Real Estate Market

I read the article from MSN Money “Why rent? To get Richer” and I must say I totally disagree with everything this article says.  Its sad when irresponsible journalism like this is allowed to be widely distributed from a “somewhat well respected” financial publication. Clearly information like this is doing nothing more than confusing the working public, and encouraging them to make bad financial decisions.

To summarize the article, the author rents an apartment despite having the capital and financial wherewithal to own a home.  She than makes an inflation adjusted comparison of stocks versus homes noting that stocks return 7% and homes return 0.4%.  She correctly discards recent dramatic swings in both markets arguing for the long term return.

She than goes on to argue that the historic and current P/E ratio for stocks is 16 and the equivalent ratio for houses (price / rent) has “swelled” from 9 in 1940 to 20 in 2005.  This argument states that on a comparable basis stocks are cheaper than homes.

In her words: “shares right now cost 16 times earnings and over long periods return 7% a year after inflation.  Houses right now cost 19 times their “earnings” and over long periods return zero after inflation.  And they look likely to return less than that for a while.”

Now for the rebuttal:

First, she mentions the difference between having $300,000 invested in a house or $300,000 invested in stocks – not wrong necessarily, but most people I know don’t have $300,000 and they had to take a mortgage out to “buy” their house.  So, lets do the math:

If you put 10% down on a $300,000 house you need $30,000.  $30K at 7% yields $2,100 in the first year add that to the total than repeat, year two yields $2,247, year three $2,404, etc, etc, etc . . .at the end of 30 years you have “made” $228,368 – not bad.  Now keep in mind in this instance you still need to pay for rent!

Now let’s look at the house, you put $30K in and you get yourself somewhere to live.  Instead of paying rent, you pay the mortgage – over 30 years. Combine this with the measly 0.4% yield that single family homes have traditionally garnered and you end up with . . . wow – $338,000.  $110,000 more from buying than renting! Put simply the terminal value of the buildup in equity in the house is worth more after 30 years than the improved yield from stocks!

Now I will admit that this little mental exercise does exclude minor things like transaction costs and maintenance but depending on your situation these can be minimized (or deducted from your $110,000 additional profits)!

Second, our author departs from a very serious issue – inflation itself.  All of her returns are based on an average inflation rate of approximately 3% (a safe assumption I will admit).  She fails to take this into account for her own situation. Again, back to the math:

When you take out that $270,000 mortgage your principal and interest payments are $1,700 per month – quite a bit of money.  However, your interest rate doesn’t change so you pay $1,700 each and every month for the next 30 years.

Interestingly, our author notes paying $1250 per month for her apartment, a savings of $450 every month.  Where her logic goes askew is in the subsequent years, her low rent of $1250 slowly climbs by 3% every year due to inflation . . . by year 11 she is paying more than $1700 a month, and by year 20 she is paying more than $2,200 per month, and in the final year she will be handing over more than $3,000 per month.  This doesn’t look like such a good deal any more does it?

Lastly, our author out of hand dismisses the tax deduction saying that the returns (an argument which we effectively dismissed in step one) don’t make sense when compared to the deduction.  This is nonsense . . . to stick with our example on your $300K house with the 270K mortgage, your payments are $1,700 per month – most of which (at least 90%+) is interest and tax deductible.  $1,700 per month times 12 months is $20,400. 90% (conservatively) is interest, or approximately $18,360.  If you are in a 28% tax bracket, you would save $5,140 per year!  This is enough savings to effectively drop your monthly payment to approximately $1,271.

There are people who are desperate to become homeowners. On the other hand, some homeowners are desperate to dispose their properties. But because life is hard and the economic situation is not getting any better, these people would probably have to wait in vain before their dreams will be realized; or they can pray. Buyers can pray that somewhere between tomorrow and eternity, they will have a good paying job so that they can afford to purchase a home. On the seller’s side, they can pray that there will be people knocking on their doors and willingly buy their house no matter how much the cost is.

However, life is filled with options. Good news to the buyers and sellers, this is not the end of everything. There can be a perfect solution for both parties to meet their goals and that is getting into a Lease to Own Agreement.

Defining lease to own

Lease to own is the agreement wherein a person rents a property but gets an option to purchase it at a specified time. In here, renters would have to pay an option fee and rent premium that would take part as a down payment upon purchase. This will also explain why rent is slightly higher in this transaction.

