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How to Avoid Risky Housing and Real Estate Deals

By Edited Nov 13, 2013 0 0
house (27370)

When is a good time to buy real estate? Right now! The day will go to those who have capital. With loans increasingly hard to get, and the price of property plummeting you who have money will have no problem snapping up foreclosed homes for investment purposes. How do you avoid getting screwed? Follow a few common sense tips and you will come out a winner! Avoid Risk, avoid poor investments and don't spend more than you can afford.

Things You Will Need

You will need a current newspaper for your area. This will show you all the local agents who have homes to sell or rent. This will not show you the homes that for sale by owner. You can often get a much better deal directly through the owner. You will also need some internet connection to do additional research. Websites such as Zillow.com provide free estimates on real estate by area. You can even look up your own address to see how accurate you think the Zestimate is!

Step 1

Look in a local newspaper for real estate agents in the area and visit their office. These people will be ever so eager to help you since the housing market has slowed to a trickle. Ask for maps and info on the neighborhood. Tip #1, don't buy a house, no matter how cheap in a really bad / dangerous neighborhood. If no one but a crack addict is going to rent your property you WILL end up losing money. Find out from the agent where the nice houses are, then drive through the neighborhood yourself. While you there you can take notes on any houses for sale by owner.

An aside on houses for sale by owner, some of them may be so desperate that they will take a very low offer of cash. Where do you get the cash? If you don't have it laying around, take out a loan on your present home. That way the money you have for house number two is not connected to house number two. It's always a good idea to have a house somewhere that you have bought cash, that way if the house with a loan on it gets foreclosed you have some where to go. Don't have a house? Consider a cash advance on your credit cards. Once again, this ensures that the money you are using to buy the property is not attached to the real estate. Credit card debt is unsecured, so while you really ought to pay it back, if you can't, at least they can't seize your home.

Step 2

Once you have found a property you like find out who the actual listing agent is. Go through that person, even if it isn't the same real estate office that gave you the maps. I once went through another agent just because that person assured me that all the agents "work together" under multiple listing agreements. Be that as it may, no one knows more about the property than the listing agent. Also the listing agent is the only person with direct access to the seller. Especially if the seller is under duress and hard to reach, it's best to cut out all extraneous middle men.

Step 3

Once you find a property you like make an offer. Never offer the asking price. I don't care how much you like the property, it isn't a deal if you pay full retail. If your offer isn't accepted, that's ok, find something else. If you are always half looking, you will eventually be in the right place at the right time.

In California if an owner defaults on their property tax for a number of years you can pick up the whole property for the cost of the tax owed. Any money still owed on a bank loan is the bank's problem to squeeze out from the prior owner. Look for deals like that under government websites that show who owes property taxes. Local papers also publish this information.

Step 4

If you plan on keeping the place as a money making rental, avoid any kind of adjustable loan. Stay away from graduated payments or interest only mortgages, get a basic flat rate interest at the lowest rate you can find. If you plan on keeping the property, spending a few thousand dollars upfront to get a lower interest rate will save you tens of thousands over the life of a 30 year loan.

If you plan on flipping the property as soon as possible, don't bother paying down points or getting a fixed rate, go with the lowest upfront rate offered to you. Fix up the house in thirty days or less and get it back on the market. The cheapest fixes to get a house looking spiffy are paint jobs and modern fixtures. Paint basic colors such as off white inside and leave the house as empty as possible so that people can imagine their own stuff in there. Replace any old broken door knobs, window handles and replace faucets. If you have a little bit more to spend, rip out the old carpeting and replace it with nicer flooring such as tile.

A good way to continue making money on your properties is to offer them for sale by owner to the first good renter you find. If your renter has a history of paying every month on time they will probably be only too pleased to be given the chance to rent to own. Once you've "sold" them the property, you can hold onto the title for five years, letting them establish a payment history. After five years they should have no problem qualifying for a conventional loan and paying you a balloon payment of all the remaining due. If they can't make payments at any time, offer to take the property back with no hard feelings, and re-sell it to the next good renter. In the meantime, as an "owner" the renter will pay for his or her own remodeling and corrections with a pride of ownership you don't see in regular renters. It's what I call a "win-win."

Tips & Warnings

Don't go into business with friends or family. While you will be thinking, "It's my friend, they aren't going to screw me!" Your friend is busy thinking, "It's my friend, she isn't going to hard nose me." And then what happens when your friend or family member can't make rent, or destroys your property? Don't chance it.



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