Daily News And Advice
What's the Rentvesting Trend All About?
Only an estimated one-third of millennials in the U.S. own property, according to data from the U.S. Census Bureau. Would-be homeowners are continuing to have to fight against stagnant wages, rising home prices, and now soaring interest rates as well.
A whole segment of the younger population is now known as "generation rent." Still, they're taking some of the things working against them and turning them into a new approach to property ownership called rentvesting.
What is Rentvesting?
Rentvesting refers to buying an investment property and renting it out, typically in an affordable or up-and-coming area. Then, you continue to rent the primary place where you live in the location you prefer.
Investing in property isn't new, but more young people today are opting to hold off on buying their own home as a primary residence instead of investing in rentals.
The trend originated in Australia's major cities, but it's also become popular in the United States.
There are benefits to rentvesting. One is that you can live where you want. You may not be able to afford to buy a home in your desired neighborhood or even city right now, but when you stay a renter, you can potentially afford it. Then, you're also putting your money to work as an investment.
Eventually, depending on your financial goals, when you're a rentvester, you might sell the property you earned an income from and then use that money and savings to buy the home you want.
Rentvesting changes the traditional path to homeownership, but with the hurdles to buying a home, that may be needed for some.
Some real estate experts describe rentvesting as balancing a lifestyle choice and building long-term wealth.
If things go according to the plan, the house you buy while you're still a renter will go up enough in value to be your ultimate springboard to your own home.
You're starting to build equity even if you can't afford the home you want. Depending on your situation, you could also live in the house eventually. Still, even if you don't, there's a high probability the value will go up, so you might get the equity to borrow against the property, even if you don't sell it.
What About the Downsides?
Rentvesting certainly isn't easy. You're dealing with multiple properties, and you have to keep your landlord happy while also being a landlord and keeping your tenants happy.
It's not simple to be a landlord, so you have to be realistic about the time you can dedicate to managing the house. You'll have to set aside money if there are unexpected expenses along the way, which is often the case.
Lenders usually charge higher interest rates on investment properties. They may require a larger down payment too, but it could give you more flexibility to gain entrance into the real estate market.
What to Consider with Rentvesting
It's a big financial decision to rentvest. First, you have to ensure the investment makes financial sense. You have to factor in the down payment, closing costs, and monthly mortgage payments. In an ideal world, your monthly rental income covers the mortgage repayments, and you might even make a bit of a profit, but the world isn't ideal, so you have to make sure you have the income to cover any rough times.
Choosing the location is important with rentvesting. It may not be the neighborhood you'd personally love to live in, but it needs to hold appeal for some people.
Finally, as with any investment, think long-term. You want to make sure that you're at least going to be able to make back your upfront costs with the appreciation of the property. Consider at least a five-year timeline with this approach to investing and owning property; ideally, ten years is better.
In the Calendar Year, When Is the Best Time to Buy a House?
As one year passes and another is introduced, we’re all a bit guilty when it comes to reflecting back.. We look to our past and acknowledge our successes and review our so-called failures. Some do this more than others but it’s still an annual ritual. Somehow, the calendar has an impact to some degree on most anything we do. But, as it relates to buying or selling a home, does the time of year dictate when we should or shouldn’t buy or sell?
There are two basic thoughts about what time of year is best to sell or buy a home. Many say that in late spring or summer is the best time to buy or sell. It’s this time of year when kids are out of school and that makes it easier to make a move compared to pulling kids out of school and plopping down into a brand new school district.
Sellers know this as well. When lots of moves abound, it makes sense to put a home in front of the most buyers as possible. And this is most often in the summertime when most schools are typically closed. There are more choices on the MLS. Buyers know that and also want to put their home on the market to get in front of as many faces as possible.
This process can last all summer and in early fall as home sellers try to get their home on the market. More buyers equal more opportunities and can also increase the ultimate selling price as buyers compete for houses.
