Earlier this week, a few real estate market survey results were announced in the media. This could be good news for house shoppers. In January, prices of homes on average were 11% lower than prices of homes at the same time last year. These results are based on the S&P Case/Shiller index, which collects actual sales prices.

Here are the metropolitan areas included in the survey and the associated 12-month sales decline (or increase in some cases).

In addition to the national price decline, more people were buying houses in February. According to the National Association of Realtors, an organization whose members would benefit from any positive spin on the housing market, sales by homeowners increased by 2.9% from January to February.

I live in the New York metropolitan area. According to the numbers above, our price decline was less than the average, which has me thinking that there may be more declines ahead. Unfortunately, I can’t predict the future. I’m not shopping for a home right now, so I’m not plugged into the market. I don’t have the desire to lock myself into one location for the long-term and furnish and maintain a home, especially on my own. I’m wondering how much longer I’ll feel this way, however.

When I made the decision to settle down, it will not be a financial decision based on market trends. I will buy when and if the right time arrives for me. I’ll try to make the best buying decision at that time while taking the market into account.

Most people moving from one house to another are buying and selling at practically the same time. This negates the basic effects of the market; the disadvantage you have on one side of the transaction is the advantage you’ll have on the other side. If you’re buying your first house, you don’t have the benefit of the flat market, so perhaps the state of the industry should play a bigger role in the decision.

Would you wait for more positive market signs before buying a house—particularly if you’re buying your first house?

Home prices: Down record 11% [CNN Money]
Home sales rise on biggest-ever price drop [CNN Money]

As my partner and I are active landlords and property investors, it’s no surprise that people approach us with real estate offers. Sometimes they’re great deals, too – people occasionally inherit properties they want to get rid of quickly and therefore cheaply, or learn of a house at a great price that just isn’t selling. With the current housing market downturn, it’s happening more and more.

Recently, a good friend approached us when a realtor suggested he look into renting his house instead of selling it. Though his house was on the market and he was looking to find a buyer, he’d instead gotten an offer from a prospective tenant. Since he wasn’t interested in becoming a landlord, he came to us.

You’ll know from my Ten Tips for Buying a Residential Rental Property series that I closely evaluate all real estate decisions according to a number of criteria including price, location, structure, size, maintenance issues, safety and local regulations. I called upon those ten critical commandments yet again as I analyzed the opportunity. Read the rest of this article »

For some reason, I will never get out of my mind someone once told me shortly he purchased a house he couldn’t afford (and knew he couldn’t afford) with a risky mortgage. He said, “I’m not worrying. Real estate prices never go down.” I wasn’t about to get into an argument; he was a former football player and I was a former clarinet player.

The National Association of Realtors (NAR) said on Thursday that the median price of homes sold in December fell nearly 6 percent from a year earlier to $208,400. The three biggest declines in prices ever recorded have now come in the last four months.

That sounds to me like we’re in a downward trend. Anyone else agree? Merrill Lynch does. The company forecasts a 25% to 30% decline over the next three years in home prices. With predictions like these, I’m glad that I’ve had no reason to purchase a house in the last few years, particularly a house I may need to sell within a few years of buying.

Timing the housing market, like timing the stock market, can lead to financial ruin more often than not. When it comes to finally getting around to buying a house, I’ll do it when I’m ready, finding the best deal for what I want. Even though I’ll have to be aware of market conditions, when the time comes, I may not have the option of waiting for the market to begin improving.

On the one hand, your own home should not be viewed as an investment or worse, counted on to fund your retirement. It’s easy to forget that one spends an incredible amount of money to maintenance and upkeep expenses when you own a house. When people talk about the money make when they sell their house, they simply subtract the purchase price from the sale price, conveniently forgetting about all the expenses they paid, which should be added to the purchase price to determine the real profit.

On the other hand, a home is a major purchase. When spending so much money, it is prudent to consider market conditions, if not to help time your purchase, to at least be aware and prepare for risks that lie ahead.

Sometimes it can be better financially to continue renting than to buy. Would you (or did you) delay or rush the purchase of your home due to perceived market conditions?

Image credit: ♥ellie♥
Homes see first annual price drop on record [CNN Money]
Merrill Lynch says U.S. nationwide home prices may fall 30% [MarketWatch]

One of my dilemmas is the difficulty I’ve had with determining where I’d like to live when I retire some day. In fact, I’m having enough trouble deciding where to live next year. While I should probably solve the more immediate issue first, I still think about how I’d want to live in the future.

This year, I started throwing something around 25% of my overall income into retirement accounts. Of course, I wouldn’t be able to do so without the extra side business income. I don’t want to struggle financially when I finally quit the traditional working lifestyle, so I’m trying to prepare for that today while still making the most of my life in the present.

Recently, Sasha wrote about 10 exotic, affordable retirement havens. This type of living would certainly be an option, but what if I want to stay close to my family? Thirty years from now, retiring in the United States just may not be affordable.

Apparently, there’s an option I never considered. The government is selling off its lighthouses, and retirees looking for “adventurous” living are picking them up. After historical societies have had their pick of the best locations, the remainders are made available to private buyers. I’m more of a land-lubber, so this isn’t going to be my first choice, but I find the idea fascinating.

If you have $30,000 to $200,000 to spare and you’re looking for a location with unpredictable weather and… well, water, then perhaps you would consider purchasing a lighthouse and remodeling it. It could be an interesting life.

For the Golden Years, a Bright Idea [Barron’s]

We’ve been discussing Britney Spears’ reported poor financial management strategy lately. A recent court report described her overspending and lack of investment, although this may have been a part of her spousal support strategy. She must have financial advisers on her payroll, right? There must be more to the story.

