Best markets to become a landlord

NEW YORK (CNNMoney) By Les Christie  @CNNMoney July 3, 2014

The rental market has been booming over the past several years, with many landlords earning double-digit returns of 10% or more.

And while rising home prices have dampened returns for landlords in some markets, other markets still offer plenty of profits, according to RealtyTrac which analyzed rental market conditions in 370 major U.S. counties, including median home prices, average rents and unemployment rates. 

Landlords in Anderson County, S.C., for example, who rent out a median priced three-bedroom home would average returns of 15.3% -- well above the national average of 10%, RealtyTrac found. That's because homes here are cheap at a median of less than $70,000, while rents average $900 a month.
Home to a university and several auto parts makers for BMW, Anderson is part of the Greeneville metro area and has a low 4.3% unemployment rate, meaning demand should continue to strengthen and help add to future profits.

Related: Buy vs. rent: What you'll pay in 10 big cities
Other areas that offer landlords more bang for their buck include Woodbury County, Iowa. Median home prices in the area, which includes the Sioux City metro area, were a low $84,250 while rents averaged $914 a month. That translates into a rental return of about 13% for landlords.
While low unemployment is one factor landlords should look for while assessing a market, RealtyTrac also suggested that investors take the demographics of an area into account as well, particularly when it comes to baby boomers and millennials.
"Many individuals in both of those demographic groups are in the midst of major life changes that will often involve changes in housing, something that smart real estate investors should take into consideration when deciding when and where to buy or sell," said Daren Blomquist, vice president at RealtyTrac. Markets where these populations are growing rapidly should produce strong returns for investors going forward, he said.

Related: Dream beach houses for sale
For boomers, who were born between 1945 and 1964, retirement-friendly markets in Florida are predictably hot, RealtyTrac found. Some local markets have seen their boomer populations grow by 20% or more since 2007.
The Tampa-St. Petersburg-Clearwater, Fla. metro area topped the list among markets where rentals to boomers are... well, booming.

Millennial markets, on the other hand, were scattered throughout the nation. RealtyTrac cited the Baltimore, Philadelphia, Jacksonville, Fla. and Atlanta metro areas as leading rental markets for this age group.
Several smaller markets are also good Millennial bets such as Fayetteville, N.C. and Virginia Beach/Newport News City, Va.

Which Makes Sense for You: Renting or Buying a Home?

Should you rent or should you buy? It’s a big question that nearly everyone faces at some point in life.


Take Nila Dulay and her husband, Erick. They owned a home in a beautiful gated community in Lakeland, FL, complete with a pool, tennis court and boat dock. But when the couple accepted jobs in the Seattle area in late 2012, they faced serious sticker shock: Seattle’s home value index is currently $465,300 – more than $300,000 above the values in Lakeland.
“The prices of homes were so much higher, we realized we wouldn’t get a nice home for the same money,” said Nila.
So, for $1,600 per month, plus utilities, the couple moved into a rental in Covington, WA, 25 miles south of Seattle. The situation wasn’t ideal, but it made short-term sense for twenty-somethings who just moved across the country.
Finances drove the Dulays’ decision to rent. But there are other factors to consider.

Reasons to rent

• Flexibility. Renting offers an easy way to test an area’s safety, amenities and ease of commute.
• Career uncertainty. If job stability is a concern, renting may be a better option since buying is typically a longer-term commitment.
• Smaller cash outlay. Renting usually requires first and last months’ rent and a security deposit. Buying requires tens of thousands of dollars down.
• Bad credit. Creating a history of on-time rental payments may raise your credit score and help you qualify for a mortgage that may better suit your needs.
• No maintenance. There’s typically no need to worry about repairs – just report the problem to the landlord.  Incidentals. Sometimes utilities such as water, sewage or garbage are included in the rent price. Plus, many rental complexes include their own pool and gym.

Reasons to buy

• Equity. This is the difference between the market value of your home and the amount still owed on the mortgage. As you make your mortgage payments and reduce the loan principal, you may increase your equity in your home.
• Tax deductions. You may be able to deduct mortgage interest as well as property taxes from your income taxes. Talk to your tax professional for more information.
• Creative control. Paint your walls bright orange if you want. Rentals rarely allow redecorating or remodeling.
• Maintenance choices. Do it yourself or call your own contractor. An exception is a condo or homeowners association, where you might have maintenance covered.

