More homeowners becoming landlords

Low mortgage rates and soaring rents have convinced a growing number of homeowners to hang onto their former homes and become landlords instead.

"Clients tell us all the time, 'We're never going to sell our home, even after we buy a new one,'" said Glenn Kelman, CEO of the brokerage, Redfin.

Susan Young of Lawrence, Kan., refinanced the mortgage on her house in 2013, landing a 3.25% rate on a 30-year fixed loan. She bought another house but has not put her old home on the market.

"If the interest rate was high, I'd sell," she said. "But this is such a perfect loan package, I just can't bring myself to give it up."

She gets $1,100 a month in rent, several hundred dollars more than her expenses, and is using the profits to pay off her mortgage.

Related: Buy vs rent: What you'll pay in 10 biggest cities

Redfin reports that 19% of current homeowners either purchased or refinanced homes between 2011 and 2013 -- when rates were historically low falling just below 3.4%.

Chris Cannon and his wife currently live in Mt. Lebanon, Pa. and plan to move to start a family. But he will a hard time letting go of his home.

"It would be incredibly hard to give up the 3% mortgage we have," he said. "When we bought in November 2012, rates were at the bottom -- about 3.4% for a 30-year -- and we paid a couple of points to get ours down to 3%."

He figures he can rent his home in Mt. Lebanon for $1,400 to $1,500 a month, easily covering his mortgage payment and taxes which total $1,100 a month.

The math works in most landlords' favor these days. Rents have risen by about 20% nationwide since mid-2006, the housing bubble peak, while home prices are still about 21% below what they were at that time.

For people who are still underwater on their mortgages and unable to profit from a sale, renting helps soften the blow.

Related: Millennials squeezed out of buying a home

Juliana Ruiz and her husband Mauricio Jimenez bought their three-bedroom Pembroke Pines, Fla., home for $362,000 in June, 2005 when the market was red hot.

They opted for an adjustable rate mortgage, which turned out to be a great deal: rates have plunged, as have their mortgage payments. Now, they pay a 2.75% rate and owe $250,000 on the home, which is worth about $300,000 thanks to a recent surge in home values.

But since they now have three children and both Juliana and Mauricio work mostly from home, they needed more room.

They bought a six-bedroom home nearby and have been renting their old place out for a year.

"The local real estate market allows me to cover the mortgage and small incidentals with the rent collected," said Ruiz. "At the same time, my property value is increasing."

If the mortgage rate starts to climb, they'll consider selling. By then, they hope they will be able to sell for a profit.

Of course, there are downsides to becoming a landlord. Owners have to make repairs, deal with tenants and cover expenses, even when the property is vacant.

"[Being a landlord is] definitely not for someone who hates spending money on plumbing repairs and new locks," said Young.

Related: How to win a bidding war on a home

And some tenants can be demanding, say if the water isn't hot enough or the air conditioning not cold enough.

"Tenant happiness is important to me and I try to give them whatever they ask for -- within reason," she said.

The surge in landlords is working out well for most owners, but it is taking a toll on the housing market, according to Kelman. Every home converted into a rental property is one less that goes on the market. And in hot real estate markets these days, very few homes are up for sale.

"It's a major reason we have low inventory and limited sales growth," said Kelman. 

America's homes are bigger than ever

NEW YORK (CNNMoney)

America's biggest homes are getting even bigger.

The average size of homes built last year hit 2,600 square feet, an all-time high that surpassed even the housing bubble years, when homes averaged around 2,400 square feet, according to the Census Bureau.

But there is a clear difference between the days when everyone was building McMansions and what's happening post-housing crash.

First of all, the rich have gotten richer.

"If you had a lot of money in the stock market, it has doubled since 2009," said Stephen Melman, director of Economic Services for the National Association of Home Builders.

And many have used those riches to buy even bigger places, he said.

At the same time, relatively few first-time homebuyers -- the biggest market for smaller homes -- are able to buy homes, said Melman. Many young buyers are having trouble getting mortgages or are heavily in debt with student loans.

Related: Priced out: 'I can't afford a home in my town'

As a result, the market for smaller homes, of 1,400 square-feet and less, has shrunk to just 4% of homes built. That compares with 9% in 2005.

 

Why millennials love apartments

Meanwhile, extremely large houses -- 4,000 square feet and up -- have been making up a much larger slice of the new homes built.

Last year, these mega homes accounted for more than 9% of new homes. In 2005, they represented 6.6% of homes built.

Houses that are a little smaller but still verging on mansion territory, those between 3,000 and 4,000 square feet, made up 21.7% of new homes in 2013, up from 15.6% in 2005.

Related: America's growing affordability gap

Not only are the homes bigger, they have more rooms as well. There's the obligatory playroom, the home office, the den and the FROG, or family room over the garage.

And, of course, few children have to bunk up in an older siblings' room these days. Only 59,000 homes built last year came with less than two bedrooms, compared with more than a quarter million with four bedrooms or more.

"It's like growth is accelerating," said Melman. 

Millennials squeezed out of buying a home

Bailey Cato and Josh Czupryk are unusual for Millennials: They were able to buy a home, but not without a lot of disappointment first.

NEW YORK (CNNMoney)

The Millennial generation is great at many things: texting, social media, selfies. But buying a home? Not so much.

Just 36% of Americans under the age of 35 own a home, according to the Census Bureau. That's down from 42% in 2007 and the lowest level since 1982, when the agency began tracking homeownership by age.

It's not all their fault. Millennials want to buy homes -- 90% prefer owning over renting, according to a recent survey from Fannie Mae.

But student loan debt, tight lending standards and stiff competition have made it next to impossible for many of these younger Americans to make the leap.

