Archives For Retirement planning

Thursday, 2 Jun 2016 | 9:26 AM ET

It looks so easy on TV. Buy a bargain-basement house, pull up some nasty carpet, re-tile the bathroom, paint away the wall stains and sell it for a hefty profit.

It’s not, however, all those popular shows that are driving the flipping market today. It’s pure and simple prices — and profit. There is a severe lack of good quality, turn-key homes for sale, and that has created a seller’s market across the nation, even for those reselling homes.

After cooling off in 2014, home flipping is on the rise again — its share of all home sales is up 20 percent in the first three months of this year from the previous quarter and up 3 percent from the same period a year ago, according to a new report from RealtyTrac, which defines a flip as a property bought and resold within a 12-month period.

While flipping today is nothing like it was during the housing boom a decade ago, when investors used risky mortgages, it is reaching new peaks in 7 percent of the nation’s metro markets, including Baltimore, Buffalo, New Orleans, San Diego and even pricey Seattle.

Dana Rice, real estate agent and home flipper, at her latest project in Bethesda, Maryland, a very small colonial, within walking distance to shops and Metro.

Diana Olick | CNBC
Dana Rice, real estate agent and home flipper, at her latest project in Bethesda, Maryland, a very small colonial, within walking distance to shops and Metro.

“While responsible home flipping is helpful for a housing market, excessive and irresponsible flipping activity can contribute to a home price pressure cooker that overheats a housing market, and we are starting to see evidence of that pressure cooker environment in a handful of markets,” said Daren Blomquist, senior vice president at RealtyTrac.

That’s because flippers today largely use cash — 71 percent did in the first quarter of this year. Compare that to just 27 percent who used cash at the height of the housing boom. That helps keep most flippers conservative, but it also exacerbates the problems for entry-level homebuyers, who are facing one of the tightest housing markets in history. They simply can’t compete against all-cash buyers.

Usually flippers look for distressed properties either in the foreclosure process or already bank-owned. These are not always listed on public sale sites. There are fewer of those today, so flippers are moving to the mainstream market, creating that new pressure.

“A telltale sign is when flippers are acquiring properties at or close to full market value. Those markets are so competitive that even the off-market properties flippers are looking to buy are not selling at much of a discount — and there may be very few distressed properties available,” said Blomquist.

Examples of these markets include San Antonio, where Blomquist says flippers are actually purchasing at a 7.8 percent premium above estimated full market value, as well as Austin, Texas; Salt Lake City; Naples, Florida; Dallas and San Jose, California.

Despite the premium to buy, flippers are still seeing growing gains in profit. Home flippers realized an average gross profit of more than $58,000 in the first quarter of this year, the highest since the third quarter of 2005, according to RealtyTrac.

Real estate agent Dana Rice and her husband flip houses in the tony D.C. suburb of Bethesda, Maryland. Prices there are well above the national median, and there are few distressed properties. Instead, they target old, small fixer-uppers. Even those command a hefty purchase price up front, but they can also offer big rewards.

“I didn’t want a teardown. There is so much character in this part of Bethesda,” said Rice. “I don’t think that everybody wants a brand new build. There is a hole in the market because not everyone wants to do a renovation. If you put a little bit of effort in, these numbers can be huge.”

Rice purchased her latest project, a very small colonial, within walking distance to shops and Metro, for $680,000. She expects to put half a million dollars into the renovation, adding both square footage and high-end finishings; she is confident that in this competitive market she will see an 18-25 percent return on investment.

“It’s like birthing a baby. … If you’re overpriced, you’re dead in the water.” -Dana Rice, real estate agent and home flipper

“It’s like birthing a baby,” she said, noting that she will wait to list it until she feels the market is just right. “If you’re overpriced, you’re dead in the water.”

The lack of inventory is certainly a double-edged sword for flippers. Their initial investment price can be high, and flippers are often competing against local builders, who may want to tear the house down and put something up that is twice the size. On the other hand, not everyone wants or can afford a huge, new, expensive home, and that gives flippers the edge.

“The key here is that there is particularly a dearth of listed inventory in good condition,” said Blomquist. “That is the inventory flippers are competing against when they sell.”

Real Estate: Not Your Father’s Retirement

Boomers are redefining the ‘golden years’ by buying into communities that feature Pilates over shuffleboard, moving back downtown—or even staying put.

