As I work with a lot of home buyers and sellers, I can constantly see the effect of the HGTV network and the internet. These are great forums and buyers and sellers are coming to the table much better informed than they were 5 to 10 years ago. My word of caution to you is to realize that real estate, like many economic issues, is very geographically specific. It is true that there are general trends that affect everyone, such as tighter credit criteria, more foreclosures, lower housing prices and lower interest rates, that still varies greatly from one locale to another. When I have someone come into the Fayetteville market and expect to be able to buy a foreclosure at 1/2 the asking price, because that is the way that it happens on television, I have to explain to them that is not the reality in our market. Also, as I was getting ready for work this morning, I had HGTV on (yes, I love their shows), but the couple trying to sell their home and discussing their options had a calendar hanging on their wall for 2010, three years ago. A lot changes in three years and from place to place. So my advice to you is to learn what you can from television and the internet, but find a very good real estate agent that you trust and then let them guide you through the process. They are the expert in your local market and they will be able to give you the best advice.
We have discussed loan programs for home owners and renovation loans, but I have several investors that are searching for loans that will cater to their needs. This week I had a great preliminary discussion with a local lender, Thelma Underwood of Prospect Mortgage, here in Fayetteville, NC. We were discussing the Fannie Mae HomePath Renovation Mortgage. This loan is available for owner-occupied primary residences, second homes and investment properties. It would give investors the opportunity to get renovation loans if they were to purchase HomePath homes. Contact me if you would like more information and I can also put you in contact with Thelma if you would like to speak with her about your options.
A lot of factors go into choosing the investment property. We are back to the previous post where we discussed the purpose of your investment, flipping or rental. As in any real estate transaction, location is key. So knowing what you intend to do with the property helps you to determine if the location is conducive to renting or selling. Location will also help determine the selling price or the monthly rental that you can demand. Have a well thought out plan. You need to decide how much you can afford to spend. You also need to understand that “investing” does not necessarily mean that you are buying short sales or foreclosures. There are a lot of good buys out there by owner. You need to determine if you are going to rent/sell, how much cash you can spend and how much you want to finance. Normally on a foreclosure, you will be required to put a 25% – 30% down payment in cash. Then you have to figure in the cost of fixing and rehabing the house. So your equation is going to be cash down payment + amount financed + $ amount of repairs has to at least equal the value of the house when you finish if you are going to rent. If you are going to sell, that final amount has to be less than the sale price for you to make a profit. So purpose, location, price, repairs and potential income are the main factors in your decision to purchase that investment property. Let me know if I left anything out of my list. Are there other factors that you are going to consider?
Let me start this short conversation by stating that I am in no way an expert on financing or financial options. I do not ever intend to give financial advise. Frankly, if I was an expert at either, I would have retired several years ago. With that said, I do think that it is important that we, as real estate advisors, make sure that we are guiding our selling clients in the direction to get informed advice from experts if they are in the position to consider foreclosure. There is a big difference in short sale and foreclosure. Again, I do not feel comfortable going into this subject in-depth, but I do know that there is a big difference in the long-term effect to your credit depending upon which option that you are able to choose. Sometimes we are in the position, when we have a home listed, to become the home owners confidant regarding their financial situation. This becomes a very emotionally charged situation when someone can’t afford to maintain their house payments and their house is not selling. Although we can provide informed advice on the best pricing scheme, this does not mean that the home owner can afford to sell their home at the market value. If the home owner risks losing their home, we should be steering them to their lender to have open discussions as to their options. In a short sell, there is an agreement by the lender to allow the home owner to sell their home for less than they owe the lender. With this option, the home owners credit is not as adversely affected as with a foreclosure. In a foreclosure, the lender takes back the property and the foreclosure has a longer, more detrimental affect on the credit rating. Either option is not the primary aim when we discuss listing a house with an owner, but often circumstances beyond our control lead us down that path anyway. Guiding that owner to get the financial counseling that they need is the least that we can do to help in that situation. How do you handle that type of situation?