With rents rising and wages stagnant, affording rent can be an insurmountable burdenWhile homelessness may not be viewed as a looming issue for those who are financially stable, it’s not as distant as some might think. With rents rising faster than wages, the burden of affording rent is looming larger and larger for many Americans and, in, some cases becoming insurmountable. According to the Consumer Housing Trends Report 2017, 79 percent of renters who moved in the last 12 months experienced an increase in their monthly rent before moving to a new place. And over half (57 percent) said that hike was a factor in pushing them out the door and into another rental. Only 21 percent of renter households didn’t report experiencing a rent increase. Nearly a third (30 percent) of households nationwide, representing roughly 73 million adults, report they’re struggling or just getting by financially. And it’s no wonder; Americans spend on average a median of 29.1 percent of their income on rent, including many who spend a higher percentage but have lower incomes. Increasingly, major metro areas are becoming out of reach for those who aren’t earning more than minimum wage, and this is becoming increasingly true even in markets that have historically been more affordable. Take Houston, for instance, where the median low-income earner spends 65.1 percent of their income on the median bottom-tier rent. Then there’s notoriously expensive New York, where — along with San Francisco and Los Angeles markets — the median low-income wage will not even cover a low-end apartment. In New York alone, to afford apartments with median bottom-tier rents, renters need to shill out 111.8 percent of the median low-income wage. With such large percentages of household incomes going toward rent, saving for the future is less of a priority — and a possibility. More than half (51 percent) of Americans say they don’t have enough money saved to support themselves for three months, according to a analysis of the Federal Reserve Board’s 2016 Survey of Household Economics and Decision-making. Millions struggle to afford stable housing According to the Report on Consumer Housing Trends 2017, today’s median household income for renters is $37,500, which equates to about $18 per hour — or 2.5 times the federal minimum wage of $7.25. Nationwide, in 2016, 2.2 million people lived off wages at or below the federal minimum wage, according to the U.S. Bureau of Labor Statistics. When it comes to renting, there is no state where a 40-hour minimum wage is enough to afford a 2-bedroom apartment, according to the National Low Income Housing Coalition. While renting is becoming increasingly more difficult, buying a home becomes a distant dream.“Honestly, if you’re making $37,500 per year and have no savings, it’s probably not feasible for you to buy in most markets,” Zillow Chief Economist Dr. Svenja Gudell says. Across all states, the median renter can expect to pay $1,430 per month on rent. It’s no wonder many Americans are struggling financially — particularly in New York, Los Angeles, Washington D.C., and Seattle, where there’s also a stronger relationship between rising rents and an increase in the homeless population. Homelessness by the numbers Coast to coast, there are an estimated 550,000 homeless people, according to the U.S. Department of Housing and Urban Development. But research used statistical modeling to estimate the uncounted homeless population, unsheltered homeless people often missed during the One Night Counts, to estimate the true number of homeless people, a number much higher than the official estimates. And as rents climb, the numbers will only grow, especially in large, tight metros, where the rent burden can become life-altering. Take New York City, for example. The metro has the largest population of homeless people in the nation. Last year, there were an estimated 76,411 people experiencing homelessness, according to estimates. If rents were to rise 5 percent, an additional 2,982 people would be forced to the streets. And Los Angeles doesn’t fare much better. Given the same rent hike, an additional 1,993 people would fall into homelessness. And a rent hike of 5 percent isn’t implausible, especially given that in L.A., rents rose 4.4 percent over the past year. The geography of social mobility Right now in L.A., renters dish out $2,707 per month for the median rent, which is almost twice the national median rent and amounts to nearly half of the median household income in the metro. With such a substantial chunk of money spent every month on rent, it’s no surprise the metro has an estimated 59,508 people without a home. But rents haven’t always been so unaffordable. Just 17 years ago, three of the top 20 metros were rent-burdened, meaning renters paid more than 30 percent of their income on living expenses. Today, however, the number of cities that have become unaffordable have grown exponentially. Currently, renters in nine of the same top 20 metros can expect to spend 30 percent or more of their income on rent. The biggest share spent on rent comes from Los Angeles, where renters pay nearly half (49 percent) of their income on rent. “The places where social mobility — the ability to climb the income ladder — is the greatest are now in places that are unaffordable for most people,” said Gudell. “San Jose or the Bay Area in general, parts of Boston, for example — these places have gotten to be so expensive that a lot of people who have an income of $37,500 a year will not be able to buy a home or even afford a family-sized rental.” The costs of housing instability go beyond financial Unfortunately, for too many, lack of affordable housing can complicate other critical aspects of life, including health and future livelihoods. Individuals living in shelters are more than twice as likely to have a disability compared to the general population. This includes serious mental illnesses, conditions related to chronic substance abuse, diabetes, heart disease and HIV/AIDS, according to the U.S. Department of Housing and Urban Development. Gudell says people have better outcomes when they aren’t constantly moving from place to place. “It’s been shown that you have better outcomes if you live in a stable environment with less frequent moves, which is easier to attain when you own versus rent,” Gudell said. “So, if you take stable environments away from people, their outcomes will most likely be worse than they are today, and that has an impact on education, on health and on income growth in the future.” On Point Homevestments
