November 26, 2014

Baby Boomers Staying Put

In the past, many empty-nesters downsized upon sending their children away for school and growing older. However, the Baby Boomers are defying this traditional pattern. With roughly 10,000 people reaching age 65 each day for the next 15 years, and 17% of the 76 million Boomers already in retirement, the decisions this generation makes are central to the housing market.  63% of Baby Boomers plan to stay in their current home once they retire, according to a survey of 4,000 Baby Boomer households conducted by the non-profit Demand Institute. Why? Many simply are not financially ready, with a substantial amount of equity tied up in their homes. The financial crisis caused the average Boomer household's net worth to drop from $200,000 in 2007 to $143,000 in 2013 according to Federal Reserve data. Additionally, the median outstanding mortgage balance for 50- to 69-year olds more than doubled from $48,743 in 1992 to $118,000 in 2013.

The financial situation is particularly tough for those also in the sandwich generation--middle aged people who find themselves supporting both aging parents and their children. This recent phenomenon can be explained by an increase in the average life expectancy in conjunction with an increased number of "adult children" living at home. A 2013 Pew Foundation survey of 2,511 U.S. adults revealed that at least 15 percent of middle-aged adults are financially supporting both their parents and children.

The Baby Boomers surveyed placed little weight on "aging-friendly" homes, with only 1/5 planning to live in a senior housing. This is despite the fact that roughly 75% reported serious health issues such as arthritis or high blood pressure.

November 19, 2014

Flipping a Home: It's Not For Everyone!

The idea of buying a house, tearing down a wall, replacing countertops, and painting the place before selling it for a substantial profit is appealing. However, experts warn that it’s it nowhere near that easy.  Flipping a house takes a substantial amount of money, experience, education, and time: the average flip takes 101 days according to MarketWatch. Brendon DeSimone, author of “Next Generation Real Estate,” states that house flipping is a full time job and is not something people who work 9-5 jobs can reasonably manage.

How much will it cost?

The median cost to improve filliped homes is almost $5,000. However, many projects cost more. A significant kitchen remodel costs roughly $55,000, while a bathroom costs $16,000. To be safe, experts advise adding 10% to your projected project budget, and not to rely on making a profit. Instead, home flippers should be financially stable even if they only break even. It may be worth tackling bigger projects, though: flips associated with building permits have a 50% ROI. This is much higher than the average ROI of all flips (including ones that solely involve cosmetic changes), which is 13%. Indeed, there is a positive correlation between how much an investor spends on a home and his ROI.

What type of home should I buy?

If you want to flip a house, look for undervalued properties. Professionals look for homes approximately 30% under market value. These can be outdated fixer-uppers, foreclosures, short sales, or homes sold at an auction. It’s no secret that these homes offer the best potential to flip, so be prepared to act quickly if you see a home with great potential.

How will I be taxed?

If you flip a home on the side (i.e, you still have a full time job doing something else), that’s considered an investment as opposed to a business. If you hold onto a house for a year or less, the proceeds are classified as a short-term capital gain and will be taxed at your regular income. If you own it for over a year, it’s considered a long-term capital gain, which is taxed at 15% of the gain.

What else should I consider?

Location is key! When looking for a home, look for a fixer-upper in a great location. Central to location is school district, since a good school district helps homes in that area maintain their value. Richard Davis, creator and star of A&E’s reality show “Flip This House” also warns people who are unfamiliar with the real estate and construction businesses against flipping homes. He comments on an MSN article, “I mean, my wife is a doctor, you don’t see me going out doing heart surgery.”  In other words, flipping homes is not a hobby—it’s a profession that requires technical skills, time, and money. Finally, you should be familiar with anti-flipping regulations: houses sold less than 90 days after they were purchased are not eligible for FHA mortgage insurance.

The best (and worst!) cities to flip homes in:

According to RealtyTrac, the best place to flip a home is Pittsburgh, PA. Here, the average purchase price is $54,949 and the average flipped price is $103,755. That’s a ROI of 89%! Other cities with good flip potential include Philadelphia, Memphis, Detroit, Seattle, Baltimore, Milwaukee, Atlanta, Rochester, and Washington. Each of these cities have ROIs between 43-56%. On the other hand, Indianapolis-Carmel is the worst place to flip a home, with an average purchase price of $163,400 and an average flipped price of $144,400—an ROI of -12%. Other cities with a negative ROI include Tampa/St. Petersburg/Clearwater, Houston, and Charlotte.