"When we surveyed Millennials they cited several barriers to homeownership, especially access to financing," said Steve Deggendorf, a senior director for Fannie Mae.

Many Millennials simply can't come up with the hefty 20% down payments. Others don't have good enough credit to qualify for loans.

Related: Priced out: 'I can't afford a home in my town'

Making it even more difficult are the heavy student loan burdens many college grads carry.

"Our problem is an obvious one -- debt," said Mike Kennedy, a 32-year-old marketing director who lives in Northboro, Mass. "My wife just graduated with her master's and I'm still paying off mine."

Even without the $50,000 in student loan debt they owe, affording a home in their town is difficult, he said. Single-family homes there cost $300,000 and up.

Russell Cragun, an online marketing manager, and his wife, Chalay, are both 25. They are looking at homes in the Orem, Utah, area, where the median home price is more than $230,000.

Lured by tax incentives, tech companies have been relocating to the area and creating many high-paying jobs. That has heated up demand -- and home prices.

Related: Buy vs. rent: What you'll pay in 10 biggest cities

But with $15,000 in student loan debt to pay, it's hard to save enough for a downpayment, said Russell.

Tech and other high paying industries have had the same impact on home prices in many of the cities where young adults most prefer to live. Places like San Francisco, New York and Los Angeles are unaffordable to most residents seeking to buy a home, but even more so for those who have not hit their high earning years.

 

Why millennials love apartments

Competition is so stiff in these markets that young buyers can't compete with older, deep-pocketed buyers who are often able to pay for homes in all-cash.

Thomas Bright of Richmond, Va., lost out on two purchases that way.

"When you are a first-time buyer, you aren't poised to compete with all-cash buyers," he said.

Related: Tech workers squeezing out renters

Just finding a property can be a challenge. Even though the housing bust has shaved about 20% off home prices, the number of homes available for sale has dropped significantly in many markets.

Usually, the good homes go quickly, according to Richard Ernsberger, 34, an attorney who lives in Pittsburgh.

"I have been in the market for a one- or two-bedroom townhome or condo for several months," he said. "It seems as though a good number of homes go within days of being listed."

Josh Czupryk, 29, who works as an education coach, and his wife, Bailey Cato, 28, a teacher, wanted to live in a safe Memphis, Tenn., neighborhood with good schools and nice older houses.

"Every one we looked at had a fatal flaw," he said. One house had a blighted one next door. Another had a completely paved backyard.

Eventually, Czupryk and Cato found a four-bedroom for $295,000. Working in their favor was the fact that neither had built up any student loan debt.

Related: Can you afford a home in these 27 cities?

There is a ray of hope for young wanna be homeowners, said Fannie Mae's Deggendorf. "Mortgage lending is getting a little less tight, with lenders approving buyers with a little lower credit score and who have less of a downpayment," he said.

If that trend continues, young buyers just might be able to buy homes again. 

Discount private island sells for $38M off

 

Bargain! Island auctioned for a cool $17M

NEW YORK (CNNMoney)

The property was offered with a promise: Live a lifestyle some people only dream of.

Innocence Island, the largest privately-owned island in the Bahamas, has all the usual trappings of a high-end tropical getaway: beaches, mango trees, a large, airy home with a pool. There's even a runway that comes with its own airport code. Listed for $55 million, it was recently auctioned off for much less.

Before the sale began, auctioneer Frank Trunzo said, "I feel it could bring well over $20, $25 million," adding that the bidding crowd was going to decide how much it was really worth.

Turns out, not that much.

The bidding opened at $8 million and was over in minutes. When the winning bidder's paddle went up at the $17 million mark, Trunzo tried for more, calling $18 million, then $17.5. $17,250,000? The room stayed silent.

The island was "Sold!" to bidder number 53, a man a few rows from the front, who declined to be interviewed for this article.

After the auction, Trunzo said the sale had been a success, even if the price did seem low.

The island has been available to rent for $6,500 per night for up to eight people.

"This fell within the range we were hopeful it would," he said. At $38 million less than it was offered four years ago? How?

In 2011, Innocence went up for sale for $55 million but failed to find a buyer. Then, in late 2013, the owner got some devastating news: He was terminally ill with 17 months to live.

He called realtor George Damianos, who'd handled the sale when he first bought the island in 2004.

"He said, 'I gotta sell the island. Let's try it at $28 million and see how well we do,'" Damianos said. The owner has two small children and wanted to leave them cash instead of the property.

Innocence went back on the market in January, but the seller quickly decided to go the auction route instead.

Related: 'Glamping goes mainstream

Auctions don't generally work well for private islands, according to Chris Krolow, president of Private Islands, Inc., and host of HGTV's "Island Hunters."

He said it's difficult to show a private island to potential buyers because not many people are willing to make the trek to view the property. Islands with a strong local interest tend to do the best at auction.

There are plenty of private islands for sale around the world, many of which are in the Bahamas. Krolow's website offers dozens, ranging in price from $6.5 million to $40 million to "price upon request."

He expected Innocence to go for a low price at auction.

The pool has a two-story cabana.

"I would say the island is worth about $30 million, considering the size and what some of the other islands in the area are going for," he said. "$17 million is definitely a steal."

He said Innocence has the potential to be worth even more if the island is developed into a resort, because there aren't many in the area.

Laura Brady, founder of Concierge Auctions, the auction house that sold the island, said it can be a challenge to find the true worth of high-end properties.

"When you think about a property that's $20 million-plus, it's only worth what a buyer is willing to pay for it," she said, adding that some properties are given list prices because it sets a context of value.

The market, then, identifies the value, usually in a matter of minutes.

Innocence's owner was given permission by his doctors to attend the auction of his island. Brady said the owner was pleased with the outcome.

"We accomplished the goals and we were happy we were able to do that," she said.