By Daniel Mcginn and Andrew Murr


Oct. 23, 2006 issue – The 3,000-acre site west of Phoenix isn’t much to look at—not yet, anyway. Far from urbanity, past a highway sign warning no services next 38 miles and amid acres of saguaro cactus and creosote bushes, only a few streets have been built and a few foundations poured. But last week the Del Webb division of the homebuilding giant Pulte Homes Inc. closed on its first house here at the foot of the White Tank Mountains.

The company hopes 7,200 other “active adult” households will join this new neighborhood, called Sun City Festival. There will be no shuffleboard courts or bowling alleys, the hot amenities when retirees began coming to communities like this nearly a half century ago. Instead, there will be the accouterments better suited for modern-day retirees: Pilates classes, home offices, high ceilings and marble countertops. They’re all part of the plan builders are using to custom-build a lifestyle that calls out “Home Sweet Home” to aging baby boomers.

When it comes to housing, boomers have had a fabulous run. Consider: in 1950, when the first boomers were still preparing for kindergarten, the average newly built home measured just 963 square feet, one third of U.S. houses lacked complete indoor plumbing and 45 percent of Americans lived in rented dwellings. Today new homes average 2,434 square feet, the homeownership rate is nearly 70 percent and many baby-boomer homeowners lounge in spalike master baths, luxuriating beneath multiple shower heads and soaking in jetted tubs with horsepower rivaling the original Volkswagen Beetle’s.

Even today, as the great real-estate boom of the early 21st century shifts to a buyer’s market, baby boomers are still sitting atop trillions in equity generated by swollen home values. And as the oldest boomers hit 60, the real-estate industry stands ready to help this first wave cash in. Some boomers will follow the traditional route, retiring to updated versions of “age-restricted” sun-belt communities. Others will stay in their current locations, trading down to smaller houses or outfitting their existing homes to accommodate their aging bodies. Some of the wealthiest boomers will toggle between multiple homes—a lifestyle some are leading even before retirement.

Few companies are anticipating boomers’ evolving housing needs more than Pulte’s Del Webb division, the nation’s biggest builder of retirement homes. Its namesake founder was a colorful Phoenix developer who built the Flamingo Hotel in Las Vegas for mobster Bugsy Siegel in the 1940s. On Jan. 1, 1960, Webb opened the sun belt’s first retirement community, Sun City, which attracted 100,000 visitors (and 237 buyers) its first weekend.

To modern eyes—especially those conditioned by endless hours of real-estate porn on HGTV—the original Sun City abodes were anything but luxurious. They measured as small as 858 square feet with tiny one-window master bedrooms, no dining room and carports instead of garages. But despite the spartan layouts, Webb’s ability to sell the notion of a retirement lifestyle was a genuine innovation. “From 2006 it’s easy to mock all those Barcalounging, bingo-playing septuagenarians living around shuffleboard courts, but in fact it was not only a brilliant piece of marketing, it turned out to have a very positive effect on the kind of lifestyles people had,” says Marc Freedman, author of “Prime Time: How Baby Boomers Will Reinvent Retirement and Revolutionize America.” “Del Webb essentially summoned the older population off the porch and created the expectation that they’d lead a much more active life.”

It’s a marketing pitch that’s changed with the times. At Festival, Del Webb’s newest Phoenix-area community, the homes themselves have been reconfigured to suit boomers’ need to live large. The biggest houses will be 2,849 square feet, with stainless-steel appliances, 10-foot ceilings and granite countertops. At the Sage Center for Wellness and Higher Learning, the neighborhood’s clubhouse, there will be fitness equipment and swimming pools, but as at other recent Del Webb communities, much of the focus will be on “soft amenities”: cooking classes, yoga and core training sessions, and even “adventure programming” that includes white-water rafting and skydiving. To complement the physical activities, there will also be programs that target boomers’ brains, including extension courses offered on-site through a partnership with Arizona State University. As the new community fills up, residents will be able to choose from classes like Religion and Conflict, Beginning Guitar or Introduction to Murder, a course about trial strategy taught by a former homicide prosecutor and judge. It’s a sign that while 20th-century retirees obsessed over golf handicaps, next-gen oldsters are more focused on mental acuity. “People are concerned that their mind and body both reach the finish line at the same time,” says Deborah Blake, a Pulte’s Del Webb VP.

