Daily Archives: September 14, 2011

Chappaqua Homes by Robert Paul | Should You Look For a House Offered with Seller Financing?

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So, you want to buy a home with the seller financing the deal.

Generally, this is not a good idea for many reasons. Mainly, if there is anything we have learned in this ongoing recession, it is that contrary to the thinking of past years, people do often lose money in real estate. To avoid that, people should buy the RIGHT property that fits all the RIGHT reasons that they want to own real estate and a particular property.

Why It’s Not a Good Idea to Buy a Seller-Financed Home:

1. Not credit-worthy — Buyers who are interested in seller financing are often people who cannot get traditional long-term, low-interest financing because they have some credit issues. For these people, the bank is telling them that they are not currently creditworthy. These people should generally avoid making large, risky purchases like real estate where they may get in over their head. They should instead work hard over the next few years to get into a creditworthy position where traditional financing is available.

2. Not the right property — To add to issues for buyers, seller-financed houses make up a very very small percentage of the overall real estate market. There might be 1-3 seller-financed houses for every 100 for sale. With those odds, the chances of a seller-financed house being the RIGHT property for a particular buyer for all the RIGHT reasons is very low. So don’t buy, just to buy!

3. Not a good deal — In addition, many seller-financed deals are properties bought for cash by investors who are selling them to inexperienced and non-creditworthy buyers at either above-market prices, or above-market financing rates on short-term loans, or both. And that is a recipe for getting the buyer into deeper financial problems and losing the property just a few years down the road.

When You Add Up 1 + 2 + 3 You Have a Buyer Who:

  1. Isn’t really in the financial position to buy real estate,
  2. Is going to buy a house that probably doesn’t really match what they want and need
  3. Is possibly paying an above-market price and above-market interest rate on short-term financing.

Even a first grader can add up those numbers and realize it’s simply not a good idea.

Traditional Sellers/Owners with Mortgages

There are also seller-financed deals called “all-inclusive trust deeds” and “wrap-around financing.” Both of these are basically sales where the existing mortgage stays in place and the seller offers some additional financing behind the first trust mortgage deed. In almost all cases, this violates the existing mortgage agreement’s “due on sale” clause. While many people have done this, it just isn’t a good idea for a buyer to get involved in one of these situations. The buyer is taking on a lot of additional risk and potential problems down the road.

What If You Are the Seller?

For a traditional owner trying to sell a property, or a less experienced investor, you are selling a property to someone who the bank has deemed not financially able to buy real estate. Remember the term “subprime mortgage?”  We do not hear that term any longer because banks were burned badly on subprime loans and they are no longer issued. A seller needs to understand that there might be a little additional risk in trying this strategy.

Final Word:

This is not to say all seller-financed deals will fail. It just means chances are slim that it is going to be a fair deal for the buyer and a safe deal for the seller. In most cases, there are better courses of action for all parties.

If you are going to do one of these, make sure to get adequate legal advice. The rules, laws and disclosures on financing are extensive and if you do not properly dot your I’s and cross your T’s it could become major trouble down the road.

As always, spend your time finding the RIGHT property that works for you for ALL the reasons you want to own property and that particular property. And for the long term.

Leonard Baron, MBA, CPA, is a San Diego State University Lecturer, a Zillow Blogger, the author of several books including “Real Estate Ownership, Investment and Due Diligence 101” and “Buying a House, Condo or Townhome – Guide to Smart Purchasing” and loves kicking the tires of a good piece of dirt! See more at ProfessorBaron.com.

 

via zillow.com

Armonk NY Homes by Robert Paul | Vet the Neighborhood Before You Buy

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You’re thinking about buying a new home. The house is perfect and the location is great, but how do you know if the neighbors match up? Before you make your home purchase final, there a few things to do in order to avoid home burglaries, neighbors with yappy dogs or any other less-than-wonderful neighborhood issues.

Get the inside scoop about foreclosures

Wondering if the street where your dream home is located is also home to a few foreclosures? While you can pay to subscribe to bank-owned lists, many real estate agents will have that information as well. The reason to be concerned is because a neighborhood with a higher amount of foreclosures can potentially drag your home value down.

Look up crime stats

Most cities now make crime data publicly available on maps and there are a few nationwide crime report maps that allow you to look up specific neighborhoods. Compare and contrast areas to see what the area looks like the best fit for you.

Visit at all hours

The absolute best way to get a sense of a neighborhood is to visit it repeatedly at all times of the day and night. Are there dogs that bark all day long? Do neighbors host raucous parties on weekends? The only way you’ll know is to spend some time walking around and visiting parts of the area. If you can’t get to the area during the week, have a trusted friend do some surveillance for you.

Talk to someone

If you happen to see someone outside their home, or out walking, ask them what their sense of the neighborhood is — the kind of people who live there, the street traffic or any other burning questions you may have. If you can’t grab a neighbor, talk to the mail carrier. As someone who frequents the area often, a local mail carrier will be able to give you his or her sense of the neighborhood.

Do online research

The Internet is a wonderful place. With a few, simple strokes of the keyboard and a few key phrases entered into your favorite search engine, you can find information on just about anything. Type in the neighborhood’s name and find blogs and news articles about the ‘hood. By doing your research, you’ll soon be able to piece together a pretty good idea of what the neighborhood is like.

via zillow.com