect rates will remain fairly flat.”
Additionally, the 15-year fixed mortgage rate this morning was 3.13 percent and for 5/1 ARMs, the rate was 2.80 percent.
Mortgage rates for a 30-year fixed mortgage fell this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 4.09 percent, down from 4.18 percent at this same time last week.
The 30-year fixed mortgage rate steadily declined last week, dropping to as low as 4.07 percent on Monday before rising to the current rate this morning.
“Recent weakness in emerging markets helped push rates down last week to 10-week lows as investors turned toward more reliable assets like mortgage-backed securities,” said Erin Lantz, director of mortgages at Zillow. “If Friday’s jobs report is strong enough, it has the potential to pause a downward slide in rates and offset emerging market concerns.”
Additionally, the 15-year fixed mortgage rate this morning was 3.10 percent and for 5/1 ARMs, the rate was 2.72 percent.
By Randi Petrello
Pittsburgh may have its fair share of bars, but the women here know how to manage their alcohol intake.
A recent report from Sharecare, a health and wellness website, named Pittsburgh among the top 10 cities in America that drink the least, for women. The city was No. 6 on the list, which was topped by Minneapolis and accompanied by Boston; Milwaukee; Rochester, N.Y.; Buffalo, N.Y.; Providence, R.I.; New York; Philadelphia and Chicago.
The report said that drinking in moderation – no more than one drink a day for women and two drinks a day for men – could help lower your risk for heart disease.
Buffalo, N.Y., is the top city where men drink the least.
The heaviest drinkers in America can be found in several Tennessee cities, according to the list. Memphis was No. 1 for women, Knoxville was No. 4 for women and No. 1 for men, and Nashville came in at No. 10 for the men’s list.
The list was compiled using data from a sample of 250,000 RealAge Test respondents, which determines the biological age of one’s body based on health status and habits.
Another recent report from Infogroup Targeting Solutions found that Pittsburgh had the most bars per capita in the country. There are 11.8 bars per 10,000 people here.
Cris Hoel, an area lawyer, told the Pittsburgh Business Times that population loss is one major reason for Pittsburgh’s high number of bars per capita.
“At the time when liquor licenses were being doled out there were a lot more people around here,” Hoel said.
That report also found that Pittsburgh has second-highest amount of pizza places per capita. There are 9.9 pizza joints in the area per 10,000 people. There was no mention if Pittsburgh residents know how to manage their pizza intake, however.
By Randi Petrello
A Pittsburgh suburb has been named one of the best places for affordable homes, according to a recent report.
CNNMoney’s list named 25 towns where residents’ incomes go the furthest and homes cost less than $100,000 on average. Among those cities was Monroeville, Pa., located less than 15 miles from Pittsburgh, at No. 22.
The small town, with just 28,000 residents, was noted for its big city feel. The median home price there was $120,000, according to the report. Median family income, meanwhile, is $72,122.
The median sale price in Monroeville was $119,600, according to the most recent Zillow data. That’s up 3.8 percent from the year before.
Josh Caldwell, president of the Pittsburgh Real Estate Investors Association, said that, while it may not be the most affordable neighborhood in Pittsburgh, Monroeville is in reach for many homebuyers. Caldwell said he has seen quite a few deals in that area.
“One of the great things is that you can get a lot of house for a little money here,” Caldwell said about the Pittsburgh area.
Altamonte Springs, Fla., ranked No. 1 on the list. The median home price there is $67,000, and median family income is $63,642.
To compile the list, CNN Money used actual sales from county and municipal assessors’ offices. The list used cities with more than 100 home sales in 2012 and where population and job growth were increasing. No more than two towns within a state and no more than one place within a county could qualify to make the cut.
Also on the list was Largo, Md., which ranked No. 14. The small town is about 40 miles away from Baltimore and just 18 miles from Washington, D.C. The town was hit hard by the housing crisis, so there are many home bargains available.
The median home price there is $150,000 and median family income was $95,499. CNNMoney called the town a “suburban hotspot” for those looking to escape D.C. The city is the last stop on the Metro.
By Randi Petrello
The technology sector is once again the main driver for the economies in several metropolitan areas, according to a recent report.
The Milken Institute’s “Best-Performing Cities” ranked Austin, Texas, No. 1, thanks to its booming tech sector. The remaining top five included other tech cities: Provo, Utah; San Francisco; San Jose; and Salt Lake City.
The index ranked the country’s 200 largest metropolitan areas and 179 smaller metros based on job, wage and technology performance. The ranking does not use quality-of-life metrics, such as commute times or housing costs.
Pittsburgh ranked No. 31 on the list of best-performing large cities, up two spots from No. 33 the year before. The city ranked No. 26 for wage growth from 2010 to 2011.
Minoli Ratnatunga, economist at the Milken Institute and one of the report’s co-authors, said the Pittsburgh area has been performing well since the start of the recession. The downside, however, is that the city did not perform as well in the short term, as other metro areas that suffered during the recession are starting to pick back up.
The city is positioned well, with the Marcellus shale industry, engineering, health care and other industries, said Ratnatunga, who is a former Pittsburgh resident.
When it comes to Pittsburgh’s economy, job growth and wage growth are performing well compared to other cities, Ratnatunga said.
The list also highlighted how the U.S. energy sector is growing economies. Nine cities made it into the top 25 as a result of the shale oil and gas industries, including Houston; San Antonio; Corpus Christi, Texas; and Bakersfield, Calif.
