Why Newly Built Homes Are a Better Deal Than You Might Think

Most first-time buyers don’t bother to look at new home listings in their home searches because they expect them to outside their budget. However, the same market forces that are making existing homes more expensive today are making new homes attractive, or at least worth a look for buyers who have saved hard and waited a long time to buy.

Newly built homes have customarily cost 15 to 25 percent more than comparable existing ones, based on national median price data that date back to the 1960s. But in recent homes, that difference has been shrinking as existing homes have been appreciating at a record pace, and newly built homes haven’t.

New home under construction with wood trusses and supplies against blue sky.New home under construction with wood trusses and supplies against blue sky.

The average new home in the U.S. went for $324,467 in June, 28 percent more than the $254,200 price for existing homes, according to data from John Burns Real Estate Consulting LLC, cited recently by Prashant Gopal of Bloomberg. That’s down from a 37 percent gap in 2015 and is the smallest difference since the end of 2010.

The price difference is forecast to continue to shrink as leading economists expect prices for existing homes to continue to rise in 2019 than this year, though at a slower pace. For three years, the inventory drought has driven existing home prices to record peaks, but the drought is slowly ending. Existing home price growth is up 48 percent from 2011 to 2017 and is likely to rise an additional three percent by the end of 2018.

With the housing recovery, home builders cranked up production and increasingly focus on building homes for new moderate-income buyers. The National Association of Home Builders reports that inventory of new homes for sale rose to 336,000 in October, but the median sales price fell 3.6 percent to $309,700, as the market for new construction shifts to less expensive townhouses and other lower-cost houses. Affordability is hurting home builders nearly as much as existing home sellers. Just as existing home sales fell for six months in the second and third quarters this year, new home sales are at a two and a half year low. First-time and move-up buyers, still looking for homes they can afford, rarely explore new construction in their markets.

Short inventories have been less of a problem for home builders, who sell as many of their homes as they can before they are built. In October 2018, there was a 7.4 months supply of new homes for sale in the nation compared to only a 4.3 months supply for new homes. A six months supply is considered normal.

The real payoff with a new home is what you get for the money.

Here are some of the “extras:”

  • The opportunity to personalize the house by choosing finishes, fixtures, decor, and even location.
  • A “honeymoon” period when everything is new, and repairmen aren’t needed.
  • With a new-construction home, many developers build repair costs into the price premium and include a builder’s warranty and manufacturers’ warranties.
  • Cutting-edge architecture and design, including kitchens and bathrooms.
  • The latest home automation, including energy-efficient heating, ventilation and cooling, and energy-efficient home appliances. New homes come wired for cable and internet.
  • Age and condition are important factors in appraising home values. Newer homes generally do better in this categories than older homes.

Adding these “extras” to an existing home could add 50 percent or more to its price.

Websites like Homes.com are helping buyers find new construction in their markets by including new listings among within their site for affordable homes. Or, home hunters can just search for new homes listed in a community search by price and location. Most new home listings are for homes that have yet to be built and were labeled “ready to build.” Buyers can reach out builders directly to answer questions and show the properties. Often, buyers can pick their location and provide input as the house is being built.

New home with an old country feel.New home with an old country feel.

Housing economists of all stripes realize that new homes are the only way to relieve the inventory shortage. Housing markets won’t fully recover until the housing stock can handle the demand of both millennials and their younger brothers and sisters of Generation Z, who are projected to be even larger than the Millennial Generation.

“To increase home ownership, more home construction is needed, which could be boosted by delivering regulatory relief to community banks, removing the lumber tariff, re-examining stringent zoning laws and training more workers for the construction industry,” says Lawrence Yun, chief economist at the National Association of Realtors.

A newly built home will always be more expensive than a comparable existing one, but it still may not be the best buy for you. If you’re at DIY whiz and don’t mind living in someone else’s house until you have the time and money to personalize it, you’ll probably be happiest with an existing home in need of a little love. If circular saws and plaster trowels aren’t your things, you’ll easily spend more on remodeling than a new home would cost — and you’d still own an older, aging house. Today millions of prospective first-time buyers are saving for a down payment, improving their credit, and waiting until existing home prices come back down to earth. Many move-up buyers desperate for more space feel as though the kids will be in college before they have rooms of their own. Meanwhile, mortgage rates, rents, and home values continue to rise.