Figure out your ‘breakeven horizon’

Determining your “breakeven horizon” can help you to better understand the costs involved before you make your decision. This metric, introduced by Zillow, uses market-by-market data to determine the number of years it would take for buying a home to become more financially advantageous than renting the same home.
“Given how high rents are and how low home values are in many markets, buying may appear to make financial sense even if you’re only going to be there for a couple years,” says Svenja Gudell, director of economic research for Zillow. “But then you have to consider the emotional stress that goes along with buying a home, moving and adjusting to a new neighborhood. It’s not the sort of stress most people want to deal with every 2 years.”

So, should you rent or buy?

Whether it makes more sense to rent or buy a home is something only you can decide, based on your lifestyle, location and personal preferences.

July 2, 2014 | Zillow Blog | Author: Mary Boone

Millennials will soon be a Force to be Reckoned with in Housing Markets

18.4 million 20- and 30-somethings are living with their parents

The U.S. homeownership rate dropped for the ninth year in a row in 2013, thanks in no small part to the fact that millions of 20- and 30-somethings were still living with their parents, according to the latest “State of the Nation’s Housing” report from Harvard University’s Joint Center for Housing Studies.

The decline in homeownership rates from 2004 to 2013 was most dramatic among 25- to 34-year-olds (down nearly 8 percentage points) and 35- to 44-year-olds (down 9 percentage points). Some 15.3 million adults in their 20s and 3.1 million in their 30s were still living with their parents last year, helping bring the homeownership rate down to 65.1 percent.



Real median income for households aged 25 to 34 fell 11 percent from 2002 to 2012, to levels below those enjoyed by people in the same age group in 1972. Mounting debt is also an obstacle to homeownership, with 39 percent of households in the 25-34 age group reporting student loan debt in 2010, up from 26 percent in 2001.

While rising interest rates, inventory shortages and dwindling investor purchases have all weighed on home sales, “fundamentally … the slow pace of the single-family housing recovery reflects steady but unspectacular job growth,” the report said.

The good news is that household formation should rebound to historical levels in the decade ahead, with demographic forces alone creating 1.1 million to 1.3 million new households a year from 2015-2025, up from 600,000 to 800,000 a year from 2007-2013.

The total number of households in their 30s is expected to increase by 2.7 million during the next 10 years, and millennials should soon be making their presence felt in the owner-occupied market, just as they have in rentals, where rents are up and property values posted double-digit gains for the fourth year in a row in 2013, said Daniel McCue, research manager of the Joint Center, in a statement.

Minorities are expected to drive 76 percent of net household growth, but despite their growing presence in the market, still have a hard time obtaining financing, the report noted. In 2011-12, lending to Hispanics was up just 7 percent and 5 percent among blacks, compared with 15 percent or more in the volume of loans extended to white, Asian and other borrowers.

Qualifying for mortgage loans is still a challenge for those with lower credit scores, with the average score for mortgage purchased by Fannie Mae rising from 694 in 2007 to 751 in 2013, and from 640 to 693 for FHA loans during the same time period.

“While some lenders have announced that they are ready to relax underwriting standards, it is too soon to tell how large an impact this will have,” the report said. “An easing of credit constraints will be one of the most important determinants of how strongly the national homeownership rate rebounds in the coming years.”

Inman News, Paul Hagey, July 2014

Pending home sales surge on growing inventory, lower mortgage rates

The number of homes that went under contract in May leaped from the previous month as lower mortgage rates and growing home inventory stimulated buyer activity, according to a report from the National Association of Realtors.
Pending home sales — an indicator based on contract signings that anticipates home sales — jumped 6.1 percent month over month in May, but were down 5.2 percent from the same time last year.

Growth in real estate image via Shutterstock.

 

“Sales should exceed an annual pace of 5 million homes in some of the upcoming months behind favorable mortgage rates, more inventory and improved job creation,” said NAR Chief Economist Lawrence Yun in a statement.
“However, second-half sales growth won’t be enough to compensate for the sluggish first quarter and will likely fall below last year’s total.”
All four regions of the country posted increases in pending sales, with the Northeast and West showing the largest gains, according to NAR.
The jump in pending sales provides the latest evidence that the housing market may have shrugged off a recent slump.