Albuquerque, N.M., ranked No. 155 on the list, dropping seven spots from No. 148 the year before. The city was No. 197 for job growth from 2011 to 2012.
“No city stays at the top for a long time,” Ratnatunga said. “Pittsburgh should keep working at all the things that make an economy successful.”
Mortgage rates for 30-year fixed mortgages fell this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace 4.18 percent, down from 4.23 percent at this same time last week.
The 30-year fixed mortgage rate remained stable for the majority of the week, peaking on Wednesday at 4.26 percent before dropping to the current rate over the weekend.
“Last week, rates dipped abruptly after China’s lackluster manufacturing report triggered concerns about the health of the global economy,” said Erin Lantz, director of mortgages at Zillow. “This week, markets will look to Wednesday’s Fed announcement about unwinding its stimulus program and Thursday’s GDP numbers as indicators of whether the U.S. economy can continue to improve. Mortgage rates could be affected by either or both.”
Additionally, the 15-year fixed mortgage rate this morning was 3.18 percent and for 5/1 ARMs, the rate was 2.80 percent.
Q. What do you think about home warranty for rentals? Best regards. Azhar, San Diego, Calif.
A. I’m glad to see that you are a rental property owner now! I’ve been hearing more and more investors that use home warranties, which is quite a turnaround from a few years ago. I’ll note how these work and a few issues to consider.
A home warranty costs about $350-$500 per year. Many sellers provide a home warranty to a buyer at the sale in hopes that gives the seller a little extra protection in case an appliance or other item breaks. And some home warranty companies do a decent job servicing their policies, but some don’t do a good job. Home warranty companies, unfortunately, are some of the most complained about service providers for unsatisfactory service, but many have good experiences too. You just have to find the good ones!
The main issue to understand is that a home warranty doesn’t cover everything that could go wrong. Like any insurance policy, there are exclusions for some issues, plus there are items like pools or air conditioners that cost extra. Most policy buyers don’t read the policy and just assume, incorrectly, that everything is covered.
So if you are going to buy a policy, make sure you understand what is covered and what is not covered. Due to the relatively low cost, I don’t see any issues with buying a policy for a year and seeing what you experience if you need to make a service call and how good a job the company does on that call. Make sure to fill me in on your experience next year.
Q. We are doing a 1031 exchange and will soon be selling property for about $2,100,000. We want to buy some rentals and thought about Texas, but taxes are insane. So we are considering California. My question to you is do you think buying four to five ready-to-go rental properties is a good idea and where do you think we should be looking, since with the 1031 exchange we have limited time to identify properties. Josh B., North of Los Angeles
A. Make sure to get good legal, accounting and 1031 exchange advice months before you close escrow on what you are selling. Identifying a property within 45 days that you can actually get under contract and buy is very tough. If you are trying to buy five properties, that’s even tougher. You need the buyer of your property to work with you and agree to close escrow once you have all the replacement properties under contract and moving close to closing escrow. Otherwise, good luck completing the exchange.
Regarding buying rental properties, rentals are hard work. If you folks are older, you may not want to deal with rentals. Having a management company might help some, but might not help that much. So make sure you want to be landlords. Also, you should buy properties near where you live. If you have to travel long distances to service the property – even if you have a management company – this can be very disrupting to your life and you might find that the properties are more of a pain than they are worth.
Think it through and make sure the money you will save on taxes from the 1031 exchange is best placed in a relatively risky and high-maintenance asset like rental properties. If it doesn’t make sense, find a better investment choice – which might not be real estate. Good luck!
Leonard Baron, MBA, is America’s Real Estate Professor® and is a real estate investment columnist for Zillow. Find more of his answers to property questions at Mint.com. Email your questions to: Leonard@ProfessorBaron.com
Foreign Real Estate
Q. We are Canadians living in Switzerland and are looking for a long term investment, hopefully to keep indefinitely. Have you heard of some of the leaseback opportunities in France? Are there advantages to buying some kind of property in Switzerland? I thought maybe it would be a good investment as there is limited supply and restrictions on foreigners, but I suppose it could work in reverse if you do need to sell. Deborah G., Switzerland
A. Buying good real estate is tough enough without adding in property in a far away land, with different property rights and laws, and significant potential challenges and legal fees to resolve issues if something goes wrong.
I am not saying that you cannot make money on far away real estate. However, real estate seems to work out best for people who are in close contact with their tenants and the properties. This will help you more easily resolve issues when they occur; and they will occur. For this reason I suggest you stay near your home base in your property endeavors.
A leaseback real estate transaction could be a fair deal, but what if the party leasing back fails to pay you, damages the property or terminates the lease? These are all the same issues with normal rental properties, but sometimes people think they don’t apply when a fancy name like “leaseback” is added. Take my word for it, they do!
So if you do a leaseback in Switzerland, you still need to do the same careful and prudent due diligence, analysis, credit and legal checks and financials. Good luck.
Appreciation in Value in Beach Properties
Q. I know you are not a fan of prize properties due to negative cash flows and I fully understand that. However, don’t properties near the beach go up more in value than other properties, making their investment returns pretty good due to that added appreciation in value? Mary Sue H., Orange County, Calif.
A. Let’s say it was true that beach properties went up more in value over other properties. Could they just continue to go up indefinitely until those prize properties were tens of millions of dollars while other properties stagnated and values just increased at the rate of inflation? Probably not. It just wouldn’t be sustainable over time. At some point people would start avoiding the expensive properties while other people would chase the undervalued non-beach properties. And then prices would ease on the expensive ones and rise on the non-beach ones to an equilibrium of sorts.