November 12, 2014

Beverly Hills Home Most Expensive in U.S.

In September I published a post on Le Palais Royal, which was the most expensive publically listed home on the market at $139 million at the time. However, Le Palais Royal did not hold the spotlight for long. Jeff Greene, who made his fortune betting against sub-prime mortgages before the 2008 financial crisis, is selling his home for $195 million to capitalize on the strength of the international demand for extreme luxury estates. The property is known as Palazzo di Amore (Palace of Love) and was listed on November 6th. 
  • Size: 25-acre compound, 53,000 sq. feet interior space
  • Bedrooms: 12
  • Bathrooms: 23
  • Garage: Fits 27 cars
  • Features: A private vineyard and wine label (creating 400-500 cases of wine per year), bowling alley, 50-seat movie theater, game room, discotheque with a rotating dance floor, separate quest house, reflecting pool, and spa
  • History: The estate was developed by Mohamed Hadid with help from architect Bob Ray Offenhauser and designer Alberto Pinto. Green bought the house in 2007 out of bankruptcy for a reported $35 million and spent nearly 8 years and $25 million expanding the estate.
  • Listing brokers: Joyce Rey and Stacy Gottula of Coldwell Banker
  • The price to beat: The most expensive home sale in the U.S. occurred this year, for $147 million. If Palazzo di Amore sells for greater than $147 million, it will set the record for the most expensive home sale in the U.S. 

November 5, 2014

What You Can Do With a Flex Room

Home buyers today have very different wish lists. The traditional style home, with a formal living room, dining room, family room, kitchen, bedrooms, and bathrooms, is becoming obsolete in favor of homes that are better suited to cater to a family's specific wants and needs. To address this, many new builds include a "flex room," sometimes called a bonus room, which is a generic room (sometimes similar to a loft) that can take on various purposes based on how it is outfitted. Flex rooms are great for resale value, because they can adapt to the needs of the people living in the house. When you're house hunting and you see a room you with no predefined purpose, consider turning the space into one of these rooms:

1) A home office. Home offices are convenient to have, even if you don't often work from home. They provide homeowners will a place to retreat from outside commotion and get work down--weather that's paying bills, writing emails and letters, making phone calls, or filing important documents. 

2) A home gym. If you like to hop on a treadmill every day, save time and gym membership fees by buying your own! This is especially a good idea for Ohioans, since we can't always depend on sunny weather conducive to running and exercising outside. 

3) A playroom. For families, this may be your best option. Keep your main family room clean by having an additional designated area where your kids can play, build forts, and run around. This will keep you from having to pick up the main living area all the time, since most of the toys will be elsewhere. Once your kids get older, they will appreciate having their own living area, too. It will give them a place to do homework, play with friends, watch TV, and play video games.

4) A library. For avid readers, a home library is a dream come true. Many depicted existing home libraries are parts of large, expensive homes. However, there is no reason for smaller homes not to have one--especially if you have a room with a lot of built in shelving. If you don't, add multiple book cases, a comfortable couch, and coffee table. Make the room into a peaceful retreat and settle down with a good book!

5) A game room. Do you like to entertain? A flex room can serve as the perfect place for your foosball or pool table! If you plan to use a flex room as an adult hangout space, consider adding a TV and a wet bar with a mini fridge for beer or wine. Sounds like the perfect place to watch the next OSU game!

6) A media room. Often found in basements and called theater rooms, media rooms feature large TVs or projector screens and luxorious seating. For families who enjoy spending time together watching movies, sports games, or TV shows, a media room may be just right. Kids can also play video games there. 

7) A hobbies room. A hobbies room is the ultimate multiputpose room, because it can change along with your interests. It can be used for scrapbooking, knitting, playing and keeping musical instruments, arts and crafts, yoga, wrapping presents during birthdays and holidays, and much more. 

8) A guest room. If you don't have a designed guest room, consider putting a Murphy bed in a flex room. This way, the room can serve as a second living area most of the time but double as a guest bedroom as needed. Ideally, the flex room would have doors and nearby access to a bathroom. Note, a  flex room is unlikely to have a closet, since it would then be classified as a bedroom. 

So, next time you see a flex room in a home, don't think of it as a waste of space. Think of it as an opportunity to truely customize your home.