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Who foots the bill when the maintenance issues roll in? It depends, so get to know your tenant rights.One of renting’s major benefits is that you don’t have to worry about upkeep, maintenance and expensive repairs. So when things go bad — your dishwasher stops working, the roof is leaking or the bugs just won’t go away — your first call is usually your landlord. But how do you know what’s really their responsibility and what falls to you? And what do you do if they refuse to handle the repairs? Read on for the most common rental issues and how to get them fixed quickly. Water damage & mold Easily one of the nastiest discoveries you can find in your home, mold is a common problem — especially in humid or rainy climates. And while most mold doesn’t cause health problems, some types can cause respiratory issues, headaches and allergy symptoms. Since there’s no easy way for the average tenant to know if the mold in their home is dangerous or not, it’s always best to ask your landlord to get rid of it. While there’s no federal law that dictates mold exposure limits in rental housing, some states and cities have put guidelines in place. But, even if your state doesn’t have specific mold regulations, your landlord is still responsible for providing safe, livable housing. In addition to requesting that your landlord remove the mold, make sure they find the source of the mold, whether it’s a leak in the roof or around the windows, failing plumbing, or a basement that’s not watertight. If the underlying water damage isn’t addressed, the mold will likely return. The one time a landlord may be able to reject your request for mold remediation is if they believe it’s a result of your behavior — if you don’t keep your home well-ventilated, don’t clean regularly or run a humidifier too much. Broken appliances Your landlord is responsible for keeping any appliances that came with the unit in good working order. They’re also required to do the preventive maintenance that keeps your appliances up and running, like replacing worn hoses or servicing the air conditioner. If you brought some of your own appliances, like a microwave or a washer and dryer, you’re typically responsible for repairing and replacing them. Perhaps the most important appliance your landlord is responsible for is your furnace. Local and state laws require landlords to provide adequate heating, so if you’re having trouble keeping your home warm, reach out to your landlord immediately. In some warm-weather states, landlords are also required to provide air conditioning. It may not be required in other states, but if your unit has air conditioning, your landlord is required to maintain it. Pests Remember when we said that landlords are required to provide tenants with a safe, livable space? That includes pest-free living, but there are a few more gray areas with pests than with other maintenance issues. Whether your landlord is responsible or not depends on a few factors, including the state you live in, the type of rental unit and the type of pest. For example, in some states (but not others), landlords are legally required to manage bedbug infestations, which are an increasingly common issue. In some states, landlords are responsible for all pest control, unless you’re renting a single-family home and they can prove that the pests are a result of you not keeping your home clean. No matter where you live and what local and state regulations are, let your landlord know about any kind of pest as soon as possible. A good landlord should want to address these issues quickly to avoid having them spread to different units. What if my landlord isn’t cooperating? In a perfect world, your landlord would fix every problem, without issue, in a timely manner. But in the real world, that doesn’t always happen. Consider these tips for getting landlord repair issues handled quickly and completely:
On Point HomevestmentsShould I rent or buy? A simple question, but nonetheless one that nearly everyone will ponder at one point or another. The rent vs buy debate wouldn’t be much of a debate if the question wasn’t so divisive, right? The only real way to develop your own objective opinion, for that matter, is to listen to the facts as they present themselves in the form of real world data. The real answer to the rent vs buy question is entirely dependent on each person’s unique situation. Before you jump to any conclusions, be sure to take everything you are about to read into consideration. With any luck, your own rent vs buy debate will correspond with a definitive answer by the time you are done reading this. Rent Vs Buy Analysis From A Pro The rent vs buy debate rages on to this day, and for good reason: each side has made some compelling arguments of their own that, at the very least, warrant your consideration. Owners, for example, will quickly point out the single greatest benefit of ownership: equity. Those that actually make purchases of their own build equity in a property with each and every payment made. That way, when it comes time to sell, there are profits to be made. It is worth noting, however, that the same equity argument posed by owners comes with a caveat: you must be willing to live in a property long enough for it to build equity, and even