One tailwind has been growing inventory, which increased 2.2 percent month over month in May as existing-home sales jumped 4.9 percent. Another is lower mortgage rates. Rates on 30-year fixed-rate mortgages recently posted their first annual decline in more than a year, according to Freddie Mac.
Despite the improvement, Yun said that the outlook for first-time homebuyers remains gloomy. Constrained by tight credit and declining affordability, purchases made by the group accounted for 27 percent of existing-home sales in May, Yun said. Historically they’ve comprised about 40 percent.
“The flourishing stock market the last few years has propelled sales in the higher price brackets, while sales for homes under $250,000 are 10 percent behind last year’s pace,” Yun said. “Meanwhile, apartment rents are expected to rise 8 percent cumulatively over the next two years because of tight availability.”

Inman News; Teke Wiggin; June 30, 2014

5 Front Yard Landscaping Tips That Will Wow Buyers

*Article from Realty Times: by Andrea Davis, HomeAdvisor on Thursday, 12 June 2014*

Your front yard is the red carpet inviting buyers into the beauty that is your home. If it's rugged, messy and unkempt, buyers will take one look and then keep on driving to the next property on their list. Don't let that happen by making your front yard luscious and as amazing as the inside of your home.
What areas should you focus on in your front yard? Where do you start? To help you break down the revitalization of your front yard, here are the steps you should take:

1. Cut the grass.
Buyers don't want to trudge through high grass as though they were in the Amazon or on a safari in Africa. This means the lawn mower needs to be out at least once a week if not every other week, keeping it trimmed and maintained. It also needs to be green so it looks alive and lush. Water so the sun doesn't dry out the lawn and turn it yellow or brown. A professional landscaper can help maintain a balance of trimming and growth so it looks just right for buyers.

2. Plant more shade trees.
One or two trees in the front yard are all right, but if you want to really add some shade, plant more. Shade trees will detract from the glare of the sun, and it can help decrease the temperature of the house if they're placed close to windows. It also will help keep the lawn green with moisture. You can plant trees that are shorter and will grow by the time the new owner buys the home, but be sure they're strong and can handle the climate.

3. Install outdoor lighting.
Outdoor lighting is a good way to both illuminate the house at night and accent parts of your yard. Depending on where you install the lights, your house will look very appealing at night to those buyers who might not have time to do their shopping during the day. Outdoor lighting also helps to illuminate a path like a sidewalk to get from the curb to your front door for easier navigation. It helps to accent the beauty of your landscaping which all together increases the beauty of your home.

4. Consider adding flowers for more color.
If your front yard has a lot of greenery, you should increase the yard appeal by adding more colors. Flowers are a great and simple way to do this, as well as shrubbery with different blooms. Perennials are the best for this because they last for more than a year, which means less maintenance for the seller and the new homeowner. They come in a wide variety of colors and types so the yard can be decorated with any number of them while still requiring less maintenance.

5. Keep everything clean!
In addition to keeping the lawn trimmed, everything else should be clean. Anywhere that can build up dirt or grime - siding, porch, front door, driveway - should be cleaned on a regular basis. Buyers don't want to see a lot of dirt and mess, and it will detract from them wanting to walk into the house. So take a broom, a power washer and a few hours on the weekend to keep everything sparkling clean. Don't have a power washer? A professional power washing service can cost as little as $293.

Do Your Finances Meet the 28/36 Rule?

If you're considering buying a home, especially as a first-time buyer, it's important to take a close look at your finances before you start shopping.

Start with the 28/36 rule. Many lenders use it to determine credit eligibility.

The "28" refers to the percentage of your gross monthly household income that should be allocated for housing costs each month, including principal, interest, taxes and insurance. The "36" represents the total debt that you carry. It shouldn't exceed 36 percent of your total income.

As long as your monthly debt – like car, student loan and credit card payments – doesn't exceed the 36 percent, you're probably in good shape to qualify for the loan amount that meets your "28" calculation.

There's a sample 28/36 calculation in the RE/MAX Home Buying Guide. Check it out. The guide is a great reference.

*Article from the RE/MAX Housing Blog*

How much longer will mortgage rates stay low?

Here is an interesting article from Yahoo! Homes about the longevity of low mortgage rates:

By Terence Loose                           

             

Do you hear talk of "historically low interest rates" and "best time to refinance in decades" but aren't sure how to put it all into perspective?

Fortunately, we did a little research and summarized what you need to know about today's mortgage rates, and more importantly, how these low rates affect refinancing or buying a home.

So read on for some facts on what to expect with rates in the future, what it means for today's real estate market, and a look-back on where rates have been in the past.