However, in every business transaction, there are always pros and cons. To help you see the different angles of lease to own, read its possible effects to the buyers and sellers.

Possible Effect to the Seller

From the seller’s standpoint, lease to own agreements is quite advantageous to them for the following:

o In terms of protecting the purchase price of their homes: Market values for houses are dropping these days. If the buyer and seller gets into this agreement, the original purchase price of the house would not be affected with this condition.

o In terms of the house quality: If seller is lucky enough to have a lessee, who is determined to purchase the property, chances are the house will be treated well.

o In terms of the option fee and rent premiums: Option fees is the amount the a lessee would pay to get the right to purchase the home after several years. If he or she decides not to pursue the purchase, the option fee goes right into the pocket of the seller. On the other hand, the amount credited to the rent premium will be forfeited every time the renter pays late.

One disadvantage for the seller lies on the agreement. Because it is a contract, the homeowner could not sell the property to a buyer, who is willing to purchase the property right there and then.

Possible effects to the Buyer

The advantage of lease to own is greatly for those who are trying to redeem their crumbling credit standing. Most of them may be denied of mortgage loans or do not have enough money to purchase a house in full. Getting into this agreement would mean they could get enough time to prepare the payment in purchasing the house. On the other hand, timely payments of monthly rent can help them redeem their credit.

The only problem is the lease might be too expensive for them. Moreover, if they do not go as planned, they can lose much money from the option fees and rent credits.

In order to make the most informed decision you can when it comes to deciding whether to rent or buy you need to make sure you do your research. One of the best ways to go about doing this is to look into the pros and cons associated with both renting and buying a property.

Disadvantages of Buying and Renting

Buying

Well the most obvious disadvantage of buying a property at the moment revolves around the state of the housing market. The recession has meant more people are turning away from buying a property for fear that they won’t be able to keep up with the repayments through the threat of job loss and for first time buyers, taking out a mortgage has become almost impossible as banks simply won’t lend any money.

The financial costs that are associated with owning a home are daunting, this is down to the size of the financial commitment along with the complexity of it and this doesn’t just refer to the size of the mortgage. On top of this repayment you also have the cost of legal fees, estate agent fees and stamp duty. As none of us know what our financial futures hold, taking on commitments such as these often become difficult.

Going back to the state of the economy and the housing market at the moment brings me onto my next point, which is the fact if your house price falls you may end up repaying a loan that is worth more than the actual value of your property; this is known as negative equity.

Another financial aspect that could become a problem for you if you decide to buy your property is you will be responsible for any major repairs that need to be carried out on the property. So on top of your mortgage etc you will also have to shell out money for repairs that need to be carried out.

Renting

The concept of renting is considered by a lot of people as the thing that you do before you climb the property ladder, so for people who are already on the property ladder choosing to rent again is a bizarre decision as you could be in a way wasting your money.

One of the factors that makes renting very off putting is the fact that you always have the possibility of eviction or a non-renewal of your contract hanging over you. There will always be a certain sense of insecurity when you are renting a property for the fact it is not actually yours and for that reason it could be taken away from you at any time.

In a way you are pretty much wasting money. The way that this disadvantage is justified is that the money you are spending on rent is not being invested for you in the future; you will never see the money again as you will never have the opportunity to sell the house in the future. You are not retaining the house as an asset.

When renting a property a lot of people move in with friends. This could be seen as a problem for the fact you could end up having conflicts with some of your fellow tenants, which, in some cases could result in all of you losing the house.

Advantages

Buying

Buying your own home is one of the biggest investments that you can make and is clearly recognised as exactly that. You could end up making thousands by investing in a property, especially if you buy cheap and push the value up of your property through remodelling it etc. Basically in the end you are left with a valuable asset.

One advantage that homeowners take a lot of pride in is the fact that they have the freedom to make any changes to the property. You are free to decorate it in whatever way you want to. You can knock down interior walls to create an open plan effect or you could do the opposite and separate rooms into two. Also, with the correct planning permission, you are able to build onto your property to include aspects such as conservatories, porches and even a garage. You have nothing holding you back to create the perfect home that you have always wanted.

You are also not dependant on a landlord to fix problems. This leaves you free to sort out problems as you feel best and use a company that you feel the most comfortable with.

