Archive for the 'Investment' Category
Look for a Reasonable Fixer Upper.
Keep in mind there is a fine line between reasonable and an out of your league project. Look for a home that just needs some paint and flooring, nothing too big, and preferably just cosmetic repairs. Almost anyone can handle those. Bigger projects like roofs and add-ons can quickly spiral out of control cost wise.
If you have cash, and can pull off the repairs without putting yourself into debt, you can usually fix a home up very nicely and make a fair gain for your work and time.
An example of this would be two homes in a fast improving neighborhood. One of them, in excellent condition, sells for $250,000. Knowing this you see a home of similar size, close by, that is listed for $199,000. Assuming the home is structurally sound, much can be done to improve the appearance of the home with some simple sweat. $10,000 of paint and cosmetic repairs could reasonably see your house selling for $250,000 when all is said and done.
WRONG. Legitimate businesses don’t recruit distributors with the prospect of selling to, or recruiting other distributors. Instead, they focus on the prospect of selling to retail customers.
If you find yourself invited to a ‘Free Real Estate Seminar’ or have a friend pushing you to attend with him or her, fake a major illness, run to Mexico, or just plain say no. Real friends don’t let friends attend real estate seminars.
Why? Chances are you’re familiar with Timeshare presentations. You get a free hotel room, or a discounted trip in return for agreeing to attend a ‘90′ minute course that quickly spins into an all day full court press in which sales agents do everything imaginable to persuade you to buy a highly inflated timeshare.
Who in their right mind would fall for something so incredible wasteful? Everyone. They give those free hotel rooms because people are easily suckered. The same applies for the ‘free’ real estate seminars. You’re really attending a long sales pitch aimed at persuading you to spend thousands of dollars to ‘learn more’ in further seminars. Most people find that the ‘free’ vacations, trips, and seminars they attend end up being by far the most expensive.
If you ever find yourself being pushed to join up with a company that operates via referrals and multi-level commissions, RUN.
Leasing to Own is a creative method of essentially writing a long term purchase contract on a home with two big differences. You can move into the home immediately, and you lease the home until the contract closes. Such ‘Lease to Own’ options tend to appeal to a few select groups:
1. First time homebuyers with low-credit, no down payment, or are in some way unable to afford/obtain a mortgage
2. Illegal aliens, persons seeking citizenship, or persons who need time to find a family member to cosign with them.
3. Investors who wish to gamble that a home will go up in value, but don’t want to risk too much if it does not.
4. The constantly evicted who otherwise cannot find places to rent. (Sellers sometimes get desperate to fill the property and as a result are not as thorough in background checking)
For most first time home buyers leasing-to-own is a BAD IDEA. Chances are that almost every lease to own property you find will be constructed to result in one of the following outcomes:
1. Buyer agrees to rent the house for more than it would normally rent for, with the understanding that a small amount per month will be applied to the purchase price should you purchase in a year or more.
2. Buyer spends all kinds of money fixing up the house, making repairs, and so on. Buyer generally believes he or she will own the house so they take better care of it than if they were just renting.
3. X year(s) pass, and it’s time for the buyer to buy the house. One of three things happens:
a) The property has decreased in value —–> so the buyer walks away, losing a few thousand dollars in what was paid to extra rent, plus all the repair costs, new carpet, custom blinds, paint, landscaping etc.
b) The property is worth less —–> buyer stupidly buys at originally negotiated price because of money already sunk into the home.
c) The property has increased in value —–> seller then tells buyer about the new, higher price. Buyer threatens to sue, seller laughs. Seller sells for higher price, either to buyer…or a new sucker.
Keep in mind that smart real estate investors use the lease-option scam to extract extra money out of their investment properties. If you own investment property, a carefully constructed rent-to-own option can make you several thousand dollars AND get you a good renter.
Leasing to own is usually a BAD idea for illegal aliens, and others who are currently unable to get a loan, but think they might be able to find someone to cosign or get the loan for them in a year or two.
Having someone else own your home is just asking for trouble. Also, since home loans can be such a complicated process, it is very difficult to predict accurately that you will be able to get a loan in time to purchase the home.
That said, if you find a deal (which investors often do) locking it in a long term lease to own contract could be a wise way of gambling. Should home fall in value, you can walk away relatively unscathed (vs actually owning it).
Doing so REQUIRES a good attorney to help you construct a bullet-proof contract so that you can actually purchase the property should it increase in value. You should also try to contract the option of subleasing, as you may not actually want to live in the home, and subleasing is an easy way to minimize loss, and possibly even break even. Sellers may resist this (for obvious reasons, as you could potentially sublease to a very destructive renter)
Always be creative when approaching a seller, as proposing a rent-to-own could be an excellent method of buying a property with minimal risk. For the reasons already listed above, a buyer should generally avoid properties already being marketed as lease-to-buys.
Not too long ago I came across an ad on Craigslist for a nice home in a somewhat desirable neighborhood for a good 20% under market value. I examined the ad several times over and was almost put off by the natural feeling that if something seems too good to be true…
I mean really, a home is generally priced slightly above market value. That’s what Agents recommend, that’s what clients want to get. While homes at 20% off do exist, they generally take a fair amount of work to actually find.
The ad painted the classic SOB story, the bank is going to foreclose, and I have to sell this home by the weekend of I’ll lose it. Knowing the foreclosure process generally takes a VERY long time I doubted the veracity of this claim, but again, my greed forced me to investigate further.
I called the number listed and received a happy answer from a young lady who explained that she’d been barraged with calls and would be showing the home all the next day. Apparently the price was just right to attract lots of attention from home buyers and investors alike, and not so low as to warn people off to the scam that was being played.
We cased the neighborhood the next day and were reasonably impressed. We noted that the home across the street was a good 20% higher in price, and wondered what this quick sale at such a lower price would do to their chance of selling.
We were greeted by a large woman who explained that she ‘helped’ people in foreclosure sell their homes. (Just like an agent, except no pesky license!). She showed us the home, which we found to be in fairly rough shape, though not suffering from any particularly notable damage. This woman told us all about the home, gave us a flyer, and told us how she regularly shows homes and sells them for a commission from people in distress.
She left my wife and I to ourselves at one point and we conversed. I decided that while the price was reasonable for the current condition, it would certainly need to be about 10 grand less in order to be in any way profitable to purchase.
Our Unlicensed-Agent returned and I asked straightly if, considering their time restraints, they were willing to work with me, I could arrange a quick close for around 15k less.
Her response left me stunned. “Oh no, we won’t go any lower on the price, in fact, we’re just gathering email addresses. Next week we’re going to contact everyone and run a round-robin auction starting at the listing price.” (Apparently the foreclosure was just a lie to get people in the door, like flies to honey…) “I imagine we’ll sell it for quite a bit more. Unless you’re willing to go higher, I will not be contacting you. If you like, you can call me next week and maybe we can talk about a slightly higher price, but only if it doesn’t sell to the highest bidder”
Apparently, this is a strategy increasingly employed by flippers and Fake-Agents to generate dozens if not hundreds of showings by listing a property for an unusually low price. This brings everyone in the door, and often results in the novices being convinced they want the home. A bidding war ensues and these places frequently sell for much more than they are actually worth. The beauty of the scam, is that if for some reason the home doesn’t sell to the top bidder, the seller generally has several other high bidders to fall back on.
So moral of the story, if it seems too good to be true (or at least too easy), then it is. I should have walked away the second I met the Fraudulent-Agent. I certainly didn’t call them back.