then, equity isn’t guaranteed. Proponents of renting are, therefore, quick to point out the disadvantage of living in the same home for a prolonged period of time. What’s more, there are some renters that think paying down a mortgage is a fool’s errand, in that a large percentage of owners never actually finish paying off their mortgage. To be perfectly clear, there are obvious advantages to each, and drawbacks, for that matter. As I already alluded to, homeownership awards owners the ability to build an equitable share in a valuable asset. In fact, equity is both an asset and considered to contribute to one’s own net worth. That said, equity isn’t a liquid asset. According to Investopedia, “it cannot quickly be converted into cash.” Moreover, “value fluctuates over time as payments are made on the mortgage and market forces play on the current value of that property.” We are a huge proponent of homeownership, but that doesn’t mean it’s for everyone. Of course, there’s the cost. While equity is great, it comes at a price. Homeownership isn’t cheap and usually requires a large down payment; one a lot of people can’t afford earlier in their lives. That, and the commitment that follows. Homeownership isn’t the result of a fleeting feeling; it’s a conscious decision to settle down and stay in the same place for what will most likely be a prolonged period of time. And while the idea of living in the same place suits a lot of people, there is a large contingent that hates the idea of being stuck in the same place for too long. Many of the same renters that covet the idea of being able to move at the end of a lease are strongly in favor of the price of renting. Renting, for example, doesn’t coincide with the same down payment as buying. Therefore, renting is more “accessible” to more people. In the end, the rent vs buy debate can only be settled once you take into account each person’s personal situation. Sometimes buying makes more sense for people, and sometimes renting makes more sense. It may not be the answer you wanted to hear, but it’s nonetheless an answer. The fact remains: whether or not you will benefit from buying or renting will depend entirely on your own situation. Rent Vs Buy Calculator There’s no simple answer to this simple question. As NerdWallet points out, “This is a decision with many moving parts, and things change: Your down payment savings grow, you consider moving to a cheaper or more expensive area, you’re curious what happens if you spend less on a home, or more.” As it turns out, those “moving parts” are as follows:
Using these indicators, you can roughly estimate which decision is right for your situation, but if you would rather plug the numbers into a rent vs buy calculator, NerdWallet has something you might be interested in. Renting A Home Pros
Again, there is a large contingent of people that are convinced renting is better than buying. The reasons many of them use to support their claim are primarily founded in the four bullet points above, and for good reason: there’s no doubt they represent poignant issues in favor of renting. For starters, the barrier to entry is considerably lower than homeownership. Whereas those looking to buy will need to put down 20% in order to avoid paying private mortgage insurance (PMI), most renters will only need a security deposit and maybe the first months rent in advance. A 20% down payment on a $300,000 home will set buyers back $60,000 right off the bat. There’s no question about it: it’s a lot more affordable to start renting than buying a home. Of course, those numbers start to change once you have been renting for a prolonged period of time, but we’ll get into that later. More importantly, it’s not just the money that redirects most people away from homeownership towards renting, but the underwriting as well. You see, owning a home coincides with receiving loan approval — not something everyone can get. There are a lot of underwriting regulations that must be addressed in order to even qualify for a mortgage. With that in mind, there’s a lot of people that not only don’t want to own, but also that can’t own. Renting is literally the only option they can choose. In addition to the initial cost, most rental proponents will be quick to point out the benefits of variable lease options. Renters are typically allowed to choose how long they intend to rent for, granting a degree of flexibility made unavailable to homeowners. Renters are, therefore, not locked into 15- or 30-year mortgages like their owner counterparts. As a result, most renters have the freedom to pick up and move more frequently. You would be surprised at how high renters value their freedom to switch homes at the end of a lease. Renting A Home Cons
There are two sides to every coin, and renting a home is no exception. That said, there are plenty of drawbacks that coincide with renting. Namely, the largest qualm most owners have with renting is the inability to build equity in a home you are simply renting. As a renter, your monthly rent checks are given directly to the respective owner. As a result, the person that owns the home is making money off of the renter’s payments, whereas the renter is simply trading money for a place to live — their money isn’t doing anything for them beyond that. Homeowners, on the other hand, build equity with each payment — renters will never see their cash again. What’s more, the amount renters are expected to pay can fluctuate from lease to lease. It is within the rights of landlords to raise rents, as long as they aren’t in a rent controlled zone. That means it’s entirely possible for rent to be increased at the end every lease. Leases can vary significantly in length; they can last from a single month to several years. Those with shorter leases, therefore, run the risk of their rents increasing more frequently. Finally, those inclined to rent limit the amount they can personalize their living space. Most lease agreements will prevent tenants from making changes to the property, even if it’s something as simple as painting a wall. If you are someone that appreciates a more personal touch, renting may not be the best option. Buying A Home Pros
