Tag Archives: MainStreet.com

Building Emergency Funds

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Rainy Day Fund

MainStreet.com quoted me in Here’s How to Build a Sturdy Household ‘Cash Crisis’ Fund. It reads, in part,

Americans aren’t big on emergency savings funds: only four in ten U.S. adults have one, according to a 2015 study by Bankrate.

But if your Jeep Cherokee needs $1,000 worth of transmission work, or you need to cover a $6,500 health care plan deductible in a medical emergency, a household rainy day fund may be one of the best insurance policies you’ll ever own.

Before we get on the path to starting a savings fund quickly and effectively, understand first that an emergency fund and a rainy day fund are two different animals. A rainy day fund is smaller in size than an emergency fund: whereas $1,000 might form a good rainy fund, a decent-sized emergency fund should have between $3,000 and $10,000 in cash.

The key to building both, however, is similar – just get started.

“Jump start an emergency fund with a windfall like a tax refund, profit sharing check, stock sale, or an inheritance,” says Sharon Marchisello, author of the book Live Cheaply, Be Happy, Grow Wealthy.

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Once you have accumulated a decent-sized emergency fund, don’t take the experience for granted.

Building the perfect emergency fund calls one part diligence, one part creativity, and one part patience. Put all three together and sleep easier at night as your safety net fund grows accordingly.

Millennials and Homeownership

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photo by flickr@tonywebster.com

TheStreet.com quoted me in Millennials Are Accruing Less Debt, Bypassing Homeownership. It reads, in part,

Millennials are accruing less debt than their counterparts did back in 2003 — despite being saddled with large amounts of student loans — because they are putting off buying homes.

The research conducted by Torsten Sløk, a Deutsche Bank international economist, shows that Millennials, ages 25 to 35, attained less debt in 2015 than their counterparts did in 2003. The data demonstrates a 29-year old in 2003 had an average debt amount of $41,761 compared to $36,810 in 2015 or a 33-year old owed $56,859 in 2003 and $52,640 in 2015.

“It is an urban myth that the young generation today is more indebted, it is the older generations that have higher debt levels,” said Sløk in a research note. “The reason is that since 2009, it has been difficult for Millennials to get a loan. As a result, 25 to 35 year olds today have less debt than in 2003.”

Debt has been “harder to obtain” for Gen Y-ers whether they are credit cards or mortgages, said Jim Triggs, a senior vice president of counseling and support of Money Management International, a Sugar Land, Texas-based non-profit debt counseling organization.

“Millennials have not been inundated with easy to obtain credit cards like in past years,” he said. “Creditors are not on college campuses offering credit cards to college students any longer.”

While Millennials are saddled with record levels of student loans because of the skyrocketing costs of college tuition and the ease of obtaining these loans, Millennials “continue to have less credit card and mortgage debt than their parents and grandparents,” Triggs said.

The level of student loan debt is hindering borrowers ages 18 to 35 from paying for necessities such as rent, utilities and even food as 43% expressed this sentiment, according to the National Foundation for Credit Counseling’s 2016 consumer financial literacy survey, said Bruce McClary, a spokesman for the Washington, D.C.-based national non-profit organization.

“There is a staggering amount of student loan debt and it is a burden for many,” he said.

Homeownership Delays

Although Millennials have expressed the desire the own a home in the future, they are keen to keep renting in part because many of them switch jobs frequently, have not amassed a down payment or do not want the financial commitment. The zeal to pursue the “American dream” of owning a home has waned.

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The assumption that home values would rise faster than other investments has been challenged since the Great Recession, said David Reiss, a law professor at Brooklyn Law School.

“One big issue is the role that home ownership plays in wealth creation,” he said. “The bottom line is that homeownership can help build a nest egg for retirement, but long-term trends and individual decisions about homeownership will have a big impact as well.”

The Road to Rent-To-Own

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Rent To Own Sign

TheStreet.com quoted me in Rent-to-Own Homes Can Be a Risky Option for Buyers. It opens,

Instead of shelling out thousands of dollars to rent a home each month, some landlords give their tenants the option to buy the home while they are leasing it — using the rent they’ve paid as a credit toward their mortgage downpayment.

But while rent-to-own options appear like a winning proposition for potential homeowners who have not been able to save up enough money for a down payment or lack a good credit score, these deals can be fraught with many setbacks.

Each state is governed by different laws, and some of them protect homeowners in case they fall behind on payments, said David Reiss, a law professor at Brooklyn Law School. This is a crucial point that needs to be addressed with a lawyer before the contract is signed, because a consumer could end up “losing everything” that he had paid toward the house if he loses his job, Reiss added.

“Rent-to-own transactions can be very complicated and there are fewer consumer protections available, so interested buyers should beware,” he said. “There are a lot of shady operators out there.”

Reiss on Foreign Buyers in NYC

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MainStreet.com quoted me in Foreign Buyers Driving Up Rental Prices Impacts New York Residents. The story opens,

Emir Bahadir, a native of Turkey, purchased two apartments in Manhattan for the purpose of renting them out. The 24-year-old paid a total of $9 million for the apartments in the West Village and Chelsea and earns some $40,000 a month in rental income.

”Entry into the real estate market in Manhattan by the foreign buyer has become easier because of technology,” Bahadir told MainStreet.

As a result, foreign buyers are increasingly coming into the Manhattan market and buying properties worth $2 to $5 million for the benefit of rental income. That can push rental prices higher for those on Main Street.

“[Foreign buyers] are not keeping them empty but filling them with tenants,” said Tamir Shemesh, a Realtor at the Corcoran Group. “A $2 million apartment can be rented out for as much as $8,500 a month, while a $3 million apartment can go for $11,000 to $12,000 a month.”

The tenants who can afford to pay thousands a month in rent are largely foreign as well.