On the other hand, when homes hit the market in the dead of winter, there aren’t as many buyers out there. Subsequently there aren’t as many homes listed when compared to the late spring and summer months. Sellers and real estate agents certainly know this but when a home does become listed during this time, it’s typically a very motivated seller.
The seller knows that there could probably be more money to be had if the home was listed smack dab in the middle of buying and selling season, but there may be some other reasons to sell in the winter. These motivations are the sellers' only but when a home does become listed in the winter, there’s probably more going on than just the listing.
So which part of the year is better? That’s for your real estate agent to help decide but in general, pay less attention to the calendar and more to your own needs. Forget the calendar. If you’re ready to sell, full speed ahead. Decide what’s best for you at the moment, and less on the calendar.
All-Cash Home Sales Soar
According to Redfin, in October, one-third of home purchases were all-cash. That puts the sale of all-cash homes at the highest level seen since 2014.
An estimated 31.9% of home purchases throughout the country were paid for with cash in October, up almost 30% from the previous year.
All-cash purchases started going up at the start of 2021 after reaching a record low in April 2020 (20.1%). Redfin’s report notes that the factors leading buyers to pay in cash differ in the slowing market than during the frenzied pandemic buying market.
Redfin’s researchers say that affluent buyers in the current market want to pay in cash because mortgage rates are surging, so they are hoping to avoid loans and the interest payments coming with them. Mortgage rates have dipped recently but are still above 6%.
During the housing boom of the pandemic, buyers were paying cash because there was enormous competition among buyers, and all-cash offers were a good bargaining tool when a buyer could afford them.
The Redfin analysis found that purchases with all cash increased in 29 out of 39 markets from October 2021 to October 2022.
Riverside, California, saw them increase the most. They went up from 19.2% of purchases to 38%.
Cleveland followed, which saw an increase from 32% to 47%.
In Florida, all-cash purchases were most common in October. For example, almost 50% of the homes purchased in Jacksonville were bought with cash.
The West coast markets saw the lowest shares of all-cash buys, especially in the Bay Area. In San Jose, only 14.3% of homebuying transactions were cash; in Oakland, 16.5% were all cash.
Redfin analysis from July of 2022 found that the cities where cash purchases are most common include:
- Nassau County, NY
- West Palm Beach, FL
- Jacksonville, FL
- Milwaukee, WI
- Fort Lauderdale, FL
- Orlando, FL
- Atlanta, GA
- Cleveland, OH
- Charlotte, NC
- Tampa, FL
The same Redfin report found there’s an uptick in FHA loans. Around one in seven mortgaged home sales used an FHA loan, the most significant share in almost two years.
Conventional loans are still the most common route for buyers, but FHA loans allow buyers to make a lower down payment. They’ve gotten increasingly popular because of the slowdown in competition to buy homes. During the pandemic, they were less common because sellers often received competing offers and chose ones with the strongest financing.
When there’s a cash offer, the process of buying and selling can be a little different compared to the involvement of a mortgage.
The process is usually faster since there’s no application process that would otherwise include documentation and underwriting. The buyer usually won’t need an appraisal but has to figure out the title policy and insurance and provide proof of funds. With all-cash offers, it’s possible to close in as few as two weeks, whereas average mortgage loans can take 40 days or more.
There are usually fewer contingencies with cash sales since the buyer doesn’t need the financing contingency. They’re less likely to need a sales contingency for another home, but cash buyers may prefer to keep an inspection contingency.
Appraisals are usually mandated by lenders, so a buyer might not have to worry about this unless they want to, and the closing process is more straightforward when it just involves cash. The closing costs are lower without lending fees, and the paperwork is reduced.
Of course, to make an all-cash offer feasible, you need to have a considerable amount of money and realize that you’re tying up your wealth in an all-liquid asset. You also can’t use tax deductions related to your mortgage.