Not every resident will have free time for those activities. In the most dramatic shift from traditional retirement communities, 42 percent of today’s buyers plan to continue working. They’re people like Linda Jane Austen, 59, who plans to move in next year at Festival beside her sister Susan Pullen, 62. Austen is education director at the Scottsdale Center for the Performing Arts, and Pullen works at a behavioral health facility. Both are selling their existing homes and will use the proceeds to pay for their new ones, which will cost $235,000 and $280,000, respectively. (Like half of all Del Webb buyers, they will move in with little or no mortgage debt.) Buyers like them who plan to continue working ask different questions than traditional retirement-home buyers, such as “How’s the commute?” To beat traffic, Austen figures she’ll work at home each morning before heading to the office.

As builders pound together these new residences, industry watchers debate whether boomers will really buy in. “The age-old question in our business is, ‘Will the boomers truly be different, or will I become my father?’ ” says Dave Schreiner, who runs Pulte’s active-adult business. He cites company surveys that make him optimistic: 47 percent of boomers ages 51 to 60 said they “definitely or likely would consider moving to an active-adult community,” and outside data from groups like the National Association of Realtors show similar results. Still, there are doubters who figure baby boomers have spent a lifetime rejecting whatever their parents once embraced. Peter Francese, demographic-trends analyst at Ogilvy & Mather, says: “In my view those developments will hold vastly less appeal.”

One major change since previous generations retired is that people no longer have to move to Arizona or Florida to find an amenity-rich retirement community. Despite the popular image that great masses of retirees typically do so, says Wake Forest demographer Charles Longino, author of “Retirement Migration in America,” relatively small percentages—less than 5 percent—of people over 60 typically move out of state. Even though boomers are wealthier, healthier and better traveled—all key predictors of retirement relocation—so far there’s no evidence that they’ll move more or less than their parents did, he says. So to hedge their bets, builders have diversified, building active-adult communities in places far from the sun belt. Del Webb, for instance, will be selling homes in 20 states—including chilly locations like Michigan, Illinois and Massachusetts—by the year-end.

Even as retirement beckons, some boomers will not only want to stay in the same region but in their current house. For them, a key concern is how it will accommodate their aging bodies. Dave Heinlein, a 57-year-old retired builder in Portland, Ore., is about to begin a large renovation of his bathroom. Because he has bad knees, he’s ordered a more-accessible shower with a built-in seat (it can also accommodate grab bars and a wheelchair ramp someday), a less slippery floor and a “comfort-height” toilet. To do the job, he’s hired In Your Home, a Lake Oswego, Ore., business that specializes in remodeling homes for older people. Co-owner David Dickinson says bathrooms are the most popular revamp, but his team also widens doorways, builds ramps, installs lever doorknobs, enhances lighting (to help aging eyes), subcontracts for elevator installation and sells several versions of those “I’ve fallen and I can’t get up” alarm systems. While many clients call after a life-changing incident—like a broken hip—some, like Heinlein, are still relatively young but anticipate the frailties they’ll encounter in years to come. “They’re saying, ‘What do I need to do to this house to be happy here for the next 30 years?’ ” Dickinson says. As a result, the National Association of Home Builders says “aging-in-place” renovations may become a $20 billion-a-year business within a few years.

For boomers willing to leave their current digs, one popular move is to sell their suburban homes and relocate to smaller spaces downtown, which puts them closer to jobs, cultural and culinary offerings, as well as public transportation. With their third child off to college, this year Boston architect Peter Madsen, 61, and his wife, Betsy, 59, sold their home in suburban Brookline and moved into a Beacon Hill town house. Now they amble to the theater, walk or take the subway to work, and Peter bikes to the gym. Some weeks, he says, “the only time I’m in my car is to move it on Wednesday night for street cleaning.”

Plotting retirement-age relocations can be difficult—especially at a time when real-estate prices have begun to slide and homes in many markets are now taking months to sell. For boomers in once hot markets that have chilled, it may make sense to delay big moves until supply and demand get back into balance. But boomers can also take comfort in the fact that whatever they do, there’s no rule against changing your mind. Housing pros even have a well-developed lingo to describe these people: retirees who move to the sun belt, dislike it and move back home are called “fullbacks,” while folks who retreat to an in-between location (say, a Chicagoan who moves to Florida and then Tennessee) are called “halfbacks.” Then there are folks like Markie and Joe Cluff, who retired to an over-55 development in Chandler, Ariz., last year. Joe, 59 and a former building inspector, missed working, so he took a job as a quality-assurance inspector at the Phoenix airport. And they’re already trading up to a second retirement home, this time at Sun City Anthem at Merrill Ranch in nearby Florence. They’re proof of something that every golfer knows, and everyone planning retirement should remember: sometimes there’s no shame in taking a mulligan.

© 2006