Of all the potential options awarded to those looking for a place to live, I maintain that homeownership is the best way to go. There’s one simple reason I covet homeownership more than renting: equity. As I already alluded to, renters can’t build equity in a property; their money is traded for a place to live. However, the money homeowners pay towards their mortgage builds an equitable interest in a tangible asset. In other words, equity is both an asset and considered to contribute to one’s own net worth. The more an owner is able to pay down their mortgage, the more equity they can build. Once the principal is paid off, along with the interest, a homeowner will own the home free and clear. That means they will be able to live in the home without making payments to their mortgage provider. Of course, there are other costs, like maintenance and property taxes, but the mortgage is no longer detracting from their ability to save. In addition to that, the homeowner now has a valuable asset in their corner. If that wasn’t enough, the tax benefits that coincide with homeownership are equally as impressive. Most notably, homeowners are able to deduct the amount they pay in mortgage interest each year from their taxable income — that’s no small amount of change. Considering interest rates for the average 30-year fixed-rate mortgage are somewhere in the neighborhood of 4.5%, the interest one could expect to pay on a home could be significant. The tax deductions alone could trump the cost of renting for some. It is worth pointing out, however, that while the upfront cost of homeownership is a lot higher than renting, the scale starts to tip in favor of buying eventually. If for nothing else, there is usually a point when buying actually becomes cheaper than renting in the long run. Buying A Home Cons
While I am in favor of owning a home, buying a property is not without significant caveats; namely, the barrier to entry. First and foremost, buying a home is not cheap. There’s a good chance buying a house is the single most expensive cost most people will encounter over the course of their entire lives. The down payment alone can be enough to keep people from transitioning to homeownership, and that doesn’t even include the rest of the purchase price or interest on the loan. Put simply, owning a home has become synonymous with a much more expensive upfront cost. Again, owning can turn out to be cheaper in the long-run, but certainly not at the time of purchase. If the upfront cost wasn’t enough, there are also rules and regulations one must abide by to make the dream of homeownership a reality. Unfortunately, however, there are those that don’t qualify for a loan. Whether it’s a low credit score or a lack of available funds, there are several obstacles standing in the way of many prospective buyers that have no other choice but to rent. The rent vs buy debate continues to rage on, and for good reason: both sides have valid arguments. Truth be told, however, there is no universal answer. Whether or not you should rent vs buy is completely dependent on your own situation and what you want out of a property. It is worth noting, however, that owning a home has come synonymous with significant benefits, not the least of which renting could hold a candle to. Homeowners are awarded the opportunity to build equity and reduce their taxable obligations. Perhaps even more importantly, home ownership could eventually become cheaper than renting in the long term. Long story short: buying a home is worth it for those that can afford to do so, but not everyone can take the leap. Key Takeaways
On Point HomevestmentsOne of the first questions for people entering the landlord game is whether to hire a property manager or manage the new rental themselves. As with everything in life, there are positives and negatives to each strategy. So let’s run through the issues that go into making this decision. Renovations? First, the property you buy will most likely need some renovations. You’re going to have to be in charge of this yourself and get bids, shop for materials, make decisions, etc. And it will cost more than you think — probably a lot more — and it will take longer than you think, probably a lot longer. Before you purchase — and this is best to do during your home inspection — try to get an experienced investment property owner to come with you, and maybe a contractor, to get a better estimate on those costs. Provide a healthy contingency of cost, like 50 percent, and a time contingency of 100 percent in your schedule. Better to be safe, than surprised. Pros and cons of managing Once you get the property closer to rent-ready status, you’ll need to make some decisions on whether you manage the property yourself, or hire someone to manage it. Pros – Managing the property yourself allows you to keep the best control of your tenants, service their issues, keep good relations with them, and keep a better watch on the property. It will also save you somewhere between 8-and-10 percent of rental income and probably dramatically increase the chances that you will keep it occupied. No management company has anywhere near the incentive that you do to keep it rented and to keep your tenants long-term. You’ll learn quickly that when faced with a vacancy, you’ll jump to get it rented. You will also save yourself one-half month or a full month’s rent in fees for handling the re-leasing process yourself. But … you will also learn it is a lot of work! Cons – The negatives about managing the property yourself are best seen in three separate scenarios: Renting it when it is vacant; what it takes in terms of monthly management; dealing with more serious issues when they arise.
