Real Estate Investing

Last week, I took a photo of a family who had been evicted after their home foreclosed.  The sheriff car had pulled up to the driveway and the deputy calmly handed them the notice that they had to vacate immediately.  The family was, of course, upset.  The piled all their belongings on the front lawn and made a sign that said, “Please help.”

Later that night, my friend who lives behind the house saw another family stuffed into a van at our local gas station. Also in the van was  furniture, boxes, clothes, and a couch strapped to the roof.  The driver asked my friend to help him - I suppose they wanted money to find a motel room for the night.

Foreclosures are on the rise - up 53 percent this June compared to this time last year.  Bloomberg is reporting that one in every 501 homes entered into a stage of foreclosure marking the worst time in history since the Great Depression that this has happened.

“We’ll have 1 million bank-owned properties by the end of the year,” [Rick] Sharga, [RealtyTrac’s vice president of marketing] said in an interview. “That will represent between one-fourth and one-third of all home sales.”

This means that one out of every three or four houses being sold today is being sold by a bank - home owners will have some stiff competition when it comes to pricing and selling as most buyers will be looking for a “deal.”

Meanwhile, there are at least one million displaced homeowners who’ve lost their houses.  Another one of my former clients called me today wanting to short-sale their home and they had the mortgage holder’s permission.  They haven’t made a mortgage payment in months and months and months because the bread-winner had bone cancer and ultimately lost his job while battling the disease.  She asked, “Do you think we should go ahead and try to find a place to rent?”

The image of the evicted family came immediately to mind.  I told her it would be a really good idea to find another place to live, especially since their lender has said they could try the short sale, but foreclosure may be imminent. 

The former buyer said she heard that landlords now check credit reports and she was very worried about this.  Indeed they do.  Both a foreclosure and bankruptcy can cause serious damage to your ability to rent a place to live.  I’m not sure former homeowners can be too picky about where they’ll move to, but LaToya Irby highlights on About.com how to find a rental after foreclosure. Some of her advice,

“…look for houses, condos, townhomes, duplexes, and small apartment buildings that are owned by a single landlord. These types of landlords are less likely to do credit checks.

If you apply for an apartment before the foreclosure is updated on your credit report, you have a better chance at getting approved. Timing it is tough since most people don’t realize foreclosure is inevitable until it’s happening.”

A parent of a scout in my Girl Scout troop lost her home several years ago.  She swears that the smaller complexes and single landlord homes are the best places to search for rental opportunities.

I think the rental market could benefit, though Reuters reports the apartment market is stable.  I hope so for my would-be short seller.  They’ll need all the luck they can get.

My colleagues and I have been tossing around newsletter ideas this past month and have decided our next issue will describe how to create college savings for your children and grandchildren through a home purchase.  To this end, another agent just handed me an intriguing list that details the benefits of investing in residential real estate.   This list has five benefits, while most other investments offer only one or two.

1. Cash Flow.  The rent provides income.  A wise real estate investment will pay for itself on a monthly and annual basis, while paying the note. Your ultimate goal is to own property “free and clear,” which creates maximum cash flow.
2. Leverage.  You can own $150,000 worth of real estate with only 15-20% cash. You can borrow cash from one property to buy another. Your short-term goal is to use leverage to acquire a portfolio of real estate. Your long-term goal is to pay the loans off and own your properties “free and clear”
3. Debt Reducation.  Real estate is one of the few investments where someone else will make your payments. In essence, the tenant makes the payments and reduces your debt.
4. Tax Savings.  You are allowed to depreciate the house and write off your expenses in order to reduce your taxes*.
5. Appreciation.  Over time the value of houses and condos have risen. The average value of home has traditionally doubled in value every 15 years**.

*Consult your accountant or tax attorney to specifics related to the tax benefits of investing in real estate.

** The government Office of Federal Housing Enterprise and Oversight figures appreication rates for Metropolitan Statistical Areas around the county. Check this site to see what appreciation rates have been in your area.

Coming Soon: How to buy a home to pay for college on behalf of your children and grandchildren.

Photo from here.

Craigslist, a legitimate online classifieds site, can be a great place to find landlords, tenants, pre-foreclosure deals, investment property, roommates, vacation rentals or simply a really great home. This blog has recommended the site many a time. However, there are vultures lurking, ready to pounce on the innocent and trusting, and vigilance is required.

In 2005, Craigslist CEO Jim Buckmaster told MSNBC that fraudulent postings made up only one-tenth of one percent of the site’s overall listings. The site has a very well-established method for users to “flag” posts for removal if they are posted in the wrong area or posted too often, etc. (signs of fraudulent activity). Furthermore, Buckmaster said the company was considering charging landlords to post property rental ads on the New York message boards, in the hopes of discouraging fraudulent real estate postings in the area where such activity apparently posed the biggest problem in 2005.

Not sure if they actually implemented such a policy, but it sounds like a reasonable one to implement nationwide because three years later, the problem persists. KGET 17, a Bakersfield, California news station, reported yesterday that a local woman was prey for an online real estate scam artist. As it turns out, the property photos and description that were so appealing to Tiffany Llamas were actually ripped verbatim from a listing handled by a legitimate realtor — the same one who happened to be working to help find Llamas a home. According to the KGET web site:

“The return email read: ‘I and my wife came over to the U.K. for missionary work, so I hope you will promise us that you will take care of our house.’ Llamas said, ‘That’s great but I still want to see the house first, and when he told me send $2,400 via Western Union and then he would, you know, send the keys to me.’”

Llamas didn’t fall for it, but such predators persist on a variety of Internet networking sites hoping that someone will fall for it. Apparently, tenants aren’t the only ones being preyed upon either. This is undoubtedly occurring in the property resale market as well. The Real Real Estate in Connecticut blog points out what can happen to landlords and (in the comments section) what can happen to those seeking roommates on Craigslist.

The blog points out some red flags to beware of with Internet dealings. It may sound biased, but the following qualities are true in the vast majority of cases:
-Poor English, i.e. broken sentences, misspellings and bad grammar.
-Asking questions about details you already gave in the advertisement.
-No direct contact information.
-The writer is overseas. Many of the scams are from people claiming to be in other countries.
-Very often, these people represent themselves as high-income individuals, like doctors, lawyers or professors.

Again, Craigslist itself is not bad, but the way it works has the potential to introduce a lot of people to a lot of scam artists. Never, ever give anybody cash, check, bank account information, etc. without having first met with them and thoroughly checking out the situation. Follow your gut instinct, and above all else, the old rule applies — if it sounds too good to be true, it probably is!