Now, depending on where you look on the historical property price changes chart, sometimes beach properties did appreciate more. But sometimes non-beach properties would appreciate more. It’s all about how you slice the data.
Regardless, no one can predict the future on pricing, and even if you believe beach properties appreciated more in the past, that doesn’t mean they will in the future.
On the other hand, cash flows in the short term are pretty predictable. On a beach property you buy for $800,000, you’ll probably be negative on rental income minus expenses of $30,000 to $40,000 per year. Over 10 years, your property may appreciate, but you will have contributed another $300,000 in cash to cover the negative cash flows. And that’s just no way to invest.
Buy cash flow positive properties.
So, you are right. I don’t like negative cash flow prize properties. Buy the moderately priced boring ones that pay the bills and really add to your wealth!
Leonard Baron, MBA, is America’s Real Estate Professor® and is a real estate investment columnist for Zillow. Find more of his answers to property questions at Mint.com. Email your questions to: Leonard@ProfessorBaron.com
Buying Ski Chalet in Switzerland
Q. I have recently moved to Lausanne, Switzerland, and am interested in buying a ski chalet as a rental property and as an investment. Do you have any advice in this area? We are close to some of the best skiing and hiking in the world and feel there is some opportunity here. Thank you. Best regards, Deborah G., Switzerland
A. There are several issues I would caution you to consider.
1. First and foremost, will it be a good investment? This sounds like a prize property to me. And the problem with prize properties is that they generally have negative cash flows. Buying an investment property with negative cash flows is not a good idea in my opinion. Have you thought about whether or not you might do better with less hassle keeping your money in well-diversified financial assets?
To help determine if it will be a good investment, have you penciled out the rents and expenses on the property with conservatively estimated numbers? Will you be positive and earn a fair rate of return on the cash equity you invest?
This also sounds like it will be a short-term or vacation rental type of property. And unfortunately, those are some of the worst real estate investments. Management fees are very high because it is a ton of work. If you do manage it yourself, you’ll soon learn that it’s not much fun having to attend to guests once per week. Expenses you cover like utilities, insurance and furniture and fixtures are also very high and every issue is an emergency because your guests are only there a few days. The net effect is negative cash flows!
The better wealth-improving real estate assets are the nice, boring, moderately priced and cash-flow positive rental properties. And they’re almost never in fancy areas.
2. Will you own the chalet at least 5 years? In general, thanks to exorbitant transaction costs on the sale of real estate, the breakeven timeframe to make your first dime of profit is generally 5 years. If you are not 100 percent positive you will own it for that long – and 10 years is a better bet – you’re probably better off keeping your money out of real estate from a financial perspective.
3. Currency risk is the last issue. If you plan to move back to the United States (I’m assuming you are from the United States), you could lose all the money you make, if any, based on changes in currency. Of course you could double your money too, but don’t count on that! Speak to a financial advisor about this issue.
I hope this frank and hopefully straightforward guidance will be of assistance to you.
House With Cement Slab Foundation
Q. My wife and I are looking at a house that is 35 years old and built on a poured slab concrete foundation. Most of the slab is under carpets and laminate flooring. Some areas that are just concrete have small cracks in them. I’m concerned because of the potential for costly repairs due to this issue. What do buyers normally do regarding this issue? Albert O., Gardena, Calif.
A. Most people don’t do anything. But that isn’t a very prudent way to buy real estate! You should consult with a local concrete foundation repair company and have them do an inspection of the property. Soil conditions, lot slope, water run-off and other issues can impact the cracking of a floor slab.
Some cracking is normal and not a big issue. On a townhome I purchased years ago that had small cracks in the slab, I asked my home inspector how old he thought the cracks were. He joked that that cracks started to form 40 years ago when the concrete truck left the plant on its way to deliver the wet concrete poured into my slab! And he wasn’t joking.
All concrete forms cracks. The severity of the crack, the age of the crack (so how many years from when it was poured) and the likelihood of it expanding are what you need to know.
And a competent, local foundation slab consultant is the one to answer your questions. Good luck!
Leonard Baron, MBA, is America’s Real Estate Professor® and is a real estate investment columnist for Zillow. Find more of his answers to property questions at Mint.com. Email your questions to: Leonard@ProfessorBaron.com
Standard Tenant Rent to Income Percentage
Q. What is the percent of income plus debt that is customarily allotted by a tenant for rent and what percent should we as landlords accept to better ensure our tenants can pay the rent? Also, what is the best way to verify a prospective tenant’s income? Tim C., Oceanside, Calif.
A. Renters are often going to be up to 50 percent rent plus debt to income – sometimes more! Most are going to be spending all of their monthly income on rent, debts, utilities and food and will have very little to put into savings. If their rent to income levels were lower, they’d probably be buying a personal residence instead of renting.
So when you think through their overall debt level and what works for you to accept, you need to look at their entire income and payments, consider how long they've been at their job, how secure is their job, what their prior landlord has to say about their payment history and if they have any past accounts in collections. You must look at everything to help you form an opinion on their ability to pay rent.
A longer-term job and good rental history shows an ability and willingness to pay their rent. However, there are no easy answers on what credit factors you should accept for a tenant. No tenants have a perfect credit, income, job or rental history, so keep that in mind.
For income verification, ask for paystubs and call and confirm their employment. Good luck.
