Real Estate Investing

I come from a generation and a location where buying a home for $50,000 was a big deal.  If you purchased a home for $86,000, you had more money than sense.  And a house for over $100,000?  You must be insane!  This has always made me question the true value of a house anytime my husband and I are in a position to buy.  We’ve made mistakes that haunt us today and yet we’ve not been completely insane in our decisions.

This post was a very refreshing story in someone’s home-buying experience.  Posted on The Housing Bubble Blog, a lender who calls himself “An Englishman in NJ” wrote about his decision to delay his home purchase.

Even although I work for one of the largest mortgage lenders in the world, I decided to contact a couple of “mortgage brokers” referred to me by my in-laws. One said that given my credit and income I could get a loan for “over $2 Million” with nothing down. My income was approximately $300K per annum at that time. I went home and told my wife we were not buying for a while because something incredibly insane is going on. Later that week at a family function, a BIL tells me that I should “buy something for $700K or $800K because there is no chance you will lose anything at that price”, implying that is a “low-end” purchase.

He did eventually buy a home at a reasonable price (for his area).  Indeed I applaud his decision to hold off not just until he and his wife were ready, but when the market was ready.

If you’re thinking about buying now, here are some quick money-wise tips:

• Save a down payment (again required by FHA and most conventional loans).  No more 0% downs!
• Make sure your agent runs a comparable market analysis before you buy to make sure the home is priced correctly according to the neighborhood.
• Ask the seller to pitch in for closing costs.  This is something that’s negotiable so it doesn’t hurt to ask.
• ALWAYS get a home inspection to be sure there are no major hidden defects in the home.
• Be prepared to negotiate again if the appraisal comes back short.  You have the ability - if you wrote an appraisal contingency in the contract - to walk away, but the seller may be willing to drop the price which will actually improve your monthly mortgage payment.

Happy house hunting - and remember … only 53 days left to close to get the $8000 first-time homebuyer tax credit.  Move fast if you want it and you’re eligible!

It seems like the purchase and sales contract sanctioned by our state’s real estate commission changes every year.  The 2009 contract has one change that agents should pay extra attention to.

In most contracts, buyers have three options to get out of the contract:

1. Financial Contingency - If buyer is unable to get financing to purchase the house (no loan because of credit, debt to income, or other issues), clearly the contract is voided because it’s not enforceable without the funds to buy.
2. Appraisal Contingency - If the home is worth less than the contract price, the lender is highly unlikely to provide funding for a home in excess of the actual value.
3. Inspection Contingency - The buyer will want to have the home professional inspected to insure against a major malfunction or problem.

It’s in this inspection contingency  that a major change has been made to our state contracts.  Previously a line was provided for the buyer and seller to negotiate how much money could be spent on potential repairs should problems be identified.  The amount line is now absent which means that unless the seller’s agent thinks to add a limit, the buyer could ask for *all* repairs no matter the cost.

Having an amount is also a tool for an agent to review what repairs a seller could be expected to make, while also confirming that cosmetic concerns are not considered a part of the repair costs.  However when no amount is specified, it does open up the negotiation process for both the buyer and seller.  In this case, it’s urgently important for agents to have experience in making the contract work for whichever client they represent.

Photo by Jeff Crist via Flickr Creative Commons.

An investor I know recently entered into a contract for a bank-owned property.  It almost seemed too good to be true - gorgeous hardwood floors, all-brick, in-ground swimming pool.  The only quickly identified flaw was the smell of some animal that didn’t appear to be house trained.

Yet the investor was urged to get an inspection.   Get. An. Inspection.   INSPECT IT!

Upon inspection, the foundation needed major repair work.  Not only was there a crack that ran from the ground all the way up the side - separating the brick from the window frame - but in another part of the house the bricks were actually broken … usually a bad bad sign.  But that wasn’t all.  The chimney was falling away from the house by at least an inch due the foundation problems.

To top it off, the “wood destroying organism” (aka termite) inspector found mold underneath due partly to the absence of a vapor barrier.

Remember, this is a bank-owned house so there are additional problems and items that need repair including new paint, pool liner and possible pump, the jacuzzi has handles missing, all the light fixtures need updating, the floor in the kitchen is majorly messed up, there had been a leak upstairs so stains in the downstairs ceiling.

The investor now has the option to walk away from the property if they believe these repairs are just too much.

I don’t know what the buyer will decide to do, but this again emphasizes why sometimes things that are too good to be true really could be too good to be true!

Sometimes home inspection findings are kind of funny, though.  This Old House (click on the link to see more crazy inspection pictures) has photos and this one reminds me of a home I once saw that had vines growing from the electrical outlets.

Another inspection:  Duck!

Always always get a home inspection.