Nevertheless, I’m not stepping up to Britney’s defense. Several commenters did. Meg says:

For better or worse, she has many streams of passive income that will likely be there long after she dies no matter WHAT she does. Sure, she could be a billionaire or incredible philanthropist if she tried, but she’s not exactly being financially reckless—emotionally and mentally and physically reckless perhaps, but her finances are pretty strong.

Kris agrees:

I’m going to with Meg here… It’s the same reason Michael Jackson will never go broke, despite reports of his overspending. Besides the rights to his own music, Jacko owns the entire Beatles catalog. (He outbid McCartney for it in 1984.) He will never, ever live poorly, since he’ll always collect residuals.

Funny you should mention Michael Jackson. Perhaps jealous with the media attention given to Britney’s finances, Michael’s Neverland Ranch is entering foreclosure due to over $212,000 in missed mortgage payments. We all know he has the income, so why do his financial advisers allow this to happen? Unless they really believe the value of the Ranch is less than what is owed, why would they want to lose this asset due to neglect?

I don’t mean to dwell on celebrities. They’re just normal people with normal problems, but with the added “bonuses” of lots of media attention and lots of money. The media feeds right into our schadenfreude, and we never receive complete information. There is more to these stories we don’t know. It’s fun to draw our own conclusions, especially when situations involve people who seem somewhat less than real.

Michael Jackson Neverland Ranch Appears in Foreclosure Report [Implode-O-Meter]

Are you looking forward to a Red Sox win in the 2007 World Series? Even if you are, you’re probably not anticipating the win as much as some Sox fans. Jordan’s Furniture, a company in New England owned by Warren Buffett’s Berkshire Hathaway, is giving some customers a reason to root, root, root for the home team.

Consumers who bought a dining room table, sofa or bed at Jordan’s between March 7 and April 16 will receive a rebate of the purchase price. The company, which has an insurance policy to cover the costs of the promotion, wouldn’t disclose the value of the merchandise bought during the five-week period, or details of the insurance policy.

This is great for Jordan’s Furniture. Even if the Red Sox win, those refund checks will not put a dent in the company’s financials. They’re already paying for the insurance policy, and that insurance company will provide the lucky customers with their money back.

Good luck to everyone who is hoping for a Red Sox victory, whether it’s because of the possibility of free furniture or just standard fandom.

Buffett-Owned Store Giving Away Furniture With Red Sox Win [Bloomberg]

This is the last tip in a 10-part series on purchasing residential rental properties based on my experience.

10. Utilities can use you up, so be careful.

Utilities can be a major issue for landlords if not set up properly. If you supply utilities to your tenants, you are generally not permitted to terminate these for nonpayment or other issues, and penalties can be severe.

Want to keep the bills in your name but have the tenants pay their portion to you? The law does not generally allow you to collect if they default on these sums, so you may risk losing out if the tenant stops paying their portion of the utility. Plus, you are still required to furnish them with these utilities, even if they fail to pay. Unless you can incorporate a flat fee into the monthly rent figure which covers your expenses even as costs continue to rise, it is best to insist that tenants pay utilities directly, under their own name. Then, in the event of default, you are not responsible.

This means that properties containing 2 or more rental units need to have split utilities; separate furnace, hot water heater, meters, etc. It is much easier and cheaper to purchase an already-split property than to try to do this yourself, so this is an important factor when you are looking at multiple-unit properties. Duplicate systems will mean more maintenance costs over time, however.

In addition, you should look into whether a property has gas heat , electric heat or oil heat and understand the issues involved. Electric heating systems can be very expensive, and therefore undesirable for tenants. Oil heat, while better-priced, can involve more system maintenance, since if the oil runs out, the system needs to be bled by a technician before the new oil will enter the system and begin heating. Based on technician availability, this can mean a few days without heat if the tank runs out and you don’t schedule ahead to ensure a seamless transition. Gas heating is generally the simplest to maintain from a landlord perspective, since if the gas company ceases to be paid, they cut off the gas supply, but can quickly reinstate service once payment is received.

This is the ninth tip in a 10-part series on purchasing residential rental properties based on my experience.

9. Bigger is not always better.

As your property size and square footage help to determine your tax rate, an acre or more of land really isn’t necessary. You’ll mow it (or pay to mow it) and pay extra taxes for it, but beyond increasing overall property value, it won’t do much as far as rental income goes unless you have plans to build an addition or another rentable structure on the lot.

Neither will room size. As long as you meet the minimum bedroom requirements required by the township or city, more square footage per room doesn’t necessarily help. 4 small- to medium-sized bedrooms may actually produce better income than 3 large bedrooms.

Common interior space (living rooms, dining rooms, family rooms, etc.) is great in moderation, but too much can become a problem. Although this space is factored into your property taxes, it can be difficult to actually produce income from this extra space. Plus, if you give your tenants the perfect party house, your property may see a lot more traffic and wear and tear than you intended, and repair and maintenance costs will go up accordingly.

One of our rental properties featured a lovely but immense bar in its finished basement, which we immediately earmarked for removal. The small extra initial cost has paid off in the long run, especially when we decided to rent to college students. If our goal was to flip the house, we might have left it, but for our intended use it was more of a liability.

The optimal rental property for tax purposes is a solid structure on a relatively small lot with adequate distance from the neighboring properties to diminish noise. It features a number of small- to medium-sized bedrooms, and has enough space for the tenants to comfortably congregate without substantial excess.