Condo Purchase Noise Nuisance
Q. I recently bought a condo in a high rise in Fort Lauderdale. Shortly after moving in, I noticed a constant annoying buzzing in every room except the master bedroom. There is a transformer room across the hall from my unit which is thought to be the reason for this problem. The condo board does not seem concerned about this as my unit is the only one affected by the problem. Is the board responsible for remedying this problem since the transformer is a common element of the building? The transformer is owned by Florida Power and Light, and I am told the building would be responsible for replacing the transformer. I fear that this buzzing problem will lessen the value of my unit. Ken L., Ft. Lauderdale, Fla.
A. I am sorry to hear about this issue. And unfortunately there may not be an easy answer for your situation. You’re going to need to talk to an attorney about specifics in your situation. But here are a few items to consider.
Is the noise a material issue to the sale of the property? Obviously you believe it is, but how loud is the noise emanating from that room? Would a typical person find it annoying? Or maybe are you a person very sensitive to noise, like me. The level of the noise might be an important issue. Anyone can claim noise is an issue, but the legal question would probably revolve around whether or not the noise would be disturbing to a reasonable person of normal sensibilities.
If it is a material issue, and the prior owner knew about the noise, he or she probably should have disclosed it to you in the purchase. If they didn’t, you might have a case against them. If it was a bank seller who never occupied the property, the bank probably did not know and obviously the bank staff couldn’t disclose it if they didn’t know. The condo HOA board is probably not legally responsible to disclose anything like this about one of their units even if they knew, which they probably do not. Talk to an attorney regarding past case law on this issue.
You should first try to work diplomatically with the condo board of directors. But you need to first do the hard work yourself to find some possible solutions. If you do that, maybe they’ll pay for it, or at least maybe might chip in some money to solve it. Most likely they will assist, as long as you’re helpful and reasonable.
I’d work with the utility company first to find out about noise reduction strategies they’ve certainly used before in other similar situations. Hopefully there is a good solution. Noise proofing might do the trick, but it might not. So figure out if there is an answer to the issue and the cost, and propose it to the BOD. Alert them that you want to be a happy homeowner and this could happen to anyone, including one of them, so hopefully they’ll be sympathetic and financially helpful. They have the power of the purse.
If you bought it from a party who didn’t know about the noise, and there isn’t a noise proofing solution, you may unfortunately be out of luck and it probably will diminish the value. Unfortunately, if you sold it, you would need to disclose it to the next buyer and obviously that would be an issue.
Hopefully you can find a solution and work out a financing plan to solve it. Good luck.
Evicting a Tenant
Q. I’m a rental property owner and have a tenant that keeps paying late and I’m getting a little frustrated and tired of it. I can terminate their lease, but I’m guessing if I do that I may have to evict them. What’s the typical process and cost? Leo T., San Bernardino, Calif.
A. Sorry to hear about this. I’ll throw some thoughts your way first.
One thing I’d like to know is other than paying late, are they good tenants, do they take care of your property, not annoy the neighbors? If yes, I’d give it another shot at trying to get them to pay on time. Have you talked to them about why they are late? Maybe they don’t get paid until the 8th of the month and you could adjust their rent due date if you felt that is appropriate.
If they are not good tenants for many reasons, maybe it’s time to part ways. Review the lease and make sure you stay within the terms of the lease and local laws on terminating the lease. Also, it’s always best to try to get them out on a good relationship basis rather than letting things deteriorate. Maybe you can work out some deal that works for everyone.
If you think you’re going to have to evict, and you believe they’ll fight it, it’s going to take 3-4 months and undoubtedly cost you $1,000-$2,000 in legal fees, plus lost rent which you’ll never get back from them, plus any property damage they could do. But talk to an attorney in your area about the costs. That’s a lot of money in addition to the stress and uncertainty you’ll experience with the eviction process and timeframe.
So, if you give them notice of ending the lease, and you think it’s going to be a brawl, you could always offer them some money to leave the house in a certain period of time and in good condition (cash for keys). Don’t give them the money until they are out of the property and make sure they agree to give you easy access to show the house to other prospective tenants during the period when they are still there.
Doing “cash for keys” may make you mad, since it’s your property and they should follow the lease, but it’s still probably the best way to get them out with the least hassle and the least cost to you. Good luck!
Mortgage Financing Getting More Expensive
Q. I hear that in 2014 it is going to be tougher to get mortgage financing, which will definitely drive interest rates up. What is your forecast? Mel R., Rye, N.Y.
A. Predicting the future is tough, especially in an economy that is still not operating on all four engines with a changing regulatory and political environment.
There are new rules on mortgage financing coming due with the Dodd-Frank Consumer Protection Act. This will reduce the number of people able to qualify for mortgages and reduce demand. Also, the Federal Reserve will most likely ease up on purchasing bonds which has artificially kept mortgage interest rates low for a few years. To add to that, mortgage loan guarantee fees have been going up at the Federal Housing Administration and are proposed to go up on Fannie and Freddie loans, although the new director of the group that regulates those loans may delay the higher fees.
Some of these issues will drop demand for financing, which should lower interest rates. Some of these will increase costs and fees on financing, which will effectively increase your borrowing costs.
In addition, if the economy starts to improve, investors in mortgage and other bonds will probably rotate their invested capital out of bonds and back into stock to earn higher yields. This will drive down prices of bonds, as demand for that secure asset lessens and drive up mortgage interest rates. We also have world instability, issues in China, Iran and Russia, the U.S. debt issue, and of course the demand and cost of oil. The United States could also fall back towards a recession, although that looks unlikely at this point, and let’s hope for all of us it keeps improving!
