Real Estate Investing

Everyone knows you should have an independent home inspector and/or property appraiser check out a home before you buy. Everyone knows you should shop around for the best value on property and home loans. But there are some things that are not quite stressed as often, yet are equally important to the home search.

Property taxes — What will you be paying annually? Is it outrageous in comparison to surrounding areas? Why is it so high, and is it worth it? You may have heard of cities with low or no property taxes. This may sound like a dream come true, but closely examine what you might be trading for that. For instance, one fairly good-sized town in my area has no property taxes, but also has no fire service. By relying on the distant county fire service to arrive in a timely fashion, homeowners and their properties are at much greater risk.

Homeowner’s association dues — Again, are these outrageously high or are they reasonable? What do the homeowner’s association dues cover and is it worth the price? This is something to consider whether buying rental property, bare acreage or a home.

Surrounding income level and building restrictions — What will your neighborhood look like in 20 years? A good predictor of that is the income and education levels of the surrounding area. There are plenty of online resources to help you determine these facts. Furthermore, ask about building restrictions in the area. Are mobile homes allowed, or are houses restricted to a minimum square footage? These can all change the landscape, and the likelihood of rental property creeping in.

Zoning issues — Nobody wants a zoning mess on their hands. It’s just a disaster, so research this very carefully. Don’t take the seller’s word on it, but do your own independent research. You’ll be glad you did!

The fire departments of Detroit and other cities have been investigating more arsons lately. Coincidence? Perhaps, or perhaps not. But the Detroit Fire Department has noted that they issued twice as many arrest warrants on arson charges in 2007 than they did in 2005. Also, since 2004, the median home price in Detroit has dropped more than 17 percent to $145,173 and foreclosures increased more than 65 percent, according to MSN Money.

“Things were going great,” Detroit Fire Capt. Steve Varnas recalled of the local economy just a few years ago. “There were fewer desperate people in 2004 and 2005.”

Motives, according to lawyer David Brisco, include anger and bitterness over losing the home and also basic financial desperation. Many arson cases involve people who were very wealthy, but perhaps are no longer able to fund that lifestyle. Brisco investigates suspicious insurance claims for companies in five states.

“These are not necessarily lower-middle-class people,” Brisco tells MSN Money. “This is all over the place…”

The Economics of Financial Arson, a data compilation by two Baylor University professors from a 30-city study from 1991-1995, shed some light on the topic:

“Economic incentives do appear to matter for arson. We conclude that arson activity increases significantly when houses are insured for larger amounts and when homeowners encounter financial distress (as reflected in a rise in the local unemployment rate).”

Despite some debate as to whether there is a link between arson and impending foreclosure, MSN Money cites some recent examples of cases with suspicious timing.

• A Woodland Park, Colo. homeowner allegedly burned his home just before foreclosure eviction occurred.
• A Houston man allegedly faked a racial hate crime as a cover for arson on his home.
• A Russellville, Ind. woman allegedly offered her neighbor $5,000 to help torch her home and cover it up as a means of cashing in on an insurance policy.

So for people considering arson, just don’t. You should certainly make sure you have adequate insurance coverage, but don’t be in a rush to cash it in. You have other options to avoid foreclosure.

If you’re interested and have spare time, this is enlightening - a list of the average homeowners and renter’s insurance premiums by state. I was pleased to learn mine lined up with the average in my state. While you’re at it, you may want to check out Consumer Action’s tips on how to lower your premiums:

Higher deductible: As with anything, a higher deductible means a lower premium. Consumer Action says a higher deductible of even just a few hundred dollars can make a significant difference.

Buy sufficient insurance: It’s best to make sure your coverage amount is sufficient before you actually have to file a claim.

Ask: Simply asking your agent for a discount may open up some doors you didn’t even know existed. Furthermore, it could shed light on some additions you can make to your home in order to be eligible for said discounts. Anything from deadbolts on the doors and a home security system to your age and length of time as a customer with that particular company can actually save you money on your monthly premium! And a penny saved is truly a penny earned!