First time US buyers rent an average of six years before buying a home

rentAmericans are renting more than twice as long before buying their first home as they did in the 1970s, new research has found.

Aspiring home buyers are now renting for six years compared to an average of 2.6 years compared to 40 years ago, according to an analysis from real estate firm Zillow.

The analysis report also shows that first time buyers are older and less likely to be married than they were in the past and overall Americans are buying increasingly expensive first homes and spending more relative to their incomes than any time in the past 40 years.

In the 1970s, first time buyers bought homes that cost about 1.7 times their annual income. Now they’re buying homes that cost 2.6 times their annual income. The firm says that part of this can be attributed to the housing markets where people are moving which are more expensive cities on the coasts, where there are growing job markets.

The average first time buyer is about 33 with a median income of $54,340, which is about the same as what first time buyers made in the 1970s, when adjusted for inflation.

In the late 1980s, some 52% of first time buyers were married but today that has fallen to 40% married, the research also shows.

‘Millennials are delaying all kinds of major life decisions, like getting married and having kids, so it makes sense that they would also delay buying a home,’ said Zillow chief economist Svenja Gudell.

‘We know millennials value home ownership and want to buy. The next challenge will be figuring out how they can save for a down payment and qualify for a mortgage, especially while the rental market is so unaffordable all over the country. The last hurdle will be finding a home they like amidst very tight inventory, especially among starter homes,’ added Gudell.

This article originally appeared on PropertyWire.

7 Ways Rental Properties Can Build Your Wealth

7 Ways Rental Properties Can Build Your WealthIf you can find a property where the rental income covers the monthly costs, then you have a winning scenario.

Have you ever dreamt about buying a few units in the condo building downtown and converting them to rentals? Or that cute home near the college campus — just for investment and a side rental profit?

While rental properties do have pesky monthly costs and the sometimes-dreaded responsibilities of acting as a landlord, buying a rental property where rental income covers your monthly mortgage payments is a winning scenario. Here are seven key ways a property can exponentially boost its value — and your net worth!

1. Rental properties create cash flow

Cash flow is one of the cornerstone principles of all real estate wealth building, and rental properties create the opportunity for cash flow. A house or a building with multiple units can generate money each month that pays more than your carrying costs, mortgage, and expenses.

2. Positive cash flow pays off your mortgage early

Positive cash flow is created when rent from your tenants exceeds your property’s expenses. Put simply, it’s the money left over each month after all your property bills are paid. Having positive cash flow allows you to pay off mortgages early.

Expert tip: Work to reinvest any positive cash flow to pay down your mortgage balance as soon as possible. The sooner you can pay off your mortgage, the sooner you’ll have checks coming to you, not the bank.

3. Other people’s money pays off your mortgage

Someone else pays off your entire mortgage for you. As you use the rent money from your tenants’ payments toward your mortgage, you are actually paying down your loan amount. Keep that property rented for at least 15 to 20 years and you can own that house free and clear without a penny more out of your pocket. It’s a simple, but brilliant, concept.

4. Improving the property increases its value

Making the right improvements can increase your property’s value and protect you against downward swings in the market. Look to invest in properties where you can add equity and value by making smart, cost-effective improvements.

5. Market appreciation boosts your equity

Market inflation and simple supply-and-demand economics also increase home prices over time. The combination of appreciation from improvements and long-term market appreciation is a huge bonus for rental properties. It’s a profit, equity, and wealth builder.

6. Tax advantages keep more money in your pocket

Another aspect of wealth building, from an accounting standpoint: It’s “on paper.” There are tax benefits to owning rental properties, which include depreciation, rental expenses, and mortgage interest deductions you can take each year.

7. Increasing rents increases the value of your property

When you improve your property, you can increase your rents, which in turn increases the value of the property again. It’s a wonderful cycle. If you buy a run-down property that was poorly managed and you improve it, you not only stand to significantly boost its value and your equity, but you’ll also boost its rentability. You will be turning an underperforming rental property into a gem that attracts quality tenants and higher rents!

This article originally appeared on Trulia.

Becoming a landlord: Do you have what it takes to manage property and people?

are-you-cut-out-to-be-a-landlordThe buzz is building around income property once again, and for good reason: The economy continues to recover, mortgage rates remain low, homes are appreciating and legions of baby boomers are downsizing and scouting post-retirement income opportunities.

Jill Wente, a Realtor with Gary Greene Real Estate near Houston, says those leaning toward becoming a landlord fall into two categories.

“Typically, they’re either thinking about renting their own place or acquiring another home and turning their current residence into a rental,” she explains. “Some simply want to hold on to their current home in an up market.”