All of these above items may impact mortgage interest rates one way or another in 2014. But, no one knows for sure which way the interest rate ball will roll.
Right now mortgage rates are still at historic lows. That’s the best information we have. Good luck!.
Cancelling Private Mortgage Insurance
Q. I bought a property 6 years ago and have private mortgage insurance. It’s actually up in value and I’d like to get rid of this expense, but my mortgage lender has refused. Help! Allan M., Raleigh, N.C.
A. It used to be a huge fight with lenders to get them to cancel PMI. It still is tough most of the time. The Homeowners Protection Act of 1998 gave homeowners a lot more rights to help them cancel PMI. That being said, there are still many reasons a lender can refuse and make it difficult.
The first issue is that your property’s loan-to-value generally must be below 78-80 percent. And that could include any second mortgage or HELOC. You must also be up to date on your mortgage. The lender may also require you to have an appraisal done for about $400 and if it doesn’t appraise you’re out that money.
If your lender has refused, get them to give you a written explanation and review that against the Protection Act information. Search online for more details.
If you think they should allow you to cancel, and they won’t, you might want to contact the bank’s legal department as a start and give them a written letter as to why you believe they should let you cancel PMI. Hopefully that will solve the issue. If it doesn’t, and you’re not happy with their response because you feel your property is qualified, you may have to hire an attorney to pursue your case. Good luck.
Q. Many investors I know in the city are considering buying properties to rent as short-term rentals. I was wondering if you know if these can be good investments? Marge I., Washington, D.C.
A. Any property can be a good investment, but it’s unlikely a short-term rental is going to be one. There are several issues.
One issue is prices too high and net rents too low. In order to generate high rental income, you typically need to have a really good location. And with a really good location, comes a really high price and big mortgage.
So do the rents, less expenses, cover the mortgage and leave some cash left over is what you’d want to know. And the answer is probably not. Expenses on short-term rentals are like hotel expenses where 65-85 percent of revenue goes to operating expenses – a normal rental property’s expenses are typically half that amount. That leaves only 20-40 percent of the rental revenue to cover the mortgage, so you’re probably going to be negative on cash flows.
And any property with negative cash flows is probably not a very good investment, but talk to a financial advisor.
In addition to that, they are very management intensive. So management fees are very high 25-30 percent and if you want to self-manage, it’s a full time job. And you won’t have fun when every issue is an emergency!
Lastly, there are probably many new city rules and regulations coming on short-term rentals. Some HOAs ban them and some neighbors fight them.
I doubt the above sounds appealing to you. But talk to other investors for their guidance and opinions.
Paying Down a Mortgage Loan
Q. I recently inherited a fair amount of money and I’m considering paying down my home mortgage balance. I’m a little hesitant because the interest rate on the loan is only 3.75 percent and I just paid several thousand dollars a few years ago to get this low loan rate. What is your view? Marjorie F., Miami, Fla.
A. Strictly from a financial standpoint, it would probably be a mistake to pay down your mortgage balance. Your home mortgage interest may be tax deductible, depending on your tax picture, and if it is then your after tax interest rate may be as low as 2.5 percent to 3 percent. You should keep that loan outstanding as long as possible.
Depending on your situation, you should probably hold that money in a more liquid financial investment and earn some interest or dividends that could be at a higher interest rate than your mortgage, still within some pretty low risk assets. Talk to a financial advisor. Holding some cash on hand will help in the future in case you have an emergency, like a job loss or uninsured property or health issues.
The only alternative to this guidance is that if you are getting older and risk averse, it might make sense, especially for peace of mind, to reduce your monthly housing cost by paying down the mortgage.
Overall, it’s a personal choice, and hopefully this guidance gives you additional food for thought.
Real Estate Sales Professional Advising Client on HOAs
Q. I’ve read your articles before about HOAs and all the issues. I’d like to help my clients assess an HOA’s condition so they can make better decisions. There are so many things to consider. Which ones are the most important? Marvin M., Upland, Calif.
A. Unfortunately HOAs are filled with landmines and as an agent you need to be very cautious about advising your clients as to any issues with HOAs. You should concentrate on providing them an education on how HOAs work, what documents they can review to assess the community, plus make sure they know that they might need to and should consider hiring an HOA expert, lawyer, CPA or some professional who will be independent and unbiased in reviewing the documents.
Be very careful and make sure they understand the HOAs are very complicated entities and you are not an expert. They must understand that you can guide them in some of the more important issues, but ultimately they need to review all the information, finances and documents and come to their own conclusions and opinions about the community HOA and whether it is smart to buy into that community.
You also may want to talk to your broker. If you belong to a Realtor® association, ask their lawyer for more guidance on how you should discuss HOAs with your clients. Good luck.
Buy a Personal Residence or Rental Property First
Q. I am 29 years old and want to own real estate, both a home and rental property. Some people say I should buy the rental property first, so the income can help me qualify for a home. Some people say buy a home first. Do you have any thoughts? Jennifer L., Savannah, Ga.
A. If you want to own rental properties, and since you are young and mobile, the best way to get going is to buy a personal residence home that would make a good rental property, live there a few years, then rent it out when you move into your next home. That’s the best way to go, and here’s why:
So find a nice rental property that you’ll call your home for a couple of years, live there and then move to the next one. Repeat this exercise about 10 times in the next 30 years and you’ll be a happy retiree!
Insurance for Fire-Prone Area
Q. I am considering buying a house in southern California in an outer wilderness type area, and I understand that some insurance companies are balking at providing coverage to some properties due to fire risk. Is this correct and what can I do to work around this issue? Martha M., San Bernardino, Calif.