What the Future Holds for Interest Rates

If you're like most people, you probably look forward more than back. So you're likely wondering what the future holds in terms of interest rates.

As of February 28, 2013, interest rates for a 30-year fixed-rate mortgage were at 3.51 percent, according to Freddie Mac. The lowest they've hit historically was 3.38 in December 2012. So we can say that a rate of 3.51 percent isn't so shabby.

Wondering why are the rates so low nowadays? Duffy says that recent moves by the Federal Reserve have held interest rates in check. The government has been artificially suppressing interest rates by essentially buying mortgage loans from the banks - thereby freeing up more money for lenders to then give to borrowers. However, he says government involvement will not last forever, and the rates will start to climb.
In fact, Duffy predicts that "[For] most of 2013, we'll see relatively low interest rates. Maybe not as low as we have today, but certainly in the four percent range, give or take a quarter point."
To see how Duffy's predictions measure up against other rate forecasts out there, we checked the mortgage interest rate projections made by the Mortgage Bankers Association (MBA), the national organization representing the real estate finance industry. And their predictions size up to Duffy's.
According to the MBA, by the end of 2013, the interest rate on a 30-year fixed mortgage will be at 4.4 percent. And by the end of 2014, they see the rate at 4.6 percent.
That doesn't sound like much, you might say, but if you're financing hundreds of thousands of dollars over 30 years, that interest can really add up. For instance, on a $400,000 fixed-rate mortgage, a mere two-tenths of a percent (the difference between an interest rate of 4.0 and 4.2 percent, for example) costs you an extra $16,400 over the life of the loan.
[Thinking about refinancing to a lower interest rate? Click to compare rates from lenders now.]

The Effect of Low Interest Rates

With rates at all-time lows, Duffy says there has been an increase in refinancing and home buying.
"There has been a lot of refinancing. In fact, I've had a few clients who have refinanced a couple times over. When rates went from the fives to the fours, they refinanced, and when rates went from the fours to the low threes they refinanced again. It's making their cost of homeownership that much lower," says Duffy.
What's more, the National Association of Realtors' Housing Affordability Index hit an all-time high in the first quarter of 2012, which means that home ownership was at its most affordable since they began the index in 1970. The index is a number based on the relationship between median family income, median home price, and the average mortgage interest rate.
 "In addition to a lot of refinancing, I'm seeing an uptick in new homebuyers. I think the confidence is coming back for buying homes. And based on the index number alone, it's a great time to buy," Duffy says.

A Historical Look at Interest Rates

So we now know that interest rates are still at historical lows. But haven't they been that way for a long time? Not really. Consider the fact that the average interest rate on a 30-year fixed-rate mortgage just two years ago - for the month of January 2011 - was 5.005 percent, according to Informa, a leading financial industry information provider.

For the same loan in October of 1981, the average interest rate was 18.45 percent, according to information from the Federal Reserve System, which oversees national monetary policy.
No, that was not a typo: 18.45 percent. So how does today's 3.5 percent rate look now?
"These rates right now are just phenomenal. I mean who would ever think you could get a 15-year rate in the high two's or a 30-year rate in the three's? When I first bought my house in 1979 it was 16.75 percent," says Don Frommeyer, president of the National Association of Mortgage Brokers (NAMB), the nation's sole trade organization of mortgage professionals.
As you can see, interest rates have definitely shifted throughout the years.

So, just for fun, let's evaluate the difference between the cost of borrowing money today, opposed to in 1981, shall we? We'll compare a 30-year, $300,000 fixed-rate mortgage with a 1981 rate of 18.45 percent to one with a February 2013 rate of 3.51.*

	1981 Mortgage	2013 Mortgage
Loan Amount:	$300,000	$300,000
Interest Rate:	18.45 percent	3.51 percent
Monthly Payment:	$4,631.56	$1,348.81
Interest Over Life of Loan:	$1,367,362.81	$185,571.33

Again, those are not typos. The interest on a $300,000 mortgage in 1981 would be over one million dollars - in fact, $1,181,791.48 more than today's loan. And the monthly payment? Almost four times as much. Makes you wonder why we didn't all just live in caves back then.

*According to the "Weekly Primary Mortgage Market Survey®" by Freddie Mac, an institution established by Congress in 1970 to provide affordability to the nation's residential mortgage markets, as of February 28, 2013, the interest rate on a 30-year fixed-rate mortgage was 3.51 percent while the interest rate for a 15-year fixed-rate mortgage stood at 2.76 percent.