As the price gap between new homes and existing homes continues to shrink, next year might be a good time for you to widen your horizons and see what new homes can offer.


Steve Cook is the editor of the Down Payment Report. He is a member of the board of the National Association of Real Estate Editors and writes for several leading Web sites, including Inman News. From 1999 to 2007 he was vice president for public affairs at the National Association of Realtors.

Source: homes.com

What Is a Bond Mutual Fund – Risks & Different Types of This Investment

Investing is an important part of saving for the future, but many people are wary of putting their money into the stock market. Stocks can be volatile, with prices that change every day. If you can’t handle the volatility and risk of stocks or want to diversify your portfolio into a less risky investment, bonds are a good way to do so.

As with many types of investments, you can invest in bonds through a mutual fund, which gives you easy diversification and professional portfolio management — for a fee.

Are bond mutual funds a good addition to your portfolio? Here are the basics of these investment vehicles.

What Is a Bond?

A bond is a type of debt security. When organizations such as national and local governments, government agencies, or companies want to borrow money, one of the ways they can get the loan they need is by issuing a bond.

Investors purchase bonds from the organizations issuing them. Typically, bonds come with an interest rate and a maturity. For example, a company might sell bonds with an interest rate of 5% and a maturity of 20 years.

The investor would pay the company $1,000 for a $1,000 bond. Each year, that investor receives an interest payment of $50 (5% of $1,000). After 20 years, the investor receives a final interest payment plus the $1,000 they paid to buy the bond.


What Is a Mutual Fund?

A mutual fund is a way for investors to invest in a diverse portfolio while only having to purchase a single security.

Mutual funds pool money from many investors and use that money to buy bonds, stocks, and other securities. Each investor in the fund effectively owns a portion of the fund’s portfolio, so an investor can buy shares in one mutual fund to get exposure to hundreds of stocks or bonds.

This makes it easy for investors to diversify their portfolios.

Mutual fund managers make sure the fund’s portfolio follows their stated strategy and work towards the fund’s stated goal. Mutual funds charge a fee, called an expense ratio, for their services, which is important for investors to keep in mind when comparing funds.

Pro tip: Most mutual funds can be purchased through the individual fund family or through an online broker like Robinhood or Public.


Types of Bond Mutual Funds

There are many types of bond mutual funds that people can invest in.

1. Government

Government bond funds invest most of their money into bonds issued by different governments. Most American government bond funds invest primarily in bonds issued by the U.S. Treasury.

U.S. government debt is seen as some of the safest debt available. There is very little chance that the United States will default on its payments. That security can be appealing for investors, but also translates to lower interest rates than other bonds.

2. Corporate

Corporate bond funds invest most of their assets into bonds issued by companies.

Just like individuals, businesses receive credit ratings that affect how much interest they have to pay to lenders — in this case, investors looking to buy their bonds. Most corporate bond funds buy “investment-grade” bonds, which include the highest-rated bonds from the most creditworthy companies.

The lower a bond’s credit rating, the higher the interest rate it will pay. However, lower credit ratings also translate to a higher risk of default, so corporate bond funds will hold a mixture of bonds from a variety of companies to help diversify their risks.

3. Municipal

Municipal bonds are bonds issued by state and local governments, as well as government agencies.

Like businesses, different municipalities can have different credit ratings, which impacts the interest they must pay to sell their bonds. Municipal bond funds own a mixture of different bonds to help reduce the risk of any one issuer defaulting on its payments.

One unique perk of municipal bonds is that some or all of the interest that investors earn can be tax-free. The tax treatment of the returns depends on the precise holdings of the fund and where the investor lives.

Some mutual fund companies design special municipal bond funds for different states, giving investors from those states an option that provides completely tax-free yields.

The tax advantages municipal bond funds offer can make their effective yields higher than other bond funds that don’t offer tax-free yields. For example, someone in the 24% tax bracket would need to earn just under 4% on a taxable bond fund to get the equivalent return of a tax-free municipal bond fund offering 3%.