A. There’s no way around this issue. And you should really think this through. The reason insurance companies don’t like to provide coverage in wilderness areas is because there is a higher risk of loss to them. So if you buy a property in these areas, there is a higher risk of loss to you.
Many insurance carriers are dropping coverage to these areas. Even the ones that still provide coverage may drop it in the future or significantly raise premium prices. Other carriers are just increasing premium prices right now. So that is what you are faced with going forward if you purchase one of these properties.
There is an insurer of last resort in California, the California FAIR Plan Association. So for owners who cannot get insurance elsewhere, this quasi-state agency can help. But you will have to pay for the coverage.
With those facts you can make an informed decision. Good luck.
Title Insurance on Refinance
Q. I just received my closing statements from my refinance and it looks like I had to purchase another title insurance policy. I’m pretty sure I bought one when I purchased the property, why do I have to buy another? Michael L.; Arlington, Texas
A. Title insurance protects you, the buyer, for issues that could affect the title; that occurred before you purchased the property. These could be items like liens, ownership disputes and unpaid taxes. When you acquired the property, a policy was purchased protecting you. Many times the seller pays for this policy but it’s negotiable; and you bought a policy for the lender.
Yes, it seems foolish to purchase two policies covering the same thing, but you have no choice because your bank demands its own policy protection. Also, the policy you purchase for the bank is generally only for the mortgage amount, whereas the policy from the seller at closing is generally for the entire purchase price.
Now that you are refinancing, you get to buy a new policy for a new lender. Even if it is the same lender, you still get to buy a new policy. This new policy covers the period before you purchased the property, plus the time you’ve owned the property up until the date of refinancing, and any increased loan amount.
It used to be common – and may still be in some areas – that if you used the same title company there would be a discounted price on the policy. I haven’t found these recently, but definitely call up your original title company and see if they have a reduced price for a “bring down” policy that simply updates the original one.
Q. I’m ready to purchase a property and I’ve received a disclosure that there may be lead-based paint at the property. The seller says they don’t know, they’re just required to alert me that there may be lead-based paint. Is this a health issue? Martha C., Brooklyn, N.Y.
A. OK, first I’m not a doctor, so as to whether it is a health issue, you’d have to do your own research and speak to a medical professional and form your own opinion on this issue. I can give you the basics on the matter and hopefully that will assist.
Many studies show that heavy metals like lead may be hazardous to one’s health, particularly for infants whose brains are developing and who ingest it. Lead was a component in paint up until 1978. Before the 1960s some paint had much higher concentrations of lead. Federal law requires landlords and property sellers to disclose that lead may be present in the paint from homes built in 1978 or before.
It’s estimated that about 40 percent of homes in the United States were built before 1978 and have some lead-based paint. The most common issue seems to be found in older homes that have chipped paint because the property has not been maintained and infants eat the paint. Another potential issue is when homes are renovated and walls are demolished and release dust that contains lead-based paint and isn’t cleaned up before an infant inhabits the house. But in general, for the average house, the lead paint is probably sealed behind many layers of new paint during the past 35 years and probably poses little danger.
However, talk to your home inspector, do some research, consult a doctor or expert, or have the house tested for lead levels. Then you’ll know the facts so you can make the appropriate decision for your family.
Low HOA Reserves
Q. I just bought into a nice community of town homes, but in the community newsletter the board of directors has notified us that reserve funds are really low and we may need to dramatically up HOA fees to build our reserves. I don’t understand why this would happen and why I wasn’t notified of this issue before I purchased the property. Eleanor N., Virginia Beach, Va.
A. Most common-interest developments, or Homeowners Associations, have pretty low reserves these days due to a variety of issues. Low reserves mean that the community as a whole has not saved enough money over time to be able to fund – without special assessments or much higher fees – all of the anticipated capital repairs and replacements that will be needed over the next few years.
This could be due to reserve monies being used to pay for large unanticipated costs, or settling an uninsured claim, or delinquent and uncollectible HOA fees from owners in trouble. The most likely reason is that over time, the board, due to community members’ objections, has not raised HOA fees enough so that there is money left over each year to increase the amount of reserves the community holds in their investment accounts.
To fix this now, your board is doing the right thing and at this point saying it’s time to pay the piper; it’s time to start building these reserves so there are no one-time special assessments needed in the future.
As to being notified, each state has rules and laws on how this information needs to be disclosed to new buyers. My guess is that the community complied with the laws related to disclosures, and you as a buyer probably received this information when you were in escrow on your purchase. Unfortunately, most buyers do not take the time to review these documents.
Additionally, it’s a pretty challenging task to review and understand the issues, but hopefully this will be a warning to future buyers that it’s a vitally important task. So I’m sorry to hear about your situation, but I do appreciate your bringing up the issue to other readers’ attention.
Neighbor’s Shed on My Lot
Q. I’ve owned my home for years and just recently refinanced it. In doing the refinance, I found out that my neighbor’s old shed is about 2 feet over the lot line onto my lot. I’m not friendly or unfriendly with them, but I would like to redo my fence into the proper location. What are the rules? What do you suggest? James G., South Carolina
A. Many a dispute has been started and fought over lot line issues. This is why I always suggest that before an individual buys a property, they walk the lot, look at the plat or have a survey done and review the easements on the title to determine if there are any issues like your shed issue. It’s a lot easier to walk away from a purchase over these type issues than to resolve them after you own the property.
At this point, you’ve got a few options, but there are no guarantees.