When wannabes ask Wente whether she thinks they’re landlord material, she replies with a short quiz of her own.

“First, I ask them if they’d mind getting a call on a Saturday morning with a toilet emergency. Or at 11 o’clock at night because the air conditioning isn’t working. Or when they’re out of town,” she says. “Even if they say ‘no,’ I still recommend a management company. I’ve had clients try to do without, and it just becomes too much.”

Patrick “PJ” Chapman, the owner of Chapman Properties in Boise, Idaho, and a regional vice president of the National Association of Residential Property Managers, frequently sees solo fliers go down in flames, especially long-distance landlords.

“It’s mostly people who have a house in Boise, they live in California, and they don’t have the means to do the background checks,” he says. “They just throw tenants in there and it turns out to be a nightmare. Those are the ones who run, not walk, to us.”

Do your homework first

Wente advises would-be landlords to consider the following before jumping in:

  • Insurance: “If you rent your home, your homeowners insurance is going to increase about 30% because it’s now not owner-occupied,” she sa
    ys. So-called “dwelling” policies also include a separate liability policy.
  • Equity: If you purchase a property to rent, you’ll need to have at least 20% equity in it to avoid having to carry private mortgage insurance, or PMI. “The good news is, that will allow you the opportunity to gain price appreciation on 100% of the property while having only 20% into it,” says Wente.
  • Your return: Start by figuring out how much you can charge for rent in your area and multiply by 12. Then deduct taxes, fixed expenses (such as mortgage payments, insurance and lawn maintenance), and utility and property management fees, if any.
  • Cash flow: “Chances are, your rental will be vacant from time to time,” Wente says. “Your next renter rarely comes walking in the next day.” How easily can you weather those nonrevenue spells?
  • Maintenance and repairs: “When repairs are needed, do you have a list of contractors you can depend on to get the plumbing fixed and the air conditioner back on?” Wente asks.
  • Fair Housing laws: The federal Fair Housing Act prohibits housing discrimination based on race, color, national origin, religion, sex, disability and the presence of children. “Knowing the law will help you stay in complete compliance with regard to safety issues,” says Wente. ” Not knowing will not protect you from legal action.”

Are you up to becoming a landlord?

Once you’ve determined you can afford to become a landlord, the next step is to weigh whether you’re up to the task. Pondering these questions will help:

  • Do you live on-site or nearby? If not, you may want to consider hiring a local property manager.
  • Are you naturally handy? Rental properties can require frequent, hands-on maintenance.
  • Are you familiar with your state and local landlord-tenant laws and neighborhood rental restrictions?
  • Do you negotiate well?
  • Are you good at resolving conflicts?
  • Do you mind being interrupted on nights and weekends?

Chapman says the landlord-tenant dynamic tends to thin the landlord herd fairly quickly.

“This business is about managing people and managing conflict,” he says. “Finding the right tenants, screening them, dealing with the different personalities and having to fight to get rent or deal with collections — most people just aren’t cut out for that.”

For an 8% fee, Chapman takes over the entire rental process, from running criminal background and credit checks on applicants to evicting delinquent tenants. Elsewhere in the nation, property managers charge as much as 10% or more, and often take a month’s rent to place new tenants.

“We just take the reins and assume a fiduciary role on their property,” Chapman says. “It’s worth it to them versus the headaches of trying to do it on your own with no knowledge of how to do it.”

Wente agrees. “A management company can handle all of those headaches for you,” she says. “Even as a Realtor, I wouldn’t attempt it myself.”

Help for DIY landlords

If, after careful reflection, you still want to try on “landlordship” single-handedly, there’s help available at the National Association of Independent Landlords, or NAIL. The California-based organization of landlords, property managers and leasing agents provides application and evi
ction forms, credit and criminal background reports, state landlord-tenant and federal Fair Housing Act guidelines, and electronic payment processing and monitoring to help landlords succeed.

“The most time-consuming part of being a landlord happens at the beginning and end of the lease,” says NAIL general manager Brittney Benson. “If you do your due diligence and identify good tenants, you’ll hopefully only hear from them once a year or if there’s a maintenance issue.”

NAIL plans to offer full-service eviction services in the near future to remove that stress from their landlords’ shoulders.

“It’s a hard business to be in for some people,” Benson admits. “But if they’re prepared and perform their due diligence, it can be very easy as well.”

This article originally appeared on Bankrate.

Ask the Attorney: Received Photos of the Rent Payment, but not the Actual Payment

AttorneyThe Landlord Protection Agency® presents John Reno, Esq., a highly experienced Landlord – Tenant attorney based on Long Island, NY.