4. High-Yield

High-yield bond funds invest in bonds that offer higher interest rates than other bonds, like municipal bonds and government bonds.

Typically, this means buying bonds from issuers with lower credit ratings than investment-grade bonds. These bonds are sometimes called junk bonds. Their name comes from the fact that they are significantly riskier than other types of bonds, so there’s a higher chance that the issuer defaults and stops making interest payments.

Bond mutual funds diversify by buying bonds from hundreds of different issuers, which can help reduce this risk, but there’s still a good chance that some of the bonds in the fund’s portfolio will go into default, which can drag down the fund’s performance.

5. International

Foreign governments and companies need to borrow money just like American companies and governments. There’s nothing stopping Americans from investing in foreign bonds, so there are some mutual funds that focus on buying international bonds.

Each country and company has a credit rating that impacts the interest rate it has to pay. Many stable governments are seen as highly safe, much like the United States, but smaller or less economically developed nations sometimes have lower credit ratings, leading them to pay higher interest rates.

Another factor to keep in mind with international bonds is the currency they’re denominated in.

With American bonds, you buy the bond in dollars and get interest payments in dollars. If you buy a British bond, you might have to convert your dollars to pounds to buy the bond and receive your interest payments in pounds. This adds some currency risk to the equation, which can make investing in international bond funds more complex.

6. Mixed

Some bond mutual funds don’t specialize in any single type of bond. Instead, they hold a variety of bonds, foreign and domestic, government and corporate. This lets the fund managers focus on buying high-quality bonds with solid yields instead of restricting themselves to a specific class of bonds.


Why Invest in Bond Mutual Funds?

There are a few reasons for investors to consider investing in bond mutual funds.

Reduce Portfolio Risk and Volatility

One advantage of investing in bonds is that they tend to be much less risky and volatile than stocks.

Investing in stocks or mutual funds that hold stocks is an effective way to grow your investment portfolio. The S&P 500, for example, has averaged returns of almost 10% per year over the past century. However, in some years, the index has moved almost 40% upward or downward.

Over the long term, it’s easier to handle the volatility of stocks, but some people don’t have long-term investing goals. For example, people in retirement are more concerned with producing income and maintaining their spending power.

Putting some of your portfolio into bonds can reduce the impact of volatile stocks on your portfolio. This can be good for more risk-averse investors or those who have shorter time horizons for their investments.

There are some mutual funds, called target-date mutual funds, that hold a mix of stocks and bonds and increase their bond holdings over time, reducing risk as the target date nears.

Income

Bonds make regular interest payments to their holders and the majority of bond funds use some of the money they receive to make payments to their investors. This makes bond mutual funds popular among investors who want to make their investment portfolio a source of passive income.

You can look at different bond mutual funds and their annual yields to get an idea of how much income they’ll provide each year. For example, if a mutual fund offers a yield of 2.5%, investors can expect to receive $250 each year for every $10,000 they invest in the fund.

Pro tip: Have you considered hiring a financial advisor but don’t want to pay the high fees? Enter Vanguard Personal Advisor Services. When you sign up you’ll work closely with an advisor to create a custom investment plan that can help you meet your financial goals. Read our Vanguard Personal Advisor Services review.


Risks of Bond Funds

Before investing in bonds or bond mutual funds, you should consider the risks of investing in bonds.

Interest Rate Risk

One of the primary risks of fixed-income investing — whether you’re investing in bonds or bond funds — is interest rate risk.

Investors can buy and sell most bonds on the open market in addition to buying newly issued bonds directly from the issuing company or government. The market value of a bond will change with market interest rates.

In general, if market rates rise, the value of existing bonds falls. Conversely, if market rates fall, the value of existing bonds rises.

To understand why this happens, consider this example. Say you purchased a BBB-rated corporate bond with an interest rate of 2% for $1,000. Since you bought the bond, market rates have increased, so now BBB-rated companies now have to pay 3% to convince investors to buy their bonds.

If someone can buy a new $1,000 bond paying 3% interest, why would they pay you the same amount for your $1,000 bond paying 2% interest? If you want to sell your bond, you’ll have to sell it at a discount because investors can get a better deal on newly issued bonds.