The Mortgage Go-Round
There are lots of mortgage programs out there. And when I say lots, I mean lots and lots. What are all these different types of home loans? There are far too many to individually mention here but they basically fall into one of two categories: fixed rate loan and an adjustable rate loan. That's fairly straightforward. A loan is either fixed or adjustable and that’s pretty much about it. So why do lenders offer more than just a couple of loan programs that are either fixed or adjustable?
First, let’s understand that mortgage lenders typically don’t hold onto the loan once it becomes officially closed. Lenders must sell the loans they issue if they want to make even mortgage home loans. There are only a handful of entities that buy home loans but one thing they have in common is the loans they buy are pretty much the same. If it’s a fixed rate loan, then only the loan term needs to be identified. Most borrowers select the 30 year fixed variety. Lots of options and all lenders offer them. The same can be said for 25, 20, 15 and 10 year loans. So why are there so many choices?
Some loan programs might fill some sort of niche. Loans designed for physicians for example or loans identified as those for first time homebuyers. But lenders have way more loan offerings than those two. Lenders might offer a ‘hybrid’ type loan which is in essence an adjustable rate mortgage that is fixed for the first few years before turning into an adjustable rate loan for the remaining term.
Lenders like to offer these variants because it makes them look like they’ve got a treasure chest full of loan products. And they do, but in essence they all offer the same set of mortgage programs. That also means that one lender can’t offer a 30 year fixed rate loan that is a full percentage point or two lower than everyone else. There are mortgage companies described as ‘portfolio’ lenders who can offer mortgage products outside the standard fare but again these products are aimed at a specific group of borrowers.
With so many offerings it can be fairly confusing quickly. But it doesn’t have to be that way. Speaking with a loan officer very early on there’s an opportunity to decide which program best suits your needs. Once you've identified the loan type you want, stick with it and then start getting some quotes. Don’t let the multitude of choices confuse you. A good loan officer will walk you through available programs and provide pros and cons for each one. Just don't get lost in the sea of selections.
What’s Considered Affordable Housing?
We hear the term affordable housing used in many different scenarios, particularly in the past few years, when housing costs have squeezed a lot of would-be buyers out of the market. Rental prices have also been soaring, and with fewer people able to buy because of rising interest rates, there’s even more competition for available rentals, resulting in higher prices.
There is a technical definition for affordable housing, although when the term is used loosely, it can have a lot of
5 Things to Know About PACE Loans
A PACE loan is advertised as needing no money down, providing a way to finance home improvement projects to facilitate energy efficiency. For example, these loans might be used for projects like a new roof, impact windows, or solar panels.
The following are important things for consumers to know before participating in the program.
1. The Basics
PACE stands for property-assessed clean energy. It’s a way to finance renewable energy and
January Real Estate Roundup
Freddie Mac's results of its Primary Mortgage Market Survey® shows that "Mortgage rates continue to tick down and, as a result, home purchase demand is thawing from the months-long freeze that gripped the housing market. Potential homebuyers remain sensitive to changes in mortgage rates, but ample demand remains, fueled by first-time homebuyers."
• 30-year fixed-rate mortgage (FRM) averaged 6.13 percent for the week ending January 26, 2023, down from
What is a VA Home Loan?
If you’re a service member or veteran in the United States, you might be eligible for a Department of Veterans Affairs (VA) home loan. The spouse of a service member or veteran may also be eligible for a VA home loan. The entire objective of this program is to help veterans and service members obtain a mortgage with little-to-no money down.
The Department of Veterans Affairs guarantees a VA loan. The government doesn’t make the loan.
How to Destress Downsizing
There are a lot of reasons you might feel like it’s time to downsize and move into a smaller home.
If you’re now an empty-nester, that’s one good reason. Even families who still have children at home often opt to downsize to save money on their mortgage and to have less upkeep and maintenance.
If you spend all of your free time maintaining a larger home than what you need, you have less time to enjoy your life.
When you downsize
|Mortgage Rates |
Averages as of February 2023:
30 yr. fixed: 6.13%|
15 yr. fixed: 5.17%
5/1 yr. adj: 5.42%