Q:  Dear Mr. Reno:
This month, I did not receive rent for August so I called tenants and she said she already mailed her rent. She text me the picture of three (3) receipts of MoneyGram (money orders purchased receipts only) – not actual pictures of money orders. Also sent me the picture of receipt from grocery store’s of payment. Rent was $1050 but receipts were for $1150 payment. Rent is not received yet. On August 7th, I gave her 3 day notice to pay or quit. State is California. She called me and said I have all proof and I will fight. Can you please let me know if I am right giving 3 day notice? Can I proceed further if she does not pay within 3 days or what I should do in this case or should have done? Thank you in advance for your help! – Sam

A: So now we’re paying our rent with photos of money? You’re on the right track Sam. Next stop Eviction Court. Don’t stop until you have the green in your hand.

Should Landlords Set Up an LLC for a Rental Property?

create-llc-700x350If you own rental property, you’ve probably wondered about forming an LLC, a limited liability company.

Although there isn’t one answer that applies to all landlords, there are some compelling reasons to form an LLC and some reasons not to. Once you understand the basics, it’s still a tough decision to make. But you’ll at least be more knowledgeable when consulting with your financial advisor.

LLCs Protect Your Assets

The main reason people set up LLCs is to protect their personal assets. An LLC shields you personally from being sued, though your company could still face litigation.

For example, your tenant’s drunken friend falls down the stairs and got hurt. You’re the big pocket in this scenario. When the friend sobers up, he figures he can sue you on some trumped-up reason. If that happens, you’d be named in the lawsuit and would have to defend your own personal assets.

If your property were under an LLC, however, only the LLC’s assets would be under attack.

Lots of Tax Stuff to Know

LLCs have “pass-through taxation,” which means that the LLC itself doesn’t pay any taxes. Any income made passes to the LLC’s owner or owners.

If you are the only owner of the LLC, you would report your taxes the same way you probably do now, assuming you’re a sole proprietor. That simply means you own rental property but are not a legal entity.

If your LLC has more than one owner, such as you and your spouse, the LLC files a separate tax return. And that could cost you extra money if you use a professional to do your taxes.

You can set up an LLC as an S corporation or as a C corporation, perhaps to reduce taxes if you pay self-employment taxes.

How you’d set up your LLC and whether you should set one up at all for tax purposes are matters to discuss with your tax advisor who can help you determine which setup, if any, would benefit you most.

LLCs Aren’t Free

A good reason to not set up an LLC is that is costs money to do so. You can set up an LLC with your local State Corporation Commission, and pay a small registration fee (usually $50-$150).

Or, you can hire a services company such as LegalZoom, which should cost you several hundred dollars when all’s said and done.

If you have an attorney set one up for you, you’ll probably pay between $1,000 and $2,000.

Also, some states charge either annual fees or taxes in addition to the setup costs, and that could be a deal breaker for you. For example, California has a relatively inexpensive filing fee, but then it charges some hefty taxes each year. You would need to check what the fees and taxes for your state are.

Insurance Also Protects Your Assets

If you have rental property, you should have landlord insurance, called adwelling policy. This protects your rental property, and depending on your policy, it pays either cash value or replacement cost if catastrophe strikes.

You can also add loss of rental income to the policy. And you can get umbrella insurance on your dwelling policy to protect you from being sued.

The catch is that your insurance might not cover the total costs you incur. If that happens, your personal assets are at risk. Not so if your rental properties are protected under an LLC.

Moving an Existing Property with a Mortgage

If you already have a house you rent out, and you carry a mortgage on it, you might not be able to move that house to an LLC easily. This looks like a sale to the lender who might call in your mortgage, called a due-on-sale clause. You might lose out on your low-interest rate when you refinance, or you might not qualify for a mortgage anymore, depending on your circumstances, if that happens.

Keep Your Money Separate

If you do set up an LLC, be sure never to mingle your LLC money with your personal money.

If you head to the mall and use money from your LLC to buy a new outfit, or if you use your personal money to pay for a new garbage disposal for your rental property, a person suing you could claim that your LLC is not a separate entity.That could mean you lose your protection!

Consult, Consult, Consult

As you can see, the issue of whether to form an LLC is complicated, and each landlord’s situation differs. Now that you know the basics, consult with your financial advisor, your CPA or your attorney to find out whether an LLC will benefit you.

This article originally appeared on Landlordology.

Leasing the American Dream: Why Home Rentals Are Exploding

The Recent Growth of RentalsIs renting a picket fence the new American Dream?

You’ve probably seen the slew of reports recently confirming that homeownership is on the decline around the country — a trend begun during the Great Recession that has not changed during the recovery. The Census Bureau reported last month that the share of homeowners in America dropped to its lowest level since 1967 — since before humans walked on the moon!