The first plan of action should be to try and diplomatically work with your neighbor on a plan. You should use the plat or survey you have as evidence that the shed is on your lot. Your neighbor could agree and work with you, which would be best, or they could fight. If they’re a little edgy, maybe offer up some advantages like you’re going to put a nice new fence in between the houses. Or offer to help them move the shed, if possible. Always try the diplomatic route first.
If diplomacy doesn’t work, and many times it doesn’t, you may have a fight on your hands. You can drop the issue and back down if that’s best, or you can search out the local laws, talk to an attorney if needed, and come up with a course of action. Don’t take any drastic action, like removing part of their shed off your property, without the proper legal guidance. Unfortunately, it’s going to cost money either way, so make sure you’ve got a good idea on cost before you start a big fight.
Hopefully you’ll find an adequate resolution, and next time around you’ll know to review these items and resolve any issues before you close escrow. Good luck!
By Randi Petrello
A new report shows that home ownership became less affordable last year in every major city in the United States.
The second annual Home Affordability Study from Interest.com found that rising home prices and mortgage rates outpaced the increases in family incomes in each of the 25 largest metropolitan areas, including Pittsburgh.
Home prices rose 16 percent on average last year, while incomes rose just 3 percent.
Pittsburgh, which was among the most affordable, received a C-plus grade from the report. Median income here was $50,489, while the median home price was $140,000. Median property taxes were $2,428 and median homeowners insurance was $716. The report said that a grade of C means a median income family can afford a median-priced home there.
Atlanta was the most affordable, followed by Detroit, Minneapolis, St. Louis and Pittsburgh. Atlanta was the most affordable despite a 39 percent jump in the median home price, from $103,200 to $143,300.
The least affordable cities, meanwhile, were San Francisco, San Diego, New York, Miami and Los Angeles.
In Portland, which earned a C-minus on the failing grades list, the median income was $56,978, while the median home price was $264,200.
“The simple fact is that the very small improvement Americans have seen in their paychecks hasn’t kept pace with a jump in home prices and mortgage rates,” said Mike Sante, managing editor of Interest.com, about the report.
Sante said as a result, home ownership is largely out of reach of median-income households. In city after city, rising prices mean the house that a family with an average income can afford has shrunk.
To conduct the study, Interest.com looked at median home prices and incomes, average property taxes and insurance costs, and consumer debt and mortgage rates, and then determined how much a family making the median income could spend on a house.
The report stated that mortgage rates are up from last year but are still low, which contributed to the decline in home affordability.
Using an Individual Retirement Account to Buy Real Estate
Q. I have a pretty good sized IRA in mutual funds and I was wondering if I could use it to buy real estate. Mike S., Columbus, Ohio
A. The answer is yes, possibly. You can use an IRA and other retirement accounts to buy real estate. It’s called a self-directed IRA. It must be an investment property and generally you cannot have any personal use or gain from the property – your IRA gets all the gains. There are many restrictions and many financial issues related to using an IRA to buy real estate.
To get started, I’d suggest doing some research to learn about the rules and regulations. You’ll also need to set up an account with a self-directed IRA trustee or custodian, and they can steer you to the proper advisors to give you legal, tax, financial or due diligence guidance.
There are lots of items you should consider and I’ve outlined many of them in my article on the Zillow Blog titled “Using Your IRA to Buy Investment Properties.”
Take your time, do lots of research, confirm that it makes financial sense for you and save a little on your taxes by properly investing your IRA funds in real estate. Good luck!
Q. I’ve had a few people tell me it’s best to do short-term leases so that if the tenants do not work out you can terminate the lease and find better tenants. I don’t think it’s a good idea because of all the work involved in re-leasing the property. What are your thoughts? Eleanor M., Raleigh, N.C.
A. You are right. It is a lot of work to re-lease a property! The process requires advertising, showing the property, doing credit checks, employment and rental history verification, moving the old tenant out and moving the new one in. Yuck!
I always tell people to do the hard work upfront to get good tenants and work even harder to keep those tenants!
To get good tenants, one must put and keep their property in good shape, ask reasonable market rents, advertise adequately, respond quickly to all property inquiries, ask the right opened ended questions and select a decent tenant.
Then work hard to keep them in place. Fix items when they break, treat them with respect, keep a good working relationship with them and for good residents don’t increase the rent much, if at all.
The longer the tenants stay, the less turnover, the less hassle and the more money you should earn as a rental property investor.
By Randi Petrello
Could your home be making you sick?
A new report from the National Center for Healthy Housing ranks Pittsburgh No. 24 out of 45 metropolitan areas for the health and safety of its houses. The biggest problem in Pittsburgh was water leaks from the outside and signs of mice.
Nationwide, 40 percent of metropolitan homes have one or more health and safety hazards, the report stated.
The healthiest houses can be found in San Jose, Calif.; Indianapolis, Ind.; and Tampa-St. Petersburg-Clearwater, Fla. The least healthy houses, meanwhile, are in San Antonio, Texas; Birmingham, Ala.; and Memphis, Tenn.
Rebecca Morley, executive director of the National Center for Healthy Housing, said homeowners should take care of homes as they do their cars.
“We don’t have a 3,000-mile checkup for homes, but we should maintain them in the same way,” Morley said. “Think of these things seasonally.”
Morley suggests checking downspouts and heating in the fall, as well as getting a carbon monoxide detector as you prepare for colder months. In the spring, clean, do renovations and make repairs.