Of course, the opposite is true if interest rates fall. In the above example, if market rates fell to 1%, you could command a premium for your bond paying 2% because investors can’t find new bonds of the same quality that pay that much anymore.

Interest rate risk applies to bond funds just as it applies to individual bonds. As rates rise, the share price of the fund tends to fall and vice versa.

Generally, the longer the bond’s maturity, the greater the effect a change in market interest rates will have on the bond’s value. Short-term bonds have much less interest rate risk than long-term bonds. Bond funds usually list the average time to maturity of bonds in their portfolio, which can help you assess a fund’s interest rate risk.

Credit Risk

Bonds are debt securities, meaning they’re reliant on the bond issuer being able to pay its debts.

Just like people, companies and governments can go bankrupt or default on their loan payments. If this happens, the people who own those bonds won’t get the money they lent back.

Bond mutual funds hold thousands of bonds, but if one of the issuers defaults, some of the fund’s bonds become worthless, reducing the value of the investors’ shares in the fund.

Bonds issued by organizations with higher credit ratings are generally less risky than those with poor credit ratings. For example, most people would consider U.S. government bonds to have a very low credit risk. A junk bond fund would have much more credit risk.

Foreign Exchange Risk

If you’re buying shares in a bond fund that invests in foreign bonds, you should consider foreign exchange risk.

Currencies constantly fluctuate in value. Over the past five years, $1 could buy anywhere between 0.80 and 0.96 euros.

To maximize returns, investors want to buy foreign bonds when the dollar is strong and receive interest payments and return of principal when the dollar is weak.

However, it’s incredibly hard to predict how currencies’ values will change over time, so investors in foreign bonds should consider how changing currency values will affect their returns.

Some bond funds use different strategies to hedge against this risk, using tools like currency futures or buying dollar-denominated bonds from foreign entities.

Fees

Mutual funds charge fees, which they commonly express as an expense ratio.

A fund’s expense ratio is the percentage of your invested assets that you pay each year. For example, someone who invests $10,000 in a mutual fund with a 1% expense ratio will pay $100 in fees each year.

Expense ratio fees are included when calculating the fund’s share price each day, so you don’t have to worry about having cash on hand to pay the fee. The fees are taken directly out of the fund’s share price, almost imperceptibly. Still, it’s important to understand the impact fees have on your overall returns.

If you invest $10,000 in a fund that produces an annual return of 5% and has a 0.25% expense ratio, after 20 years you’ll have $25,297.68. If that same fund had an expense ratio of 0.50%, you’d finish the 20 years with $24,117.14 instead.

In this example, a difference of 0.25% in fees would cost you more than $1,000.

If you find two bond funds with similar holdings and strategies, the one with the lower fees tends to be the better choice.


Final Word

Bond mutual funds are a popular way for investors to get exposure to bonds in their portfolios. Just as there are many different types of stocks, there are many types of bonds, each with advantages and disadvantages.

If you don’t want to pick and choose bonds to invest in, bond funds offer instant diversification and professional management. If you want an even more hands-off investing experience, working with a financial advisor or robo-advisor that handles your entire portfolio may be worth considering.

Source: moneycrashers.com

Why Hiring An Attorney Makes You a Better Real Estate Investor

You’ve watched HGTV and read all the online forums. You’ve decided real estate investing is for you, and you’re salivating at the potential profits and wealth building opportunities. Maybe you bought a fixer-upper with grand plans to slap some new paint on the walls, swap out countertops, and then sell for a sizeable profit. Or maybe the passive-income landlord approach caught your attention. Either way, you’re probably intrigued by the potential of becoming a real estate investor, and it’s not hard to see why: real estate has consistently outperformed the stock market.

As a real estate investor, there are many hats to wear and multiple moving parts to reach success. An investor must constantly monitor accounting, deadlines, taxes, project management, local laws, marketing…to name just a few. But if you’re wise, you’ll add hiring an attorney to the top of your list. Investing in an experienced attorney can offer numerous benefits to a real estate investor from contract creation, conducting closings, offering legal advice, and creating LLCs and partnership.

