Tag Archives: upkeep

Risks and Rewards of Downsizing

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photo by Lars Plougmann

The Deseret News quoted me in Why The Young and Old Are Embracing The Rewards of Downsizing. It reads, in part,

Not very long ago, living with less implied money problems or a lack of professional success.

No longer. From younger and middle-aged professionals to retirees, more people are embracing the rewards of “downsizing” — a term that can mean anything from ridding yourself of unnecessary possessions to opting for a less spacious home.

“Downsizing your home can make sense,” said artist and designer Pablo Solomon. “You can save on energy costs, insurance, taxes and upkeep.”

But don’t cart stuff out to the dumpster or plant the “for sale” sign in the front yard just yet. First, consider the varied ways that downsizing can streamline your life.

Home, sweet (downsized) home

One of the most ready targets for would-be downsizers is their home. Perhaps they’ve recently retired and want to retire extensive upkeep responsibilities as well. By contrast, younger people might embrace the greater simplicity that can come from a home that better matches their lifestyle.

But downsizing is not the remedy for other issues, Solomon said, that need a different — and sometimes less costly — approach: “Don’t downsize to be part of a trend or fad or to escape depression or make a ‘statement,’” he said.

Approach downsizing your home as you would any sort of housing decision. Consider space, amenities and any associated costs — only from a particularly budget-conscious perspective.

“Think about the long-term needs you will have for the next 20 to 30 years. Don’t select a place to live temporarily — the costs of moving are high and the cost of buying and selling homes is also high,” said Linda P. Jones, host of the “Be Wealthy & Smart” podcast. “Think before you make a decision and be sure about the move you are making so you won’t have to do it again.”

Another way to approach downsizing a home is what Jodi Holzband of the self-storage search website Sparefoot referred to as “rightsizing” — beginning with basic living requirements and, from there, thoughtfully adding on those features that are of genuine importance.

“Focus first on your needs — essential living items like your bed, clothing and toiletries,” she said. “Then focus on what you love or value — the touchstones of life such as pictures, memorabilia from home, vacation souvenirs, high school pennants and varsity jackets. Look to the space you have and limit what you take in this second category based on space.”

Lastly, don’t ignore possible tax consequences of moving into a smaller space. For instance, retirees who have owned a home for a long time may have acccumulated a great deal of equity. As David Reiss, a professor of law at Brooklyn Law School, noted, capital gains that exceed a certain amount (generally, $250,000 for one person, $500,000 for a married couple) are taxable. Check with a tax professional to gauge your situation.

Buck-A-Home

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abandoned house

The Saint Louis Post-Dispatch quoted me (from an AP story) in Kansas City Presses To Sell Eyesore, Vacant Homes for A Buck. It reads, in part,

Drawn to the idea of buying a house for just a buck, Dorian Blydenburgh paced through the century-old digs in south Kansas City and didn’t mind tree limbs on the living room floor, holes in the ceiling and a funky mold smell.

“This is one everyone is gonna want, and there’s gonna be a fight for this,” said Blydenburgh, 56, a contractor looking at the three-bedroom, 1,500-square-foot house at 4124 Chestnut Avenue as a makeover prospect for a friend, who later applied to buy it. “Some of these places you need a bulldozer to fix, but this is doable. For a dollar, it looks like a go.”

That’s what Kansas City, Mo., officials were hoping to hear. The city and the Land Bank of Kansas City have offered 130 derelict, generally unlivable structures for sale for $1 each to those willing to make them livable again within a year. The buyer’s reward is an eventual $8,500 rebate — the amount it would have cost the city to flatten the houses.

*     *     *

But it’s buyer beware. Applicants must undergo a background check — applicants who are registered sex offenders or have drug-dealing or prostitution convictions are disqualified — and prove through bank statements or unused credit card limits they have at least $8,500 to devote to the rehab.

Ultimately, the program’s backers warn, rehabbing the properties might cost tens of thousands of dollars, perhaps involving installing or repairing roofs, electrical systems, plumbing, heating and air conditioning or foundations. And that’s beyond the cost of tackling troubling unknowns such as lead or asbestos.

“Most of those buildings on the dangerous list are going to have to come down. We know that,” Mayor Sly James said. “But there are other homes on that low level that could be salvaged, and we want people to know they are out there.”

Other cities have tried similar approaches. In Detroit, with the help of tens of millions of dollars from taxpayers, the city has torn down about 7,100 of an estimated 30,000 to 40,000 vacant houses since May 2014, with the mayor planning to have an additional 15,000 homes gone by 2018. More than 1,300 other homes have been auctioned, Detroit Land Bank Authority spokesman Craig Fahle said. Buyers of those properties, many fetching just the opening bid of $1,000, are required to bring the house up to code and have it occupied within six months — nine months if it’s in a historic district.

Chicago and Milwaukee have are unloading vacant lots. Chicago has sold more than 400 vacant parcels since 2014. In Milwaukee, homeowners next to a vacant lot can buy it for $1.

David Reiss, a Brooklyn Law School professor who focuses on real estate issues and community development, urges would-be buyers to understand the expenses beyond the price tag, including property taxes, upkeep and liability insurance.

“A house for a dollar may be an albatross around your neck,” he said. “I would look at it case by case. If it sounds too good, it probably is.”

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Risky Rent-to-Own

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photo by Steve Snodgrass

The Pittsburgh Tribune-Review quoted me in Rent-to-Own Option for Home Shoppers Rife with Pitfalls, Experts Caution. It opens,

Finding the right rental house was more difficult than Phyllis Lombardi anticipated.

“It’s hard to find a big enough house that allows pets, for the number of people we have in South Fayette,” said Lombardi, 45. She and her husband have four children living at home.

The Lombardis are moving because the owners of the house they are renting want to sell. But the couple isn’t ready to buy. The husband’s income was cut by more than half when they relocated to the Pittsburgh area several years ago, and they are repairing their finances after a short sale on a home.

Finding no rentals in South Fayette that meet her criteria and price, Lombardi is going with an option suggested by her real estate broker: Pick a house for sale on the market and do a rent-to-own contract with an investor who would buy it.

Rent-to-own agreements require prospective buyers to pay rent with an option to purchase the house at a later date, usually within two to five years. It can broaden the options for people with checkered credit histories who think they might soon be in a position to buy.

But it is an industry with a lot of shady operators and which can prove costly to prospective buyers who are not careful, said David Reiss, a professor of law at Brooklyn Law School.

“In some cases, these programs are based on the idea of hope springs eternal,” Reiss said. “But a large percentage of them are likely to fail.”

The terms of these contracts vary, but renters often pay a premium above market price, with a portion of that going toward the eventual cost to buy the home.

Many times, renters reach the end of the agreement and are still unable to buy, forfeiting everything they have paid — rent, fees and any premium toward the purchase price — to the owner and walk away with nothing, said Max Beier, a real estate attorney Downtown.

“Traditionally, what you’re going to have in these agreements is a default provision that’s pretty harsh,” he said. “Commonly, you’re going to lose 100 percent of the equity you’ve paid.”

And many don’t come with the same renter protections. For example, maintenance and upkeep costs are often the tenant’s responsibility — just as if they owned the home.

Also, the penalty for late rent payments tends to be more severe than the standard 5 percent for a late mortgage payment, and even cause someone to be kicked out of the home, Reiss said.

“The rights you have as a tenant in a rent-to-own situation are not as clear and not as good as if you were a homeowner,” Reiss said.