It’s a lot of work! Once the tenant is in place If you put your property in good condition for rental, this part of the process is the easiest. Some properties and tenants are a breeze, but I’d guess that you’ll have to deal with about 3 to 5 minor issues per year (like the neighbor’s dog is barking). Figure on at least one more major issue, like calling a plumber or electrician. Overall, this process is not too taxing — if the property is in good shape and you follow the advice that follows. Here are some tips to ensure things go well:
If you follow those tips, it should lower the hassle of owning rental properties. Major issues can occur, too. So if your tenant stops paying, or there’s a major flood, or fire, you have to deal with it regardless of whether you have a property management company. And it’s going to be a lot of work and time involved, especially if the property is far away. Overall, learning the management side will probably best teach you the ins and outs of owning real estate, save you some money, and probably make your properties more profitable because you’ll treat tenants respectfully and keep the units occupied. Property management company handling the issues There are many quality property management companies that can do a great job for you. As noted above, they probably charge 8-to-10 percent and a half month’s rent for re-leasing. They will handle the above issues for you, except when major issues require your input — or checkbook! But the most important first step is to interview several rental companies. Call references, get copies of their insurance and make sure they have the proper type and adequate insurance in place. Once you make the decision on which property management company to hire, keep on a friendly and professional basis with your manager. Things will go wrong but just because you are paying for management doesn’t mean you can blame the property management company. Part of your role is to inspire them to help handle the issue and obtain the best possible outcome. If you’re super busy with your regular life, but own property or properties, a management company could be a good idea. You’ll still be pretty involved, if for no other reason except to maximize your value and keep those nice, consistent rental checks coming to pay the bills! Keep in touch with the management company, the tenants, inspect the properties every once in a while, and do your best to help get it rented when there’s a turnover in tenants. On Point HomevestmentsLove flexibility? It may be time to rethink renting's bad reputation.Renting often gets a bad rap. It’s true that some aspects of being a renter are less than glamorous, but it’s not all bad. In fact, the number of renters is on the rise, and the traditional mindset about renting is changing. Let’s debunk three of the most common myths about renting. 1. You’re throwing money away Many people say that paying rent is like taking your money and throwing it away. While you may not be gaining equity in a home, you are paying for somewhere to call home, which is not the same thing as throwing your money in a trash can. And let’s not understate the value of avoiding household maintenance costs. Most rentals include upkeep and repair services, and some even include the cost of utilities. Additionally, buying a home may not be a wise financial decision for you right now. Maybe you live in an expensive housing market or you don’t have quite enough saved for a down payment. Simply put, renting may be in your best financial interest. To find out whether renting or buying is more financially viable for you, there are several tools available to help you make an informed decision. 2. You have no negotiating power A common myth surrounding the landlord-tenant relationship assumes the landlord has all the power. Contrary to popular belief, renters have a lot of negotiating power when they sign a lease, says Tracy Atkinson, director of global marketing and relations for Goodman Real Estate in Seattle. “If you think you may be buying a house soon ask, ‘Do you have a mortgage clause?’ You can also ask about a job relocation clause. Simply ask, ‘Can you work with me?’ Each resident has the power to do that,” she advises. The most important thing is to read the lease in its entirety to ensure you understand what you’re signing. If you see terms you want adjusted, don’t be afraid to ask. 3. It’s difficult to get out of a lease Another common misconception about renting is that it’s hard to get out of a lease. Though it’s not advisable to sign a long-term lease when you know life changes are ahead, sometimes life throws us a curve ball. Whether you relocate for a job or your roommate moves out, sometimes it’s necessary to break your lease. One option is to sublet your place. Check with your landlord or property management company to ensure that subletting is allowed, and get everything from both your landlord and the new tenant in writing. If you’re relocating, another option is to work with your property management company to find available units at a sister property or even in another state. Talking with your property manager and explaining your situation will always help you find the right solution for you, Atkinson says. Of course, there may be fees associated with breaking your lease no matter how you go about it, so be prepared for that expense. On Point Homevestments |
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