Contract Creation

One of the critical points in investing is utilizing a contract that offers you the most protection. If you’re utilizing a licensed Realtor, they may have access to attorney approved state forms; however, if you’re buying off-market or selling For Sale By Owner, you need a comprehensive contract that will protect you as the buyer or the seller. Even if you are utilizing state Realtor forms, you have the right to have your own attorney review and approve them.

Seeking out an experienced Real Estate attorney to draft contacts will be worth the expense with the protection it can offer. Prior to buying- or selling- consult with your attorney about your goals, your needs, and even your fears. He or she can take those into account when drafting a contract that gives you the most benefit.

Conducting Closings

In some states, closings are routinely held at title companies; however, many states still utilize attorneys to conduct closings. Regardless where you live, you have the right to hire an attorney to conduct your closing. During the closing process, the attorney will review all the numerous documents you will sign and thoroughly explain them (and their risks!).

Title companies charge you to conduct closings but can’t offer legal advice. Your attorney, however, can do both. Consult your attorney about his or her fee to conduct a closing- and you may be surprised by how affordable it is!

Offering Legal Advice

As a seasoned real estate investor myself, I rely heavily on my attorney’s advice. Prior to starting any project, I consult my attorney about my future goals, potential risks, and reducing liability. These meetings do not have to be formal. In fact, the vast majority of communication is done via emails and phone calls.

While you may think you know what you’re doing, there are far more risks and liabilities looming than you may be aware of. A seasoned attorney can identify and mitigate those on your behalf. Kendel Grooms, Member Partner at Campbell & Grooms, PLLC in Little Rock, Arkansas reminds investors: “If the investor had any reason to be aware, or had the opportunity to become aware, of a defect or other situation with the property that was not immediately and adequately addressed, which later resulted in someone getting injured or having their property damaged, there is a high likelihood of exposure to legal liability.” Both landlords and house flippers operate with the potential for liability, but seeking competent legal advice can help you to mitigate those before they land you in court!

Creating LLCs and Partnerships

For both financial and liability reasons, a real estate investor should consider forming a partnership. There are multiple types and consulting an attorney can provide you with the most logical choice for your situation and goals. Grooms says that while “the primary benefit is for tax deductions and benefits…the secondary benefit is shelter from liability.”

The primary tax benefit of an LLC, according to Grooms, is that it “can use pass-through status to create above-the-line deductions that would not normally be available to a sole proprietor or individual not using a corporate entity for business dealings.” Hiring an experienced real estate attorney can help your bottom line by setting up partnerships to offer you more favorable treatment on your taxes.

The other substantially appealing benefit of an LLC is mitigation of liability. However, setting up an LLC or partnership does not immediately relieve an investor of all liability. Grooms states that “This is limited depending on how the LLC is to be operated.” The counsel of a real estate attorney can provide you with direction on how to set up your LLC, how to run day-to-day operations, and where the potential risks lie in the process.

Greater the Risk, Greater the Reward

Ask any experienced investor or attorney, investing in real estate can be risky…not just financially, but legally. Don’t let the risks hinder you from starting your real estate investing journey, however. Operating wisely and legally will offer you the most protection. Recognize you aren’t capable of doing it all or knowing it all and surround yourself with those that are knowledgeable and experienced to help you. Mr. Grooms’ final words of wisdom to real estate investors: “If you have any doubts about making a specific deal or transaction, do not do it. You cannot get burned by a bad or risky deal if you back out of it.”

Reminder, when seeking legal counsel, seek out a seasoned real estate attorney. Not all attorneys specialize in real estate, so finding one that is experienced and knowledgeable in this field is essential!


Jennifer is an accidental house flipper turned Realtor and real estate investor. She is the voice behind the blog, Bachelorette Pad Flip. Over five years, Jennifer paid off $70,000 in student loan debt through real estate investing. She’s passionate about the power of real estate. She’s also passionate about southern cooking, good architecture, and thrift store treasure hunting. She calls Northwest Arkansas home with her cat Smokey, but she has a deep love affair with South Florida.