The report stated that Pittsburgh had fewer homes with internal water leaks, flush toilet breakdowns, incomplete plumbing, room heaters without a flue and foundation problems. Houses here could use some improvement, as the report found a higher incidence of broken plaster or peeling paint, sewage disposal breakdowns and siding problems.
The study measured healthy housing using 20 characteristics that relate to health, including incomplete plumbing and kitchen facilities; deficient electrical, heating or plumbing systems; ventilation and moisture problems; mice and other pests; among others.
Morley said improving the condition of the home could help with health problems such as asthma. About 40 percent of asthma is linked to allergens in the home such as dust mites, cockroaches, smoke and mice.
In Milwaukee, which ranked No. 12 out of 45, more homes had signs of mice, water leaks from outside, incomplete plumbing and heating equipment breakdowns.
Rent Property or Sell?
Q. I own a townhouse that I bought 20 years ago that now has $65,000 10-year loan on it. I am deciding if I want to sell it and pay down my mortgage on my newly purchased home or keep it as a rental. I could sell for $210,000. As a rental I should clear about $400 per month (will be $1,100 per month when paid off in 10 years) after all expenses. In the long term, the rent could be used as retirement income or to pay down my current home. Denise P., Gaithersburg, Md.
A. If you sold for $210,000 – less let’s say $15,000 for sales, escrow, clean up, and preparation for sale expenses and less $65,000 mortgage – that leaves you with $130,000. This is assuming you lived it the property for two of the past five years and will use the personal residence gain exclusion. Check with your tax advisor to confirm there are no taxes on the sale.
Let’s say you pay down your current home’s mortgage by $130,000. If the loan is at 4.5 percent, that saves you $487 per month in interest. Not bad.
Alternatively, the property as a rental – and rental properties are hard work and time consuming, unlike paying down your new mortgage which would be no work and not time consuming – would clear about $400 per month you note. But, you are also paying down the principal on your mortgage by about $430 per month. That’s really $830 per month in cash flow plus guaranteed equity build up! And in 10 years when your loan is paid off, that jumps (in today’s dollars) to $1,100 per month, or $13,000 per year – which is nothing to sneeze at!
Financially speaking, it seems like it might be better to keep it as a rental. But consider your tolerance for handling a rental property. Have you been a landlord before? Are you handy? Is the property in decent shape so it won’t need extraordinary repairs in the next 5 to10 years?
What about the financial condition of the HOA? Is the property within an hour or so from your current home, so it’s easier to manage? These are all things you should consider. You could also try being a landlord for a while and if it ends up not suiting your fancy you could then sell the property.
I’d suggest try being a landlord as that $13,000 per year down the road is pretty appealing. But you’ll have to work hard to get good tenants, keep them and treat them with respect. Hopefully by doing those things your landlord experience should be much less of a hassle and you’ll make more money. And if over time you find it doesn’t make sense to keep it as a rental, sell it!
Helping a Friend in Mortgage Trouble
Q. A friend is behind on their mortgage and wants to keep the property. I am considering helping them with money and taking an ownership interest in the property which does have some equity they’d lose if they lost the house. Any suggestions? Y.W., Torrance, Calif.
A. There are two things in real estate and in life that occur more often than not.
First, people behind on their mortgages usually lose their properties. And second, private investment partnerships, particularly when one partner is saving the other from financial distress, are rarely successful for the financially healthy partner.
I understand that it is a friend of yours, but the road of helping friends in distress is littered with ruined credit scores and lost friendships and money. If they are a lifelong friend, a family member or otherwise highly-valued friendship, that might cause one to consider helping. But you are putting your money on a pretty high-risk investment.
Alternatively, you might consider buying the property and taking title so you have complete control, subject to a written agreement between the parties. If there are profits above what you should earn for taking the risk, you could share them with the other party. Regardless, have a legal written agreement between all the parties so everyone knows the arrangement. Good luck.
By Randi Petrello
There’s a little bit of good news for asthma sufferers in the area: Pittsburgh has improved its performance on the annual “Asthma Capitals” list.
The list, from the Asthma and Allergy Foundation of America, ranked the largest 100 cities that are the “most challenging places to live with asthma.” The report looked at asthma prevalence, environmental risk factors, patient medical utilization, poverty rates, pollen counts, air pollution and several other factors to create the list.
Pittsburgh ranked No. 16 for 2013, an improvement from No. 4 the year before.
The city was worse than average for its asthma prevalence, annual pollen score, air quality and public smoke-free laws.
There are 22 million people in the United States with asthma, according to the report. It is one of the most common and one of the most costly diseases.
Rachel Filippini, executive director of Group Against Smog and Pollution, said particle pollution is a great concern, especially to those with asthma. The particulates come from coal-powered plants, factories, cars, wood burning and other sources, and can trigger asthma attacks, as well as heart attacks. People can breathe them in and don’t even know it, she said.
“More studies link exposure to particle pollution to adverse health effects,” Filippini said.
Residents can check the website AirNow for the daily air forecast, Filippini said. On “orange” days, when particle pollution is high, they should minimize exposure to air pollution. Athletes should use a gym on those days or shorten their exposure outside.
Every city in the country has a variety of risk factors, so escaping asthma is difficult, the AAFA stated. Seeing an asthma specialist can help those with asthma improve the way they manage the disease.
Richmond, Va., ranked No. 1 on the list, followed by Chattanooga, Tenn.; Memphis, Tenn.; Philadelphia; Oklahoma City; Detroit; Dayton, Ohio; McAllen, Texas; Atlanta; and Knoxville, Tenn.