“The reason we invest in real estate in New York is because of the exorbitant amount of rent that people are willing to pay,” Bahadir said. “That doesn’t happen anywhere else except in the U.K., but because of complications in the Middle East, London is not so popular these days.”

The downside for Americans is that escalating prices impact the overall rental market.

“It lets landlords know what the ceiling is and may encourage them to reach for it,” said David Reiss, professor with Brooklyn Law School.

Reiss on Avoiding War

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MaintStreet quoted me in How to Avoid War Between Homeowner Associations and Residents. It reads in part,

When Robert Stern moved into the Sedgefield retirement community in Ocean Isle Beach, N.C. four years ago, all he could see was four golf courses, a pool and club house on multiple wooded acres.

“Our home is on the 14th hole of Lion’s Paw golf course where there is beautiful water lining the green,” Stern told MainStreet. “It is common to see egrets, herons, geese, turtles and other wildlife coming in and out of the area.”

But lurking under the beautiful scenery was the Homeowners Association, which Stern discovered when he left for six months to live in his Nevada retirement home. Stern is among the 63 million Americans living in communities across the country under the jurisdiction of an HOA, according to the Community Association Institute.

“Our property was being neglected and is currently a mess and the dysfunctional Sedgefield Committee won’t take responsibility for not having performed contractual compliance inspections,” said Stern.

“An HOA is a double edged sword,” said David Reiss, professor of real estate with the Brooklyn Law School. “HOAs allow residents to have a lot of sway over their environments but they also make decisions that individual residents don’t like. If you don’t agree with the decision, whether it be over a big or small issue, it can grate no matter what the decision is.”

How to Resolve Disputes

Resolving a dispute with an HOA can involve litigation or joining the club.

“When it comes to the tyranny of the board, we have met the enemy and it is us,” Reiss told MainStreet. “A very effective technique to contest a decision with which you disagree is to run for the board.”

Under most HOAs, boards are elected by residents.

“Those who are willing to do the work end up calling the shots,” Reiss said.

Reiss on Housing Shortgage

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MainStreet.com quoted me in Housing Shortage Presents Challenges for Buyers. It reads in part,

While the housing demand continues to outpace supply in various urban pockets around the U.S., potential homeowners are faced with competing bids from other buyers.

The pent-up demand has created bidding wars from New York to San Francisco, putting additional pressure on homebuyers, many who are buying their first home in an unprecedented climate.

Despite weaker job growth, there remains a shortage in housing supply to satisfy current demand, said Jeff Meyers, president of Meyers Research, a Beverly Hills, Calif. data provider for real estate. Job growth is expected to pick up throughout this year, which will only increase demand. Unemployment will finish at 6.4% in 2014, which will be its fourth consecutive year of improvement, according to a forecast from Zonda, a mobile application for the residential homebuilding industry.

While all local markets experience their own dynamics and quirks, areas such as San Mateo county in California have more demand for housing because of a strong job market and limited development activity compared to weak demand in Wayne County in Michigan due to poor labor market conditions and an embattled housing market, he said.

Consumers with extra cash have the upper hand in trying to win a bid, especially in markets such as Manhattan where demand for a two-to-three bedroom apartment has pushed prices up to the $1.5 million to $3 million range, said Kinnaird Fox, director of development at Fenwick Keats Real Estate in New York which specializes in residential properties.

“This fierce competition created bidding wars with nearly every new listing since the beginning of 2014,” she said. “Cash rules for obvious reasons in a market like this.”

The bidding war frenzy has turned off many qualified buyers who are wary of the increase in prices, Fox said.

“Despite what seems like a booming sellers’ market, many qualified buyers may be looking, but choose not to jump in,” she said. “With buyers losing out on their bids, buyer fatigue sets in and some withdraw from the market. One could say the lack of inventory masks the actual demand.”

While some cities have a weak demand for housing, many have an even weaker supply, which yields in a housing shortage, said David Reiss, professor of law at Brooklyn Law School in New York.

“Some communities place severe restrictions on new housing construction so even modest upticks in demand can push rents and prices higher,” he said.

Buyers should not forget the fundamental rule of real estate. Location can have far reaching effects, especially if you are moving a significant distance, said Reiss.

“Perhaps first and foremost, ask whether the house you are considering is the right one for your family,” he said. “If the answer is yes, then you are probably on the right track because a house is first and foremost a home and secondly an investment.”

Reiss on Paying off Underwater Mortgages

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MainStreet.com quoted me in What Bills Should You Pay First? It reads in part,

Consumers started prioritizing their mortgage payments ahead of their credit card payments as of September 2013, according to a new TransUnion study.

This reverses a trend that began in September 2008 when the mortgage crisis drove consumers to pay their credit cards bills ahead of mortgages. Consumers have placed an emphasis on paying their auto loans before their mortgages and credit card payments by a wide margin – since at least 2003, TransUnion said. The study obtained anonymous consumer information from December 2002 through December 2012, and each monthly sample included about 2.5 million consumers.

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Many consumers were faced with devaluing home prices and chose to preserve their credit line, said David Reiss, professor of law at Brooklyn Law School in New York.

“The underwater mortgage may have seemed like a sinkhole when prices were dropping and putting limited funds into it might have seemed like throwing good money after bad,” he said. “When a household’s income can’t cover all of its expenses, it has to prioritize its payments. If the mortgage is underwater, it may make sense to use those limited funds to protect assets that are integral to daily living and wage earning like an auto or to focus on tools like credit cards that may have some use going forward, if there is still any available credit left.”

Homeowners have reversed that logic with the rebound of housing prices, Reiss said.”If homeowners have equity in their home from those rising prices, prioritizing the mortgage protects that equity and keeps the household in the house to boot,” he said. “Not everyone makes such a calculation, but many do.”