This is not good news for renters. The more competition for rental units, the higher the prices. Zillow reported recently that rental prices were up 4.3% in June year over year, leading to this dismal proclamation by Zillow’s chief economist Stan Humphries: “Rents are insanely unaffordable on a historical basis in the United States right now.” Rent increases are far outpacing wage increases.

When rents rise like this, renters normally turn to purchasing homes. Mortgages offer one clear advantage over renting: fixed monthly payments. But housing prices are rising in many markets too, and the for-sale inventory is shrinking, Zillow says, meaning there aren’t many home bargains out there either.

The compromise between renting an apartment and buying a home is renting a single-family home. That’s traditionally a choice made by only a small number of Americans, but one of the trends-within-a-trend in the housing market is a tremendous surge in families doing just that. Here are some startling numbers from a recent report published by the Joint Center for Housing Studies at Harvard University.

‘Unprecedented’ Change

During the 1990s, single-family homes for rent grew at an average of 73,000 units annually. Pre-recession, growth jumped to 138,000. When the recession hit, that number soared to 513,000 annually. Add it all up, and one hidden consequence of the housing bubble burst is 3.2 million more American households rent their single-family home, rather than owning — a figure that accounts for nearly half the jump in all rentals post-recession.

“The recent growth of single-family rentals is unprecedented,” the Harvard report says.

Some of the reasons for this are obvious, some less so. Many Americans hit by the recession could no longer afford their house payments, or were no longer able to obtain mortgages because of bad credit scores or limited income. (You can check your credit scores for free on Credit.com to see how you compare to the average American.) Renting single-family, detached homes became an attractive option for this group. Also, single-family housing construction projects begun during the housing bubble became difficult to sell when the bubble burst. Builders rushed to convert them to rental stock.

“When rental demand began to climb after the housing bust, conversions of owner-occupied single-family homes to rentals accommodated much of this growth. These shifts also helped to stabilize for-sale markets, especially in the Sunbelt metros with the largest inventories of distressed and vacant single-family homes,” the Harvard report said.

So conversion to rentals helped restore order to neighborhoods plagued by foreclosures; but some now fear that as the trend continues, it’s another factor squeezing out young adults trying to start families. Investors noticing the solid returns on rental homes are gobbling up that excess single-family housing stock, and have begun renting out homes en masse.

Data from RealtyTrac demonstrates the trend. Owner-occupant buyers accounted for 63.2% of all residential single family home and condo sales in the first quarter of 2015, down from 68.6% a year ago, to the lowest quarterly level going back to the first quarter of 2011, the earliest quarter with data available. Meanwhile non-owner-occupant buyers — any buyer who purchased a property but has their property tax bill mailed somewhere else — reached a new high of 36.8% in the first quarter of 2015.

Bad News for Would-Be Buyers

This trend is having unfortunate consequences for would-be first-time homebuyers. First, those who might rent a single-family home as a transition stage are facing the same competitive atmosphere that all renters are — rental fees are rising. More important, investors who have no plans to occupy the homes they buy are pushing up prices on what would otherwise be low-priced starter homes for families.

RealtyTrac data hints that, in some markets, larger investors have pulled back slightly from single-family home purchases … but smaller “mom-and-pop” investors have taken their place.

“Investor activity continues to represent a disproportionately high share of all home sales activity in this housing recovery,” said Daren Blomquist, vice president at RealtyTrac.

And hot housing markets are a big target for investors — contributing to rising prices and rents.

“Among metropolitan statistical areas with a population of at least 500,000, Memphis, Tennessee, posted the highest share of institutional investor purchases of single family homes in the first quarter of 2015 — 14.1 percent — followed by Charlotte, North Carolina (12.1 percent), Atlanta, Georgia (9.6 percent), Jacksonville, Florida (8.5 percent), and Oklahoma City, Oklahoma (7.6 percent),” RealtyTrac says.

It all adds up to higher prices for families trying to move out of apartments and trying to find a home to live in, buying or renting. But the shift to a renter-heavy mix in neighborhoods might have longer-term social consequences, warns housing expert Logan Mohtashami, a loan officer in California.

“Are we at the beginning of a sociological movement away from middle-class home ownership and towards a cultural split between the investment property landlords and their renters both of whom may have less personal investment in neighborhood security, local schools and shared public facilities compared to primary homeowners,” he said. “The longer-term consequences of an unstable residential real estate market may be more serious than just the destruction of individual wealth. The ideal of middle-class homeownership may be at stake.”

This article originally appeared on credit.com.