Renting

You are faced with low start up costs and no legal fees. All the money that you need up front when you are renting is your months rent as well as a deposit, which is usually a few hundred pounds. So your initial costs are a lot lower meaning you can put the money towards furniture and bills. If the house or flat that you are renting comes furnished however you are saving yourself even more money.

One of the many reasons that a lot of people rent is it offers them the ease of relocating. This means that renting gives you the most flexibility. It means you can move whenever you need to, which is especially helpful if your job involves a lot of travelling.

You don’t have to shell out money for any repairs that need to be carried out on the property. Your landlord is responsible for all of the maintenance on the property. This not only saves you money but also time, it’s a bit like having your own personal handyman on call.

My main piece of advice to you however is to use tips such as the above and apply them to your own personal circumstances; you should take a look at your financial situation and your life in general to make an informed decision based on advantages and disadvantages as to whether you would benefit more from renting or buying, only then will you be able to make the right decision.

Finding an eviction notice in your mailbox is a big shock for any tenant. You are getting the notice in the first place because you have been unable to pay the rent or meet with the terms and conditions of the rental agreement. Now with an eviction notice, you are going to lose your shelter. Finding a house to live in the United States without enough time is a daunting task. As a tenant if you receive an eviction, never ignore it. However, you cannot react to it as you like either.

Take a deep breath and read the eviction notice first. Go through the reasons why your landlord does not want you as a tenant anymore. First of all, determine if it is a reason enough for you to be evicted. In case you have clearly not paid the rent and are aware that the landlord is likely to send you a notice, then you do not have much of a choice.

Every state has its own eviction procedure. In the process of eviction, the notice is the first step a landlord takes. So, the day you get the eviction notice, act on it immediately. Contact a lawyer immediately and see if the landlord has enough ground to do it. In case the notice does not meet the legal requirements, then you can probably challenge it.

After receiving the notice, you typically have three days to respond. Reply in writing after finding out all the details from a qualified attorney.

Conventional wisdom says that renting is like throwing your money away. You are always better off by owning your own home. This advice is wrong for two reasons: First, as the last 2 years have shown, real estate can crash. Second, homeowners are also worse off in a flat market, if they pay too much for the house relative to its rental value. A key metric is the capitalization rate, which is net annual rent expressed as a percentage of the resale value. This tells you the “earnings yield” on the house – similar to the return on a bond.

Net annual rent is the amount the house would rent out for, minus property taxes, insurance, maintenance costs, losses from vacancies, and any property management fees. If this cap rate is less than the yield on less risky and more liquid investments (e.g. municipal bonds) minus inflation, it’s a signal to sell (if you are the owner) or continue renting (if you were thinking of buying).

You have to subtract the inflation rate from bond yields because bonds (unlike stocks or houses) don’t maintain their purchasing power. Let’s look at an example. A house in Hollywood is listed for sale at $999,000. The house could be rented for $36,000 a year. A municipal bond yields 4% and inflation is 0%. Should you buy or rent?

Even before subtracting costs to arrive at a net rent, the gross rent itself yields 36,000 / 999,000 = 3.6%. Since this is less than 4% – 0% = 4%, we are better off renting. In fact, the yearly mortgage payments of $60,000 are much more than the $36,000 rent. The tax deductions don’t make up for this difference.

Many college students keep wondering whether it is better for them to live in a dorm or an apartment. However, there is no simple answer to this quandary. However, if you have the opportunity to live outside the campus, you should avail of it. The simple reason for this is the freedom that you will gain by living in your own apartment.

If you live on your own in an apartment, you do not have to live by the rules and regulations that are present in a dorm. In most dorms, there are policies that only allow guests at a certain time of the day. Some dorms do not allow men to visit women’s dorms and vice versa. In addition, there will be a Residential Advisor who will be acting as the connection between you and the university. The Advisor will be checking in on you constantly ensuring that you follow all the rules. However, this is not the case with your own apartment.

If you live on your own, you can have as much fun as you want as long as you respect your neighbors and follow the law. Basically it means that you will be happy, and a happy person will be able to perform well in his or her studies.