Source: homes.com

5 of the Best Cities to Move to in Arizona

If visiting a natural wonder like the Grand Canyon is on your bucket list, set your sights no further than the state of Arizona. You’ll be able to soak up exquisite sunsets, visit wineries, enjoy endless outdoor activities and more. Plus, its easy enough to take side trips to California, Lake Mead, Mexico and Las Vegas.

Desert beauty aside, Arizona has done a lot in recent years to make the most of its dry climate and abundance of sunshine. It’s pushed for clean energy and solar power. As a result, homeowners who choose the sustainable route may be eligible for tax rebates. SolarNation also reports that they can save as much as 70 to 100 percent of their total electric bill.

Where is the best place in Arizona to live?

Whether you’re new to Arizona or a current resident deciding to make a fresh start in a new city, planning a move starts with choosing the perfect location. To help you weed through all the data, weve compiled a list of some of the best places to live in Arizona. You’ll want to think about whether you prefer a big city or suburb and any other factors that tip the scale for you.

1. Phoenix, Arizona

A thriving city with natural vistas, Phoenix Arizona is one of the fastest growing cities in the nation. The Valley of the Sun is home to start-ups, entrepreneurs, and Fortune 500 companies alike, such as Avent and ON Semiconductor. Aside from dry heat and authentic Mexican food, Phoenix has great terrain for hiking, mountain biking, cycling, fishing, rock climbing, tubing, golf and horseback riding. Its also reputed to have light traffic and an affordable light rail.

Top on Niche’s list for families are Gilbert, Chandler, and Atwatukee Foothills. For millennials, Camelback East and Encanto score high rankings.

Median home value (Census 2017) $197,800.

2. Tempe, Arizona

If you’re inclined to rent, and prefer the suburbs and need nightlife, Tempe might be the right city for you. Smaller than Phoenix, the recent population count here is more like 185,000 give or take. Here you’ll find a mostly young professional vibe which brings restaurants, cafes, shopping, concerts, and lots of beautiful geology. Public schools are also really good.

Homesnacks likes neighborhoods such as Broadmor, Alta Mira, and McClintock. Digging deeper though, Tempe may not be among the safest places in Arizona so check on crime data to see whats what.
Median home value (Census 2017) $237,200.

3. Prescott, Arizona

Prescott takes desert living to new heights. Because its so close to the Prescott National Forest, Prescott has more flux in temperatures. Here you’ll have to limit your use of electricity at night, which means clearer views for astronomy enthusiasts. There are also several lakes nearby (Lynx, Willow, Watson, and Goldwater) which adds value if you love the outdoors. It has a small population for the state (42,731) and you’ll get a taste of the Old West on famous, Whiskey Row.
Median home value (Census 2017) $301,600.

4. Mesa, Arizona

If you’re in the market for a new townhouse, single-family home or lot that you can develop, you might look into Mesa. It has an interesting personality between the Mesa Grande ruins, an annual chicken wing festival, and several cultural attractions like the Commemorative Air Force Museum. You can also find hiking trails, go tubing, play golf, and pick oranges in season. For the middle-class suburban feel, with amenities that go with a population of 496,401, Mesa ranks as one of the best cities to buy a house in the U.S.
Median home value (Census 2017) $197,800

5. Scottsdale, Arizona

According to Niche, Scottsdale is one of the larger cities in Arizona (population 249,950) and often pops up as the best place to retire. It would be accurate to say there are sprawling adobe roofed mansions, luxury golf courses, and excellent spas here. What you may not know is Scottsdale still attracts young professionals and those who want good public schools for their children (Old Town Scottsdale, Arcadia). Its also one of the safest cities in the state. You’ll stay healthy through weekend hikes at the Sonoran Preserve or shopping for organic produce at a local family farm. Also a great place for that hot-air balloon ride you’ve always wanted.
Median home value (Census 2017) $433,500


Rana Waxman parlays years of work experience in several fields into web content creation aligned with client needs. Rana’s versatile voice is supported by a zest for research, a passion for photography, and desire to provide clients with a purposeful presence online. In her non-writing hours, Rana is a happy yogini, constant walker, avid reader, and sometimes swimmer.

Source: homes.com