Apartments have pools, fitness centers and many more amenities that dorms do not have. In addition, you will learn new ways of cooking, discover new hobbies and generally be a happy person overall. You will have all the privacy you need as you will not have to share a bathroom with other students. In addition, there is no risk of you not getting along with the person who would have shared the dorm room with you.

Just by being content, you will make better grades, have more friends and reduce the chances of getting stressed out.

Generally, apartments end up costing the same as what it would cost you living in a dorm. Sometimes, it can so happen that you may actually end up spending less by living in an apartment.

Therefore, if you are looking for privacy, freedom and happiness, then you should always opt for an apartment over a dorm.

If you are hunting for an apartment, you should be aware that the task will be a challenging one, especially with the economic crisis that has been going on for some time now. Therefore, here are some tips that can make the search easier.

When it comes to apartment hunting, the first thing that you have to realize that timing is very important. The real estate market is highly competitive and finding an affordable apartment can be an onerous task. It is important that you keep a sharp lookout for apartments, search a number of places and have an open mind. You should have the ability to make quick decisions if you happen to find a good apartment. Rents, certain charges and benefits keep changing.

You should not start searching for an apartment too early. You should start your search around two to three weeks before you intend moving in. This way you will get a more accurate picture about the rent. Make sure you look hard in all the places where you would like to live.

Before you begin your search, it is advisable to check a rental website that has a listing of all apartments available in city and neighborhood that you would like to live in. The website should have a floorplans, tours, amenities and specials so that you can make a decision. Once you have narrowed your selection to a few select apartments, call up and arrange a visit.

After visiting a few apartments, you might be able to make a decision without any problems. Remember to keep searching until you find the perfect apartment.

One of the most commonly contested arguments between a landlord and a tenant is the security deposit when you move from a rental property. The security deposit is a specific amount of money left with the landlord when a tenant moves in to guarantee that the tenant will not damage or otherwise mess up the landlord’s property. When the tenant moves out, the landlord will inspect the property and determine if the security deposit will be returned in full, or partially, or not at all. This is based on how well the property was taken care of.

Disputes arise when the landlord tries to take away a security deposit and the tenant disputes the damages. The tenant often will declare the property already had damages, and that they did not cause the problems. This can all be avoided by following some steps in advance. Here are some tips to consider when you move into a rental property and leave a security deposit.

Inspect the property completely before you ever sign the lease. This is commonly ignored or overlooked when a tenant moves into a new property. Take a pen and paper, or you can print off a free legal form, to take down notes of any existing problems or damages. Do not worry about being petty. Write down every single scratch and nick you come across. Nothing is too small, because when you leave the landlord will charge you for these things if you do not write them down. Be very detailed and even take some pictures if you can.

When checking the property, make sure that you check the things that are not obvious. Check the heating and cooling function. Make sure that all vents are working. Make sure that the water faucets and toilets work properly. All of these things are important not only when you move in, but when you want your security deposit back.

Make absolutely certain that you date the list, and go over it with your landlord. You will want to make sure that the landlord agrees with all the things listed, and that they sign it. Once you have yours and your landlord’s signature, then you need to make copies. Give the copy to the landlord, and you keep the original. This way you and landlord enter into legal contract. Whatever happens, do not lose this list. You will need it when you move out and it could save you money in the end.

If you follow these basic steps to getting your security deposit back, then you should not have any real troubles when you move out. This is assuming of course, that you did not do any further damage to the property. Make sure that you and the landlord do your final walk through the house before you actually leave the property as well. Often disputes arise about problems that happened after you moved out. By doing a final walk through and getting your landlord’s signature saying the property is in fine condition, you are protecting your security deposit. It is always better practice to keep the above legal forms for the next 3 years.

“I don’t like the prior bankruptcy on this prospective tenant, but they make great income. The other tenant has a 430 credit score, but has perfect landlord history. Should I accept either into the property?” (Charlotte Property Manager)

“If you can’t be with the one you love, love the one you’re with.” (Crosby Stills Nash & Young)

One of the main things I learned during my MBA classes was that business, like life, is all about tradeoffs. Examples of this are rife everywhere:

• If you want increased national security, you have to give up some individual freedoms
• If you want a guy with a great personality, you probably have to give something up on looks (and vice-versa)
• In Season 7 of 24, Jack Bauer must make the decision to rescue now-fugitive Tony Almeida from FBI custody or let the bad guys kill his daughter at the airport
• If education is going to be our national priority than we must give less resources towards health care and building roads
• Another piece of chocolate cake or look good with your shirt off?

How does this look with property management? Well there are perfect tenants out there, but most are like us, blemished in some way or another. With the poor and worsening economy, using old standards of tenant selection (600+ credit scores, no criminal background, rent less than 25% of gross monthly income, good landlord history, gainfully employed) are sure to keep most of your houses vacant (not good!). However, the last thing you want to do is put in a tenant who is not going to pay and then rip up your house (not good either!). So this is where tradeoffs come in. What should they be?The first thing is setting priorities. What are the most indicative signs that someone will be a good or a bad renter? What should we care about the most? In my experience, the order should look like this:

1. Employment: It’s tough to pay rent with no money coming in (duh!) and finding a job quickly is proving to be difficult in this economy. Hint: If unemployed, ask the tenant for 4-6 months of rent upfront.
2. Landlord history: Some people always pay their rent before anything else. However, it’s important to make sure you are actually talking to the past landlords and not the tenant’s friends. Hint: Ask the “past landlords” how much rent they charged. Friends usually don’t know this and their guesses are way off.
3. Rent they paid at their last house: I like this one. If all things are equal (same job, family, etc.) and what they paid their last landlord is near what they are supposed to pay you, it’s a good sign. Be wary of big jumps ($700/month rent to $1,200, for example).
4. Credit: Everyone always has this at the top of their list, but I don’t see this as that important. If they have 700+ scores, approve them. If their scores are bad (sub 550), find out why and have an open mind. You can get some great tenants this way; if you’re still too scared to move forward, ask for an additional month of security deposit.
5. Income: The numbers need to make sense. If the make $3K/month, have a car payment of $1K, and are supposed to pay you $2K/month for rent, they can only go hungry for so long.
6. Criminal background: This is usually much ado about nothing. Just watch out for violent felons who could potentially ruin your week.

Now is the time for tradeoffs. If #1, #3 and #6 are good, #2 and #4 are awful, and #5 is marginal, what do you do? Panic? How would your profile look on these 6 criteria? Look at the entire picture of the prospective tenant and make an educated decision with the data provided. Do you need to wait until you find Mr. and Mrs. Right who score “superlative” on all six criteria?

Of course not! Stop worrying and eat a little chocolate cake. You can still have a great beach body without the well-defined abdominals. Or a great tenant without the perfect qualifications!

Earlier known as the garden city, Bangalore now has got changed identity. It is now called as the Silicon Valley of India because is the largest IT hub of the nation. With boom in IT industry, it has seen a boom in realty sector also. More and more people are coming to Bangalore from all over the world for employment purposes. These people are well travelled and are exposed to the highest international standards of living. When they start searching a good accommodation for themselves, they expect same international standards right here in this city. This demand for luxurious and modern houses has prompted builders to design and construct luxurious apartments.

Most of the young professional like to own their own house in the city as they can earn well and can get housing loans quickly on easy installments. This demand for apartments is increasing tan never before for obvious reasons. Bangalore was known for huge and beautiful Victorian styled bungalows. But now owners are selling their bungalows to the real estate builders who are fast converting them into apartment blocks.

Many developers have chosen the South Bangalore for the construction of apartment blocks. Recent activity n this regard is seen in areas like Jaya Nagar and J P Nagar which earlier had no suck buildings. Other locations where you can see large collection of apartments include Bannerghatta Road and Kanakapura Road.

Sale of builder apartments in Bangalore has increased considerably for reasons like affordability and the security they provide. Apartments are positioned in housing complex and also, there is provision of security guards. It feels secured to live in apartment instead of an independent house.

There are number of real estate developers who are cashing in on this demand for apartments. Some of the leading builders of Bangalore who are into apartment constructions are named below.

JR Housing is among the most successful developers in the city. Now it is working on its coming up housing project called Green City.

Vakil Housing Development Corporation is a name of repute in real estate market of Bangalore. It is coming up with its new residential project called Vakil Whispering Woods. It is going to have large apartment blocks with all the possible modern facilities.

Some other Bangalore property builders include Salarpuria Group,RMZ Group, Adarsh Developers, Sobha Developers, The Puravankara Group, Mantri Developers, Prestige Builders & Developers and Brigade Group.